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  "results": [
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      "reference": "good morning ladies and gentlemen and welcome to the esg flight plan event in embraer 2nd quarter 2021 financial results thank you for standing by i am felipe calzada and i will be your host for today at this time all participants will watch our financial results presentation right after we will 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 is 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 is 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 is actual results could differ substantially from those anticipated in the forward looking statements participants on today is 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 all of you are well and safe and thank you for your interest in our company as you will see in antonio is presentation our results for the quarter were strong the q 2 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 q 2 results i would 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 3rd e 195 e 2 from the canadian porter airlines with purchase rights for 50 more aircraft we also announce that new firm orders for 34 e 175 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 2 to one for this business in the defense insecurity we delivered 7 super tucano aircraft in the 1st half of the year also we had strong performance in our cybersecurity and systems integration companies with double digit revenue growth in the 1st half of this year compared to the 1st half of last year further in the 2nd 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 are 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 2nd quarter results with better revenues and higher margins as traffic recovery and a strong maintenance activity drove 55% revenue growth in the 2nd 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 7 the graph shows we ended the 2nd quarter at 59000000000 up 1700000000 or 12% from the prior quarter this represent a return to the same 15900000000 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 2nd 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 8 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 2nd quarter in 2020 year to date delivers we were at 23 almost 2.5 times higher than the same period in the prior year of these 23 delivers 14 were each choose compared to 4 each choose in the same period last year sales continues to perform very well for the 2 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 8 larger jets for a total of 20 aircraft in the 2nd quarter this represents 54% increase compare to both 1st quarter 2021 and the 2nd quarter part of the prior year year to date delivered executive aviation delivered 33 aircraft a 50% increase compared to the 1st 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 9 we show embraer net revenue embraer had the solid revenue growth in the quarter as all 4 business units rebrand is stronger from the pandemic our top line more than doubles compared to the 2nd 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 2000000000 that is 767000000 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 is 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 6 quarters we remain highly focused on sg a efficiencies that are being implemented since the component inaudible last year although the 2nd 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 2nd quarter compared to 5.7% in the 1st 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 2nd quarter our adjusted ebit margin was 9.3% up 13 percentage points over the 1st quarter our adjusted ebit margin was in double digits at 14% or up over 16 percentage points from the 1st quarter both of these profitability matrix have recovered to the level that was seen before 2020 for the 1st 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 25000000 all of our segment has much better performance in the 2nd quarter adjusted ebit margin by segment in the 2nd quarter were as follows commercial aviation was at one.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 2nd quarter this represents the 1st 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 2nd quarter was positively 45000000 272000000 higher than 1st quarter and 570000000 higher than the same period of last year this is a remarkable achievement although here to date the cash flow is -181000000 this is compared if you have free cash flow built of around a 1000000000 of the 1st half of 2020 we expect positive free cash flow from the 2nd half of the year of 2021 as indicated in this morning guidance now to investments our total investments were 50000000 in the 2nd quarter and 89000000 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 2 points 49000000000 cash and cash equivalents i like to increase it from the end of the 1st quarter our debt balancing was at 4300000000 a light decrease from 3 months ago our average debt maturity remains at 4 years we expect to continually generate cash in the 2nd 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 1st time since the start of pandemic despite of risks of economy recovery vaccination rates around the world and with the solid 1st 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 $4500000000 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 1st half of 2020 margin in these ranges as we expect these good margins to repeat in the 2nd 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 150000000 total break even for 2021 we had 181000000 of free cash users in the 1st half of the year so we are anticipating embraer to generate up to 180000000 cash in the 2nd 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 2nd 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 does not 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 . 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 2 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 would 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 are leaner more agile and fit for growth we are 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 are better adapted to the challenges and opportunities of now like our customers we are always looking above and beyond what was previously thought possible that is why the world looks to embraer we are right for the world ahead right now embraer challenge create outperform and now let us 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 thanks philippi we start now the q a so let me see the questions that we have a 1st question we have is can you give an update on the spac negotiations with eve i do not know 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 the negotiation is moving very well i would say we are very optimistic with this process okay moving on the questions 2nd question we have what or what work has embraer been doing to develop electric aircraft in making this product more viable for customers thank you also good question well we we had our 1st technical flight recently with the ipanema full electric and we hope to present this aircraft to the to the public soon and continue to to invest in this electrification field as one of the one of the innovations innovation fronts that we have i mean to be in line with the esg activities that we are moving fast in embraer great 3rd question we have from investors is from vitor misosaki from verbesco he said the inaudible showed a material gross margin expansion in the 2nd quarter can you give a more details about that antonio vitor thanks for the question we we had in the 2nd quarter 2 main facts on the defense side 1st one was the super tucano deliver that we were not able to deliver in q one that flows to the q 2 figures in addition to it we have the 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 adjustments in the contracts lead us to this 25% margin in q 2 okay very good next question comes from ubs could you comment on the 25000000 reversal mentioned in the press release also what was the positive cost base revision related related on the results so thanks for the question 1st 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 this claim in 2nd quarter that is why we reversed the this tax position that was also already adjusted in 2018 that is why we also consider in our results and the 2nd question was in in in regards to the contracts we have an adjustment here around $10000000 in the 2nd quarter that were both effects it is important also to mention that even that we have this tax reversal 25000000 let us put 1st quarter the 2nd quarter and we do have all the tax of course that we are not adjusting that is also not i would say for example a reintegration of commercial aviation and arbitration costs which is more or less net this 25000000 i would say the numbers you are seeing right now i would say combined q one and q 2 is really for me describe the real performance of the company okay we have several questions about 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 francisco antonio yeah well we as i said we are very excited with this with this initiative with this product i mean we we had the the 1st flight with the prototype scale one to 3 a successful test by the way now we are preparing the the the next next test with the prototype scale one to one and technically it is 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 is moving very well okay very good now moving to business jet we have a question from credit suisse business jet has been very strong and in the 1st quarter results you mentioned half of the delivers were for 1st time buyers in the 2nd quarter how much were 1st time buyers maybe you an give an overview of the business jet market yeah i can do it yeah crosstalk i can say today in our backlog the portion of 1st time buyers i would say is a 3rd something like 30% in our backlog in delivered for the whole year we are talk about 30% 1st time buyers and we are growing with the market if you see the industry book to be between one to 5 to 2 to 11 to 5 to one and 2 to one to 2 and we are i would say a little bit above that and it is doing pretty well but for sure the 1st buyers portion also inaudible in the light jets category now there is a question on commercial from credit suisse your guidance for commercial delivers of 45 to 50 seems low given your . you have already delivered 23 jets are there any supply chain issues that could prevent you from being above that range also they are asking what do you see in terms of the numbers for 2022 any any color on that let us say let us 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 is going to impact more 2022 and the fact that we we deliver already 23 aircraft is because it is really divided no throughout the year that is why the the 47 i would say between fif 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 is more or less the number we are seeing it is important to mention we do see commercial aviation coming back to historical levels at inaudible 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 if inaudible antonio i would like to to to make a link between this answer and the result of the company it is true that in this 1st half of the year comparing to the 1st half of 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 no as planned we will not 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 the the ebit coming from almost minus 3% last year to something between 3 and 4% this year or the free cashflow from -900000000 last year to something between -150 and 0 this year all this good performance is is came from efficiency gains pure efficiency gains we really did a good right size in the . efficiency gains pure efficiency gains we really did a good right size in the organization we are improving i mean a lot of activities on cost reduction on inventory reduction 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 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 more efficient and agile company there you see a much better performance so that is 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 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 and what sort of free cashflow conversion ebitda into free cashflow conversion does embraer expect antonio so i . in regards to margin we do see let us 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 mid single digit close between 3 to 5% in the long term that is what we see in regards to profitability for the company and in regards to the cash . the conversion from ebitda to 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 is 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 from jp morgan inaudible in what rate on the sales campaigns for commercial aviation could we see more orders during the 2nd quarter yeah good question yes we we have a lot of active sales campaigns ongoing on our commercial aviation we we just announced this sales for for skywest with 16 aircraft and yes we are . we have more to come by the way the skywest it is not part of the backlog in q 2 no we are going to book this 17 aircraft in q 3 17 aircraft correct aircraft correct thank you antonio there is a question here from lucas from santander 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 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 our takeaway for next year is a balance between what we have internal inflation and the passover to the customer base that is more or less what we are seeing but there is in some indicators 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 with the recent interest of 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 partnership front okay i think we have at least one final question it is back to commercial aviation what do you expect . it it is from 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 you know i mean globally 94% of the embraer fleet back in the skies in the us i mean 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 is why we we are working in very in very serious camp a lot of serious campaigns in that segment for e ones and e 2s 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 s strongly from 2000 . 2022 but strongly from 2023 onwards i think a final question it is related to defense can you please comment on the expectations for new inaudible orders well it is 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 . to develop partnerships that will help us to open new markets for that great aircraft i think that that is what we had on the q a so i think that concludes the q a i want to 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 recovery the year of turnaround and . for embraer and the numbers as i said before speak by themselves we expect to have 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 potential from . to grow from 2022 onwards so thank you very much for your support thank you thank you so this concludes today is q a session that in turn concludes embraer is 2nd quarter 2021 financial results presentation thank you very much for your participation",
      "prediction": "good morning ladies and gentlemen and welcome to the esg flight plan event in emperor is 2nd quarter 2021 financial results thank you for standing by i am felipe calceda and i will be your host for today at this time all participants will watch our financial results presentation right after we will 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 is 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 this 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 is present the words believes may will estimates continues anticipates intends 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 these risks and uncertainties the forward looking events and circumstances discussed on this conference call might not occur and the company is actual results could differ substantially from those anticipated in the forward looking statements participants on today is conference are francisco gomez nato president and ceo antonio carlos garcia chief financial officer and procurement and eduardo cotto director of investor relations and now i would like to turn the conference over to francisco gomez nato please go ahead francisco thank you philippi good morning to all and thank you for joining our i hope that all of you are well and safe and thank you for your interest in our company as you will see in antonis presentation our results for the quarter were strong the q 2 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 q 2 results i would like to highlight the good momentum we are going in the different business segments in commercial aviation we announced a new firm order for 3rd e 195 e 2 jets from the canadian porter airlines with purchased rights for 50 more aircraft we also announced new firm orders for 34 e 175 jets to horizon air and skywest to be operated for laska airlines and delta lines these new orders and other activity campaigns reiterate the continuous interest in the ejet family as the best option in the regional aviation market in this active 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 2 build in excess of 2 to one for this business in defense and security we delivered 7 super tocano aircraft in the 1st half of the year also we had strong performance in our cybersecurity and systems integration companies with double digit revenue growth in the 1st half of this year compared to the 1st half of last year further in the 2nd quarter the kc 390 millennium reached an important milestone by successfully performing on paved way runaway tests although we are currently in negotiations with the brazilian air force on the kc 390 millennium contract we continue to be focused on the new export sales campaigns for these aircraft as well as the super tocano in services and support we are pleased with the strong 2nd quarter results with better revenues and higher margins as traffic recovery and the strong maintenance activity drove 55% revenue growth in the 2nd quarter it is exciting to see the continued positive sales activity in services with deals signed with several important customers across all markets and at ogma driving 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 and mobility ecosystem through our subsidiary ev in a segment with strong growth potential in the years to come in addition our services collaborative platform bicon 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 turns 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 antonio garcia our cfo to give further details on the financial results and i will return in the end thank you thank you from cscor and good morning everyone i will start the for backlog for the quarter on flight 7 the graph shows we ended the 2nd quarter at 59000000000 up 1700000000 or 12% from the prior quarter these represent a return to the same 15900000000 we were at in 2020 before the pandemic began in our commercial aviation business we closed 48 aircraft sales in a quarter it spread across several different airlines in executive aviation we had to record 2nd party sales a solid backlog has demand for light and larger business jets continue to grow backloging service and support and defense and security also grew from the prior qarta level in summary it was the best sales qarta since mid 2090 this gave us confidence in our plans for future revenue growth and improvements moving to slide 8 you can see the continuous improvement in aircraft deliveries compared last year and both commercial aviation and active aviation in commercial aviation we delivered 14 aircrafts in the quarter this represents a 56% increase compared to the prior quarter and 250% increase compared to the 2nd quarter in 2020 each day to deliver we were at 23 almost 2.5 times higher than the same period in the prior year of these 23 deliveries 14 were itches compared to 4 itches in the same period last year sales continues to perform very well for the 2 as the most efficient right side single io aircraft for the world post pandemic in executive aviation we deliver 12 light jets and 8 larger jets for a total of 20 aircrafts in the 2nd quarter this represents 54% increase compared to both 1st quarter 2021 and the 2nd quarter of the prior year year to date executive aviation delivered 33 aircraft a 50% increase compared to the 1st half of 2020 as noted in the guideline the guidance 2021 we published this morning we expect the leverage of commercial jets to reach between 45 to 50 aircrafts and the zig tivig jets to reach between 90 to 95 aircrafts on slide 9 we show embraer is net revenue embraer had a solid heavy new growth in the qart so for business units re broned is stronger from the pandemic our top line more than doubled compared to the 2nd 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 net revenue was just under $2000000000 $767000000 or 65% increase over 2020 net revenue breakdown by business show in prior diversification with commercial variations representing 34% of the total revenues service and support of 28 as active aviation 22 and defense 16% it is important to highlight the stronger recovery and commercial aviation as this business was severely impacted by the pandemic last year fgna expenses reduction continues to train very favorably over the last 6 quarters we will remain highly focused on fgna efficiencies that are being implemented since the company is restructuring last year although the 2nd quad had a slight increase in gna this was primarily driven by increase in provision for proff cheering and performance based incentives program due to better expected results for the company 2021 as compared to 2020 combined with the consolidation of expenses from tempest our new cybersecurity company acquired in the end of 2020 cell expenses remains at historical low levels compared to the prior quarters cell expenses increased 4% while net revenue increased over 40% sequentially as percentage of net revenue sales expenses was 4.2% in the 2nd quarter compared to 5.7% in the 1st quarter we achieved these results by leveraging our sales activity as volume increase combined with some more cost efficiency digital sales effort it is like 11 shows or adjusted a bit and adjusted a bit today we are very encouraged by destroying margin performance across all business segments in the 2nd quarter our adjusted a bit margin was 9.3% up 13% of the points over the 1st quarter our adjusted obesity margin was in double digits at 14% or up over 16% of the points from the 1st quarter both of these profitability metrics have recovered to the levels not seen before 2020 for the 1st half of 2021 our adjusted ebit margin was 3.9% and our adjusted ebit margin was 9.2% both were both prior years level this improvement comes from several factors including higher deliveries resulting higher revenue better gross margin on improving pricing mix production efficiency fixed cost leverage on higher volumes and favorable tax obligation reversal of the squatter of approximately 25000000 all of our segments have much better performance in the 2nd quarter adjusted a bit margin by segment in the 2nd quarter were as follows commercial aviation was at one.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 defense security was at positive 25% led by super tooking the levers along with positive adjustments on certain defense contracts and serves in support was at 19% as a strongly contribution from his pair parts programs if like 12 shows our adjusted net income it was +44000000 or \u00a224 per radius in the 2nd quarter this represents the 1st net profit on a quarterly basis since 2018 the recovering adjustment net income is primarily driven by improvement operating margins reductions in financial leverage also contribute to improved profitability and any future debt reduction would naturally have any additional positive impact on earnings moving to like 13 i would like to begin with free cash flow free cash flow in the 2nd quarter was +45000000 272000000 higher than 1st quarter and 517000000 higher than the same period of last year this is a remarkable achievement although here today the cash flow is -181000000 this is compared with a freakish flow of around a 1000000000 of the 1st half of 2020 we expect positive freakish flow from the 2nd half of the year of the 2020 as indicated in this morning guidance now to investments our total investment were 50000000 in the 2nd quarter and 89000000 year to date both of which are in line with last year levels this is important because it shows we continue to invest our future we have been very few distuos in balance the need to invest our future with the need to preserve cash it is like 14 shows or a cash and liquidity position we ended the quarter with 2490000000 cash and cash equivalents i have light increases from the end of the 1st quarter our debt dependency was at 4300000000 i have light decreased from 3 months ago our average debt maturity remains at 4 years we expect to continue to generate cash in the 2nd half of 2021 and beyond so our leverage will naturally decrease this will correspondibly reduce our net interest in expenses and have an additional positive impact on net income finally movie tales of life 16 in breyer has published 2021 financial delivers guidance for the 1st time since the start of the epidemic despite risks of the economic recovery vaccination rates around the world and with us all in the 1st half and good visibility for the remain of the year we decided to share the much of our targets for 2021 we expect to deliver between 54 to 50 commercial jets just to correct 45 to 50 commercial aircrafts in 2021 and 92.95 executive jets in the year we have a good confidence in those figures as our skyline are red filled for both segments combined with the growth in the fences security and continued the recovery and the service and support track recovered globally we expect consolidated revenues to be between $4 to $4500000000 this year represent a low wgb to grow at the midpoint compared to the last year adjust the abat margin should be in the range of 3 to 4% and adjusted the b to the for 2021 should be between 8.5 to 9.5% in breyer has had in the 1st half of 2020 margin in this range as we expect these good margins to repeat in the 2nd half of the year it is important to mention that those margins includes cost related to the integration of commercial variation as well as expenses related to the arbitration process finally our free cash flow guidance is arranged from free cash flow users of 150000000 to a break even for 2021 we had 181000000 of free cash flow users in the 1st half of the year so you are anticipating a bear to generate up to 180000000 cash in the 2nd half of 2021 without any cash inflows from m a permits with that i conclude my presentation and hand it back over to francisco for his final remarks thank you very much thanks antonio the 2nd quarter results and the guidance for the year reinforce our confidence in our strategy and this confidence motivates us to accelerate the performance improvements and the delivery of our long term strategic plan with focus and discipline as i have mentioned in the past this year is one of recovery and next year and beyond we plan to capture embraer is full potential to grow with profitability looking ahead we foresee in the middle term the potential to double the size of the company and that does not 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 a expectation for positive operating profit this year and much better free cash flow performance with a clear potential to breakeaving 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 a session we will share with you our new esg commitments i invite everyone therefore to remain in line for these esg events which we will start just after the results q a also we are looking 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 2 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 are you closer 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 felipe thank you very much francisco and before we continue we would 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 are leaner more agile and fit for growth we are 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 were better adapted to the challenges and opportunities of now like our customers we are always looking above and beyond what was previously thought possible that is why the world looks to embraer we are right for the world ahead right now embraer challenge create outperform and now let us move on to our questions and answer session we are preparing this set here and remember that questions can only be sent to the writer is platform eduardo colto will be our moderator and he already has some questions with him eduardo over to you thanks a little restart now the q a so let me see the questions that we have the 1st question we have is can you give an update on these pack negotiations with eve i do not know francisco antonio who wants to take that yes thank you oe thanks for the question at this point of time we can say that the negotiation is moving very well i would say we are very optimistic with this process okay moving on to questions 2nd question we have what work has embraer been doing to develop electric aircraft and making this product more viable for customers thank you that was a good question we had our 1st technical flight recently with the epinema full electric and we hope to present the aircraft to the public soon and continue to invest in this electrification field as one of the one of the innovations the innovation fronts that we have i mean to be in line with the esg activities that we are moving fast in embria great 3rd question we have from investors is from vitor misozaki from bradesco he said the fence showed a material gross margin expansion in the 2nd quarter can you give her more details about that antonio thank you for the question we had in the 2nd part 2 main effects on the defense side 1st one was the super tooking delivered that we were not able to deliver q one that flows to the q 2 figures in addition to it we have the adjustment and the defense contract we have in the local cura simba deal i would say both effects higher deliveries in super tocano and the adjustment in the contracts lead us to this 25% margin in q 2 okay very good next question comes from ubs could you comment on the 25000000 reversal mentioned in the press release also what was the positive cost based revision related on the results so thanks for the question 1st point we built up a provision in 2018 for the brazilian guy here the de la san de fuele that we have a claim being discussed since 2018 and we were able to gain this claim in 2nd quarter that is why we reversed the text position that was also read adjusted it is 2018 that is why we also consider in our results the 2nd question was in regards to the contracts we have an adjustment here around $10000000 and the 2nd quote that were both effects it is important also to mention that even that we have this tax reversal 25000000 let us put 1st quarter and 2nd quarter we do have other types of costs that we are not adjusting that is also not i would say for example reintegration of commercial aviation and arbitration costs which is more or less net this 25 milli i would say the numbers we are seeing right now i would say combine q one and q 2 is really for me describe the real performance of the company we have several questions about ev i will try to summarize them so basically any general updates on your ev tow initiatives would be very helpful particularly on negotiations with zenite we already talked a little bit but maybe an update of the ev tow for this current time yeah well as i said we are very excited with this initiative with this product we had the 1st flight with the prototype the scale of one to 3 a successful test by the way now we are preparing the next test with the prototype scale one to one and technically it is moving very well we are planning the certification by 2025 and entering service in 2026 and about the negotiation with anayet i mentioned already that is moving very well okay very good now moving to business jets we have a question from credit suisse business jet has been very strong and on the 1st quarter results you mentioned half of the believers were for 1st time buyers in the 2nd quarter how much were 1st time buyers maybe we can give an overview of the business jet markets i can do it as well i would say today in our backlog the portion of 1st time buyers i would say is a 3rd something like 30% in your backlog and delivers for the whole year we are talking about 30% 1st time buyers and we are going with the mac if you see the industry book to be between one to 5 to 2 to 11 to 5 to one and 2 to one to 2 and we are i would say a little bit above that and doing pretty well but for sure the 1st bias pushing also the mac especially the light jets category now there is a question on commercial from credit suisse your guidance for commercial delivers of 45 to 50 seems low given you have already delivered 23 jets are there any supply chain issues that could prevent you from being above that range also they are asking what do you see in terms of the levers for 2022 any color on that let us take it to account that commercial vehicle is still suffering for the pandemic what we are giving as a guidance to deliver this year is a little bit higher than last year last year we delivered 44 and for sure we are selling more but it is going to impact more 2022 and the fact that we deliver at 23 aircraft is because it is well divided throughout the year that is why the 47 i would say between 45 to 50 is the number we are having and we do see i would say around 30% for next year between 65 to 70 aircraft but as to be confirmed but it is more or less than number you are seeing it is important to mention we do see commercial aviation coming back historical levels at the end of the day from 2023 onwards we are selling more but the sales country are closing right now is going to fulfill the skyline started 2022 and 2021 is more or less the same level from 2020 if i want to make a link between this answer and the result of the company it is true that in this 1st and half of the year comparing to the 1st and half of last year we did much better in terms of deliveries in terms of results the numbers speak by themselves but if you look at the guys for the entire year you see that no as planet we will not see a huge increase in volumes in the commercial or executive yes we are seeing some growth moderate growth this year compared to the last year but the improvements in their results i mean either the ebit coming from almost a -3% last year to something between 3 and 4% this year or the free cash flow from -900000000 last year to something between -150 this year all this good performance is is came from efficient gains pure efficient gains we really did a good right side in the organization we are improving a lot of activities on cost reduction on inventory reduction in all the companies pushing sales for the future so again for next year on i mean we expect that with the stronger growth in the volumes in all the business units and with this more efficient an agile company then you see much better performance so that is why our result is coming from this year from efficient gains from some additional sales of course but mailing from efficient gains just to complete the question for supply change you know what we are putting the guidance in what we agreed with our customer for this year at least for the commercial ratio having not seen any supplier chain i would say problems this year we have several other questions so the next one is related to margins and free cash flow so the question is how do we see margins per business in the long term and what sort of free cash flow conversion if you are dying to free cash flow conversion does embraer expect so in regards to margin we do see let us in a long term perspective we do see service and support double digit as it is today we do see executive in the sense single higher digit and we are more or less also today and we do see the commercial variation i would say meet single digit between 3 to 5% in the long term that is what we see in regards to profitability for the company and in regards to the cash the conversion from a bit that to a bit today i would prefer to talk we are seeing today a 50% conversion from a bit we still need to improve something but it is more or less the metrics i am using internally we do see today in the long run 50% of their bit being converted into cash for the years to come so the next question is from jp morgan marcelo motta any update on the sales campaigns for commercial aviation could we see more orders during the 2nd quarter good question yes we have a lot of activity sales campaigns ongoing our commercial aviation we just announced this sales for skywest with 16 aircraft and yes we have more to come by the way the skywest it is not part of the backlog in q 2 we are going to book these 70 aircrafts in q 3 17 aircrafts correct thank you antonio there is a question here from lucas from sentinel there talking about inflation can you please comment on how the company is seeing the raw material inflation and how is the company offsetting this impact 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 the customer side we have also the adjustment clause with the index i would say our take away for next year is a balance between what you have internally inflation and the pass through to the customer base that is more or less what you are seeing but there is in some indicators spike in deflation index for next year that we are going to discuss if our customer base moreover we do have we did this year and we are doing this year and we do have also a lot of design travel activities inside embar 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 hugh vage in vishtumantus any update on the partnerships for the tubal prop aircraft that was a good question well this front is also moving very well especially with the recent interest of us airlines in that product so we see that product as a it is a good alternative for that market and other market as well and also as a preparation for new technology in the future so we are very optimistic and working hard to accelerate this partnership front okay i think we have at least one final question it is back to commercial aviation what do you expect it is from wts what do you expect in the mid to long term in commercial aviation as we are seeing recovering demand for flights and also renewal for having more sustainable fleets thank you so again we have i mean globally 94% of the embraer fleet back in the skies in the us 97% of the embraer fleet is flying again so it shows that the recovery in the domestic market really is coming and that is why we are working in very sales campaigns in that segment for you once and the e 2 as well so we are working hard to take advantage of this moment as antonio mentioned that we see volumes growing i mean in 2020 but strongly from 2022 but strongly from 2023 onwards i think a final question it is related to defense can you please comment on the expectations for new kc 390 orders well as i said in the opening we are working in many sales campaigns for import sales campaigns for the kct tonight and also i mean we are working in developing partnerships that will help us to open new markets for that great aircraft i think that is what we had on the q a so i think that concludes the q a i want to thank you all for the questions and the time so now antonio francisco no comments thank you all thanks a lot thanks a lot so thanks for our interesting support in our company we are leaving a really special moment as i said before this year is the year of recovery the year of turnaround and off road and off road and the numbers as i said before are speaking by themselves we expect to have a much better year in 2021 compared to the last year coming from a very tough crisis as you know and we hope to know we expect to capture the new embraer potential from 2020 to onwards so thank you very much for your support thank you so this concludes today is q a session that in turn concludes emperor 2nd quarter 2021 financial results presentation thank you very much for your participation",
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      "reference": "maybe we can start simon yeah i just admit 2 more i think we are . yeah inaudible we have . we can start definitely perfect all right so i will do the introduction thank you everyone for being with us today i am recognizing a lot of names that we . that have been following urbanimmersive for quarter to quarter so it is a pleasure to see you again today for those who do not know me my name is ghislain lemire i am the ceo co founder of urbanimmersive welcome to our 4th quarter financial result end of year investors conference call french for a reason of being efficient inaudible efficient and respect our time we will be doing this call in english but we will take both english and french questions at the end joining me today as usual i have simon bedard our cfo and i am just looking at my screen and i see francois liberge our new 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 is going to be on sedar pretty soon or in our annual information form that you can find on sedar again so the agenda will be quite different slightly different . sorry compared to the last quarter so what we want to do is simon will start with by going to the last quarter and year end financial highlights he will talk about some business highlights as well and then afterwards what we thought that could appreciate today . because it is the end of the year we are starting a new year we thought that you know we will take 15 minutes and do a short urbanimmersive deck presentation so that you know we can put everyone on the same foot in regard our . in regards of the how the management is seeing urbanimmersive how we describe it and what is you know our focus and goals going forward so without further ado i will turn the call to simon simon hi good afternoon everyone we see have a lot of participants investors today so thanks for your interest in being present on that on that call today so what i would like to do is similar to what i have done in the last quarter just maybe put some some color into the the financials that were published in the press release morning i want to apologize the i . we do not have the the sedar filing yet but the french version should be available within the next hour from my friend inaudible telling me sorry they had some some quality issues quality control issues this morning and the english version should follow within 48 hours that said if you have more detailed questions with regards to those financial statements wer once they are available in sedar really feel free to contact me by my phone or email and i will answer all questions you have with regards to our our financials so in terms of our our q 4 and 2021 financial result to start with if we talk about revenues for the next year we end up . we closed the year at slightly above 4000000 in revenues compared to 4 4.6 last year so it is a 11% decrease that decrease is i would say i is explained in most cases by the the decrease in sales of 3 d photography equipment that was expected by the way by by by 600000 if you remember last year well we were pretty happy to have to have acquired immersolution and benefit from the good . a a solid year of demand for c 3 d cameras at at the beginning of the pandemic but we knew that the crosstalk it will not be sustainable crosstalk over the year sorry there is someone inaudible okay we are back yeah so so that was expected that of course we will we will go back to a a normal level of sales what is this normal level maybe next year we can expect some sometime something around 2 to $400000 but not what we have seen in the beginning of the pandemic where people were had time to to buy cameras and try it and basically that was a a a a boom but that was a onetime thing so we do not expect this to continue on the side if we look at the saas saas sales we are we are down 7% compared to last year but of course we we . you may know that we are . our company is still today mostly transactional driven but you know in terms of the revenues transactional based meaning that yes we are progressively moving to s some some revenue recurring streams with the new subscription package that we have inaudible we will talk about a bit later but still today we we are heavily transactional based and and and the fact that the market is in terms of number of transaction in terms of number of listings is down just this year compared to last year 30 near to 30% or 23% that is in canada with centrist but in the us it is 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 are basically down 60% over 2 years in terms of again inventory and number of transactions 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 they do not need that much of marketing tools because they sell it inaudible that is just another factor that we are facing right now we we think that inaudible of course should be temporary we do not have a crystal ball well we are going to be back to a normal market but just to to put things in perspective i was talking about centrist we are . right now i think we have around 35000 listings on on centrist we used to have 120 at that time usually so it is . of course we we are affected by this but the fact that we are 7% down in that type of market i think it is it is positive we we are even gaining customers we are not losing customers inaudible we are gaining customers with our new subscription package inaudible all different fronts so so that is why it is important to understand the the market here when we we look at the at our at our numbers also also what you have . what is important this . in the last quarter is that you will see that we have our 1st quarter of s photo service we have revenues of 307 300 7000 of photo service we had . those acquisition if you remember were on june 30th so we only one quarter this year but but the ones that were acquired in june have maybe . represent approximately 1800000 on an annual basis of revenues plus of course the one that you have seen that we acquired in q one 2022 in november and december meaning that today i am not here to to make guidance of what is going to be our revenues next year but based on what the those all those company that we acquired has done in the 12 months we are . as we posted on our website we we are at run rate revenues of approximately 11000000 and out of this 11000000 we have roughly 3000000 in saas as i said half a 1000000 maybe in hardware and and the 7500000 remaining is is is photo service so even q one 2022 you can expect that we will have maybe 2 to 4 weeks of revenues of those new acquisitions that were done in november december we we have the full inaudible do have in in q 2 so and if we and if we talk about q 4 q 4 we are . our revenues were 1100000 compared to one.4 last year so we are down 24% on q 4 but we have seen number of the listing have decreased more in q 4 this year but overall over the year as m as mentioned we are we . there was . in terms of the number of listing and inventory that was down 30% so still i think we are doing pretty good in this very challenging market talking about 3 d tours that is that is a positive thing on our end is that we see . we experience a lot a lot of growth in the number of 3 d tours in fact 2 237% compared to q 4 last year we are talking maybe in dollars around roughly around 70 to $80000 on new . of revenues of 3 d tours this year and that should continue to grow fast because we . you may have seen a few few updates we provided that before christmas with regards to new contracts including inaudible for instance that should scale up and deploy m and more cities over over the month so we should that trend should continue to in terms of number of 3 d tours to grow fast in the next in the next month that is what we expect talk in terms about gross margin we are pretty stable compared to last year for the 3 months period we were at 61% overall compared to 63 last year and for the year we are at 65 compared to 68 so pretty stable of course it depends on the mix of the revenues because on the saas saas portion our our gross margin is somewhere 82 and 87% and on the service photo service more 35 to 40 and on the equipment it is a bit lower so depending depending on the the the mix of course that will affect our gross margin but basi . the 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 when we going to talk about some efficiency gains that we will we will have with the synergies and acquisitions that you say will cover a bit more a bit more or later in terms of net income there is a lot of noise this year on the you know we can see we have a a loss of 3700000 for a year but including 3200000 of other expenses and out out of that 3.2 there is 3000000 or 2.9 in fact that comes from all the adjustment made with regards to the conversion of the the venture the the convertible ventures that are all done as you know as of today so this is is none a recurring so will not be there next year but there was just a one time journal entries this year but of course that that explained most of why we we have that that loss for for the year in terms of balance sheet we are we are we are still in pretty good shape in fact as you know we we did a a 3000000 private placement in april we that we use for for in part for our acquisitions we at the end of september we had 2000000 of liquidities i can i can tell you that as of today we are near 1000000 so we use that an additional 1000000 for the acquisition that were done completed in november and december so we are we are pretty we we are still in good shape we have enough to operate and execute our our our business plan no problem there of course with that 1000000 that will serve as a as a as a cushion going forward so we do not expect to use more than that on on acquisition unless we we we we we we you know raise additional capital or or or debt or or or some external funding and other than that as you know throughout the year we have we have eliminated our convertible debentures that was we reduce our debt in fact by 4700000 throughout the year including 4.5 just for the convertible debentures so so basically again i think our balance sheet is in good shape and yeah that is pretty much the point i wanted to cover there is in dm dna and financial you will have some information by segment where we now track 3 different segment one is the software one is the photo equipment and one it is the service so so again hopefully i will be able to to to post it on cedar pretty soon so you can come back to each after your questions and on that i think i will turn the mic to you josiah if you 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 is there anyone would like to ask a specific questions about financial that simon just covered or you still think about your questions and you are going to keep it for the end it is like you want you know we can take a couple of minutes just to go over and clear the the financial side of it if you want otherwise you know we are just going to keep in continuing so we are seeing any question right now i will say raise your end but you are just everybody is kind of closing his camera so i am not seeing eve anyone i just have one question crosstalk okay it is mathew here yes sir simon you mentioned that you currently have about 1000000 in cash and you are not using any more cash for acquisitions so how should we think about the the acquisition strategy going forward since you know the the there has been a decline the stock price so maybe it is not as attractive anymore to pay to pay in shares inaudible more cash by issuing new shares so how do you think about that yeah but i mean we are not as you have seen with closed 8 acquisition or 6 acquisition just in december so right now we are on the interg integration phase it is going very well as you say we will cover that in the in the sec so we are we are not we are not a week or 2 to basically announce a new acquisition so and we we do have a lot of things on our plate really so we are pretty optimistic about what is coming and and of course hopefully the the the market will also be more on the red than on the green so basically all to say is that we by that time we we are back on track with acquisition we we think and we hope that our our stock price would be at higher levels yeah perfect thank you and if it is not then we can also you know kind of just delay some of the deals or or look for any any other kind of structure to close those deals any other question or we move forward to . just open your mic if you want to ask the question to simon and just ask your question you are more than welcome and like i said you know we are going to keep answering questions at the end so i promise right i am going to go into a deck it is very seldom that we are doing that on the conference call investor conference call i think it might be the 1st time if i do remember but i promise we will be short i will try to do it in 10 minutes hopefully i will not lose everyone but 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 and through those calls we are realizing that we often have to kind of realign the storytelling with some investors we think we are some investors think we are middle business some investors think that we are just a path business and so on and so forth so i think that the goal of this this deck is is kind of a redefining for for everyone you know i see defining for everyone you know on the same page what it is urbanimmersive and where we are going so i am going to share my screen in a 2nd hopefully you all going to see it except if you you on your cell phone and what is on a smaller device you might have some problem seeing it so i am going to comment those slides here just going to click on the part presentation so like simon said this is the way we describe urbanimmersive on on the the share specs on our website we are basically a technological business a te a technology business that provides services in the market of real estate precise put it not a word i like to say that we are a tech powered real estate supply business that is inaudible run rates of $11000000 and today you know including the photographers who are on their payroll 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 are probably turning around of the employees we based in montreal and of course we are listed in montreal inaudible so this is i do not want to go in detail but i just want to remind people that we are not as startup i mean we have been in this business for more than 10 years and the 1st thing that my brother and i did 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 raise money to commercialize business and 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 to raise money but this camera never s the light so we kind of create all the software surrounding 3 d tour but you know we are not in newcomers we have we have been trying a lot of things in the real estate supply business 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 have been working with them for more than 25 years so this is our stats this is not something you going to 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 will 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 $4000000000 just in the in north america potentially in our estimation something about 7 to $8000000000 worldwide here in north america we are estimating about 30000000 shoots a year shoot for us as photographer taking a star and go and shoot a house and bring back 25 35 images with all the media that comes with that and roughly that provide generates 1000000000 images per year so that is 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 are going to ramp up if it is going down because our business model as we going to see in this slide is mostly 9% transactional based we are going to follow the trend and unfortunately right now the trend is a history actually it historic they most of the unless we talk with they never saw such a low inventory of house for sales you know i am not sure i like those numbers the way i am 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 are winning clients we do not feel we feel we are winning clients we do not feel that we are losing clients but we we what we are saying is that our photographers our clients are doing less business overall so this is why i mean you know it is kind of of a a bad place to be right now but you know i am a positive person and i do not think it is going to get worse and we are hearing that you know the interest rate should increase so that will kind of hopefully slow down a little bit you know the some of the interest of the buyers or people sending our house in any cases i think we kind of the 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 simon said you know we potentially 60% down compared to what numbers should usually be in terms of listings in terms of house for sales so inaudible should follow the trends and and potentially just you know beat the transaction because we believe right now we are beating you know we are kind of succeeding in that very very difficult market i can tell you what is certain i am talking to a lot of entrepreneurs in the real estate states and they all in the same position right now all right so the stock business in itself it is a it is a business that is transforming a lot and it is definitely shifting to a technology driven high volume business so basically you have to do a lot of transactions per day because it is 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 3 d camera you might need a a drone so you need to have those visualized hardware you need to post it di images to increase you know the the the the the wide balance to put a blue sky on on the external facade 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 3 d tours it is the must have today and floor plan is kind of i will say basically more important in the 3 d tours right now in the market there is a lot of interest even in some states like here in canada floor plans are mandatory this is a common product it is a you know you definitely need to provide website we call it property website so it is 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 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 the the every every portion every technology required to the business right now and that is giving us 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 are providing each part we are not relying to 3rd party for 3 d 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 faster than our competitors because they are fewer 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 we are one of the most competitive 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 is positioning or been immersive for winning many deals many contracts with real estate agents and other offers the business model when you look at each of the parts there is some portion of those those required 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 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 doctor 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 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 is no line with the booking system we we are offering it and it is still transactional most of for most of the parts so we are charging for example $5 to render a slide to bill $4 to render a 3 d tours $15 to trade a property website and $3 to transfer the images so think about this part here as a dropbox dropbox kind of 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 are going to bundle all the technologies we can offer to them so this is a very popular subscription right now where it is and well will talk a little bit later in the deck about it simon briefly talked about the distribution of revenues so $3000000 in stock $8000000 in services i just want to add for the stock is still serving around 1700 real estate photographers so this number here is our end end photographers using our technologies to serve their agents their clients is generating around 206000 probably website per year in terms of services so we are talking about our photographers we are serving around 12000 real estate agents and doing around 50000 shoots a year call it shoots a year so basically this is including our acquisition that we have done during 2021 when we talk about technology and new site from the history the timelines of urban immersive you know we started with the 360 camera design we still passion passionate hi highly passionate about 3 d technology we are always kind of keep that in our products and and and really kind of hope that someday you know 3 d tours will will get back on the market and this is definitely what covid 19 has created generated a demand for 3 d tours this is our core technology and we believe that we have right now one of the most complete 3 d tour solution on the market if you look at the all the features we are offering few companies can can state that they have have all this in their 3 d solution so of course we are each time we are doing a 3 d tour we are providing a dollhouse . this is the way you know we commonly call all this of 3 d tours and room limitation we can measure on the floor and and with tape we are having our own builtin floor plan drawing software built in in the 3 d tour itself so even our clients can play with it and can change the the 4 plan if they want so there it we are not using other card we are not using a 3rd party software to create a floor plan we use the ai powered the classification system that we acquired from toolbars in 2018 to automatically put a ta a tag in rooms to say this is a fitness room a kitchen so on and so forth we you have those tag also that you can put some graphic and links some are calling that hotspot 3 d 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 is a real video so you can see you know people in their in their livestream video on the map and of course we have the avatars so the 3 d social spaces where you can visit with friends and interact with them so whether you can interact by chatting or you can interact with video conferencing the next slide is something pretty special for us because you know we are we are running a photography business we are offering photography services and we want to be highly efficient and the only way you can achieve profitability and keep your margins by going fast you need to do a shoot super fast being 2 hours in the house you know it is it is it is too long so we want our photographer to do 6 to 7 shoots per per day and in order to do that we develop our own capture app that is 3 times faster than anything else that we have seen on the market to to scan a house it works on iphone ipad it use advanced computer vision alignment system to create those map when you shoot it is fully integrated within our workflow so it is definitely improving the productivity of our people and it so we also add some features that enables offers to add additional information on the map for adding value improve production w we recently launched this this what we call the automated building and site and report so for every tour we providing with our prime subscription people will receive a detailed report about the property so they will know how many sink showers the that the building has how many doors outside doors inside doors and so on and so forth so it is highly detailed and really appreciated with some of our clients like offerpad for instance that are refurnishing many of clients like inaudible for instance that are refurnishing many of their homes they they are buying to resell them this is inaudible we call it inaudible so basically it is the added side is you know you can see people visiting the home with you in the 3 d space and we just opened the video camera so it becomes some sort of 3 d video conference and i will tell you that we are presenting inaudible to many industry leaders and it is making a lot of noise right now and we are expecting to have some significant partnership to announce soon many of the people within the industry and as you see i am not using that word today but we have been told and people are telling us that it might be the verkshum one after all of metaverse you know being able to be all together within an environment visually interacting where you are within the space what you are looking at and with the view system it is definitely something that 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 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 we have 4 provisional patents on that we are working on a 5th one and basically related so we were presenting inaudible when there are multiple people on the inaudible the way we controlling user control user loop experiences so far and about a 3 d tour we have today what we believe one of the most complete 3 d marketing websites suite on the market so basically those are websites dedicated to show to showcase the best way possible 3 d tours we have more than 20 customizable designs act upon the media like stills still pictures video and so on so if it is so we understand that it is highly appreciated by our clients because once you have a 3 d 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 we are years inaudible actually we started developing our own business solution erp or crm whatever you want to call it it is a system that helps managing the inaudible business and today we are using it to manage our own inaudible business and what is particular with our solution is that we have deblocked over the years a business intelligence allowing to 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 0 saturday the system will find the right photographers for the right services for the right client at 2 0 and the booking is confirmed there is no other communication they will be assured that the photographers will be there so the system calculates the the the the travel time calculate the service time and at the end of the day give us you know the possibility to to 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 and today they were running at 7 shoots a day with this system so we feel radically the difference using our system 0 and i would like to say this is a autonomous algorithm you know behind that we do not we do not use google map or any other software it is it is our own business intelligence in terms of on demand services to recap so we are going to be inaudible services for inaudible it is all pay per job and in terms of product fee we have 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 are offering the complete package of you know visual conference capturing 3 d 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 i want to say most maybe 50 50 50% is done here in quebec using our own software and we like to say that we have 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 and right now as we speak we are dobbling our photo addition teams in paris the reason is that because some of the businesses that we have acquired we currently are paying with offshore companies 3 times what it cost us to inaudible so we expect to increase the margins of the of our one some of our biggest acquisitions that we have done recently photo additions can be anything from crosstalk inaudible no i am trying to it looks like you succeeded to shut it down and we are terribly sorry about that it is the 1st time it is happening we have been hacked on that call are you hearing me yeah okay so 1st time 1st experience so it is not us it is not inaudible so at least you know that and hopefully those young guy that had a lot of fun but it is trying to mute inaudible if you can inaudible can you just slide down what and marie also yeah so sorry for that we are going to try to get back to our meeting otherwise we are going to have to terminate that so are we good to continue or are we going to have other people . inaudible i think you can inaudible can you stop i think i do not know how it works zoom but can you stop the people getting on the call yeah so all right let us close it simon let us close the call sorry everyone and next time we will use we will use something else close the call crosstalk good bye",
      "prediction": "maybe we can start i am simon yeah i just admit 2 more i think we are yeah we can start definitely perfect all right so i will do the introduction thank you everyone for being with us today i am recognizing a lot of names that we have been following or been immersive for quadr to quadr to pleasure to see you again today for those who know me my name is stanley me and i am the ceo co founder of revera versus welcome to our 4th quarter financial result and of the year investors conference call for a reason of being efficient in state of shan and respect our time we will be doing this call in english but we will take both english and french questions at the end joining me today as usual i have simon bedard rcao and i am just looking at my screen and i see pazwari gibesh our new executive vice president during the call we might make far looking statements during future financial performance operations products and even although we believe our expectations are reasonable we cannot guarantee these results so again we caution you to read and consider all the risk factors described in our last mdna it is not going to be on cdr pretty soon or in our annual information form that can finance cdr again so the agenda will be quite a different slightly different sorry compared to the last quarter so what we want to do is finally we will start by going to the last quarter and year and financial i life we will talk about some business i life as well and then afterwards what we thought that you could appreciate today because the end of the year was starting a new year we thought that you know we will take 15 minutes and do a short urban immersive deck presentation so that you know we can put everyone on the same foot in regards are in regards of how the management is staying in your government how we describe it and what is our focus and goals going forward so without start of a deal i will turn the call to simon simon hi good afternoon everyone we see we have a lot of participants investors today so thanks for your interest in being present on that call today so what i like to do is similar to what i have done in the last quarter just maybe put some color into the financials that were published in the press release this morning i want to apologize we do not have the sitter filing yet but the french version should be available within the next hour from my friends like grand tour de nautelingi sorry they had some quality issues quality control issues this morning and the english version should follow within 48 hours that said if you have more detailed questions with regards to those financial statements once they are available and see our really feel free to contact me by phone or email and i will answer all questions you have with regards to our financial in terms of our q 4 and 2021 financial result to start with if we talk about revenues 40 year we end up we close the year at slightly above 4000000 in revenues compared to 4.6 last year so it is an 11% decrease that decrease is explained in most cases by the decreasing sales of 3 d photography equipment that was expected by 600000 if you remember last year we were pretty happy to have acquired email service and benefit from the good a solid year of demand for 3 d cameras in the beginning of the pandemic but we knew that you will not be so suitable over the years sorry there is someone okay we are back yeah so that was expected that of course we will go back to a normal level of sales what is this normal level maybe next year we can expect some time something around 2 to $400000 but not what we have seen at the beginning of the pandemic where people were at time to buy cameras and try it and basically there was a boom but i was at one time think so we do not expect this to come on the side if we look at the saas sales we are down 7% compared to last year but of course you may know that our company is still today mostly transactional driven in terms of the revenues transactional based meaning that yes we are progressively moving to some recurring review streams with the new subscription package that we have that we will talk about a bit later but still to deal with we are heavily transactional based and the fact that the market is in terms of number of transactions in terms of number of listings is down just this year compared to last year nearly 30% or 23% that is in canada with centrice but in the us it is also in that range so between 25 to 30% and if you remember last year we were down 30% so if you accumulate that we are basically down 60% over 2 years in terms of again inventory and number of transactions and if you combine this to a very quick turnover ratio where properties and houses are sold most of the time within 24 to 48 hours and they do not beat that much of marketing tools because you can not sell it easily that is just another factor that we are facing right now we think that all this of course should be temporary we do not have a crystal ball well we are going to be back to a normal market but just to to put things in perspective talking about centuries we are right now i think we have around 35000 listings on centuries we used to have 120 at that time usually so of course we were affected by this but the fact that we are 7% down in that type of market i think it is positive we are even gaining customers we are not losing customers at all we are gaining customers with our new subscription package and all different fronts so that is why it is important to understand the market here when we look at our numbers also what you have what is important in the last quarter is that you will see that we have our 1st quarter of photo service we have revenues of 307000 of photo service we had those acquisitions if you remember were on june 30th only one quarter this year but the ones that were acquired in june have maybe represent approximately 1800000 on an annual basis of revenues plus of course the ones that you have seen that we acquired in q one 2022 in november and december meaning that today i am not here to make guidance of what is going to be our revenues next year but based on what those all those companies that we have acquired have done in the last 12 months where as we posted on our website we are at a run rate revenues of approximately 11000000 and out of this 11000000 we have roughly 3000000 in sas as i said half a 1000000 may be in hardware and the 7500000 remaining is photo service so even q one 2022 you can expect that we will have maybe 2 to 4 weeks of revenues of those new acquisitions that were done in november december but we will not have the full effect even in q one what we will do as in q 2 so and if we talk about q 4 q 4 revenues were 1100000 compared to one.4 last year so we are down 24% on q 4 but we think that the number of listings have decreased more in q 4 this year overall over the year as mentioned we were in terms of the number of listing and inventory that was down 30% still i think we are doing pretty good in this very challenging market talking about 3 d tours that is a positive thing on our end is that we see we experienced a lot of growth in the number of 3 d tours in fact 237% compared to q 4 last year we are talking maybe in dollars around roughly around 70 to $80000 of revenues of 3 d tours this year and that should continue to grow fast because we you may have seen a few few updates we provided before christmas with regard to new contracts including offer pad for instance that should scale up and deploy more and more cities over over the month so we should see that trend should continue to in terms of number 3 tours to grow fast in the next in the next month that is what we expect in terms of growth margin we are pretty stable compared to last year for the 3 months period we were at 61% overall compared to 63 last year and 40 year we are at 65 compared to 68 so pretty stable of course it depends on the mix of the revenues because on the saas saas portion or gross margin is somewhere between 82 and 87% and on the service photo service more 35 to 40 and on the equipment is a bit lower depending depending on 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 when we are going to talk about some efficiency gain that we will have with the synergies and acquisitions that you say will cover a bit more a bit more later in terms of net income there is a lot of noise this year on the you know we can see we have a lot of 3700000 for the year but including 3200000 of other expenses and out of that 3.2 there is 3000000 or 2.9 in fact that comes from all the adjustments made with regards to the conversion of the debenture the convertible debentures that are all gone as you know as of today so this is non irrecurring so i will not be there next year but there was just a one time journal entries this year but of course that explains most of why we have that last for 40 years in terms of balance sheet we are still in pretty good shape in fact as you know we did a 3000000 private placement in april that we used for in part for our acquisitions we at the end of september we had 2000000 of liquidity i can tell you that as of today we are near a 1000000 so we use that an additional 1000000 for the acquisition that we are done completed in november and december so we are still in good shape we have enough to operate and execute our business plan no problem there of course with that 1000000 that will serve as a cushion going forward so we do not expect to use more than that on acquisition unless we we raise additional capital or debt or some external funding and other than that as you know throughout the year we have eliminated our convertible debentures we reduced our debt in fact by 4700000 throughout the year including 4.5 just for the convertible debentures so basically again i think our balance sheet is in good shape and yeah that is pretty much the point i wanted to cover there is in dmd a and financial you will have some information by segment where we now track 3 different segment one is the software one is the photography equipment and one is the service so again hopefully i will be able to post it on cdor pretty soon so you can come back to me if you have further questions and on that i think i will turn the mic to you shania if you want to maybe give a quick business update through the presentation absolutely simon but just before we jump to the next point on the agenda is there a new one who would like to ask a specific question about financial that simon just covered or you still think about your questions and you are going to keep it for the end it is like you want we can take a couple of minutes just to go over and clear the financial side of it if you want otherwise we are just going to keep in continuing so we are seeing any question right now i will say you raise your hand but everybody is kind of tosing is camera esque i am not saying everyone is anyone i just have one just a few here so i mentioned that you currently have about a 1000000 in cash and you are not using any more cash for acquisitions so how should we think about the acquisition strategy going forward since there has been a decline in the sub price so maybe it is not as attractive anymore to pay and share or to raise the rate of more cash by issuing new shares how do you think about that yeah but i mean we are not as you have seen with closed 8 acquisition or 6 acquisition just in december so right now we are on the integration phase it is going very well as you say we will cover that in the in the sec so we are not we are not a week or 2 to basically announce a new acquisition and we do have a lot of things on our plate really so we are pretty optimistic about what is coming and of course hopefully the market will also be more on the red than on the green so basically all to say is that by the time we are back on track with acquisition we think and we hope that our star price would be at higher levels okay perfect thank you and if it is not then we can also kind of just delay some of the deals or look for any other kind of structure to close those deals any other question or we move forward to just opening a mic if you want to ask a question to our assignment and just ask a question you are more than welcome and like i said you know we are going to keep answering questions at the end so i promise right i am going to go into a deck it is very solemn that we are doing that on the conference call investor conference call i think it might be the 1st time that i do remember but i promise we will be short i will try to do it in 10 minutes hopefully i will not lose everyone but 10 to 15 minutes just covering 15 20 slides and the reason why we wanted to do it is that we were getting off calls and i and those calls we are realizing that we often have to kind of realign the storytelling with some investor who think we are so investors think we are middle class business some investors think that we are just about after business and so on and so forth so i think that the goal of this deck is kind of redefining for everyone i see you defining for everyone on the same page what it is we are going to receive and where we are going so i am going to share my screen in a 2nd hopefully you are all going to see it except if you are on your cell phone and what is on a smaller device you might have some promising it so i am going to comment those slides here just going to click on the part of presentation so like simon said this is the way we describe a random person on the statistics on our website we are basically a technology business that provides services in the market of real estate society put it in other words i like to say that we are a tech powered real estate society business that is another which you present for the commercial we are on rates of $11000000 and today you know including the fafa offers who are on their payroll paper job and on their payroll we are turning around 100 employees if you can not do the head office with the developers and the management and everything we are probably turning around 30 employees we are based in montreal and of course we will listen and see if it is an insurance this is an ongoing detail but i just want to remind people that we are not a startup i mean we are in this business for more than 10 years and the 1st thing that my brother and i did 10 years ago was to design this they shipped kind of prototype of milk to land camera but it was a real prototype by the way and in southern line we tried to raise money to commercialize business and this is why in 2012 we kind of jumped on the ts adventure at that time and here in canada and quebec is percillary we were adding access to a tax kind of advantage for an investor called ria to raise money but this camera never the likes of the kind of the create all the software surrounding 3 d tour but you know we are not newcomers we have been trying a lot of things in the real estate supply for business from developing camera software business solutions so on and so forth so we know you know the business pretty well and some of the engineers working with me to develop those software i have been working with them for more than 25 years so this is our staff this is not something going to 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 for core markets of course at the end of the day we will talk about addressable markets but our core market is real estate society for the purpose of marketing so basically you know to sell a house so when we come to doing that activity for residential commercial and rentals we are estimating that this is a niche market of $4000000000 just in north america potentially in our estimation something about 7 to $8000000000 worldwide here in north america we are estimating about 30000000 shoots a year shoot for us is a power for the king of star and do a shoot a house and bring back 25 35 images with all the media that comes with us and roughly that provides generates a 1000000000 images per year this is our market like simon said this is a transaction market i mean our business is linked to the housing inventory so if the housing inventory right bob we are going to ramp up it is going down because our business model as we are going to see in this slide is mostly 9% transactional base we are going to follow the trend and unfortunately right now the trend is a history called actually historic most of the mlesas we talked with they never saw such a low inventory of house or sale i am not sure i like those numbers the way i am presenting it today but those are real i mean the market is down 22% urban receive is down 11% you are over a year and our new acquisition are just coming to our pipeline of revenue in the last quarter so just the fact like simon said minus 7% overall we feel we are winning clients we do not feel that we are losing clients but we what we are saying is that our photographers are clients are doing less business overall this is why i mean you know it is kind of a bad place to be right now but you know i am a positive person and i do not think it is going to get worse we are hearing that the interest rates should increase that will hopefully slow down a little bit some of the interest of buyers or people sending their house in any case i think we are at the bottom of the barrier right now i think the decision will just come go start and ramping up again and of course like simon said we potentially 60% down compared to what numbers should usually be in terms of listings in terms of house for sale so or van or stiff should follow the trend and potentially just you know beat the transaction because we believe right now we are beating you know we kind of succeeding in that very very difficult market because they will be with certain i am talking to a lot of the entrepreneurs in the real state that face and they all in the same position right now all right so the faculty business in itself it is a business that is transforming a lot and it is definitely shifting to technology driven high volume business so basically you have to do a lot of transactions per day because it is 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 you need to succeed in the class of business like you need to have online booking system you need to have the capture hardware not just the camera but you might need a 3 d camera you might need a drone so you need to have those specialized hardware you need to post your images to increase the white balance to put a blue sky on the external facade images so you need to have this service you need to create youtube video slideshow because youtube is one of the most popular search and giant in the real estate of course you need to provide 3 d tours it is the most past today and for plan it is kind of i will say basically more important than 3 d tours right now in the market there is a lot of interest even in some states like here in canada for plans are mandatory this is a common product it is a you know you definitely need to provide websites we call it private websites so it is a website dedicated to showcase one house for sale you need a system to deliver 100 maybe major high quality majors you know images cannot be just transferred by emails so you need to have a sort of a study system to transfer to your image and you need a very performance payment system to get paid when you look at all those things that you need to run a philosophy business today urban institute is the only company offering and owning every portion every technology required to the business right now and that is giving us a lot of advantages over competition i will start from the bottom of course the after sale support is easier for a veteran to do because we are providing each part we are not relying to 3rd party for 3 d tours for floor plans for photo editions everything is done internally so of course we have a pretty difficult to beat turnaround delivery time we can deliver faster than our competitors because they are fewer parties involved we have more flexibility than our packages we can offer and deal with our clients we keep our margins pretty high for the value we are bringing and we like to tell the market that we are one of the most competitive 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 is positioning or a bit immersive for winning many deals many contracts with u s c agents and developers so this is not going to look at each of the parts there is some portion of those those required elements that you need to run a path to business that are not technology like you know taking a picture you need to have a human doing that you need to have a software editing in images 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 fore plans you need somebody to draw fore plans and put signatures write the rooms name and stuff like that those services we are offering to our clients so we call them service on the man and it is transactional base so each time somebody wants to have a fat offer on the side the client pay them to send a fat offer send things for photo edition and for fans and the rest is mostly technology and we are still offering it every part even if there is no line with the booking system which we are offering it and it is still transactional for most of the parts so we are charging for example $5 to rent the slide to the $40 to rent the 3 d port $15 to trade the property website and $3 to transfer the image you need to think about this part here as a drop box kind of the platform to transfer the i quote images we added this here a new service that simon that briefly talked during the financial i like what we call the prime subscription so the prime subscription is basically for $30 an agent can subscribe to that plan and each time we order one of our photographers we are going to bundle all the technologies we can offer to them so this is a very popular subscription right now or it is and what we will talk a little bit later in the deck about it simon briefly talked about the distribution of revenues so $3000 $8000000 in services i just want to add for the saas we are still serving around 17000000 on grid real estate path offers so this number here is our independent path offers using our technology to serve their agents their clients is generating around 26000 probably about 5 per year in terms of services so we are talking about our photographers we are serving around 12000 real stations and doing around 50000 shoots a year put a shoot a year so basically this is including all our acquisitions that we have done during 2021 when we talk about technology and you saw it from the history the guidelines of revena merced you know we started with a 360 camera designing we still passionate highly passionate about 3 d technology will always kind of keep that in our products and really kind of hope that someday you know 3 d tours will get back on the market and this is the difference to what is coming 19 has created generated a demento 3 tours this is our core technology and we believe that we have right now one of the most complete 3 d tours solution on the market if you look at the all the features we are offering a few companies can can state that they have of this in their 3 d solution so of course we are each time we are doing a 3 d tour we are providing a dollhouse this is the way we commonly call of this 3 d tours and room cementation we can measure on the floor and with taste we are having our own built in for plan drawing software built in the 3 d for itself so even our clients can play with it and can change the the 4 plans if they want so there is we are not using a cat we are not using a 3rd party software to create our fault plan we use the ai powered classification system that we acquired from tour box in 2018 to a thematicy put a tag in rules to say this is a fitness room a kitchen so on and so forth we have those tag also that you can put some graphic and links from the crawling that hotspot 3 d hotspot this is pretty unique to urban immersive so we are showing an interactive map of people within the room this is not picture of people actually it is a real video so you can see you know people in their in their live stream video on the map and of course we have the avatar so the 2 d social spaces where you can visit with friends and interact with them so whether you can interact by chatting or you can interact with video conferencing the next slide is something pretty special for us because you know we are running a photography business we are offering photography services and we want to be highly efficient and the only way you can achieve profitability and keep your margins by going fast you need to do a shoot super fast being 2 hours in the house you know it is too long so we want our photographers to do 6 to 7 shoots per day and in order to do that we developed our own capture app that is 3 times faster than anything else that we have seen on the market to scan a house it works on iphone ipad if used advanced computer vision alignment system to create those map when you shoot it is fully integrated within our workflow so it is definitely improving the productivity of our people and also we also add some features that enables us to offer to add additional information on the mac for adding value in post production we recently launched this what we call the automated building and site analytics reports so for every tour we providing with our prime subscription people will receive a detailed report about the property so they will know how many things showers that the building has how many doors outside doors inside doors and so on and so forth so it is highly detailed and really appreciated with some of our clients like hopper pad \u00a220 that are replenishing many of the home they are buying to resell them this is joonik turbanamurtis we call it uime 3 d so basically it is the avatar that you can see people visiting the home with you in the 3 d space and we just open their video camera app so it becomes some sort of 3 d view conference i will tell you that we are presenting you i am in 3 d to many industry leaders and it is making a lot of noise right now and we are expecting to have some significant partnership to announce soon many of the people within the industry and as you see i am not using that word today but we have been told and people are telling us that it might be the version one after all of metaverse you know being able to be all together with an environment visually interacting where you are with within the space what you are looking at and with the video system it is definitely something that has a lot of value for our clients partners mlisas brokers and so on and we have file for provisional patent on that and basically the reason why we use a provisional patent is basically because we want it to go fast and protecting our idea and also we want to make sure that nobody will patent something on top of our ideas that basically will force us to not promote this technology so so far we have 4 provisional patent on that we are working on the 5th one and basically related to the way we are presenting avatars when there are multiple people on the same axis the way we are controlling a user control user look at trends and so on and so forth and about a 3 store we have today what we believe one of the most complete 3 d marketing websites suite on the market so basically those are websites dedicated to show to showcase the best possible 3 d tours we have more than 20 customizable designs we accept other media as i still pictures video and so on so this solution that is highly appreciated by our clients because once you have 3 d tours you need to distribute it you need to promote it and we have a complete solution to that the way you know we are on the top business we were very years ago we are 77 13 actually was part of developing our own business solution the erp or crm whatever you want to call it it is a system that helps managing a society business and today we are using it to manage our own business and what is particular with our solution is that we have developed over the years a business intelligence allowing to create and stand booking what does it mean it means that we can in real time without any delays find the closest for offers for the next shoot so when an agent comes or platforms and they want to book the photographers at 20 clock saturday the system will find the right photographers for the right services for the right client at 20 clock and the booking is confirmed there is no other communication they will be sure that the photographers would be there so the system calculate the travel time calculate the service time at the end of the day it gave us the possibility to improve the productivity of the businesses we are acquiring to give you an example once the business we acquired we are doing 3.5 shoots a day and today they are running at 7 shoots a day with this system we see rapidly the difference using our system and i like to say this is autonomous algorithm you know behind that we do not we do not choose google map or any other software it is our own business intelligence in terms of on demand services it is a recap so we are going to be scanning and planning services for trying image announcements it is all paper job and in terms of 5 feet we have around one of those 30 real estate offers it is difficult to know the exact numbers because some buffers are working 20 hours some buffers are working 40 hours or the full time part time whatsoever but they are offering the complete package of visual content capturing swedish scanning on one appointment basically our buffers are equipped to deliver all the services over a random purchase for fan drawings is done offshore most of the carbon drawing is done in paris that was the most maybe 50 50 50% is done here in quebec using our own software and we like to say that we have developed some sort of a marketplace so we can engage really rapidly new people to work on their system and to help you know with the volume pollodition is the same and right now as we speak we are doubling our pollodition teams in paris the reason is that because some of the businesses that we have acquired recently are paying with offshore companies 3 times what it cost us to post hedip images so we expect to increase the margins of of some of our biggest acquisitions that we have done with sampling photodion can be anything from blue skies we can make them go on i am trying to it looks like you are used to seated to shut it down and we are trying to be sorry about that it is the 1st time you are happening we have been hacked on that call are you hearing me yeah okay so 1st time 1st experience so it is not us it is not state very bad mercy hopefully you know that and hopefully those young guys that have a lot of fun but it is trying to mute samuel montes simon if you can i see samuel montes can you just sit down what and mary also yeah sorry for that we are going to try to get back to our meeting otherwise we are going to have to terminate that so are we good to continue are we going to have other people i think you can can you stop i think i do not know how we will resume the assignment but can you stop that people getting on the call yeah so all right let us do this at simon let us go to call sorry everyone and with that i will use you are a fucker gasoline you are a shit a fucker we will use something else so that call goodbye",
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      "reference": "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 is annual report in form 20 f 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 2nd 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 3 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 4th 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 one 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% 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 968018000 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 one 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 one to 49.5% 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 . excuse me in all ebitda expanded 136 one and ebitda margin improved from 12 to 18.3% in additional business operate . in international business operating segment which includes argentina bolivia paraguay and uruguay posted 58.2% rise in revenues due to an increase of 39 one 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 one increase while ebitda margin increased from 17.8 to 16.7% in colombia finally where we have a joint venture with postobon we finished a +1st 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 are 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 will take our 1st question from fernando olivier with bank of america hi inaudible hi good morning everyone thanks for taking my questions i have 2 so i made . the 1st one is related to chile 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 is asking about our solid growth in during 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 did not understood you i i did not understand you perfectly but i mean as you know fernando knows the group chilean consumers and chilean population have been receiving a lot of money in our pockets for 2 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 $50000000000 and but and subsidies from government about around $20000000000 altogether $70000000000 is equivalent to the total expenses of government in a in a regular year pre pandemic so it is it is 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 categories but the the real reason behind the behind this expansion is what i am explaining how much is going to it is going to last probably for probably for semester a year 18 months is but no more than that so but i think that it is wise to imagine that this trend will not continue in the future having said that we are gaining scale and we expect to keep our scale and not to lose our scale and we are going to make our best effort to continue growing but i think that that it is more wise and serious to to imagine that this trend probably is going to last in q 3 eventually in q 4 but for 2022 my recommendation is to be much more careful regarding regarding this okay i i ho i hope you hear me better can you comment me yes excuse me fernando yes now i am listening you perfectly 0 okay great thank you can in that sense can you comment what was the the growth between alcoholic and non alcoholic beverages i mean . yes we grew we grew . 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 we are growing a lot in both segments in q 2 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 2nd question is related to cost 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 q 2 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 2 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 will 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 q 2 . here i have in beer in chile premium accounted for more than 40% of our of our volumes while in q 2 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 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 is 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 increasing a lot we saw containers from china the actual cost is about $10000 per per container so this will last at least for more than one year this is what we we expect so this outlook along with this we are facing a compared to last year a more favorable exchange rate that somewhat compensate that but it is not in an in in our control but by saying that especially the chilean peso and also the argentine peso are very volatile so the exchange rate in chile is volatile for other process more than international so so at at the end we will continue to face inflationary pressures 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 will take our next question from felipe ucros with scotiabank foreign language patricio felipe inaudible congratulations on the results maybe let me start with one on the implied price mix and maybe i can follow up on on chilean market shares h so on the 1st one obviously ve very solid on your international operation 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 is also a mixed effect in there so i was just wondering if you could break that out for us and give us a bit of color on what is happening on on on price enforcement or controls in in argentina and then then i will 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 are improving we are improving our mix 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 am 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 but just wondering how you are seeing the the market share picture in beer in chile given the distribution changes at your competitor thanks yes maybe you are right i mean nielsen it is 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 if you compare up our market in q 2 2021 it is slightly higher than our market share in q 2 2020 but i prefer to say that our market share has been stable in the in the last many months as in and years and we have been able to to cope against the competition with its new distribution excellent call thank you and and you know what i will i will stop it here so other analysts can ask questions and maybe i will get back on the queue if they do not ask my 3rd question thank you indeed thank you felipe as a reminder star one if you would like to ask a question we will take our next question from mohammed ahmad with fgp inaudible hi guys i hope you guys are all well thank you for taking my question just comparing to 2019 i know you you answered to felipe that you are stable so partly that question is answered already but if you could confirm some of the volume changes versus 2019 q 2 actually 1st half 2019 versus 1st half 2021 because even there i see 18% growth which is impressive as you have given reasons for it but i just wanted to know if if the market has grown that much or maybe in certain segments you have grown faster 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 1st half no yes yes 1st half 6 months inaudible here i have it here i have the the answer mohammed yeah regarding regarding volumes from the chile operating segment this is non alcoholic beer and spirits 1st half of 2021 compared with the 1st 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 . yeah growing yeah yes yeah but in both in non alcoholic and and beer we are growing mohammed against 2019 yes in fact here we here have in beer we have grown in 2 years roughly speaking a little bit more than 40% okay 2020 20 . thank you guys quarter 2 i know this . excuse me this is quarter 2 2021 compared with 2019 quarter 2 yeah and year to date both and year to date 31 the 1st semester compared with 1st semester 31 yeah 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 1st half of 2019 yes yes and not alcoholic roughly 11% that is it yeah remember that mohammad that non alcoholic suffer much than beer last year also 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 is okay thank you i will i will . thank you very much for your answer i will get back in queue okay perfect thank you once again star one for questions we will take a follow up from felipe ucros with scotiabank 0 great thanks guys so so i can do a follow up 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 is going on in the ground there in terms of market share price and maybe utilization of the plant all those would be 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 2000000 hectoliters now this is what we expect to sell in in this year so we have a 60% utilization of of the plant 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 . 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 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 will 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 thank you thank you antonia with no additional questions in queue i would like to turn the call back over to our speakers for any additional or closing remarks thank you very much for closing i would like to say that during the 2nd 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 will 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 is call we appreciate your participation",
      "prediction": "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 uncertainties set for in ccus annual report informed 20 f filed with the us security and exchange commission and in the annual report submitted to the cmf and available on our website it is now my pleasure to introduce patricia hotta thank you carl it is lovely and thank you all for joining us today in the 2nd quarter of 2021 please see you continued with a positive momentum by posting a strong improvement in volumes and financial results not only versus last year but also versus pre pandemic figures the later has been the result of our capability to adapt and operate in a challenging scenario with the covid 19 pandemic through the execution of a regional plan with 3 points the safety for people operation continuity and financial health and the successful implementation of strategy which focus in maintaining and gain business scale and market share along with a gradual recovery and profitability as we have shown since the 4th 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 financial results consolidated the bda more than tripled versus last year an bda margin improved from 6.2 to 13 one the better financial result was mainly driven by the increased inconsiderate volumes of mention above efficiency gains from the excellency of ecu program with mf dna expenses a percentage of net sales decreasing from 45.8 to 39.6% and 463 basis points expansion in gross margin mainly due to positive mixed effects and implementation of revenue management initiatives and positive net external effects from the appreciation of the chilean peso against the us dollar affecting favorily our us dollar denominated cost partially compensated by one export revenues in foreign currencies and a higher cost in raw material in line with the short rally of the commodities during the year in all net income totalized again of 968018000 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 one high average prices the high average prices were associated with both positive mixed effects mainly based on a strong performance of premium brand in beer and revenue management initiatives gross profit is 0.65% and gross margin improved from 46 one to 49.5% mainly as a result of the revenue expansion mentioned above efficiencies in manufacturing and the positive next turn 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 msdna expenses grew 32.3% consistent with the higher volume and marketing activities in line with pre pandemic levels although as percentage of net sales msdna improved from 42.4% to 36.4% due to cost control initiatives to the excellency ceo program in all ebitda expanded 136 one and ebitda margin in performance 12 to 18.3% in additional business operating in international business operating segment which includes argentina bolivia paraguay and uruguay posted 58.2% rise in revenues due to an increase of 39 one in average prices in chilean pesos and 13.7% higher volumes volume growth was mostly driven by argentina although all the other countries positive growth the better average prices in chile and pesos were explained by revenue management initiatives and positive mixed effects in the portfolio which more than offset negative currency translation effects in addition our efforts in pricing allowed us to compensate higher u s dollar denominated costs from the depreciation of the argentine peso against the u s dollar and higher costs in raw materials costing a gross profit expansion of 114 4% and an improvement in gross margin from 32.7% to 44.3% msdna expenses as a percentage of net sales improved from 69% to 54.4% due to efficiencies from the excellency ccu program altogether evda 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 costing middle single single digit growth the higher price in teal and pesos were mainly a consequence of a better mix which more than offset the appreciation of the teal and pesos against the us dollar and its negative impact on export revenue gross profit was up 6.5% and gross margin decreased from 39.5% to 37.9% in line with a high cost of wine due to the harvest level of 2020 msbna expenses of a percentage of net sales improves from 26.8% to 25.6% thanks to efficiencies given by the excellency ccu program in all bbda recorded a 4 one increase while bbda margin decreased from 17.8 to 16.7% in colombia finally where we have a joint venture with postobon we finished the +1st half of the year with a volume expansion over 40% in market share and 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 are 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 will take our 1st question from fernando olivia with bank of america hi good morning everyone thanks for speaking my questions i have to find me the 1st one is related to chile in your opinion what explains the silly building growth in the united states is really big so in line with this can you comment what would the growing growth between alcoholic and non alcoholic beverages and how do you send them to behave the remaining of the year and i have another question i will link thank you fernando i listened to your voice with a lot of echo did you understand the question yeah he is asking about our solid growth in during the quarter are you saying fernando and on the other hand i think how do you how do we speak 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 did not understand you perfectly but i mean as you know fernando knows the group chilean consumers and chilean population have been receiving a lot of money in our pockets for 2 reasons number one because of all the expense of the government and the direct subsidies to people and secondly because we have been allowed to retire money or to withdraw money from our pension funds altogether i mean money with our pension funds has been $50000000000 and subsidies from government around $20000000000 all together $70000000000 is equivalent to the total expenses of government in a regular year pre pandemic so it is a lot of money on one hand and on the other hand there are many expenses that have been restricted as restaurants travel vacations et cetera et cetera most of that money has been concentrated 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 our job we are executing correctly we are keeping and gaining market share in the different categories but the real reason behind this expansion is what i am explaining how much it is going to last probably for semester a year 18 months but no more than that so i think that it is wise to imagine that this trend will not continue in the future having said that we are gaining scale and we expect to keep our scale and not to lose our scale i am going to make our best effort to continue growing but i think that it is more wise and serious to imagine that this trend probably is going to last in q 3 eventually in q 4 but for 2022 my recommendation is to be much more careful regarding this okay i hope you hear me better excuse me excuse me for nothing and now i am listening to you perfectly 0 okay great thank you in that sense can you comment what was the growth between alcoholic and non alcoholic beverages yes we grew up i mean as you know we present the segmental chile the chilean segment together because we operate chile as one segment multi category same self sales force same track same managers having said that we are growing a lot in both segments in q 2 we grew a little bit less than 40% in india and a little bit more than 40% in non alcoholic okay great and my 2nd question is related to cost can you comment 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 i mean i will give you a general answer and then i will ask felipe duvagnes to discuss on the details on cost i mean as you know perfectly as i mentioned in my introduction we are facing strong pressures on cost of raw material on one hand and on the change rate or on the other in a change rate in q 2 was not too high but today it changed very until before the beginning of this conference the tillion pesos was 785 i mean to buy a dollar which is very high and in order to offset this we need to do revenue management initiatives number one to improve our mix number 2 and to be very efficient in terms of msb and we have doing this as we know that the current level of volume is something transitory and that sooner or later will move to a much normal growth we have been very careful on this on high people on keeping our msdn and the tight control we are managing msdn as if we were not growing in our volumes in order to be prepared for the future and regarding 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 as an example here i have the figures for example in q 2 here i have in b and clet premium accounted for more than 40% of our volumes while in q 2 of 2020 it represented just 23% of our volumes and same thing in all the different categories because again we need to be prepared for a future scenario which is not going to be as good as 2021 but having said that and regarding particularly raw material i could so believe you to discuss this as you probably know fernando is a global pressure on raw material cost for example a 1000000 year in 60% p t or resins more than 40% and so on you have also international threats increasing a lot we saw containers from china the actual cost is about $10000 per container so this will last at least for more than one year this is what we expect so this how along with this we are facing compared to that year more favorable exchange rate that somewhat compensate that but it is not in our control but by saying that especially the chilean peso and also the argentine peso are very volatile so the exchange rate in chile is volatile for other process more than international so at the end we will continue to face inflationary pressures due to raw materials and the actions are the ones that patricio highlighted great great thank you so much thank you fernando we will take our next question from felipe eucras with scorsha bank let me start with one on the implied price mix maybe i can follow up on human market shares so on the 1st one obviously very solid on your international operation 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 is also a mixed effect in there so i was just wondering if you could break that out for us and give us a bit of color on what is happening on price enforcement or controls in argentina and then i will follow up with 2 market share thanks yes i mean in argentina thank you felipe for your question argentina we have been able to cope with inflation in our structural prices another thing time we are improving our mix 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 less attractive than bottles all together we are moving along with inflation along with our costs excellent and maybe on chile market shares just wondering i know this is difficult because nielsen and the other surveyors are having a tough time delivering an apples to apples comparison but just wondering how you are seeing the market share picture and beer in chile given the distribution changes at your competitor thanks yes you are right i mean the nielsen it is not completely precise because they have a quote reading on what happens in supermarket but not the best reading on what happens in man and past having said that if you compare our market share in q 2 2021 it is slightly higher than our market share in q 2 2020 but i prefer to say that our market share has been stable in india in the last many months and years and we have been able to cope against the competition with its new distribution excellent caller thank you and you know what i will stop it here so other analysts can ask questions and maybe i will get back on the queue if they do not ask my 3rd question thank you indeed thank you felipe as a reminder star one if you would like to ask a question we will take our next question from mohamed ahmed with fgp i hope you got it all well thank you for taking my questions just comparing to 2019 i know you answered through felipe that you are stable partly not in question that is already but if you could confirm some of the volume changes versus 2019 to 2 but are actually 1st half 2019 versus 1st half 2021 because even there i think 18% growth which is impressive and you have given reasons for it but i just want to know if the market has grown that much or maybe in certain segments you have grown faster to get that number particularly the year versus now yes indeed look in the chile operating segment we view our volumes this is 1st half no yes 1st half 6 months to send the new audience here i have the answer mohammed regarding volumes from the chile operating segment this is non alcoholic beer and spirits 1st half of 2021 compared with the 1st half of 2019 we are 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 it was a stable market share yes market share we slightly higher we have been rather stable in beer growing a little bit on non alcoholic in fact do we have the breakdown of this segus in beer and non alcoholic here gentlemen let me check but we have grown more in beer than in non alcoholic having said that because the capital of beer has been yes but in both in non alcoholic and beer we are growing muhammad against 2019 in fact here we have in beer we have grown in 2 years roughly speaking a little bit more than 40% okay the 1st semester compared with the semester then 31 all took compared with quarter 41 okay sorry the voice was breaking up a little bit so i might understand that you said the years grown 31% versus 1st half of 20 and d yes yes and nona is calling roughly 11% that is it remember there mohammed that non alcoholic suffer much than last year also we also have still a little bit of hope hello hello yes okay that is okay thank you i will take your real quick answer i will get back in queue okay perfect thank you once again star one for questions we will take a follow up from felipe yucres with sresha bank great thanks guys so i can do a follow up maybe on colombia you guys had very strong results on the operation with a very strong rise in volume so i was just wondering if you can give us a little more of color on what is going on in the ground there in terms of market share price and maybe utilization of the plant all those would be great if we could get some color thank you thank you felipe as we mentioned when we entered into colombia we designed our plant for 3.2 3.3 3.4 depending on mix volume or heightoliters of total volume and we are running this year but a little bit more than 2000000 heightoliters now this is what we expect to sell in this year so we have a 60% utilization of of the plant we have been growing market share as i mentioned before margins are good in the industry prices growing in line with inflation and again we are doing our best effort to increase our volumes and to complete the capacity of the plant because if we do this we will be having a good profitability that was we began to operate operation and still our purpose and we are moving in the right direction okay great thanks for the color guys congratulations again thank you felipe remember that in colombia we operate in 2 segments beer and mold beer representing 80 more than 80% of the total volume and malt less than 20% when i say that this is the total volume that is the total volume of the plant for both categories beer and malt and when i give you a factual clarification good thank you we will take our next question from antonio women with lorraine val antonio we are back 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 thank you thank you antonio with no additional questions in queue i would like to turn the call back over to our speakers for any additional or closing remarks thank you very much for closing i would like to say that during the 2nd quarter of 2021 in a steel challenge scenario due to the pandemic you delivered a solid performance in volumes and financial results improving versus both last year and pre pandemic figures looking ahead will continue investing in the key aspects of the business in order to keep executing the strategy that we have been carving out which is continuing building strong brands and portfolio and putting our efforts in maintaining and gaining business scale on market share while recovering profitability the later revenue management initiatives and efficiencies particularly in an inflationary scenario thank you very much again that will conclude today is call we appreciate your participation",
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      "reference": "hello ladies and gentlemen thank you for standing by for rlx technology inc is 3rd quarter 2021 earnings conference call at this time all participants are in listen only mode after management is remarks there will be a question and answer session today is conference call is being recorded and is expected to last for about 45 minutes i will now turn the call over to your host mister sam tsang head of investor relations of the company please go ahead sam thank you very much hello everyone and welcome to rlx technology is 3rd quarter 2021 earnings conference call the company is 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 is call will include our co founder chairperson of the board of directors and chief executive officer ms kate wang chief financial officer mister chao lu and myself sam tsang head of investor relations before we continue please note that today is 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 is earnings press release and this conference call include discussions of unaudited gaap financial measures as well as unaudited non gaap financial measures rlx is 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 2nd half of the 3rd 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 is 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 is 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 is 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 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 1st 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 3rd 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 is 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 2nd quarter as a result we have record 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 3rd 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 3rd 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 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 is 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 is 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 8 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 saint 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 3rd 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 is 4 year history with this in mind we will work tirelessly to introduce new technologies to tackle industry pinpoints for example minor protection is one of relx is 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 and currently equipped all of our branded store with the upgraded software on the sunflower systems 3 all users are required to complete name plus id number plus face recognition 3 step verification before purchasing after the amendment to china is 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 2nd half with the state council is 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 is 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 1st half of the game when the sector lacked clear regulatory guidelines this 2nd 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 3rd 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 3rd quarter of 2021 net revenues decreased by 34% to rmb one .368 1000000000 equivalent to u s $260200000 in the 3rd quarter of 2021 from rmb 2 .54 1000000000 in the 2nd 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 2nd quarter 2 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 3 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 rmb 656000000 equivalent to u s one $101800000 in the 3rd quarter of 2021 from rmb one .15 1000000000 in the 2nd quarter of 2021 gross margin was 39 one in the 3rd quarter of 2021 compared to 54 sorry 45 one in the 2nd quarter of 2021 the decrease was primarily due to one an increase in direct costs related to promotional activities and 2 an increase in inventory provisions operating expenses were positive rmb 241 .3 1000000 equivalent to u s $37500000 in the 3rd quarter of 2021 representing a decrease of 244.4% for rmb 167 .2 1000000 in the 2nd quarter of 2021 this significant decrease in operating expenses was primarily due to a recognition of share based compensation expenses of positive rmb 523 .7 1000000 equivalent to u s $81300000 consisting of one share based compensation expenses of positive rmb 90 .8 1000000 equivalent to u s $14100000 recognized in some expenses 2 share based compensation expenses of positive rmb 320 one 1000000 equivalent to u s $49700000 recognized in general . equivalent to us dollars 49700000 recognized in general and . and administrative expenses and 3 share based compensation expenses of positive r d 112800000 equivalent to us dollar 17500000 recognized in research and development expenses the signif date . 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 is share price some expenses decreased 65 one to r d 56500000 equivalent to us dollar 818000000 in february of 2021 from r d in the 2nd quarter of 2021 the decrease was primarily driven by 1st the fluctuation of share based compensation expenses and 2nd 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 253200000 equivalent to us dollar 39300000 in the 3rd quarter of 2021 from r d 46 one 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 44600000 equivalent to us dollar 619000000 in the 3rd quarter of 2021 from positive r d 419000000 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 . and technical expenses and 2nd an increase in software expenses income from operations was r d 897300000 equivalent to us dollar 139300000 in the 3rd quarter of 2021 compared with r d 900 . 979300000 in the 2nd quarter of 2021 income tax expenses was r d 121400000 equivalent to us dollar 18800000 in the 3rd quarter of 2021 compared to r d 204200000 in the 2nd quarter of 2021 the decrease was primarily due to a decrease in taxable income us gap net income was r d 976400000 equivalent to us dollar 159 . 151 sorry 151500000 in the 3rd quarter of 2021 compared to r d 824300000 in the 2nd quarter of 2021 long gap net income was r d 452700000 equivalent to us dollar 70300000 in the 3rd quarter of 2021 representing a decrease of 30.5% from r d 651800000 in the 2nd quarter of 2021 us gap 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 0 333 m 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 14720000000 equivalent to us dollar 2280000000 compared to r d 14880000000 as of june 30th 2021 as of september 30th 2021 approximately us dollar 1640000000 equivalent to r d 10590000000 was it . was denominated in us dollars when the 3rd quarter ended in september 30th 2021 net cash used in work creating activities was r d 142900000 equivalent to us dollar 22200000 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 are 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 2 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 is 1st question comes from inaudible please go ahead hi everyone and inaudible management thank you for the presentation and this is lydia inaudible from inaudible i have 2 questions my 1st question is given the recent regulation of inaudible developmental would you like to share with us how will your product is portfolio involve going forward and what changes can we expect to see in your existing product portfolio and my 2nd question is so we saw the slow down for the 1st inaudible in the 3rd quarter so could you actually share more color on your 1st quarter to date operations trends and also your outlook for next year given the current regulation update and and also the . the covid situation thank you thank you very much lydia so regarding your 1st 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 are full aware of the press conference held by the state tobacco monopoly administration yesterday and also the announced product consultation of the national electronic cigarettes cross standards so we have been in the transition period of our new requirements to become effective they will strictly comply with regulatory guidelines so regarding what will be changed to our current product offerings if and or 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 will not 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 2nd question about market outlooks at 2020 so the current state does not have any guidance for the quarter together with next year so we hope 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 2 questions here the 1st one is could you please share your observations on the current comparative landscape for this industry are there any changes compared to the 1st half of this year and also what are your thoughts on the retail pricing for the . the current environment so that is the 1st question and then my 2nd question is 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 thank you very much charlie so i mean there are 2 questions one is on the comparative landscape and the other one is on our inaudible stores so i mean on the 1st one as mentioned before during the latter half of the 2nd quarter we do see that the industry developed . 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 . impacting the entire industry including our company and also our peers to varying degrees but in this regarding inaudible landscape we have observed reduced industry competition as compared to this 1st half of 2021 so regarding like retail price that you have mentioned so we do have increase our promotional access in the 1st quarter trying to drive our retail sales and reduce inventory pressure of our chain and we have also seen that given the 4th 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 reducing this further so going forward we will continue to monitor our inventory inaudible together refuse demand and adjust our promotional efforts promptly to maintain reasonable retail price of our end users so regarding your 2nd question about the single store sales and also how we mention healthy as an indicator so in these single store sales together with the profitability and accurately operating metrics has been a really core focus in our day to day operations as we are also aware of the industry wide lead in retail sales starting in the 2nd half on 2021 but however we also see that there have been recovery for many of our stocks in recent months as our store is 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 parameter for single store sales as we look at it one by one so for a 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 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 . also for the inaudible so i understand that you do not have the guidance but you you just mentioned that you have certain recovery during the . during the past mo mo month so could you be . could you share ways as more color on the recovery in terms of the single store sales and what does that store count as for now and what is our target for the year end and also what is key course driver for the recovery inaudible thank you very louise so based on preliminary inaudible data we do see sequential improvements in retail sales and also channel inventory managements so we could share more about our strategies in the inaudible so for inaudible stores 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 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 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 is then what is the outlook for cartridge development and inaudible the nicotine inaudible of 2% thank you very much thank you very jun how so i believe you are actually referring to the inaudible cigarettes inaudible tenders so indeed as a global . as a 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 as you many know most of our cartridge nicotine concentration is 3% if such 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 am 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 is conference call you may now disconnect your lines and have a wonderful day",
      "prediction": "hello ladies and gentlemen thank you for standing by for rlx technology inc is 3rd quarter 2021 earnings conference call at this time all participants are in listen only mode after management remarks there will be a question and answer session today is conference call is being recorded and is expected to last for about 45 minutes i will now turn the call over to your host mister sam sun head of the investment relations of the company please go ahead sam thank you very much hello everyone and welcome to our technologies for quarter 2021 earnings conference call the company is financials and operational results were released through the pl news via services earlier today and have been made available online you can also build the earnings press release by visiting the i 0 section of our website at i 0 gradustact com participants on today is call will include our co founder chairperson of the board of directors and chief executive officer ms kate wen chief financial officer ms chao lu and myself sam senator head of the universal relations before we continue please note that today is discussions will contain 4 documents made under the safe harbor positions of the us private security litigation reform act of 1995 these statements typically contain words such as may will express target estimate intent believe potential continue or other similar expressions 4 of the statements involve inherent risk and uncertainties the accuracy of these statements will be impacted by a number of business rates 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 is affiliates advisors representatives and underwriters do not undertake any applications to update these 4 looking information except as required under the applicable law please note that rx technologies earnings press release and these conference calls include discussions of unaudited gap financial measures as well as unaudited long gap financial measures our rx press release contains and reconciliation of the unaudited long gap measures to the unaudited gap measures i will now turn the call over to ms caitlin please go ahead thank you sam and thank everyone for making time storing our conference call today in the 2nd half of the 3rd quarter there have been progressive regulatory developments through the global e leper space including in china last friday november 26 2021 the state consults a decision to amend the detailed implementation regulations of the tobacco monopoly law of the people is republic of china by adding rule 65 which states that implementation rules for next generation tobacco products including e cigarettes shall refer to as relevant rules with respect to cigarettes under the implementation regulation of the tobacco monopoly law on tuesday november 30 2021 the state tobacco monopoly administration released a consultation paper entitled electronic cigarettes on national public service platform for scenders information under the state administration for market regulation speaking public comment regarding national electronic cigarette product standards yesterday december 2 2021 the state tobacco monopoly administration released a consultation paper entitled a administrative measures for electronic cigarettes seeking public comment regarding administrative measures electronic cigarettes covering various aspects including production distribution and retail sales import and export and inspections we firmly support this amendment to the detailed implementation regulations and have begun making any required attempts to file a comply with the new regulations and administrative measures we believe the amendment will pave the way for long term in a 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 pmpa applications and granted its 1st eva product authorization in october demonstrating its recognition of certain eva products harm reduction effects we closely follow global regulatory developments and view this regulation of u day prepared ups as a global trend and we will grow as countries worldwide to recognize u day prepared ups harm reduction benefits for adult smokers with these regulatory developments especially in china we believe the sector will enter a new era of development and era marked buying homes products 15 and quality off mantic social responsibilities and improved electoral property protection as some of you may be aware the 3rd quarter was challenging on the commercial front for the entire industry battle chain which had been reflected in our key bio chimp honor financial results previously these information from temporary and active public qyong with yves per sector and the wall in covid 19 restrictions in response to outbreaks in china which we discussed during the last quarter is urn call has had a significant adverse impact on the video cells and products procurement by our brand of war since the letter half of the 2nd quarter as a result we have record 34% quarter over quarter decline in our net revenue but we believe this revenue decline to be temporary and have a clear plan to achieve long term healthy growth which tow will explain in detail later despite those industry patterns we continued to focus on building a solid foundation for sustainable success in the 3rd quarter we doubled our scientific research efforts and continued to attract and recruit top talent to strengthen ourselves supply and change and armed de capability we are committed to providing adult smokers with innovative harm reduction products of the highest quality also at the irs we also plan and act for the long term corporate social responsibilities have been an integral part of values since day one in the 3rd quarter we unveiled our 2020 21 corporate social responsibility report there we shared our progress with respect to our csr initiatives some highlights include our industry leading age verification system soundflower system 3 with enhanced features to prevent underage use our relax care community service program to promote rural revitalization in common prosperity it is accomplishments our attachments to our dedication to fulfilling our social responsibilities we strive to actively impact our users in our youth and communities in which we live with that i will now turn the call over to our seattle child rule he will liberate some of our last quarter is initiatives and go over our operational and financial results in more detail thank you kate and hello everyone i will start by sharing some of these quarters 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 eceu 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 8 tobacco flavored cartridges in our initial stage at the same time we further upgraded chingfong a more accessible product line catering to price sensitive users needs we also recently relaunched stellar or chingfong in chinese a premium device line with upscale styling including leather lace and other fashionable materials we will continue to monitor user 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 reward points a growing number of users are scanning the qr code on their cartridges to collect robot 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 bait for product information to our users and the community finally we are concentrating on distribution and retail channel optimization instead of engaging more distributors and expanding the number of our relaxed branded stores this quarter we prioritized our existing distributors organizational upgrade we encourage our distributors to hire exceptional talents and refine their team structure within each department we optimize existing relaxed branded partner stores locations by identifying areas with high retail sales potential and encouraging store owners to adjust their operations accordingly in addition we provided online and offline trainees 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 resulting from periodic negative publicity on our category we have also upgraded our digitalization system for branded partners stores providing improved functionality and additional user portals to assist store owners and self personals in their daily operations for our other retailers audit our focus in the 3rd quarter was to identify prime audits for expansion through trials and various channels these trials resulted in several initial successes including strong 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 responsibilities we believe the healthy relationship between our products users shareholders and the community has been essential to the growth we have achieved over relaxes 4 year history with this in mind we will work tirelessly to introduce new technologies to tackle industry pain points for example minor protection is one of relaxes highest priorities we spare no efforts in our minor protection initiatives from product labels to trade channels and technology innovations in june 2021 we began upgrading sunflower system our technology driven minor protection system to version 3 and currently equipped all of our branded store with belk graded software on the sunflower system 3 all users are required to complete name plus id number plus face recognition 3 steps verification before purchasing after the amendments to china is 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 relaxed eyes 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 the echo what kate has pointed out previously our game has entered the 2nd half with the state council is decision to amend the detailed implementation regulations of the tobacco monopoly ball and the subsequent release of a consultation paper regarding national electronic cigarette product standards by the state tobacco monopoly administration as well as last night is release of a consultation paper regarding administrative measures on electronic cigarettes covering various aspects including production distribution and retail sales import and export and inspection different from the 1st half of the game when the sector lacked clear regulatory guidelines the 2nd half is marked by enhanced products safety and quality augmented social responsibility and improved intellectual property protection the investments we made in products talents research and compliance in the 3rd quarter and beyond will place us in advantageous positions of the new regulatory paradigm we expect these investments to year study and sustainable growth soon and to reward us and our shareholders in the long term turning to our financial results for the 3rd quarter of 2021 net revenues decreased by 34% to rmb 1680000000 equivalent to us dollar 260200000 in the 3rd quarter of 2021 from rmb 2540000000 in the 2nd quarter of 2021 the decrease was the result of volatile market conditions including one negative evay per industry publicity since the latter half of the 2nd quarter 2 the fact that the new the draft new rules announced on march 22 2021 had not been formally confirmed and no new implementation details had been revealed during the quarter and 3 evolving restrictions in response to covid 19 outbreaks in china which had a birth impact on ourselves and channel inventory management growth profit decreased by 42.8% to rmb 656000000 equivalent to us dollar one 101.8 minutes in the 3rd quarter of 2021 from r b 1150000000 in the 2nd quarter of 2021 rose margin was 39 one in the 3rd quarter of 2021 compared with to 54 sorry 45 one in the 2nd quarter of 2021 the decrease was primarily due to one an increase in direct costs related to promotional activities and 2 an increase in inventory provision operating expenses were positive r b 241300000 equivalent to us$37.5 1000000 in the 3rd quarter of 2021 representing a decrease of 244.4% from rmb 167200000 in the 2nd quarter of 2021 this significant decrease in operating expenses was primarily due to a recognition of share based compensation expenses of positive rmb 523700000 equivalent to us dollar 81300000 consisting of one share based compensation expenses of positive r b 90800000 equivalent to us dollar 14100000 recognizing selling expenses 2 share based compensation expenses of positive r b 320100000 equivalent to us dollar 49700000 recognizing general and administrative expenses and 3 share based compensation expenses of positive r d 112800000 equivalent to us dollar 17500000 recognized in research and development expenses the significant fluctuations in share based compensation expenses were primarily due to the changes in fair value of the share incentives award that the company granted to employ you as affected by significant fluctuations of the company is share price selling expenses decreased by 65 one to r b 56500000 equivalent to us dollar 8800000 in 3rd quarter of 2021 from r b 126000000 in the 2nd quarter of 2021 a decrease was primarily driven by 1st the fluctuation of share based compensation expenses and 2nd a decrease in salaries and welfare benefits partially offset by an increase in branding material examples general and administrative expenses decreased by 649.8% to positive rmb 253200000 equivalent to us$39.3 1000000 in 3rd quarter of 2021 from rmb 46 one in the 2nd quarter of 2021 the decrease was primarily driven by the fluctuation of share based compensation expenses and the decrease in salaries and welfare benefits research and development expenses decreased by 808.3% to positive r d 44600000 equivalent to us$6.9 1000000 in the 3rd quarter of 2021 from positive r b 4900000 in the 2nd quarter of 2021 the decrease was managed by the fluctuation of the share base compensation expenses and a decrease in salaries and welfare benefits partially offset by an increase in software and technical expenses and 2nd an increase in consulting expenses income from operations was rmb 897300000 equivalent to us dollar 130 9.3 minutes in the 3rd quarter of 2021 compared with r b 979.3 minutes in the 2nd quarter of 2021 income tax expenses was r b 121.4 minutes equivalent to us dollar 18.8 minutes in the 3rd quarter of 2021 compared to r b 204.2 minutes in the 2nd quarter of 2021 the decrease was primarily due to a decrease in tax borne income us gaap net income was on the 976400000 equivalent to us dollar 151500000 in the 3rd quarter of 2021 compared to rmd 824300000 in the 2nd quarter of 2021 long gap net income was rmd 462700000 equivalent to us dollar 70300000 in the 3rd quarter of 2021 representing a decrease of 30.5% from rmd 651800000 in the 2nd quarter of 2021 us gas basic and diluted net income per ads were rmb 0.724 equivalent to us dollar 0.112 and rmb 0.717 equivalent to us dollar 0.111 respectively in the 3rd quarter of 2021 compared to us gaap basics and diluted net income per ads of rmb 0.595 and rmb 0.591 respectively in the 2nd quarter of 2021 longout basic and diluted net income per ads work rmb 0.336 equivalent to us dollar 0.052 and rmb 0.333 equivalent to us dollar 0.052 respectively in the 3rd quarter of 2021 compared to non gasp basics and diluted net income per adf of r b 0.470 and r b 0.467 respectively in the 3rd quarter of 2021 as of september 30 2021 the company had cash and cash with equivalents restricted cash short term bank deposits short term investments and short term bank deposits of r b 14720000000 equivalent to us dollar 2280000000 compared to r d 14880000000 as of june 30 2021 as of september 30 2021 approximately us dollar 1640000000 equivalent to r d 10590000000 was the worst denominator in us dollar for the 3rd quarter ended september 30th 2021 net cash used in operating activities was r b 142900000 equivalent to us dollar 22200000 this concludes our prepared remarks today we will now open the call to practice operator please go ahead thank you we will now begin the question and answer session to ask a question you may 1st start with one on your touch time phone if you are using a speaker phone we ask you please pick up your handset before pressing the keys to withdraw your question please press star them too and for the benefit of all participants on today is call if you wish to ask your question of the management in chinese please immediately repeat your question in english today is 1st question comes from lydia ling in city please go ahead hi everyone hi science management and thanks for the presentation and this is dedellin from cd i have 2 questions my 1st question is given the recent registration update development so what would you like to share with us how will your product portfolio involve going forward and what changes can we expect to see in your existing product portfolio and my 2nd question is so we saw this loadout in the 3rd quarter so could you actually share more color on your 4th quarter to date operation trend and also your outlook for next year given the current regulation update and also the covid situation thank you thank you very much lydia so regarding our 1st question regarding our product portfolio so we do have a very clear and a part of the environment strategy as mentioned in the open remount we try to offer device products to the right future segments for the optimal root market channel so we do aware of the press conference held by the state tobacco monopoly administration yesterday and also the announced public consultation of the national electronic cigarettes across standards so if being the transition period for new requirements to become effective we will strictly comply with the regulatory guidelines so regarding what would be changed to our current product offerings if and or when the draft national electronic seagrass cross standards become effective we anticipate we may need to modify some of our current offerings however we are very confident that such changes will not be complex for a company adequately and we believe asthma crystals still continue to stick out and use our products as harm reduction alternatives so regarding your 2nd question about the 4 k outlooks in 2020 so we currently do not have a guidance for the quarter to go together with next year so we hope to share more when we have the parity thank you very much our next question today comes from charlie chen and china renaissance please go ahead thank you managans to take my questions i have 2 questions here the 1st one is could you please share your observations on the current competitive landscape for this industry are there any changes compared to the 1st problem this year and also what are your thoughts on the retail pricing for the current environment so that is the 1st question and my 2nd question is regarding single sales so what are the single sales of real sex branded partner stores for now from your perspective where do you consider to be a healthy single sales level thank you very much thank you very much charlie so i mean there are 2 questions one is on the compacted landscape and the other one is on our real explainer kind of stores so i mean the 1st one as mentioned before during the lack of half of the 2nd quarter we do see that the industry debonless did not progress as expected so indeed this has carried into the birth quarter when we do see that there are external factors affecting the entire industries including our company and also our peers to varying degrees but indeed regarding some passive landscape we have observed reduced industry competition as compared to this 1st half of 2021 so regarding retail price that you have mentioned so we do have increased promotional access in the 3rd quarter trying to drive our retail sales and rebuilds the infantry pressure of our weather chain and we have also seen that given the 1st quarter decline in general consumer spending in china many other companies similarly implemented subsidies or other sales incentives so the overall magnitude of our subsidies or promotional efforts is relatively insignificant compared to other consumer goods companies in china and we have started already reducing its further so going forward we will continue to monitor our infantry level together with ucd mun and adjust our promotional efforts promptly to maintain reasonable retail price for our end users so regarding your 2nd question about the single star cells and also how we mentioned healthy as the indicator so indeed single star cells together with their proper ability and every operating matrix has been a really core focus in our day to day operations as we also aware of the industry wide deep in retail sales starting in the 2nd half of 2021 but however we also see that there have been recovery for many of our stores in recent months as our stores operating in a wide variety of locations some are then used in shopping malls and some are then used on the streets and they also face different local environments we believe each store situation is very unique so indeed the internal thing will not have a healthy parameter for single store sales as we look at it one by one so for a branded e vapor company we have been devoting resources and tools to assist star owners and south personnel in their data operations including providing branding materials posm training resources digitalization tools and enhanced star site selection assistance so in this for this quarter we have also launched a several new products and also upgraded our membership system to drive user engagement and retention better so with these initiatives we believe we can and we will continue to drive single store sales of relaxed brand of panel stocks thank you very much thank you my question comes from luis lee a bank of america please go ahead hi hi management thank you for taking my question so my question is only for the also for the q 4 outlook i understand that you do not have big items but we just mentioned that you have sent some recovery during the past amount of maps so cleru shir raised us more color on the recovery in terms of the single store sounds and what is a store count as for now what is our target for the year end and also what is a key grower is driver for the recovery thank you very much luis so based on our preliminary a quadrantase data we do see sequential improvements in retail south and also channel inventory management so we could share more about our strategies in the broad aspects so for our relax brand up on the stores for a quarter of a day we have been focusing on increasing single store sales throughout the initiate tspe being mentioned and up till now we do see the initial success and for our retail outlets we do see strong growth momentum in store towns in multiple channels and our retail channel has become more diversified from quarter of days but of course we are also keenly aware of the recent developments in the regulatory funds especially yesterday is press release held by the state tobacco monopoly administration so it was greatly followed to any new regulations and administrative measures thank you very much thank you our next question today comes from paehong lv with cicc please go ahead hi your matchments and paehong lv at cicc i have one question is that what is the outlook for car purchase development and the nicotine limit of 2% thank you very much thank you very much jun hao so i believe you are actually referring to the tuesday draft of the current secret product standards so indeed as a global u s listed china company we have been long been aware of product requirements globally including in the european union and also initial draft of national product standards so looking at the well developed markets penetration we believe blowing nicotine concentration will affect some user statement satisfaction however most of the additional course could still satisfy the expression nicotine content or limits in the long run so from the perspective of product development or technology development we have picked up products related to low neckle heating concentration that is a discussion since 2019 and we do have the pinnacle newhouse and product resource so currently as you may know most of our cartridge nicotine concentration is 3% if such national standards become effective they will strictly comply with all the requirements listed on the national product standards including on the nicotine content thank you very much thank you ladies and gentlemen this includes your question and answer session i would like 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 our expetnology and the vessel relations team through the contact information provided on our website our tpg meso relations thank you ladies and gentlemen this concludes today is conference call you may now just smash your lines and have a wonderful day",
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      "reference": "welcome to grupo aval is 2nd quarter 2021 consolidated results conference call my name is yanni and i will be your operator for today is 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 is 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 2nd quarter of 20 may will should expects plans anticipates believes estimate . 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 have referred to 1000000000s as 1000s of 1000000s 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 mister luis carlos sarmiento gutierrez chief ex executive officer mister sarmiento you may begin good morning and thank you all for joining our 2nd 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 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 us start with a macroeconomic scenario of the last few months during the 2nd 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 is vaccination programs additionally new variants of the virus such as the delta +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 30000000 doses have been administered and more than 13000000 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 6.5% to 7.5% 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 161000 the average unemployment rate during the 2nd quarter was 15% compared to 15.8% during the 1st 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 1400000 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 is 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 is number has been driven mainly by supply factors and by statistical base effect in fact the surge of food prices of 5.5% 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 . 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 2 and a quarter percent from its current one.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 is 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 15000000000000 pesos or one.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 is 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 is 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 1st 2 months of the 2nd quarter panama estimated an annual gdp growth of 16.5% 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 1st 2 months of the 2nd quarter was 28 one 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 1st 2 months of the 2nd 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 11.5% of our total consolidated loan portfolio or approximately 24500000000000 pesos in loans in colombia as of june 30 active relief amounted to 8000000000000 pesos or 5.9% of the colombian loan portfolio including 7700000000000 in structural agreements with clients in central america reliefs amounted to 16500000000000 pesos representing 20.9% of the region is portfolio these reliefs in central america were driven by panama which accounted for more than half of the region is active reliefs of all loans in both geographies that have concluded the relief periods those currently past due 90 days or more represent only one of our total consolidated loan portfolio and those currently past due 30 days or more represent one.8% of our total consolidated loan portfolio our cost of risk as it has 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 1st 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 are 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 . 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 5200000 increase in approximately 31 . 5200000 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 1st 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 10000000 users in central america we recently launched kash with a k a transactional app available across the region that already has 100000 digital clients 70% of which are not bank clients with more than 350000 transactions to date soon family remittances will be available through our kash app this will allow us not only to acquire at least 500000 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 are 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 2nd 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 950000000000 pesos aval is attributable net income for the 1st half of 2021 was 1740000000000 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 1st 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 will 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 2nd quarter of 2020 only included one month of mfg is 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 one quarterly and a 3.6% year on year growth in dollar terms quarterly depreciation of one.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 one over the quarter and 2.2% year on year colombian gross loan portfolio increased one during the quarter slightly slower than the quarter earlier while 12 month growth was one.5% demand of consumer loans remained high in colombia resulting in a one.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 one over the quarter and 21.3% year on year in contrast although performing better than a quarter earlier credit cards contracted one.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 one 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 4th 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 one.3% growth in payroll loans quarterly growth in credit cards took the year on year growth to 5.8% the 1st positive figure since 2nd quarter 2020 commercial loans and mortgages grew one.7% and one one 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 is 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 2nd 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 one of our total gross loans these numbers were 7.3% and one.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 one one of gross loans for 30 days past due loans these numbers were 9.3% and one.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 one.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 . 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 one 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 one 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 one a year earlier the quarterly improvement incorporates 58 basis points decrease in retail loans and a 5 basis points increase in commercial loans quarterly cost of risk improved by 34 basis points in colombia and 4 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 one.7% during the quarter and 6.4% year on year colombia grew one.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 one.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 2 factors limit the comparability of our results year on year 1st a low baseline considering that the strongest effect of the pandemic and commercial activity was suffered during that quarter and 2nd only one month of mfg operations was part of our 2nd quarter 2020 pnl now moving to the content of this page 1st 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 is 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 1st 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 1st half income from the energy and gas sector grew 60% year on year while quarterly income was 2 one 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 fixed income portfolios and by the seasonally high income from dividends during the 1st quarter on page 17 we present some efficiency ratios 1st 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 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 1st quarter other expenses increased 6 one with colombia growing at 6.8% and central america growing at one.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 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 2nd quarter 2021 was 950000000000 colombian pesos or 42.6 pesos per share its best result ever for a quarter this result was 19.9% higher than the previous quarter and 2.9 times that a year earlier our return on average assets for the quarter was 2% and one.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 one 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 are using a speakerphone you may need to pick up the headset 1st before pressing the numbers once again if you have a question please press star then one on your touch tone phone and our 1st question comes from sebastian gallego from credicorp capital please go ahead good morning thank you for the presentation and congratulations on on very strong results i have several questions today 1st of all the you just mentioned mister diego mentioned an roe guidance of 15 to 15.5% in 2021 can you discuss on how sustainable are are are these type of returns going into 2022 and on a long term sustainability basis 2nd it caught my attention . mister luis carlos comments on the potential competition on digital platforms and how far those platforms could have trouble monetizing the . i mean their their users can you discuss a little bit more the the competitive environment on on that front and and why are you so confident that other players may not be able to monetize those those users and finally if you could provide an outlook for loan growth breaking down per per region and breaking down per segments given the 9 to 10% guidance thank you very much okay yeah let let let me start with your question number 11 on on digital wh wh wh what i what i meant is the following the the what we see around the region with platforms fintech platforms that have been able to turn in net income is basically the not charging fees but charging substantial interest rates in one way or another in colombia as i said it is a little bit more complicated because we have very strict usury rate regulation so here when when you bring on digital clients you have to consider how you are going to monetize them and 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 other types of clients that will probably not be subject to becoming debtors in via loans it might be a little bit harder to monetize them so i you know i do not have the the solution and i am sure that everybody who is 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 structure and and obviously some of these fintechs which are starting in from the beginning as as as solely digital platforms with no legacy of of other types of costs have a an easier time of of keeping costs down but all that i am saying is in our case when we think about massification of digital clients we always think in terms of what is that going to produce i in with respect to net income for the company so in that respect we we usually say let us start with those actions that we know are going to 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 and and that is why we are saying in our in our in our strategy we 1st 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 could acquire them that way and secondly we have 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 but we have to make sure and and that that those clients have some future in terms of producing additional revenues for the company so so that is that is what i was referring to in in when when i talked about our digital strategy yeah and moving to your your guidance questions regarding return on equity even though we are 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 cost of risk still has room to improve throughout the year and into next year that has been part of what has helped us in sustaining our stronger results than market and we expect to continue seeing that improvement into a future the other part that will be helping us as well is all that that is related to increased 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 associated with activity what could dampen the kind of positive numbers that i am 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 is currently in congress the numbers might not change substantially compared to this here but 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 almost on the last line we have the impact of taxes that is a a long way to to tell you that even though we are not giving guidance these kind of numbers are numbers that we could expect to continue seeing into the future then regarding the breakdown of what is not going to happen with loan growth as mentioned we have a much better performance from the the growth perspective on the consumer front we could expect to see something in the 12 to 14% area growth and on the commercial front it should be somewhere between 6 and 7% if you break down that by by regions colombia should be in the 6 to 8% 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 an 11% 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 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 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 the protests but if you can help us with that would be great i am i am sorry were you referring to fee income or to income growth i i did not hear you properly well it could be talking about normalized levels of growth but it is you know however you think it is best to formulate it okay w well regarding the the loan side i just mentioned it before it is volume wise we have the dynamics i i just covered when when referring to sebastian is question regarding margins we are actually moving into a a better ground for margins given that we expect to see the central bank increasing rates under fees side we mentioned we are slightly short from loan growth because loan growth is starting to come stronger therefore if loans are growing in the 9 to 10% area we could be a couple percentage points below that and on the fees side fees still has some room to to increase particularly for 2 reasons and number one on the pension side we had some impact during this quarter of volatility that implied that some . 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 is 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 . i would say the main driver will be economic activity we are seeing a strong pickup we are 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 are ready to to to start to to open our our risk a appetite so that will come eh with fees eh as well i do not 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 one 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 and then i will give a 2nd question thank you okay regarding cost of risk you might have known that we lowered our guidance we had previously given . initially we started out with 2.5 lowered it 2.3 to 2.4 and this time around we are lowering it to 2 one to 2.2% the reason for that eh is we are seeing a much better performance on our loan portfolio particularly on the retail side and then given the much stronger economy that we are looking into in colombia and central america the remaining of the remainder of the portfolio beyond what what was a benefited from reliefs is also performing much better so so that is the reason we are 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 are later in the process of finishing reliefs in absence of that we might have had a positive bias on the numbers that i mentioned my 2nd question would be on on 2022 i know it is still a bit early but we are getting to closer to it so just thinking about your guidance if you have any idea of how you know any of these lines would look like and 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 1st congrats on the results very good quarter i have a a question on margins actually on the liability side i guess we are seeing logbook accelerating in colombia right but my my question is regarding this funding do you think you will be able to keep growing deposits at a healthy pace because over the last 12 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 is correct if that assumption that maybe funding cost would be higher that can penalize a little bit the needs but on the other hand 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 it is what should we expect for inaudible in in in the coming in the coming quarter for you thank you yeah eh trying to to . i i am going to give you 1st the short answer and then i can go into detail the short answer is deposit growth we we should expect to continue sustaining that however i mentioned somehow or i hinted twice that we have had excess liquidity that has been a burden on our net interest margin that has been a prudent way to manage it particularly in central america where there is no central banks we have 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 regarding margins 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 rate in colombia has already started to pick up reflecting expectations on increase of profits if you eh recall what eh we have in our in our commercial portfolio in colombia is substantially floating eh loans based on ibr so eh we have started to feel that already it is 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 is the main source of improvement in margin when eh rates go up there is 2 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 are 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 if there is . i i know it is 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 you have to build in cost of risk into that we have . in the past we used to disclose some sort of sensitivity around the the the 20 basis points or the \u00a220 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 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 are seeing increases in rates combined with improvement in eh cost of risk eh are perhaps the most +and more most sensitive or 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 the the risk premiums are built into pricing 0 perfect thank you and again congrats on the quarter and our next question comes from julioalsike from davivienda please go ahead hi everyone and 1st 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 2nd half of 2020 like you think the earnings is going to beha are going to behave the same as the 1st 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 going to happen over the the the 2nd half of the year we are quite positive on how the 2nd the year will behave as i mentioned still prudent on the cost of risk side that is the reason why eh we are 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 are looking into eh commercial lending growing somewhere in the 6 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 my question is related to expenses when i compare expenses this quarter with the 2nd quarter of 2019 there is an 14% growth obviously we you have inorganic growth in the middle bu it is still you have real expense growth over that period so i would like to to understand if there is any strategy to achieve efficiency in the past you mentioned that this could be one of the opportunities that the digital transformation cou could bring to a group of inaudible through the backend int integration of the different brands so i would like to to understand your thoughts about your your expense performance eh well eh i i will start 1st with 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 is 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 is 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 are 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 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 an enabler to to to lower costs and that is part of what we have been using okay thank you ladies and gentlemen i will not return a call to mister sarmiento for closing remarks jenny thank you very much i thank you for the everybody is questions thank you for the attendance we hope to keep delivering and we hope to have to start giving guidance for 2022 on our next call other than that just hope to see you hope all of you can attend next call as well and thank you jenny and thank you everybody else this concludes today is conference thank you for participating you may now disconnect",
      "prediction": "welcome to group of all 2nd quarter 2021 consolidated results conference call my name is yannia nabi your operator for today is call group of all aksiones ivalores sa group of all is an issue of securities in colombia and in the united states as such it is subject to compliance with securities regulation in colombia and applicable u s securities regulation groupo abal is also subject to the inspection and supervision of the superintendency of finance as holding company of the abal financial conglomerate 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 gap measures such as roaa and roaa among others are explained when required in this report this report includes forward looking statements and some cases you can identify these forward looking statements by working on our 2nd or 2000 expect plans and dissipates believe estimates estimates predict potential or continue or the negative of these and other comparable words actual results and events may differ materially from those anticipated hearing as a consequence of changes in general economic and business conditions changes in interest and currency rates and other risks describe from time to time in our filings with the histra nazu nazu nazu vadlores y emisores in the sec recipients of this document are responsible for the assessment and use of the information provided here matters described in this presentation and our knowledge of them may exchange 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 update for such material developments prior to our next earnings report the content of this document and the figures included here are intended to provide a summary of the subject discussed rather than a comprehensive description when applicable in this document we have referred to 1000000000s and 1000s of 1000000s at this time all participants are in a listen only mode later we will conduct a question and answer session i want to ask her to call over to mister luis carlos armiento gutierrez chief executive officer mister armiento you may begin good morning and thank you all for joining our 2nd 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 update on the macroeconomic environment of the regions where we operate the status of the loan reliefs granted to our clients the progress of our digital efforts and the main highlights of our financial performance let us start with a macroeconomic scenario of the last few months during the 2nd quarter of the year the global economy continued to recover there are however material differences in the recoveries of countries depending on the effectiveness of these countries vaccination programs additionally new variants of the virus such as the delta +and more recently the gamma variant continue to appear for now it is apparent that the vaccinations being administered are effective against these new variants however where this is not the case economic repositories would be curtailed in any case pure evidence of the effectiveness of the vaccination programs resides 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 30000000 doses have been administered and more than 13000000 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 a sub july disindicator 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 towards its pre pandemic level as a result analysts have continued to raise their estimates of the gdp growth forecast for colombia 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 at its latest meeting the central bank revised its own growth forecast from 6.5% to 7.5% and in a while 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 161000 the average unemployment rate during the 2nd quarter was 15% compared to 15.8% during the 1st 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 1400000 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 a further decline in the unemployment rate to 12% by years end reaching an average of 14.8% for 2021 in june 12 months inflation reached 3.63% 204 basis points higher when compared to inflation during 2020 this year is number has been driven mainly by supply factors and by statistical base effect in fact the search of food prices of 5.5% 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 in 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 as 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 expected the central bank will start a monetary pilot is policy tight in the cycle in the last quarter with a high probability of 2.25 basis points heights before the end of the year in that scenario the repo rate will increase to 2.25% from its current one.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 in safe assets caused by the renewed uncertainty owing to the spread of the delta variant and also due to the increasing colombia is risk premium however with the projection that the central bank will start a 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 colombia 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 15000000000000 pesos or one.2% of gdp the additional revenue would mainly originate from increasing the corporate tax rate to 35% starting in 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 this surcharge was expected to cease by 2023 other components of the tax reform include reducing tax deductible expenses strengthening legal measures to fight tax evasion and up 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 years and 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 upset by larger and better priced oil and coffee exports with respect to central america the imf expects a 5.7% growth of the region is economy in 2021 as discussed in the past central america greatly benefits from the recovery of the u s economy as certain central american countries are highly dependent on cash remittances in coming 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 data and iora need to invest heavily in the reconstruction works during the 1st 2 months of the 2nd quarter panama estimated an annual gdp growth of 16.5% and 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 surged year and year 55% in osabador 43% in guatemala and 44% in honduras annual economic growth estimated for the 1st 2 months of the 2nd quarter was 28 one in osabador 15.8% in guatemala and 28.4% in honduras guatemala honduras grows will be boosted as i said before by increases in fiscal spending to reconstruct damaged infrastructure after dimension storms finally based on leading indicators euro and your economic estimated growth reached 15.2% in nicaragua during the 1st 2 months of the 2nd 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 11.5% of our total consolidated loan portfolio or approximately 24500000000000 pesos in loans in colombia as of june 30 active relief amounted to 8000000000000 pesos or 5.9% of the colombian loan portfolio including 7700000000000 in structural agreements with clients in central america reliefs amounted to 16500000000000 pesos representing 20.9% of the region is portfolio these reliefs in central america were driven by panama which accounted for more than half of the region is active reliefs of all loans in both geographies that have concluded the relief periods those currently passed due 90 days or more represent only one of our total consolidated loan portfolio and those currently passed due 30 days or more represent one.8% of our total consolidated loan portfolio our cost of risk has it been both reflect our estimation of losses related to the complete unwinding of these relief problems 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 digitalizations of core processes in our banks 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 that are now in the process of rolling those out to 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 digital applications and 40% of those are in 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 are 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 1st 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 are already there secondly our centralized data platforms in our digital labs such as acosta 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 allowed us to acquire new digital clients as 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 5200000 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 when we 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 user rate restrictions transactional platforms with low or no fees will find it difficult to sell profitable banking products regardless of their 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 we are profitable products of our banks are part of the solution among those 1st in colombia our digital labs have been working to redesign popular existing websites such as carolla metro choirao and elemplo punta 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 a 4 door bank the opportunity to increase digital clients through auto loans mortgages payroll loans and other products these ecosystems currently serve over 10000000 users in central america we recently launched cash with a cait a transactional app available across the region that already has 100000 digital clients 70% of which are not puc clients with more than 350000 transactions to date soon family remittances will be available through our cash app this will allow us not only to acquire at least 500000 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 are improving our digital channels to better fit our customer is needs banco popularar launched recently its banking app at the beginning of the year and we expect banco de occidenta and banco de vigia 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 a preferred means to make the request almost 20% of those queries are picked up and handled by cadbot and resolved without human intervention to finish regarding our financial results diego will refer next in detail to our financial performance during the 2nd quarter of 2021 however allow me to highlight the following to start with groupo i registered its best results ever for a quarter with a attributable net income of approximately 950000000000 pesos a while its attributable net income for the 1st half of 2021 was 1740000000000 pesos this resulted 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 1st 2021 has been a year with excellent results in the pure banking business where we have been able to defend our intermediation spread mainly to pricing discipline while successfully growing our loanbook our loan portfolio has been behaving better than expected 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 yields 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 will pass on the presentation together who will explain in detail our business results you have a good day thank you ris carlos i will now move to a consolidated result of blue power under ifrs before covering the following pages bear in mind that as of june 2021 mft 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 2nd quarter of 2020 only included one month of mft is operations now starting on page 9 our assets grew 2.2% over the quarter and 3.4% year on year colombian asset growth continuous strengthening recording 2.3% increased during the quarter and 3.4% year on year well central american assets recorded a 0 one quarterly and a 3.6% year on year growth in dollar terms quarterly depreciation of one.9% and a 12 month appreciation of 0.2% take quarterly and annual growth in pesos of central america to 2% and 3.4% perspective 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 strength growth of high quality retail lending products was partially dampened by a sealed 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 one of the quarter and 2.2% year and year column and gross loan portfolio increased one during the quarter slightly slower than the quarter earlier while 12 month growth was one.5% demand of consumer loans remained high in columbia resulting in a one.7% increase during the quarter and 11.3% year and 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 months this may signal an increase in the risk appetite of banks parent lending that accounts for 61% of our colombian consumer portfolio grew 3 one over the quarter and 21.3% near a near contrast although performing better than a quarter area credit cards contracted one.6% and personal loans remain relatively stable these products account for 12% and 20% of our colombian consumer portfolio respects as seen in other secured retail products in colombia mortgages remain dynamic expanding 3 one of the quarter and 12% year and year our colombian corporate portfolio continued its mild recovery growing at a still shy 0.4% our growth versus data of our peers continues to benefit by our pricing discipline where we privilege profitable customer relationships over market share humulative 12 month growth was negative at 4.4% with a still high comparison base a year ago moving to central america our gross loan portfolio increased 2% of the quarter and 3.6% year on year in dollar terms quarterly performance in central america strongest since 4th 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 one.3% growth in payroll loans early growth in credit cards took a year on year growth to 5.8% the 1st positive figure since 2nd quarter 2020 commercial loans and mortgages grew one.7% and one one respectively during the quarter in central america looking forward fundamentals for long growth continues to strengthen in both geographies we 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 advance risk appetizing products that were de emphasized during the show on pages 11 and 12 we present several loan portfolio quality ratios the covid 19 crash function continued unwinding favorably for our banks during the 2nd 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 long reliefs continue to expire and return to active payment schedules as expected these loans have higher telling considerations than the average in contrast the remainder of our loan portfolio 88.5% continues to improve in line with a stronger economy upsetting 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 growth loans are still under payment holidays the remaining release are under structural payment programs in central america 20.9% of our loans still have some type of release with 7.8% of growth 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 the 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 2 more than 90 days this past 2 loans represent one of our total gross loans these numbers were 7.3% and one.8% for loans past 2 more than 30 days in colombia 5.7% of loans previously released that had received active payment schedules for 90 days past 2 representing one one of close loans for 30 days past loans these numbers were 9.3% and one.8% in central america 2.6% of loans previously released that had returned to active payment schedules were 90 days past june representing 0.9% of those loans for 30 days pdls these numbers were 5.3% and one.8% as mentioned before the deterioration in relief loans was partially upset by the improvement of the rest of our loan portfolio this resulted in the overall metrics for 30 days and 90 days pels remaining relatively stable during the quarter our allowance coverage of 30 days and 90 days pels remain flat as well as over the quarter the ratio of charge offs to average 98 pdls to that pre covid levels regarding 30 80 l 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% of 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 30 day basis and 3.42% at 98 pdl basis with 30 day and 90 day pdl sorry our 30 day and 90 day pdl were 71 and 42 basis points higher than those a year earlier the composition of our loan portfolio in terms of stages shows an improvement in the share of stage one loans compensated by a increase 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 one 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 recoverings was 2% 23 basis points lower than the 2.2% in the previous quarter and 111 basis points lower than the 3 one a year earlier the quarterly improvement incorporates 58 basis points decrease in retail loans and a 5 basis points increase in commercial loans quarterly costs of risk improved by 34 basis points in colombia and 4 basis points in central america in colombia the cost of risk of retail loans improved in the 4 basis points while that 4 commercial loans remain 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 reject a high liquidity environment our deposits to net loans ratio and our cash to deposit ratio remain stable over the quarter at 110% and 15.8% perspectives our funding structure remained materially unchanged with deposits accounting for 78% of total funding deposits increased one.7% during the quarter and 6.4% year and year columbia grew one.4% during the quarter while central america grew 0.2% in dollar terms the 12 month period columbia grew 3.3% and central america 11.6% in dollar terms and what growth of deposits above that of loans reflects a conservative liquidity standing particularly in central america on page 14 we present the evolution of our total capitalization our approval shareholders equity and the capital and equity ratios of our banks the total equity grew 5% over the quarter and 8.2% year on year while our total equity increased 5.3% and 7.6% respectively mainly driven by our earnings solvancy ratios under basis remain relatively stable as net income provides that support for risk related assets growth over the quarter on page 15 we present our yield and loans cost of funds spread and nimm nimm performance during the quarter was presented by a stable nimm on loans and an improvement of nimm on investments nimm on loans remained at 5.8% during the quarter as a spread between yield and loans and cost of funds remained flat at 6% yield and loans continued decreasing however it was compensated by a similar decreasing cost of funds newman investments was one.4% during the quarter returning to positive ground from the minus 0.4% recorded last quarter the excess liquidity associated with the product liquidity standing continued to weigh on our number on page 16 we present netfis and other income on this page and the following we will present several p l lines and metrics please bear in mind that 2 factors limit the compatibility of our results year and year 1st a low base line considering that the strongest effect of the pandemic and commercial activity was suffered during that quarter and 2nd only one month of mfp operations was part of our 2nd quarter 2020 p l now moving to the content of this page 1st half gross fee income increased 8.7% year and year while quarterly year and year growth was 17.9% gross fees fell 3.6% during the quarter affected by a temporary pass in recovery associated with the demonstrations held in colombia during april and may in addition performance based pension management fees in colombia and bank assurance related expenses in central america affected these quarters performance income from the non financial sector reflects the strong performance of the infrastructure and energy and gas sectors a infrastructure sector through 17.5% over the quarter mainly due to the strong performance in the construction of some of our programs 1st half contribution from the infrastructure sector grew 48% year and year hardly income from infrastructure was 3.8 times that a year earlier when the screening lockdown experience marched 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 1st half income from the energy and gas sector grew 60% year on year while quarterly income was 2 one times compared to a year earlier when an increase in industrial gas demand during the lockdowns affected our results the bottom of the page the quarterly increase in other income is explained by lower contribution of oci realization of per value fixed income portfolios and by a seasonally high income from dividends during the 1st quarter on page 17 we present some efficiency ratios 1st half other expenses increase 2.4% year on year while quarterly expenses grew 4.5% year on year year to date expenses through 0.6% in colombia and 0.2% in dollar terms in central america excluding the effect of mfg quarterly expenses increased year and year 3.3% in colombia and 0.6% in dollar terms in central america excluding the effect of mfg compared to 1st quarter owner expenses increased 6 one with colombia growing at 6.8% and central america growing at one.3% in dollar terms in addition to an increase in cost associated with higher activity these quarter included provisions of the remaining 50% of the penalty imposed to court in colombia by the colombian superintendency of industry and commerce in relationship to the concessionaria root health so it does 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 profit value duration a 3 year old net income for 2nd quarter 2021 was 950000000000 colombian pesos or 42.6 pesos per share its best result ever for a quarter this result was 19.9% higher than the previous quarter and 2.9 times that a year earlier our return and average assets for the quarter was 2% and one.9% year to date our return and average equity for the quarter was 18.2% and 16.7% year to date i will summarize our guidance for 20 we expect loan growth to be in the 9 to 10% area net interest margin and 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 one to 2.2% range net fees to grow in the 8% area are non financial sector to grow in the 5% area expenses growth to be in the 4% area and return an average equity to be in the 15 to 15.5% range we are now available to address your questions thank you if you have a question please press star than one on your touchtone phone if you wish to be removed from the queue please press the pound sign or the hash key if you are using a speaker phone you may need to pick up the handset 1st before pressing the numbers once again if you have a question please press star than one on your touchtone phone and our 1st question comes from sava stan gaiego from credit capital please go ahead good morning thank you for the presentation and congratulations on very strong results i have several questions today 1st of all you just mentioned mister diego mentioned an arrow in guidance of 15 to 15.5% in 2021 can you discuss on how sustainable are these type of returns going into 2022 and on a long term sustainability basis 2nd you cut my attention mister riskeldo is comments on potential competition on digital platforms and how those platforms could have trouble monetizing the users can you discuss a little bit more the competitive environment on that run and why are you so confident that other players may not be able to monetize those users and finally if you could provide an outlook for long growth breaking down per region and breaking down per segments given the 9 to 10% guidance thank you very much okay let me start with your question number 11 on digital what i meant is the following what we see around the region with phintech platforms that have been able to turn in net income is basically the not charging fees but charging substantial interest rates in one way or another in colombia as i said it is a little bit more complicated because we have a very strict user rate regulation so here when you bring on digital clients you have to consider how you are going to monetize them 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 just become so to receive subsidies from the government or other types of clients that will probably not be subject to becoming debtors in be a loans it might be a little bit harder to monetize them so i do not have the solution and i am sure that everybody who is coming up with a digital platform has thought about this and obviously most of it is going to depend on what your cost of funds is if you are planning to take in funds to then try to make those customers into borrowers it also depends on your costs structure and obviously some of these fintechs which are starting from the beginning as solely digital platforms with no legacy of other types of costs have an easier time of keeping costs down but all that i am saying is in our case when we think about m acidification of digital clients we always think in terms of what is that going to produce with respect to net income for the company so in that respect we usually say let us start with those actions that we know are going to result in valuation and valuation be additional net income because as you know we are basically valued based on a price to earnings ratio and so we have to produce the earnings and that is why we are saying in our strategy we 1st 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 could acquire them that way and secondly we have been going through the digitalization of processes and operations in the banks and that has resulted in cost savings we will obviously not discard in any shape the idea of a massive fine digital clients but we have to make sure and that those clients have some future in terms of producing additional revenues for the company so that is what i was referring to when i talked about our digital strategy and moving to your guidance questions regarding return equity even though we are not giving guidance on 2020 to on this call just to give you a framework to think around it we have a few things that are still to continue improving into the future particularly cost of risk still has room to improve throughout the year and into next year that has been part of what has helped us in sustaining our stronger results than market and we expect to continue seeing that improvement into the future the other part that will be helping us as well is all that that is related to increased macro activity in colombia regarding stronger growth regarding increases in rates that as you know for banks a slight increase in rates is always a positive increase in the income associated with activity what could dampen the kind of positive numbers that i am pointing into it does the tax reform it does building in what comes out from that reform is still to be seen at this point with the tax reform that is currently in congress the numbers might not change substantially compared to this year but the expectation of having lowered taxes into the future somehow has faded away so we have a combination of improvement on the operational front and then the almost on the last line we have the impact of taxes that is a long way to tell you that even though we are not killing guidance these kind of numbers are numbers that we could expect to continue seeing into a future then regarding the breakdown of what is going to happen with loan growth as mentioned we have a much better performance from the growth perspective on the consumer front we could expect to see something in the 12 to 14% area growth and on the commercial front it should be somewhere between 6 and 7% if you break down that by regions colombia should be in the 6 to 8% area growth and san pro 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 around an 11% depreciation i mean not as up to date but up to the numbers that we believe could be numbers at the end of year so that will help and that will propel what is happening with san pro america our next question comes from adriana delosaba please go ahead hi and congratulations on the results i wanted to see if you can help us have a better sense of the income growth i know in the quarter there were slight impacts from the purchase but if you can help us that would be great i am sorry were you referring to c income or 2 income growth i did not hear you properly well i can be talking about normalized levels of growth but however you think it is best to formulate it okay well regarding the loan side i just mentioned it before it is volume wise we have the dynamics i just covered when referring to celeste ann is question regarding martens we are actually moving into a better ground for martens given that we expect to see the central bank increasing rates on the fees side we mentioned we are slightly short from long growth because long growth is starting to come stronger therefore if loans are growing in the 9 to 10% area we could be a couple percentage points below that on the fees side still has some room to increase particularly for 2 reasons number one on the pension side we had some impact during this quarter of a volatility that implied that some of our fees that are related to our profitability and the funds was affected bear in mind that there is a lag between how we get those into our p l and how they happen in the market because we charge these after returns have been obtained so we have some delay there but then i would say the main driver will be economic activity we are seeing a strong pickup we are seeing a pickup in products that are very rich in fees such as credit cards and other consumer products that in the past we have de emphasized and at this point we are ready to start to open our risk appetite so that will come with fees as well i know if i covered what you were returning to but those are the main drivers thank you and as a reminder if you have a question please press star than one 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 the police confirm what was the guidance for cost of risk and then i will give us a 2nd question thank you okay regarding cost of risk you might have noticed that we lowered our guidance we had previously given initially we started out with 2.5 lower than 2.3 to 2.4 and this time around we are lowering it to 2 one to 2.2% the reason for that is we are seeing a much better performance on our loan portfolio particularly on the retail side and then given the much stronger economy that we are looking into in colombia and central america the remaining of the portfolio beyond what was a benefited from reliefs is also performing much better so that is the reason we are doing that something there that we are still holding back from being more aggressive is a provision in central america particularly in panama given that they are later in the process of finishing reliefs in absence of that we might have had a positive bias on the numbers that i mentioned i think one question would be on 2022 i know it is still a bit early but we are getting closer to it so just thinking about your guidance if you have any idea of how any of these lines would look like and what are you aiming for in terms of sustainable roe thank you very much i would prefer to stick to the answer to seavastian regarding guidance on what to expect on a rowie at this point i would say we would be very happy to be able 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 yudy fernandez from jp morgan hi all 1st congrats on the results very good i have a question on margins actually on the liability side i guess we are seeing long book accelerated in colombia right but my question is regarding the funding do you think you will be able to keep growing the posits at healthy pace over the last 2 years we saw you and colomban banks in general having a very good funding structure like the men deposits growing the funding costs coming down so my question is should we see an inflection point for funding cost and we start to see funding costs slightly moving up and how that could affect margin because that could be negative if that is correct if that assumption that may be falling close will be higher that can penalize a little bit the names but on the other hand maybe stage 3 laws will peak and that will help a little bit you will have a higher rates in colombia so i guess the bottom line here is what should we expect for names in the coming quarters for you thank you yeah trying to i am going to give you 1st the short answer and then i can go into detail the short answer is deposit growth we should expect to continue sustaining that however i mentioned somehow or i hinted twice that we have had excess liquidity that has been a burden on our net in prismartan that has been a prudent way to manage it particularly in central america where there is no central banks we have taken excess deposits to what would be the normal way to run the bank 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 regarding martens 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 that basically is the interbanking rating colombia has already started to pick up reflecting expectations on the increase of profits if you recall what we have in our commercial portfolio in colombia is substantially uploading loans based on ibr so we started to feel that already benefiting us and expect to see that in the future then the other side of deposits is a retail franchise where those deposits are not as elastic to what is happening with the self op bank and that is the main source of improvement in margin when rates go up there is 2 different types of cycles some cycles where rates are going up because risk is going up therefore the cost of risk is built into the pricing of the bags however this time around we are looking into a cycle where rates are going up with an improvement in cost of risk so 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 have a sensitivity on rates that you can provide i know the main is not a reference rate but just as a proxy if the rates move up 100 bits what should we see for your names well yeah you have to build in cost of risk into that we in the past we used to disclose some sort of sensitivity around the 20 basis points or the \u00a220 per dollar kind 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 as the cost of risk into those so that has made a difference and perhaps that was what i was pointing out before and it says cycles where your heating increases in rates combined with improvement in cost of risk are perhaps the most +and most sensitive or elastic cycles to interest rates however we have used to do that because of that last factor and it depends very much on the speed at which the risk premiums are built into pricing perfect thank you and again congrats on the quarter and our next question comes from julio alstique from the vivinda please go ahead hi everyone and 1st 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 2nd half of 2020 you think the earnings are going to behave the same as the 1st half of the year also i would like to know if you can give us a little bit more color about what is your expectation on long growth like if you can give us like the consumption the consumer the more catch segments how they will grow if you have this detail thank you well i think we covered many of those before there is a guy who is for 20 by the way not 20 but what 2021 incorporates what is going to happen over the 2nd half of the year we are quite positive on how the 2nd half of the year will behave as i mentioned still prudent on the cost of risk side that is the reason why we are guiding into 15 to 15.5% hourly for the year in spite of having already overperformed those numbers so we are prudent on that side because the cycle is not over yet but we are quite positive on the core banking side of how things are behaving and regarding long growth just to repeat what i answered sevasdian at the beginning we are looking into a commercial lending growing somewhere in the 6 to 8% area and the consumer side the retail side growing more in the 12 to 14% area perfect our next question comes from andres soto from santander please go ahead good morning and thank you thank you for the presentation my question is related to expenses when i compare expenses this quarter with the 2nd quarter of 2018 there is a 14% growth obviously you have inorganic growth in the middle but still you have real expense growth over the period so i would like to understand if there is a strategy to achieve efficiency in the past you mentioned that this could be one of the opportunities that the digital transformation could bring to a group of out to be a back end integration of the different brands so i would like to understand your thoughts about your expense performance well i will start 1st with the quantitative discussion here and then we can move into the more strategic one regarding expense growth i would say 19 is also a tricky year it is a tricky year because we had cost growth throughout the year it was also affected by depreciation of the us dollar and therefore we saw some effect coming from central america that started to weigh much more inner costs and also had the conversion the numbers when you run them x fx impact are more positive than what they you are looking into and i think that is perhaps the way to look at those then you are absolutely right the mft acquisition also has some impact there because we are talking of a larger bank therefore perhaps the best way to look at it is more on the cost to assets or cost to income based to try to have that having said so part of what are the positive takeaways 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 we have a lot of work still to do and the pandemic evidence that we have still a lot of potential to improve costs so we will continue working on that and the mandate for banks is basically on those lines digital helps as an enabler to lower costs and that is part of what we have been using okay thank you ladies and gentlemen i will now return a call to mister sarmiento for closing remarks thank you very much i thank you for everybody is questions thank you for the attendance we hope to keep delivering and we hope to have to start giving guidance for 2022 in our next call other than that just hope to see you hope all of you can attend next call as well and thank you jenny and thank you everybody else this concludes today is conference thank you for participating you may now disconnect",
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      "reference": "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 is 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 us 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 q one 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 65000000 up 7% from the eur 61000000 in q one last year free cash flow before acquisitions and special items was eur 65000000 compared to minus eur 7000000 last year let us turn to slide 4 for the strategic and operational highlights during the 1st 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 q one 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 q one human health exceeded our expectations for the 1st 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 q 4 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 1st half of the year our hmo business also reported good progress in the first . with the 1st launches of the 5 hmo mix in the u s market which had an extraordinary impact in q one 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 q one 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 is an important milestone and therefore allow me to say a few words about the agreement after we have successfully established our setup in horsholm 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 1st 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 us turn to slide 6 to dive a bit more into the sales performance during the 1st quarter if we look at the top line performance across the sexment . the segments growth was fully volume driven food cultures and enzymes delivered 7% organic growth in q one 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 q one 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 am 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 professor . pressures the implementation is progressing as planned and we will start to see the impact here from the beginning of q 2 if we look at the regional picture please turn to next slide 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 grew strongly with 12% growth in health and nutrition was positively impact by order timing as q 4 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 one 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 please turn to slide 8 looking at the development profitability the ebit margin ended at 24.4% for q one down from 25.2% last year the drop was in line with our guidance driven by 1st the full inclusion of hmo which was only partly reflected in last year is 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 q 2 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 from hmo then the ebit margin would have been above last year by approximately half of the inaudible total ebit before special amo . items amounted to eur 65000000 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 q one 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 is ebit margin before special items was 11.9% which is one.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 us look at the cash flow on the next slide slide 9 the free cash flow before acquisitions and special items came in at eur 55000000 compared to a negative of eur 7000000 in q one 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 q one of last year and cash flow use for operational investing activities was eur 18000000 down from eur 52000000 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 q one from last year and with these remarks let us move to next slide slide 10 to recap our guidance for the year following the encouraging 1st 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 1st quarter which will negatively affect q 2 for hmo as q one 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 q one and we also see good momentum going into q 2 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 140000000 to eur 170000000 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 . 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 fy 25 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 am very happy to present christian hansen is 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 is 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 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 . 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 . 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 01 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 is yours turn to speak you can dial 02 to cancel in the interest of fairness and time please limit yourselves 2 questions per turn you can then rejoin the queue to ask further questions if you need to please hold for the 1st question and our 1st question comes from the line of soren samsoe of seb please go ahead your line is open yes good morning everyone 2 questions 1st regarding the input cost if you could say what is the negative impact of input cost in q one versus last year and then secondly if you can comment on the price increases you are seeing the level of price increases which you would expect and what will be the effect of that down on the ebid will that all be absorbed by you can say by input cost increases how do you see it thank you thank you soren and good good morning i will pass some of the . just recapping your question is about the input cost our process for price increases and i would you say we have a very strong methodology overall to reflect price increases with customers and we expect to fully pass on the inflationary price increases to customers so we have no margin dilution i will pass it on to lisa to comment on you know your specific question about our input costs well so on in input cost and the inflationary pressure is so obviously something that is unprecedented and that we are observing very closely we have seen a higher cost and it is also impacted our results for q one we do not wish at this point in time to be very specific on it but it is it is part of the you know the view that we look at landing the 24.4% for for q one and it is also important to say that we are actually very happy to see that if we exclude hmo we have been able to offset inflationary pressure and other cost coming from the higher activity level through our 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 quite impressive and good to see a couple of questions on on on on my side so 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 one to 2% from pricing that means organic growth will only have to be of of . the volume growth will only have to be 2 to 6% so so i just wonder when you do not lift the lower end of your guidance range is there any specifics we simply can not see or is it more function of you 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 abbott has launched their 5 hmo similar product which you supply as upload cost that is the the the the big thing for for your hmo business in the quarter 1st 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 5 hmos eh how much does your . what do you say you your revenue proportion increase is it 5 times up or is 2 fl still the main revenue contributor and then i wonder what this implies for the hmo revenue in the quarter you mentioned lighthouses are 10% of sales if we assume bioprotectants and plant health is is sorry plant health is 10% of of food process and enzymes that means p p plant health and hmo has to be 10% of health and nutrition i just wonder how that is split between plant and and hmos thank you good morning lash thanks for your positive comments on the encouraging start of the year so so 2 questions you had on guidance and on hmo let me try to provide some light into those so so for sure an encouraging start of the year with good momentum across our 2 business areas and as i stated in the call we also see good momentum going into q 2 but but you are right it is still a very volatile environment so i think we are only let us say 3 months into the year of 12 months and i think it is good to recognize that while we are in a good position in q one we maintain our guidance for the for the year and and and that is the position yes you know pricing we expect the the growth to be mainly volume driven pricing will contribute you know north of the one.5% or around the 2% that you mentioned but we expect to continue to see a good performance of our business and hope that provides some visibility into into our current guidance now on on hmo so hmo the hmo mix tries to reflect more the physiological level of the 5 different hmos so you know without getting . going into confidentiality or distortion we expect the different hmo mixes for different customers may have a slight different component 2 fl is is the largest component of the of the mixes but we see good presence of the other hmo ingredients there and and and talking about the about the lighthouses you know all of them contributed to these strong performance of 35% in in q one but obviously as we mentioned particularly plant health and hmo benefited from all the timing in q one yeah that that that i understand maurice but my my my question is if plant health and hmo is 10% of health and nutrition turnover that is \u20ac9000000 combined if it is 50 50 then hmos contributed \u20ac4500000 and you have a big product launch from from abbott so so given that in q 2 and q 4 last year hmos were 6 and 7000000 in revenue respectively i just wonder if sort of the underlying run rate for hmos was in fact weak given that you you you have this big product launch fro from abbott i am just trying to so a couple . to understand the the numbers so a couple of comments i think i think your calculation of hmo is not 100% correct hmo was was more than that but also consider that while we had the launch of hmo in the us abbot has not yet done a a national launch is it was launched online and it was let us say what would be called a prelaunch so we we do not consider the you know hmo performance to be below expectation is on target and we are confident to deliver the above 20% growth for the year based most of those orders being secured by our long term contracts that is 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 2 as well the 1st is is the clarification on the hmo topic that we just touched on can you can you clarify whether in terms of absolute revenues q one here was your best quarter yet for hmo revenues and then my 2nd question goes to the sort of guidance for the health and nutrition business where is . where i understand that you say that the growth will now be more front and loaded for the full year should we understand that to be a reflection of some pull forward of demand for the . for the following quarters or from the following for the next quarters or should we may earlier understand this as a a reflection of a high growth rate in in q one that will not necessarily repeat in subsequent quarters but not a matter of growth having been pulled forward thank you yes so so 1st question on on hmo i will pass them on to lisa i think it will be important to clarify if you are talking sort of the absolute in absolute terence being the largest quarter in invoicing that we have had and and then to health and nutrition i will take that on so you know health nutrition had a a strong start of the year 13% stronger than we expected basically driven by the good momentum reopening of the traditional sales channel in north america and europe and also by our ability to win new project based on the good execution of our supply chain as i said we go into q 2 with a good momentum in health and nutrition and that is why we said that the you know growth will be front and loaded because we expect a solid 1st half of the year for health and nutrition while some people think there are low comparables in the 2nd half of the year i would just remind everyone that the low comparables in the 2nd half of the year was for our the non comparables in the 2nd half of the year was for our inaudible business but that our acquired business that were not part of organic growth in h 2 had a very strong performance so the comparables are not as easy as people might might think lisa onto you for the question of hmo yes and let us let us 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 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 q one okay but but you cannot say whether say q one was better than q 4 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 thank you for taking my questions morning so my 1st question is 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 1st quarter think it can be quite helpful to have that kind of aggregate number and then my 2nd question is 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 is thanks hi georgina good good morning i will take the 1st part of your question in relation to what part of the growth on health and nutrition was sort of underlying growth vs a one off and then i will pass it on to lisa in relation to the infant formula in market potential so you know most of our growth in in human health as i said came from the strengthening of the momentum given the 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 13rd of the health and nutrition growth would be related to one off benefits related to q 4 orders that we were able to fulfill in q one or or other non repeatable and most of the growth came from this momentum that we have seen in q one and we see maintained going into q 2 lisa yeah you know when when we think about hmo i think it is important to to to recognize that the penetration is very very low this is a business and and the market that only growing and emerging now as we speak and and we do still believe that as this is you know the secret ingredient that the if players are definitely looking into with high high interest it will be 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 us say the 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 so i have got a few questions 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 and then secondly we saw that pricing was negative in health and nutrition could you explain why that was and will that improve you know as you lift pricing in the coming quarters thanks hi good good morning so i will take the 1st one on animal health and then pass it to lisa on the pricing for health and nutrition that was more related to to a one off 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 the innovation and the products we have put out particularly you know in in in our probiotics solutions i i think on asian swine fever there you are right you know animal animal health had a very strong quarter in the q one 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 definitely an effect of the african swine fever 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 it is just a consequence out of the regular kind of settlements that we make with them an agreement in regards to how we recognize the revenues so it is a one off for this quarter so i would definitely not read that not read from that anything in relation to our pricing ability or pricing pass through for our business as lisa said it is more related to a one off in connection to the settlements in plant health with fmc just just just on my 1st question also we see milk production is slowing you know cheese has been very strong for you in recent quarters could that have an impact in fcne or is that not a concern for this year we do not view that as a concern for this year heidi but we closely monitor you know the trends 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 22 questions from me the 1st one just on pricing of the input cost inflation i guess given the you know the small cost percentage and strategic nature of your ingredients it would not be 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 have any drag on fcne and market volume growth for this year are you are you expecting any pockets of slowdown due to this in inflation at all and the 2nd question just going back to hmo is and the 5 hmo mix i wonder i mean it is obviously early days but if you could give any color on how that product is actually performing on shelf in in the us where it has been launched and more broadly on hmo is are there any regulatory milestones that we might expect globally this year that we should be looking out for and any prospect of that 5 hmo mix you know being launched in further new markets over the next 12 months thanks thank you thank you alex for your your questions i will i will take those 2 myself so you know on on your question around pricing yes we have a very strong pricing methodology and in close collaboration with our customers all all i would say is like the pricing negotiations are advancing as planned and on target and we track those to you know conclusion of the negotiations and completion of the price increases and that is tracking on plan and and on target you know i do not want to mislead you i mean pricing negotiations with customers are never easy but i think we have a very good positive collaboration with customers on the understanding of the input cost and how then price led into into price increases but 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 you follow that market very closely you will be able to get a better read from the reports from our customers i think what we are very pleased from the 5 hmo mix is that everything that we expected on this being a front panel ingredient and positioned as the let us say important ingredient to make infant formula closer to mother is milk that has been very clearly communicated in the product launches which i think is positive for the hmo market overall on regulatory i think the bigger the biggest next step would be the regulatory approval of hmo is in china 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 2 questions please so 1st coming back to the 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 q 2 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 q 4 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 you know health and nutrition indeed we had we had a strong quarter we see good momentum going into the 2nd quarter but when we talk about volatility it is usually because it is 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 you know end markets portfolio strengths end channels but you would still see more volatility in health and nutrition as compared to food cultures en enzymes maybe maybe adding to it it is also important again to highlight that the very strong situation we were able to deliver on supply in q one was also part of the success formula so to say of human health and when we look back at it in q 41 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 could not execute on and that is 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 in the world we are operating in and i think that is also talking a little bit to the uncertainty that we are looking into for the rest of the year but we are not having any concrete pointers it is just that this is in the environment we are operating in just remind me mathias was there a 2nd part to your question that we have not addressed sorry yeah yeah well maybe you have to put the 35% growth rate for the lighthouse yeah yeah 0 the lighthouse question so you know what we have always shared is that the lighthouses have a potential to reach in a 100000000 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 you know for example bio protection bio protection is something that has consistently been growing above 10% i do not know that i would go and you know qualify a specific quarter on on the lighthouses because these are very still very small businesses so you know percentage on a quarterly basis can be can be misleading but we are you know focused on delivering double digit growth for our lighthouses year over year that is 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 have mentioned benefits from timing of orders in in if you can now you you have 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 q 2 or if it was just no repeatable benefits in q one so plant health and hmos as i understand human health is is just a one time benefit there and lisa if you can give us an indication on the performance of bioprotection in the quarter it would be great thanks i will take the one on on bioprotection and pass it on to lisa to comment on the one offs timing of orders so so bioprotection grew around 15% in in the 1st quarter which is which is only i would remind you that even though we launched in spring the generation tree we are working in projects with customers and we should not expect a larger contribution for the 1st generation for the 3rd generation of bioprotection before our 2nd half of the year yes and and and building on your 1st question miru you know if we look at what was the one offs in in in in in human health in q one that will impact the rest of the year as we said plant health was definitely a one off in q one and we expect to see a negative side of that in q 2 for hmo there was some order timing benefiting in q one which will just level out over the year but ending the full year the the 20 +percent that we talked to and apart from that i would say from from the rest of the rebound of human he of human health it was a lot of new business opportunities that materialized and where we do not anticipate the negative side of it 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 13rd of the performance in in health and nutrition how much of that 13rd was the one off in plant in plant health it is it is not big it it is it is 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 q 4 right so it is not the largest plant health 0 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 misha and good morning lisa 2 questions for me please firstly can you quantify the china growth you saw in scne in q one and and maybe if you can remind us the comparison or just sort of a range of the decline in in the prior year quarter and then my 2nd 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 because does your pricing model protect the gross profit or the gross profit margin and i thought it was the former but maybe i am incorrect so i just wanted to clarify thank you thank you charles for the for the group questions so on on china china had a had a solid growth against low comparable from from last year i . and and and that was mainly because you know q one of last year for scne was particularly soft so so i i i would not read much more into that from china but i do believe our feeling is consistent with what we communicated in q 4 saying that we expect china to be you know flat to slightly positive for us for the year despite the continued negative development of the fermented category in in china 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 prices with inaudible p price 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 is important to also call out that our price increases does come with some delay the ambition is that we can increase the prices to offset not only just the cost but also 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 so i i i think you know the overall conclusion is that what we are doing here is back into our ebit guidance for the year which is a landing corridor between 27 and 28% and we see around the quarter delay between you know our inflation cost input and our negotiations with customers yeah that is crosstalk i think under more normal conditions we would usually have one round of negotiation with customers as inflation development continues to be more fluid at this year we may have several negotiations of pricing 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 both of you and thanks a lot for taking my question 1st of all in terms of this good momentum you mentioned in human health i wonder if you could elaborate a bit on th this momentum and also on whether this is driven by the a uas combination that has happened and and my 2nd question is in terms of inaudible and enzymes and the strong performance that that you have seen whether there is some kind of reopening effect that has affected these numbers positively that is my questions thanks a lot yes so let let me start with the with human health 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 traditional sales channel in north america and europe we are benefiting from our strength inaudible solution strategy and the broader portfolio that we have in human health where we are now able to commercialize across the combined units inaudible legacy are highly documented probiotics and the addition of the strength from both hso and uas labs so it is largely inaudible driven but i would say a a strong execution of our human health 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 . we were not able to fulfill in q 4 and and that combination puts us also in a strong position with human health into the 2nd quarter of inaudible in scne you know the . it it was mainly volume driven and mainly volume driven and mainly in the inaudible market so very strong performance of pros of projects in europe where by the way we were able to be more present with customers and the chief market in north america partly driven by you know 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 for one more question before we inaudible thank you there is only one further question in the queue that is from the line of sarinon samsa at sub please go ahead your line is open yes i just had one followup regarding the lighthouse projects 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 which i completely understand but maybe you can comment a bit there must have been some delays in delivering on these sort of 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 s s your thoughts there and then secondly on animal health which i understand was quite weak in q one actually i can not remember whether that is because of some particular high comparables or or the timing but just comment whe what what is the momentum in animal health in the underlying business going into q 2 thank you so sarinon on animal health animal health basically saved a difficult comparable and the only thing that we i mentioned as well was that in swine particularly we had a high comparable from q one last year because of the strong momentum of rebuilding the swine population in china versus now a little bit of return of african swine fever but i think you could expect a normal momentum from animal health you know going into q 2 and and we have seen a strong performance on animal health throughout the last couple of years so i am very pleased with the you know how the team has turned the innovation into market execution and commercialization on on the lighthouses sarinon in in our capital market toady we basically provided what we view as the potential of those lighthouses and then left it open to what our inaudible would be and and i think that is a much better way to 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 it is business building it is bus business building from a very slow . low base and and . but w areas where we see a large opportunity and we are very excited about so you know 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 core business and where we can expect you know double digit growth rates year year on year for sure you may have quarters that are higher or or lower but i hope that you know provides some some perspective otherwise you know we will be able to elaborate on this further as we talk going forward okay thank you for that thank you so with that this concludes today conference call and q a session thank you for joining and we look forward to continue our dialog during the or upcoming virtual roadshows thank you all",
      "prediction": "good morning and welcome everyone together with our cfo lisa mortensen our 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 quarters 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 us turn to slide 3 please christian 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 q one last year we would 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 \u20ac65000000 up 7% from the euro 61000000 in q one last year free cash flow before acquisitions and special items was \u20ac55000000 compared to \u20ac7000000 last year let us turn to slide 4 for the strategic and operational highlights during the 1st 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 courses and enzymes human health and animal health grew 7% for our growth areas which account for approximately 10% of group revenue bioprotection fermented plant basis plant health and hmo grew 35% lighthouse are expected to outgrow the core business for the year but please note that the very strong growth in q one was in part positive due to order timing in line with our 2025 strategy we continue to reinvest in our current business and leverage our 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 q one human health exceeded our expectations for the 1st quarter and the liver in 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 q 4 further i am pleased that with our expanded strength to solution offering and our strong supply chain performance we were able to mitigate supply chain successfully and win new business which will have a positive impact in the 1st half of the year our hmo business also reported good progress with the 1st launches of the 5 hmo mix in the us market we had an extraordinary impact in q one as customers ramped up the head of their product launches and lastly plan health entered into a partnership with the indian act player upl to develop and commercialize microbial crop protection solutions another highlight during q one was related to bactera our joint venture with lonsa please turn to slide 5 in november back there assigned a commercial manufacturing agreement with service therapeutics it is an important milestone and therefore allow me to say a few words about the agreement after we have successfully established our set of in her slum and bustle to service customers in the clinical supply market we are now accelerating investments into commercial manufacturing capabilities based on the long term commitment from cersa is therapeutics whose lead candidate cersa is 109 has the potential to become the 1st ever live biotherapeutic product in the market as part of the agreement we will build a new production site in bisp 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 bacteria but we are very confident in our ability to establish a leading player in the field which can count on our expertise and capabilities from both jv partners with these words let us turn to slide 6 to dive a bit more into the sales performance during the 1st quarter if we look at the top line performance across the segments growth was fully volume driven food cultures and enzymes deliver 7% organic growth in q one 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 at their very soft quarter reaching 13% organic growth in q one human health and hmo delivered very strong growth as already mentioned the rewind was largely driven by human health while in hmo was in line with expectations that said i am very pleased that a large part of our fiscal year 22 orders for hmo is already secured through long term contracts if we put our animal and plant health business growth was solid and driven by plant health we benefited from early orders while animal health is 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 pressures the implementation is progressing as planned and we will start to see the impact here from the beginning of q 2 if we look at the original picture please turn to 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 a recovery of the traditional dietary supplement channel in europe north america grew strongly with 12% growth in health and nutrition was positively impact by other timing as q 4 was very soft you already mentioned launches in hmo while fc e continued to benefit from continued solid momentum in the cheese market latin america reported 8% organic growth of which approximately 13rd came from euro pricing food cultures and enzymes grew solidly despite continued software mented milk markets and health and nutrition was driven by very strong plant health last in asia pacific after a soft year end we returned 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 not part of its last year both human health and animal health faced a tough comparable baseline from last year in total this resulted in 4% organic growth for asian 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 please turn to slide 8 looking at the development on profitability the abed margin ended at 24.4% for q one down from 25.2% last year the drop was in line with our guidance driven by 1st the full inclusion of hmo which was only partly reflected in last year is numbers as the acquisition closed may 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 q 2 this was then partly upset by positive contribution from production efficiencies and scalability from the sales growth combined with synergies from our probiotics acquisitions if we exclude the impact from hmo then the ebit margin would have been above last year by approximately half a percentage point total abip de force bechelama items amounted to \u20ac65000000 which is 7% up compared to last year driven by food cultures and enzymes while abip in health and nutrition was at the same level as in q one of last year due to the negative impact from hmo if we look at the segments food cultures and enzymes a bit 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 is ebit margin before special items was 11.9% which is one.7% 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 entities that were partly offset by higher input cost and the general ramp up of activities let us look at the cast on the next slide slide 9 the free cash flow before acquisition and special license came in at \u20ac55000000 compared to a negative of \u20ac7000000 in q one of last year the increase was due to both an improved cash flow from operating activities and lower operational investments the increase in the operating cash flow was driven by improved operating profit and a positive impact from working capital compared to q one of last year and cash flow used for operational investing activities was \u20ac18000000 down from \u20ac52000000 at fy 21 the decrease in spending was driven by the acquisition of the kellenball facility last year the return on invested capital excluding goods 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 causes and enzymes was somehow with q one from last year and with these remarks let us move to next slide slide 10 to recap our guidance for the year following the incursing 1st quarter we keep the outlook for the year group organic growth is expected to be in the range of 5 to 8% and will last be volume driven of with some positive impact from pricing to reflect the inflationary development food causes and enzymes is expected to deliver solid mid single digest organic growth throughout the year and despite an insignificant contribution from eurobase pricing organic growth and 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 benefits from early orders in the 1st quarter which will negatively affect q 2 for hmo hq one benefits 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 win since you won and we also see good momentum going into q 2 when it comes to abn 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 us dollar exchange rate will be obsessed 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 140 to \u20ac170000000 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 to reflect the divestment of natural colors and the acquisition of genuine and i would like to emphasize once more that christian hansen remained committed to delivering industry leading profitable growth and a strong workload with focus on spending discipline and capital efficiency until fy 25 we aim to deliver mid to high single digit organic growth averaged over the period an increase in abid margins before special items over the period 2 above 30% and average growth in free cash flow before special items to grow farther than abid before special items and with this i would like to hand back over to mauricio to present our new climate targets thank you lisa i am very happy to present christian hansen is 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 is microbial solutions and elderly healthier living for humans animal and plants leaving a positive handprint in society and our planet at the same time we are committing to reducing our footprint taking climate action that is rooted in the less scientific senses is a natural next step for christian hansen by 2030 christian hansen aims to reduce its scope into emissions by 42% and its scope 3 emissions by 20% to reach these ambitious goals we have launched a new program called think climate naturally under which we will pursue a number of initiatives including converting electricity supply to renewables reaching 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 costs converting to renewable energy sources like sonalp panels here in denmark for example has kept the negative impact from the 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 2122 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 increase focus from customers on business continuity and cost savings potentially new travel restrictions will 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 your attention and with this i would like to hand over to the q a thank you if you have a question for the speakers please press 0 one on your telephone keypad 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 is your turn to speak you can dial 0 2 to counsel in interest of fairness and time please limit yourselves to 2 questions per term you can then rejoin the queue to ask further questions if you need to please hold for the 1st question and our 1st question comes from the line of soren samsel of scb please go ahead your line is open yes good morning everyone 2 questions 1st regarding the input cost if you could say what is the negative impact of input cost in q one versus last year and then secondly if you can comment on the price increases you are seeing the level of price increases which you would expect and what will be the effect of that down on ebit will that all be absorbed by input cost increases how do you see it thank you thank you sorin and good morning i will pass some of the just recapping your question is about the input cost our process for price increases and i would just say we have a very strong methodology overall to reflect pricing crisis with customers and we expect to fully pass on the inflationary price increases to customers so we have no margin dilution i will pass it on to lisa to comment on your specific question about input costs well so an input cost and the inflationary pressure is obviously something that is unprecedented and that we are observing very closely we have seen a higher cost and it is also impacted our results for q one we do not wish at this point in time to be very specific on it but it is part of the view that we look at landing the 24.4% for q one and it is also important to say that we are actually very happy to see that if we exclude hmo we have been able to offset inflationary pressure and other costs coming from the high activity level through our productivity and scalability efforts okay thank you thank you and our next question comes from the line of last top arm of carnegie please go ahead your line is open yes hello congrats with a very strong quarter quite impressive and good to see a couple of questions on my side so looking at your unchanged fully irguidant you need to grow 4% to 7% for the rest of the year given you probably get one to 2% from pricing that means organic growth will only have to be 2 to 6% so just wonder when you do not lift the lower interview guidance range is there any specifics we simply can not see or is it more a function of you preferring to be conservative in a scenario where visibility might not be so big and then i have a question on hmos because aapot has launched their 5 hmo similar product which you supply as opposed to the big thing for your hmo business in the quarter 1st 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 contains all 5 hmos how much does your revenue proportion increase is it 5 times up or is 2 fl still the main revenue contribution then i wonder what this implies for the hmo revenue in the quarter you mentioned lighthouse is 10% of sales if we assume bioprotectants and plant areas 10% of food causes and enzymes that means plant health and hmo has to be 10% of health and nutrition i just wonder how that is split between plant and hmos thank you good morning lars thanks for your positive comments on the encouraging start of the year so 2 questions you had on guidance and on hmo let me try to provide some light into those so for sure an encouraging start of the year with good momentum across our 2 business areas and as i stated in the call we also see good momentum going into q 2 but you are right it is still a very volatile environment so i think we are only let us say 3 months into the year of 12 months and i think it is good to recognize that while we are in a good position in q one we maintain our guidance for the year and that is the position yes you know pricing we expect the growth to be mainly volume driven pricing will contribute north of the one.5% or around the 2% that you mentioned but we expect to continue to see a good performance of our business and hope that provides some visibility into our current guidance now on hmo the hmo mix tries to reflect more the physiological level of the 5 different hmos so you know without going into confidentiality or the social we expect the different hmo mixes for different customers may have a slight different component 2 fl is the largest component of the mixes but we see good presence of the other hmo ingredients there and talking about the lighthouses all of them contributed to the strong performance of 35% in q one but obviously as we mentioned particularly plant health and hmo benefited from order timing in q one that is not my question my question is if plant health and hmo is 10% of health and nutrition turnover that is \u20ac9000000 combined if it is 50 50 then hmos contributed \u20ac4500000 and you have a big product launch from abbott so given that in q 2 and q 4 last year hmos were 6 and 7000000 in revenue respectively i just wonder if sort of the underlying run rate for hmos was in fact weak given that you have this big product launch from abbott i am just trying to understand the numbers so a couple of comments i think i think your calculation of hmo is not 100% correct hmo was more than that but also consider that while we had the launch of hmo in the us abbott has not yet done a national launch it was launched online and it was let us say what would be called a pre launch so we do not consider the hmo performance to be below expectation is on target and we are confident to deliver the above 20% growth for the year based on most of those orders being secured by our long term contracts that is very clear maurice thank you very much thank you lars thank you our next question comes from the line of christian reum of nordia markets please go ahead your line is open hi good morning and thank you for taking my questions i have 2 as well the 1st is a clarification on the hmo topic that we just touched on can you clarify whether in terms of absolute revenues q one here was your best quarter yet for hmo revenues and then my 2nd question goes to the sort of guidance for the health and nutrition business where in the standard you say that the growth will now be more front and loaded for the full year should we understand that to be a reflection of some pull forward of demand for the following quarters or from the following for the next quarters or should we merely understand this as a reflection of a high growth rate in q one that will not necessarily repeat in subsequent quarters but not a matter of growth having been pulled forward thank you yes so 1st question on hmo i will pass them on to lisa i think it would be important to clarify if you are talking sort of the absolute in absolute terms being the largest quarter in imposing that we have had and then to health and nutrition i will take that on so you know health and nutrition had a strong start of the year 13% stronger that we expected basically driven by the good momentum reopening of the traditional sales channels in north american europe and also by our ability to win a new project based on the good execution of our supply chain as i said we go into q 2 with a good momentum in health and nutrition and that is why we said that the growth will be front and loaded because we expect a solid 1st half of the year for health and nutrition while some people think there are low comparables in the 2nd half of the year i would just remind everyone that the low comparables in the 2nd half of the year was for our christian hansen business but that our acquired business that were not part of organic growth in age 2 had a very strong performance so the comparables are not as easy as people might think lisa onto you for the question of our hmo and let us be clear we would like to avoid 2 d 2 absolute numbers on the revenue from hmo what we can confirm is that the ambition for this year is 20% plus organic growth on the baseline from last year and yes we did see some impact from positive order timing in q one okay but you cannot say whether q one was better than q 4 in terms of revenue for the hmo business no okay thank you thank you our next question comes from the line of georgina fraser at goldman sachs please go ahead to your line is open i could thank you for taking my questions morning so my 1st question is if you are able to quantify to any extent just how much of the organic growth in human health was front and loaded in the 1st quarter i think it would be quite helpful to have that kind of aggregate number and then my 2nd question is 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 hmos thanks hi georgina good morning i will take the 1st part of your question in relation to what part of the growth on health and nutrition was underline growth versus a one off and then i will pass it on to lisa in relation to the infant formula and market potential so you know most of our both in human health as i said came from the strengthening of the momentum given the positive development we saw in the traditional sales channel in north america and in europe as well as the new winds so you know order of magnitude less than 13rd of the health and nutrition growth would be related to one of benefits related to q 4 orders that we were able to fulfill in q one or other non repeatable and most of the growth came from this momentum that we have seen in q one and we see maintained going into q 2 listen yeah you know when we think about html i think it is important to to recognize that the penetration is very very low this is a business and the market that is only growing and emerging now as we speak and we do still believe that as this is the secret ingredient that the if players are definitely looking into with high high interest it will be the ingredient that creates the premium product we still believe in the full potential but it is coming from a very low penetration okay that was really helpful thank you and that is consistent georgina with what we have said both for hmo and probiotics that obviously a better momentum in infant formula growth will always be positive but let us say our business plans are based on the penetration of probiotics and hmo into the existing volumes of infant formula great thank you rob thank you our next question comes from the line of heidi of sterengin of exxon b b parava please go ahead your line is open good morning i have got few questions we see that milk and animal production is flowing relative to last year and bird flu is emerging is this a concern at all in either segment what are your expectations and then secondly we saw that pricing was negative in health and nutrition could you explain why that was and will that improve as we as you live pricing in the coming quarters thanks hi good morning so i will take the 1st one on animal health and then pass it to lisa on the pricing for health and nutrition that was more related to a one off situation that she can explain so 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 the farming for animals has been strong and i think it is driven basically by the innovation and the products we have put out particularly in our probiotics solutions i think on asian swine fever there you are right you know animal health had a very strong quarter in the q one last year as the population of swine in china was growing again under better health conditions where our probiotics have played a role and now faced a larger comparable to that with definitely an effect of the african swine fever lisa on the pricing question on health nutrition yes heidi it is related to the agreement we have on plant health with our partner smc it is just a consequence out of the regular kind of settlements that we make within an agreement in regards to how we recognize the revenues so it is a one off for this quarter so i would definitely not read from that anything in relation to our pricing ability or pricing pass through for our business as lisa said it is more related to a one of in connection to the settlements in planned health with fmc just on my 1st question also we see milk production is slowing cheese has been very strong for you in recent quarters could that have an impact in fce or is that not a concern for this year we do not view that as a concern for this year heidi but we closely monitor the trends in the redevelopment 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 hi good morning congrats on the solid start 2 questions from me the 1st one just on pricing to offset input cost inflation i guess given the the small cost percentage and strategic nature of your ingredients it would not be too much trouble to land price increases with customers but on the other side i wonder what is your base case expectation in terms of your customers pricing action to offset inflation and could that have any drag or an fc e end market volume growth for this year you are expecting any pockets of slowdown due to this inflation at all and the 2nd question just going back to hmos and the 5 hmo mix i wonder i mean it is obviously early days but if you could give any color on how that product is actually performing on shelf in the us where it has been launched and more broadly on hmos are there any regulatory milestones that we might expect globally this year that we should be looking out for in any prospect of that 5 hmo mix being launched in further new markets over the next 12 months thanks thank you alex for your questions i will take those to myself on your question around pricing yes we have a very strong pricing methodology and in close collaboration with our customers all i would say is like the pricing negotiations are advancing as planned and on target and we track those to you know conclusion of the negotiations and completion of the price increases and that is tracking on plan and on target you know i do not want to meet this lead you i mean pricing negotiations with customers are never easy but i think we have a very a positive collaboration with customers on the understanding of the input cost and how they translate into pricing crisis but very pleased on our organization is managing that and confident that we will deliver on the pricing crisis targets that we have internally on hmo indeed too early to tell on sell through you follow that market very closely you will be able to get a better read from the reports from our customers i think what we are very pleased from the 5 hmo mix is that everything that we expected on this being a front panel ingredient and positioned as the let us say important ingredient to make infant formula closer to mother is milk that has been very clearly communicated in the product launches which i think is positive for the hmo market overall on regulatory i think the biggest next step will be the regulatory approval of hmos in china we are working on that but as we have stated we expect that to take place in 2023 2024 thank you thank you our next question comes from a line of materials herculem of handel spanken please go ahead your line is open good morning 2 questions please so firstly coming back to the dynamics in the global probiotics supplement market which benefited from the rebound which you mentioned so obviously consensus expected 2% organic growth for health and nutrition the quarter you come up strong at 13% you talk about volatility to remain but you also said if i heard you correct that momentum from human health you have to remain strong so what the disability do you have and maybe help me frame what volatility here means for example can we rule out another negative core trust we saw in q 4 last year you have to put volatility into perspective and then secondly if you can shed some light of historical growth rate for the lighthouse you have to put a 35% growth rate into context it talked about that not being representative for the full year but i thought the court will see a specific number for this so maybe help me understand how strong that number is thank you absolutely thank you matthias so you know health and nutrition indeed we have a strong quarter we see good momentum going into the 2nd quarter but when we talk about volatility it is usually because it is a more concentrated business and the way that orders fall into one quarter or another can sometimes make a quarter stronger or weaker i would not mention specifically could you see a negative quarter i think the benefit that we have now that the acquisitions are integrated into our organic growth is we definitely have a much better balance in our total portfolio of end markets portfolio of strengths and channels but you would still see more volatility in health and nutrition as compared to food cultures and enzymes maybe adding to it it is also important again to highlight that the very strong execution we were able to deliver on supply in q one was also part of the success formula so to say of human health and when we look back at q 41 of the things we were caught by was a raw material shortage so that we actually kind of left a business on the table that we could not execute on and that is 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 in the world we are operating in and i think that is also talking a little bit to the uncertainty that we are looking into through the rest of the year but we are not adding any concrete pointers it is just that this is in the environment where we are operating in so just remind me matthias was there a 2nd part to your question that we have an address sorry yeah well maybe you have to put the 35% growth rate for the light so you know what we have always said is that the light houses have a potential to reach a 100000000 and will grow faster than the core business so 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 for example bioprotection bioprotection is something that has consistently been growing above 10% i do not know that i would go and qualify a specific quarter on the lighthouses because these are very small businesses so percentage on a quarterly basis can be misleading but we are focused on delivering double growth rate for our live houses year over year that is very clear thank you thank you our next question comes from the line of mirko barakal of bank of america please go ahead your line is open yeah good morning everyone thanks for my question so just a clarification on my side if you can you have mentioned benefits from timing of orders in plant health and product launches in hmos so if you can clarify if there is any unwind here to be expected in q 2 or if it was just no repeatable benefits in q one plan to have nhmos as they understand human health is just a one time benefit there and lucid you can give us an indication on the performance of bioprotection in the quarter it would be great thanks i will take the one on bioprotection and pass it on to alicia to comment on the one of timing of orders so bioprotection grew around 15% in the 1st quarter which is solid i would remind you that even though we launched in spring the generation tree we are working in projects with customers and we should not expect a larger contribution for the 3rd generation of py protection before our 2nd half of the year yes and building on your 1st question miru if we look at what was the one offs in in human health in q one that will impact the rest of the year as we said plant health was definitely a one off in q one and we expect to see a negative side of that in q 2 for hmo there was some order timing benefiting in q one which will just level out over the year but ending the full year at the 20% that we talked to and apart from that i would say from the rest of the rebound of human health it was a lot of new business opportunities that materialized and where we do not anticipate the negative side of it the rest of the year and just following up on this on the plant health i think you mentioned overall the one offs were 13rd of the performance in health in nutrition how much of that 13rd was the one off in plant health it is not big it is not big and i also think when you think about one ups also think about into that we also include the benefit we have from q 4 so it is not the largest plant health 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 morning marisha good morning risa 2 questions for me please firstly can you quantify the china growth you saw in fce in q one and maybe you can remind us the comparison or at least sort of a range of the decline in the prior quarter and then my 2nd question is just a clarification to your response on one of the earlier questions on pricing ratio i think you said there would be no margin impact from the pricing i just wanted to check i heard that right because does your pricing model protect the gross profit or the gross profit margin i thought it was the former but maybe i am incorrect so i just wanted to clarify thank you thank you charles for the good questions so on china china had a solid growth against a low comparable from last year and that was mainly because you know q one of last year for f e was particularly soft so i would not read much more into that from china but i do believe our feeling is consistent with what we communicated in q 4 saying that we expect china to be flat to slightly positive for us for the year despite the continued negative development of the fermented category in china i will pass it on to lisa to comment on margin but just to clarify my comments i said when we passed prices we passed on prices to make sure that we protect our profitability so if we think about the pricing impact and looking at our financial for this year i think it is important to also call out that our price increases does come with some delay the ambition is that we can not increase the prices to offset not only just the cost but also the margin impact but it will come with some delays 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 there very good collaboration with the customers on that okay thank you 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 formats are today to fully offset the headwind are you able to give well it is of course dependent on whether we know the full magnitude of the headwinds at this point in time it is very unprecedented times so i think you know the overall conclusion is that what we are doing here is taking to our ebit guidance for the year which is a landing corridor between 27 and 28% and we see around a quarter delay between our inflation cost input and our negotiations with customers i think under more normal conditions we would usually have one round of negotiations with customers as inflation development continues to be more fluid this year we may have several negotiations of pricing with customers i am just doing thank you our next question comes from the line of andre tormann of danske bank please go ahead your line is open yeah hello well with you and thanks a lot for taking my question 1st of all in terms of this good momentum you mentioned human health i wonder if you could elaborate a bit on this momentum and also on whether this is driven by the uas combination that has happened and my 2nd question is in terms of food causes and enzymes in this strong performance that you have seen whether there is some kind of reopening effect that has affected these numbers positive that is my question thanks tom yes so let me start with human health not much more than i can add to what we said i mean the strong performance in human health was really driven by the reopening of the traditional sales channels in north american growth we are benefiting from our strength to solution strategy and the broader portfolio that we have in human health where we are now able to commercialize across the combined units the christian hansen legacy highly documented probiotics and the addition of the strength from both hso and uas labs so it is large even but i would say a strong execution of our human health beast we also highlight that when i will repeat that again that we have a strong supply chain performance that enabled us to capture business and have new wings why also fulfilling orders that we were not able to contribute to the q 4 and that combination who is also in a strong position with human health into the 2nd quarter of the year in se e it was mainly volume driven and mainly volume driven and mainly in the market so very strong performance of projects in europe where by the way we were able to be more present with customers and the cheese market in north america partly driven by a larger presence in food service as well but where we see some cheese types like mozzarella continue to perform very strongly so maybe we have time for one more question before we wrap up the question thank you there is anyone further question in the queue that is from the line of soren samhsa at scp please go ahead your line is open yes i just had one follow up regarding the lighthouse projects where you can say you have earlier been quite concrete under absolute potential of these while you now seems a bit less concrete which i completely understand but maybe you can comment a bit there must have been some delays in delivering on these sort of well ambitions you have had there because of covid maybe you can level a little bit more on what we should expect in the long term i of course acknowledge that this is quite uncertain and difficult to predict but maybe give some sort of thought there and then secondly on animal health which i understand was quite weak in q one actually i can not remember whether that is because of some particular high comparables or the timing but just comment what is the momentum in animal health in the underlying business going into q 2 thank you so sorry on animal health animal health basically faced a difficult comparable and the only thing that we mentioned as well was that in swine particularly we had a high comparable from q one last year because of the strong momentum of rebuilding the swine population in china versus now a little bit of return of african swine fever but i think you could expect a normal momentum from animal health going into q 2 and we have seen a strong performance on animal health throughout the last couple of years so i am very pleased with the how the team has turned the innovation into market execution and commercialization on the lighthouse is in our capital markets day we basically provided what we view as the potential of those life and then left it open to what our market would be and i think that is a much better way to present these that are really business development opportunities where we leverage microbial implementation technologies that we know very well into new commercial spaces so if business building is business building from a very slow base but we areas where we see a large opportunity and we are very excited about so you know i would repeat what i just said that the best way to think about our lighthouses is businesses that will grow faster than our core business and where we can expect you know double digit growth rates year year on year for sure you may have quarters that are higher or lower but i hope that provides some perspective otherwise we will be able to elaborate on these further as we talk going forward okay thank you for that thank you so with that this concludes today is conference call and q a session thank you for coming and we look forward to continue our dialog during the upcoming virtual road shows thank you all",
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      "reference": "good day and thank you for standing by welcome to the dassault systemes 20214th quarter and 4 year earnings presentation call at this time all participant are in listen only mode after the speaker is 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 is conference is being recorded if you require any further assistance over the phone please press star 0 i would now like to hand a conference over to a 1st speaker today francois bordonado please go ahead thank you nadia thank you for joining us on our 4th 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 . we will 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 is 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 thank you for joining us it is always a pleasure to review our full year result with you we had an excellent 2021 year with a strong finish to the . to the year the total revenue grows 11% for the year 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 3 d 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% 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 3 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 2012 we unveiled a new brand identity for our company the 3 dexperience 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 . 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 is mobility is no longer a matter of vehicles it is a matter of desirable sustainable mobility experiences tomorrow is healthcare is much more than therapeutics it is about the patient journey on precision medicine tomorrow is cities are not only a collection of building streets and facilities it is 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 3 d 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 3 d 3 dexperience 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 is 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 is 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 3 sectors of the economy we serve let us 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 also we can reveal some of the dynamics we see progressing i think it is 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 us 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 3 dexperience 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 3 dexperience 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 . was used by 1000000 people only a few months after being deployed and today has reached over 4000000 user making it the most popular 3 d consumer application in the world this is the cloud advantage but it is also the mob mobile advantage in mobility and also sector of the industry pur purely is pursuing . 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 3 dexperience 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 is great to be part of purelee is adventure to move everyone forward through technology and social progress in the healthcare i could take the example of perigo 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 3 dexperience 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 are very pleased to help perigo have this positive impact i guess they are very positive too now you have some proof points it is plain to see virtual twin experience powered by the 3 dexperience platform helping all our customers evolve and transform we recently re celebrating our 40 anniversary at dassault systemes 2 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 . 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 am 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 am 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 is wonderful to have you here thank you for being here and giving us more time to meet with customers ultimately all progress is human investing on our people and culture is at the core of what we do our . and many activities are driven by both innovation capabilities as well as talent on . 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 reveal talents when we acquired metadata in 2019 just 2 years ago tarek and his team especially with glen his buddy created this incredible reason to believe that we could have a future together i am 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 is a great pleasure now to have online tarek by body 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 is . thank you for the kind words and it is really a pleasure to be with all of you today in in my role it has been a few years since i have been on an earnings call and as you say it it is a lot of fun so it has been more than 2 years since we announced coming together and honestly i can not be more excited about what we have been able to accomplish and the progress we have made since that time it has been an incredibly challenging environment as as you all know 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 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 would 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 has been an unprecedented time and it feels like we are 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 is what glen and i always dreamed about and we are convinced we would be able to do one day and it is what brought us together as organizations in the 1st place and it is 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 is 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 2 years ago so i am also confident that we can make the difference and we have now an incredible connection between people and tremendous opportunities 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 1st quarter visiting in the performance well aligned with our guidance so let us start with the q 4 top lines year over year comparisons total revenue grew 10% to 1000000000s 370000000s above our 7 to 9% range so software revenue also grew 10% and all organically license and other revenues rose 15% to 348000000 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 performance but also the 3 d experience 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 one substantially better compared to last year and it is coming mainly from the effort we made to improve the efficiency when we were in the middle of the pandemic i would say 18 months ago from a profitability stand point in the 1st quarter we deliver a q 4 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 \u00a229 compared to our guidance of 27 to \u00a228 few words on the account it is an important topic i know you have questions usually on this so in type of account we were . we are well aligned with our objectives we saw strong activity again in q 4 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 us us take a deep dive into our revenue performance 1st and let us zoom on the software revenue by geo the americas grow 7% during the 1st quarter driven by subscription growth which is a definitely 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 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 us say if you work on the product line performance industrial innovation software revenue rolled 8% to 6 under rather 82300000 in q 4 this growth has been driven specifically by where the growth is exceeding the double digits and it is mainly due to a large part to large client wins we did in q 4 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 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 245100000 in q 4 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 momentum is also visible in all the . across the hand markets we are serving so not only the pharmaceutical and biology 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 2 large renewal but we expect to sign both renewal during the 1st half so it is 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 nothing more than combining all the different capability and resources we have to address this market and this has been done through the leadership of the metadata management team especially 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 is pretty unique on the . on the marketplace and we will make the differentiations moving now on to the mainstream innovations software revenue rose 14% to 312200000 in q 4 solidworks 1st deliver a strong result with software revenue growing high single digits and we continue to see options of our 3 dexperience 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 is you know it is delivering the numbers but in term of kpis we are now reaching more than 550 customers representing more than 4500 brands and with an extremely high level of satisfactions not only it is true in the fashion industry but since almost 2 years 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 it is paying off good result is also when the strategy is working and as you know we have 2 kpis to measure this the 1st one is the drug coming from the 3 dexperience and for the full year for 2021 the 3 dexperience revenue grow 15% driven by strong subscription growth and now it is 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 3 dexperience 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 3 dexperience platform has been developed to make both all those good result is also . are also reflected into the cash flow and for the fiscal year 2021 the cash flow from operation roll 30% year over year to 1000000000 630000000s which is converting 33% of the revenue to operating cashflow cash reach a little bit less than 3000000000 2000000000 980000000 an increase of 831000000 versus an increase of 204000000 last year and finally our net financial debt position at the end of the year decreased by a 1000000000 152000000s to less than 900000000 to be precise 890000000 and it has to be compared with 2000000004 we had in december 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 am 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 2 years and it is 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 the financial objectives for 2022 i also want to share that i am thrilled and very happy to be here today with you in this new role i have 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 have completed more than 2 years ago and now with the successful integration i am 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 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 4th 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 1st we are enhancing our leadership position across our major brands 2nd we are accelerating the momentum with 3 dexperience and industry solution experiences and we are bringing new customers as well as expanding within our installed base and 3rd 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 3 dexperience works family . works family in the mainstream market and deliver new value at scale with large enterprise partnerships like what you see happening with reno or now with this in mind we are targeting for full year 2022 total revenue growth of 10 . 9 to 10% and software revenue growth in the same range when thinking about our software revenue growth let us 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% which reflects continued strong demand within our installed base this trend is more in line with what we saw our performance in the 4th quarter we anticipate recurring software revenue to increase by 9 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% 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 one 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% reaching one 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 one.17 now i will provide some additional color on what to expect for q one as you are aware our business has some seasonality and we expect to see growth rates progressing throughout the year we expect q one total revenue growth of 7 to 9% with software revenue increasing in the same range and services revenue up 5 to 7% driven by continued broad based momentum across our geos we expect the operating margin at a range of 32.3 to 33% with an eps growth of 3 to 7% versus last year as you heard from us during this call we are 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 will hand the call back to you thank you rouven for . 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 is 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 2 will be a strong secular of hybrids to underpinning growth across all the 3 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 . our commitment to clients to drive our strategy will continue and we thank them for their continued trust so finally i think rouven and i will be extremely pleased to see you in person when we will have the ability to go back on the road but i think it has been so long when we have not seen each other i think be bernard rouven it is direct of course you remember the time to take care 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 my 1st one is regarding licenses gross you are not expecting double digit growth of licenses in 2022 so for the 2nd year in a row so congrats for that because i think that that was an ambition to sustain such a growth the growth of licenses my 1st question is do you think that such growth is sustainable beyond 22 and if so also do you think that this improved growth trend in licenses is more linked to the momentum of your project cycle so internal to your company or more linked to the consequences of the of the . of the same cres we just we are living right now and it is more macro impact you are benefiting of and my 2nd question is still regarding licenses sales several software players including some of your competitors mentioned that the difficulties the client have had in hiring have led to to some delays in launching project and having negative impact on license sales so my question is to what extent you may have this kind . you may suffer from this kind of of impact regarding your your your license sales in the coming quarters thank you rouven you want to take the the 1st one yeah happy to happy to yeah so i think the best way to conceptualize this nicholas thank you for the question is yes we had in 2021 very strong licensed performance with 23% for the full year you know of course this was was obviously a lower comparable basis 2020 q 4 or 15% growth again against i think a a good comparability you know q 4 of 2020 we saw the rebound starting to happen and so it was a real proof point for us in the 4th quarter to achieve double digit growth and that trend is what we continue to forecast into 2022 with 10 to 12% and i think the area . the the sources of growth for . 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 we are serving industries where we have significant installed bases that are transforming to the cloud to the subscription model but it will take time and we are committed to support our customers and support them in a way what their . what their preferences are in terms of how they want to spend and make the investments you know these are very sticky investments very long term relationships where our customers are capitalizing on their investments for decades that we continue to to innovate and and further drive value you know and i think with the 3 dexperience and the power by extension that we deliver we make these investments also really valuable and ready for the future on the 2nd part of the question pascal if i may on . is the the client and hiring challenge having an impact on our license i . we see it the total opposite way because the nature of our audience is changing for years we have been or we continue to focus on engineering production but now we just really experienced platform we also reach supply management costing on many other functions within the company the example is is really amazing in terms of size at toyota motor also and many other clients that i could name so the intent with the platform phenomena the 3 dexperience platform is to reach audience that we could not reach before as a matter of fact you know the the 3 dexperience collab collaborative environment is now being used by clients to evaluate materials cost weight supply efficiency all based on the 3 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 . as a long lasting growth factor on pascal mentioned that it is noticeable in even in with our business applications that we call now on the a category of innovia where we deliver business experiences for program management project management costing even for esg reporting or co 2 reporting because the the platform has this capability in short so we do not see the negative effect that is that is very clear thank you and maybe 11 very quick from my side is understand that you increase salaries 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 . or give vice chairman of the board because that is not on the bugdet side is on the shoulder side no . we have . we have i think we have a very stable predictable portfolio of allocation and we think that it it it it provides a good compelling incentive for people on we created this together model last year which we was really to provide an plan for people to buy a shares at a certain discount on on guarantee the result over 1st few certain number of years very successfully 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 well you know nicholas not the 1st time we discussed this i think we are extremely . we have a lot of discipline on this why so because if you want this to be long term and not only a one off you need to integrate it in the new . in your business model if i compare with the competitors or the peers usually you know they allocate an envelope which could be sometimes 3 times bigger however i think it is 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 is balance it is fair it is agreeable and sustainable and that is basically our philosophy and our principle so so you could count us to continue what we did in the same the same manner that is 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 is please ask your question great good afternoon thanks taking my question hopefully it is 2nd time lucky across the industry we are seeing this cloud momentum gather pace and it is referenced in your statement with some of your legacy customers moving to the cloud so i was wondering if i could just ask 4 questions related to the cloud the 1st 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 have 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 am just wondering if we are starting to get to the stage where you are 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 am just wondering what it would take for you to be a little bit more proactive in enforcing a shift to the cloud you are obviously doing that in the life sciences vertical i guess rouven is well placed to to manage a a more progressive cloud transition i am just wondering what the catalyst would be for you to go down that route and very lastly on mna i guess traditionally we see a bigger transaction from dassault every couple of years i we must be getting into the window where we are due the next one should we assume that any future mna from here will be of a a cloud based business model and is that one of the catalysts that is going to get you to the target of having 30% of the 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 1st one i i could on the product portfolio on the pascal of course stepping 1st of all we have reach a point where . 1st of all the cloud approach for us above all is a way to reach new category of users 2nd 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 4000000 users in a few months is an illustration exactly of that it is all going through browser based same as you mentioned sharp on the on the clinical trial okay but we are doing that also for design and we are doing that . and as a matter of fact the portfolio in short as we reach a point where where now . there are more solutions products and roles on the cloud native than we have on premise however i want to make sure it is clear we love the on premise there are programs on the on premise will become private clouds they will become absolutely private clouds 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 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 3 d for all approach 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 erp dashboards now they are looking at the product itself and they have the price on the part and they know where it is sourced from it is it is a new world from there we metaverse before metaverse because they see what is happening so enough said but they do not seek an validation i see massive compramodality on that on that 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 is as well say it is 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 is an extension compared to what we used to do so that is 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 innovia works and those those set of services are not 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 is no on premise anymore all of them are all cloud all of them so that is the reason why you know it is really an extension and it is still an extension compared to . 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 is 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 is not aligned with your customer is business model knowing at the end the license or subscription we are doing 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 . with a lot of alignment with our customers that is 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 almost in 6 months from now so which gives us the ability to do a 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 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 solutions and technology for sure the cloud is probably the way to do it but again it is a means it is not the goal so that is what i can say at this stage it is probably too early to speak about it and maybe i do not 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 thank you hello everyone i will ask all my questions at the same time just given me the time remaining on the call 1st could you talk about the performance in 2021 and what your expectations might be for 2022 with respect to your 2 principal sales channels would you now call cse and cpe in know formally bt and vs of course could you comment on those 2 channels and anything you might be doing to invest in or alter perhaps either of those channels secondly one thing we see among a number of your principal competitors is a implementation of or plan to implement a faster product release cadence we see this in both in cad and plm for example and i am wondering if in lieu of your historical summer and winter releases that you have done for for many many years there might be some rationale for accelerating your product release cadence particularly in in alignment with with your cloudy business thirdly on 3 dx one thing that seems to be occurring is that within the overall 3 dx number while anovia seems to able to be the largest part of it as it has been other brands like 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 3 dx business and lastly on 3 dx works i understand still quite early of course only 6 quarter market but do you think that you have any visibility to penetrating let us say more than 10% of the solidwork space with 3 dx works and thereby make it an an increasingly material business thank you a few clarification pascal if i may put . 1st of all dassault systemes is providing . not anymore functionalities but we are providing roles processes on industry solutions 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 so it is important to understand it the 2nd thing is i on a . and then i will let pascal on the general performance the 2nd remark is we do 6 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 6 weeks the world is getting new capabilities and it is working extremely well with an which is very high on providing satisfaction some large companies are already there we have taken the example wig which it is all cloud a 100% rannovo for 3 d collaborative environment suppliers all cloud every 6 weeks it is updated so we are already with this 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 do not we do not count . catch on the 3 d experience line for who can explain more we count chache for chache we count each branch for what they are no matter if they are independent or if they are based on the 3 d experience platform so we we continue to keep that integrity in the way we report now the last thing about the 3 dexperience works it should be noticed that outside works everything new is native cloud similar works is native cloud on only cloud for for customers and we have also now a full suite of . suite of 3 d . 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 . we have the approval to run cloud or own licenses and and really distribute in a big way so that is 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 1st 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 . if you follow me on this all of them are growing highers than 20% so when i say it is a broad base it is really a broad base and and and it is the . what we call the process channel which has the best performance in term of license this year in 2021 so by being much more close to 30 than 20% so . and it is not a surprise when you think about it because during the pandemic 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 catch up the like in 2020 in 2021 so i think we are relatively on a good path to compliment what bernard said on the 3 dexperience distributed across all the brands 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 3 dexperience based but it is a serve more than a serve for innovia also for ktea so it is not the only one okay if i may quickly . my annual question on solidwork unit volume 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 76000 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 the package and one of the reasons you you should remember j 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 is basically the reason why also you have such a growth it is a combination of units and price value up yes okay also by the way thank you for the headcount and hiring comments that always useful insight thank you j by the way you will have a neighbor because hoover family is still in new york for a few months and he will probably fly to new york in the coming weeks so that is right great i will pick you up at the airport you know okay 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 the 1st one is just looking at sales and marketing expenses and i suppose the opex cost ratios in general quite clearly as we have gone through the pandemic because there is travel and also hiring you have you you are running with 1000 marketing at around about 3 to 400 basis points below where we were sort of pre pandemic i am just wondering would you expect over the next couple of years for that to pick up to closer to the sort of 29 30% cost ratio that we have seen in the past or are there structural reasons as to why hence for 1000 marketing should be at sort of a a structural lower level that is the 1st question rouven pascal will attend to this question so you know as the chief operating officer i i learned something during the pandemic we have been capable to grow without having more resources and believe it or not we have increased dramatically the productivity if i compared to 19 it is per head per salespeople it is more than 11% so so why i am saying this because it is going to be a combination between obviously more resources because we need to reinforce the coverage we have in certain region of the world or certain verticals but at the same times i still believing we still have . we still we still can continue to improve the productivity maybe not at this level every year but at least a few percentage point it is probably something we could be able to achieve so . and this will give probably the ability for us to finance a different go to market cause you . we are talking about the traditional one but there are activities where we need to invest because it is a different way to go to market and still on brand unique and we still need to invest so so the net is it will not be maybe . do not have a big difference however we have some level to extend the different nature of the go to market we have that is probably the way so so just to clarify you suggesting that we will see quite a . 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 is more sustainable at the sort of 25 26% level no no it will increase because as i say to you we did not hire a almost one single person each one last year okay i mean it is not sustainable however if you do the math you have to include some productivity effect because we had some productivity the last 2 years and now it is 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 zeroing in on on life sciences obviously taking all of the commentary together with regards to the growth in metadata and so forth it looks as though the softness that you saw in q 4 was quite clearly with the sort of the original seller businesses is that a little bit surprising that is more on the discovery side i think their product set and have you actually signed the deferral there or is that sort of if you like a permanent deferral and you will never fully recover that revenue as we go through the 2020 . 2022 year well you yeah happy happy to . so you know the impact that we had in the in the 4th quarter is temporary these are 2 renewals that we are actively working on too close in i would say early 20 22 it could be the 1st quarter it could be the 2nd quarter yeah these are 2 major customers of ours where we have established relationships and it is only a question of time i think the other part that i would like to add to the biovia 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 is another factor that we will talk about throughout 2022 okay thank you thank you one final question please go on 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 1st on same you know it is nice to see double digit growth there it has 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 are seeing you know from share gains versus you know simulation competitive market or is it more you know broader industry strength recovery you know from from that similia i think what is be there are 2 major factors where basically we create a game changer situation number one under solidworks install base customer may use . to use our competitor product on desktop 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 john paulo is doing a very great job on on on the topic going to work on the full works family and not only solidworks and we have just announced that the new ceo of solidworks is manish kumar but john paulo is taking the full scope responsibility for 3 d expense works that is one driver on the 2nd one is new multi physics platform based integration which is connecting you know the power flow the e mag the stress and all of this together in a consistent environment and we see a lot of customers moving from isolated simulation to integrated system simulation i think it is unstoppable in my mind and we have plenty of opportunities to continue to sustain a strong growth in this area perfect and then maybe one quick final one you know solidworks 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 are right i mean if you remember . so the works was really the 1st product line to cover yep and 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 is always a great pleasure to exchange with you and advise your questions and yeah know that pascal and houven are now committed to do roadshows and 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",
      "prediction": "good day and thank you for standing by welcome to the soas system 2021 4th quarter and 4 year earnings presentation call at this time or participant time listen only mode after the speakers 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 is conference is being recorded if you require any further assistance over the phone please press star 0 i would now like to hand the conference over to our 1st speaker today francois paudunado please go ahead thank you nadia thank you for joining us on our 4th quarter and fiscal year 2021 bernice conference school with berna chalet by chairman and ceo pascal d aduz chief operating officer and ruben bebman chief financial officer we will also join us tarek sherif chairman d aso sisten life sciences and healthcare dassault system is results are prepared in accordance with iprs most of the financial figures discussed on this conference call are on the non iprs basis with revenue growth rate in constant currency unless otherwise known to some of our comments on this call contain forward looking statements which could differ materially from actual results please refer to today is press release and the risk factors section of our 2020 e usu legislation document all earnings material are available on our website and these prepared remarks will be available shortly after this call be enough we will see you soon thank you very much montsoy jose good morning and good afternoon to all of you on the thank you for joining us it is always a pleasure to review our full year results with you we had an excellent 2021 year with a strong finish to the year the total revenue rose 11% for the year driven by a broad base demand across our markets the majority of which growing double digit by the way our strategy grows drivers perform the well 3 d experience revenue increased 15% with cloud revenue rising 23% our 3 d experience platform has been a competitive advantage driving new client wins the cloud is about the inclusiveness and providing additional value to clients running per share increased 26% songs to good revenue growth on high profitability for 2022 we have set the target for 9 to 10% 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 changing the game for clients across our 3 major sectors 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 leaders the stage is set therefore for a good future now i would like to share some perspective on our vision and strategy for the coming years you remember 10 years ago on february 2012 we unveiled a new brand identity for our company the 3 d experience company on our corporate purpose built around harmonizing product nature and life today the significance of our strategy is clear our clients and partners have embraced the experience economy they are transforming all sectors and industries with sustainability on human centricity as central 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 is mobility is no longer a matter of vehicles it is a matter of desirable sustainable mobility experiences to mos and scale is much more than the politics it is about the passion journey on precision medicine to mos cities are not only a collection of buildings streets and facilities it is about quality of life and quality of service as a consequence of our clients need to reimagine their offer our answer is the systematic use of virtual twin experience based on modeling simulation unreal world evidence in this merger between the virtual and the real world our ambition therefore to self our client imagine create produced experiences for their own clients unlike metaverse we use virtual world 3 d virtual world experiences to improve the real world only then the possibility of harmonizing product nature on life we emerge i believe that the innovators of tomorrow is and we see them i have to think in terms of universes they are that is to say in terms of organic systems of systems that create produce and play experience in a circular economy with the 3 d experience platform we are creating this if we loop we can provide this holistic view combining value creation and value experienced design on usage to cover the full experience lifecycle we can extend virtual twin experiences across universes it is about continuity of the what the offer the how how you make it on the use of it by people this is a new revolutionary approach to innovation it is in some way the next generation of blm as we have done in the past with the early adopter we will pave the way for the future across the 3 sectors of the economy we serve let us quickly look at implications for example in life sciences clinical research has moved beyond the hospitals and labs as more and more technologies used to decentralize trials the entire clinical trial experience is transformed for all people involved passions can now participate in a trial from anywhere especially from all doctors and researchers can now collect more data in different ways if we connect the dots across clinical trials data real world data on research and development we can close the loop and make precision medicine reality as a consequence elevate the passion journey that is the system will be the only one capable of supporting end to end solutions in life science the ongoing advancement toward the sustainable economy will mark this century also we can reveal some of the dynamics we see progressing i think it is clear that our passion for science based people centered innovation on the commitment we are for our very loyal clients is really a catalyst of that transformation let us have a few illustrations 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 3 d experience by new platform kitchen planner on the cloud ikea is enabling customers to use visualization to design their own dream kitchens the pandemic has led individuals to invest in their homes and as acted as an accelerator for e commerce the 3 d experiment by me platform kitchen planner has a load ikea to take full advantage of these trends in some way the bynie kitchen platform was used by 1000000 people only a few months after being deployed and today has reached over 4000000 users making it the most popular 3 d consumer application in the world this is the cloud advantage but it is also the mobile advantage in mobility and also sector of the industry pirelli 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 3 dxvance platform they will leverage the capability of the virtual twin to foster innovation reduced cost increased circularity and of course it gives time to markets through simulation modular design it is great to be part of pirelli is adventure to move everyone forward through technology on social progress in the healthcare i could take the example of perigold because the healthcare affordability is becoming essential today the cost of healthcare is growing twice as fast as the overall economy here we go 130 years old company has been improving passion lives with affordable self care products the company is deploying several of our solutions for example license to cure perfect formulation perfect package on our 3 d experience platform as you noticed you are not describing the function we are describing the value even in the way we name our solutions the goal is to increase efficiency quality on time to market we are very pleased to help you go i have this positive impact i guess they are very positive too now you have some proof points it explains to see virtual twin experiences powered by the 3 d expanse platform helping all our customers evolve and transform we recently celebrated our 40 anniversary at the sus system 2 generation of innovators have revealed the power of virtual worlds 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 be the leader of insufferable innovation and to continue to position our clients at the vongard of progress across manufacturing industries life science on healthcare as well as infrastructure and cities to support our long term initiatives we have established the next generation of executive leadership i am so happy to have pascal delos 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 on power a new generation of leaders along the lines that i just described at the same time i am equally delighted to welcome reverend berman to the executive committee of the so system as chief financial officer warren has played a critical role in integrating metadata yazelle the coo and cfo titles on brings a mastering of financial matters related to software on cloud business model over it is wonderful to have you here thank you for being here giving us more time to meet with customers ultimately all progress is human investing on our people and culturally is at the core of what we do our m a activities are driven by both innovation capabilities as well as talent and as you all know after many years of observing the soc system it has always been essential for us we are focused on enabling teams to transform and reveal talents when we acquired metadata in 2019 just 2 years ago tarai khan is teamed with shelley with glenn his body created this incredible reason to believe that we could have a future together i am extremely proud of the significant innovation strong culture and leadership meditator has brought to the life science sector we have been able to integrate scale rapidly accelerate growth on deliver excellence results and above all have fun being together it is a great pleasure now to have online tarak by buddy who is now the chairman of the life science sector on the scale for daso system on tarak would you like to say a few words thank you bernard it is a thank you for the kind words and it is really a pleasure to be with all of you today in my role it has been a few years since i have been on an earnings call and as you say it is a lot of fun so it has been more than 2 years since we announced coming together and honestly i can not be more excited about what we have been able to accomplish and the progress we have made since that time it has been an incredibly challenging environment as you all know integrations are never easy and doing it on a global scale is even more difficult and then doing it in the midst of a pandemic is it even more difficult 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 i would like to also thank you our teams who have come together focused on creating value for our customers and ultimately for patients our teams are delivering amazing innovation and execution to advance clinical trials and new treatments for patients during what has been an unprecedented time and it feels like we are just getting started given the tremendous opportunities that we see ahead of us our impact on improving the patient is experience and scaling precision medicine has never been clearer you know at the end of the day it is what glenn and i always dreamed about and we are convinced we would be able to do one day and it is what brought us together as organizations in the 1st place and it is becoming a reality as many of you know we suffered the tragic loss of glendervary is 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 glenn helped set the highest standards for medi david 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 glenn is 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 reuben i share the conviction and confidence in our promising future i want to hand the call back to you bernard thank you daraek thank you my friend for your leadership and also the incadibur moment we had all of us together when we decided in less than one hour that the future was together and that was only 2 years ago so i am also confident that we can make the difference we have now incredible connection between people and tremendous opportunities to provide great solutions for our customer so with that pascal you have the frog 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 continuing to the 1st quarter resulting in the performance well aligned with our guidance so let us start with the q 4 stop lines your overall your comparisons total revenue grew 10% to 370001000 above our 7 to 9% range the software revenue also grew 10% and all organically license and other revenues rose 15% to 348000000 well above the guidance and we are back to 2019 levels subscription and support revenue increase 8% driven by the high level gg subscription growth reflecting strong metadata performance but also the 3 d experience momentum and the recurring revenue represents 72% of the software revenue doming on services services was up 10% and we achieved a services growth margin of 27 one substantially better compared to last year and it is coming mainly from the effort we made to improve the efficiency when we were in the middle of the pandemic from 18 months ago from a profitability standpoint in the 4th quarter we delivered a q 4 a strong operating margin of 36.8% this was well aligned with our guidance of 36.4 when taking into account the currency impact of 40 basis points eps grew 17% to \u00a229 compared to our guidance of 27 to \u00a228 few words on the account it is an important topic i know you have questions usually on this so in terms of account we are well aligned with our objectives we saw strong hiring activity again in q 4 and lower attrition and overall the account grew 4% and research and development was up 6% so i think given our track ratio 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 us just take a deep dive into our revenue performance 1st and let us zoom on the software revenue by geo the americas grew 7% during the 1st quarter driven by solid subscription growth which is a definitively key trend in north america in 2021 the regions benefited from strong performance in itex transportation and mobility and life sciences at large and now americas represents 38% of the total software revenue europe increased 10% signed to a strong residency throughout the regions and in 2021 transportation and mobility and industrial equipment grew double digit europe represented 37% of software revenue in 2021 asia rose 12% driven by market expansion in japan india and south seat of asia and in 2021 china grew 19% and asia at large represent 25% of the software revenue let us see if you work on the product line performance industrial innovation software revenue rose 8% to $82300000 in q 4 this growth has been driven specifically by simulia and delmya where the growth is exceeding the double digits and it is mainly due to a large part to large client wins we did in q 4 enovia showed also a strong subscription growth which is against new trend and i think this subscription model is relatively suitable for all the collaborative set of solutions we have and katia finally is back to 2019 levels so i think we are again on our trajectory life sciences software revenue reached 245100000 in q 4 an increase of 9% media data grew over a 15% on the back of a strong comparison base if you remember and we continue to see a very good momentum across the media data portfolio including media data rav the core products media data ai the diversification in the analytics and artificial intelligence and media data passion cloud which is the effect of snobber for the decentralized clinical trial this momentum is also visible in all the across the hand markets we are serving so not only the pharmaceutical and biology companies but also the contract research organization and the medical devices company so we saw high wgg 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 strong media data performance was partially offset someone by a lower than expecting value of their revenue this was driven by the delay of 2 large renewal but we expect to sign both renewal during the 1st half so it is 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 nothing more than combining all the different capability and resources we have to address these markets and this has been done through the leadership of the midita management team especially michael prey 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 an end to end solution that connects dots between ideation development manufacturing commercialization almost what we did in other industries like ios space decades ago i think it is pretty unique on the marketplace and we will make the differentiations moving now on to the mainstream innovations software revenue rose 14% to $312200000 in q 4 solid works 1st deliver a strong result with software revenue growing high single digits and we continue to see add options of our 3 dxn is work is family you know the cloud based solution during this period century pre edmics performing extremely well with high double digit i should say close to triple digit revenue growth and not only it is delivering the numbers but in terms of the kpis we are now reaching more than 550 customers representing more than 4500 brands and with an extremely high level of satisfactions not only it is true in the fashion industry but since almost 2 years centric plm thanks to chris grove is expanding into new verticals such as food and beverage cosmetic and personal care and other customer consumer segments so again very pleased by this move and it is paying off good result is also when the strategy is working and as you know we have 2 kpis to measure this the 1st one is the drug coming from the 3 d expense and for the full year for 2021 the 3 d expense revenue grows 15% driven by strong substitution growth and now it is account for 30% of the total software revenue which is an increase of 200 basis pound compared to last year in 2021 the cloud revenue which is the other one kpi we are monitoring increased 23% driven by the continuing length in life sciences of course but not only but also more and more by the 3 d ex talents and cloud now account for 20% of our software revenue had 200 basis pounds compared to last year all the clients you know we have across all the sectors are transforming extremely rapidly and they are turning to the system to help them to adopt new business model accelerate innovation embracing sustainability imperatives putting consumer patient and citizen at the center of experience our strategy is really to enable those transformations with cloud native applications or cloud extension to an existing on premise investment and our 3 dx platform has been developed to make both all those good results are also reflected into the cash flow and for the fiscal year 2021 the cash flow from operation rose 30% year over year to 1600000000000000 which is converting 33% of the revenue to operating cash flow cash rich a little bit less than 3000000000 2000000000 980000000 an increase of 831000000 versus an increase of 204000000 last year and finally our net financial debt position at the end of the year decreased by 152001000 to less than 900000000 to be precise 890000000 and it has to be compared with 2000000000 for we had in december 31st in 2020 this internet is putting us a year more than a year in fact ahead of our schedule on our delivering objectives now to discuss the 2022 objectives i am very pleased to introduce reuven beckman our new chief financial officer and as bernard mentioned reuven has played a vital role in integrating mid day data and it has been a real pleasure to work together for the last 2 years and it is a successful partnership i think so reuven we are delighted to have you with us reuven you are the floor thank you pascal and hello everyone also from my site and before i would start to outline the financial objectives for 2022 i also want to share that i am thrilled and very happy to be here today with you in this new role i really enjoyed the opportunity to meet with some of you already and learn from many colleagues at daso systems in particular upscai is industry acquisition of many data which as you know is completed more than 2 years ago and now with the successful integration i am looking forward to getting to know all of you and the broader investment community during this year and i know we already have concrete plans to do that so with this let me turn to the full year for 2022 our financial objectives as discussed we expect the broad based dynamics we experienced in the 4th 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 van aarn pascal 1st we are enhancing our leadership position across our major grants 2nd we are accelerating the momentum with 3 d experience and industry solution experiences and you are bringing new customers as well expanding within our installed base and 3rd we are focused on delivering new experience and value with cloud so we will continue the momentum of medidata and medidata patient cloud we will also expand the user base with the 3 d experience works family in the mainstream market and deliver new value at scale with large enterprise partnerships like what you see happening with renault or greek construction now with this in mind we are targeting for fuilyer 2022 total revenue growth of 9 to 10% and software revenue growth in the same range when thinking about our software revenue growth let us keep in mind that last year we had a very strong year of license growth this 23% year on year which brought us back ahead of 2019 levels and now for this year we expect to continue healthy double ditchred growth at around 10% or up to 12% which reflects continued strong demand within our installed base this trend is more in line with what we saw how a farmer can look for a quarter we anticipate recurring software revenue to increase by 9.5% an acceleration of 100 to 150 basis points was this last year traven 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% 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 scalability inherent to our business model as we said through our 2021 we plan to accelerate investments into our business and reengage 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 irf s operating margin to be in the range of 32.7 to 33 one again this is consistent with our prior communication now let me continue with our proposed objectives for earnings per share we expect non irf s eps to grow between 3 to 6% reaching one year 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 one.17 now i will provide some additional color on what to expect for q one as you are aware our business has some seasonality and we expect to see growth rates progressing throughout the year we expect q one total revenue growth of 7 9% with softer revenue increasing in the same range and services revenue up 5 7% driven by continued broad based momentum across our geos we expect the operating margin at a range of 32.3 to 33% with an eps growth of 3 to 7% versus last year as you heard from us during this call they are confident in the long term opportunity ahead and we look forward to keeping you appraced of our progress throughout the year and now pascal i will hand the call back to you in your advance to summarize i think the stage is set for the future growth on one hand our long term strategic vision has been validated investment we made 10 years ago to enact the expanse 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 is what bernard said 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 2 will be a strong secular driver to underpinning growth across all the 3 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 our commitment to clients to drive our strategy will continue and we thank them for their continued trust so finally i think oven and i will be extremely pleased to see you in person when we will have the ability to go back on the road but i think it has been so long when we have not seen each other i think bernard oven is a part of course you may be the time to take the questions thank you the participants will now begin the question and answer session as you remind that if you wish to ask a question please press star and one on your telephone keypad and wait for your name to be announced the 1st question comes a line of nicholas david from odot bhf please ask your question yes hi good afternoon benan pascal and ljubrun in pahik as well thank you for taking my question my 1st one is regarding licenses growth you unspayed double duty growth of licenses in 2022 so for the 2nd year in a row so congrats for that because i think that was an ambition to sustain such a growth double duty growth of licenses my 1st question is do you think that such growth is sustainable beyond 22 and if so also do you think that this improved growth trend in licenses is more linked to the momentum of your product cycle so internal to your company or more linked to the consequences of the same type of crisis we are just living right now and it is more macro impact you are basing of and my 2nd question is still regarding licensees as sells several software players including some of your competitors mentioned that the difficulties the client have had in hiring have led to some delays in launching projects and having negative impact on license sales so my question is to what extent you may suffer from this kind of impact regarding your licensees sales in the coming quarters thank you orhan you want to take the 1st one yeah happy to happy to yeah so i think the best way to conceptualize this nicola thank you for the question yes we had in 2021 varies from license performance with 23% for the full year of course this was a lower comparable base in 2020 q 4 of 15% growth against i think a good comparability q 4 of 2020 we saw the rebound starting to happen and so it was a real proof point for us in the 4th quarter to achieve wit goal and that trend is what we continue to forecast into 2022 with 10 to 12% and i think the area the sources of growth for that support that underpins this assumption is that we have well established an operating model between capex and opex for our customers we are serving industries where we have significant installed basis that are transforming to the cloud through the subscription model but it will take time and we are committed to support our customers and support them in a way what their preferences are in terms of how they want to spend and make the investment you know these are very sticky investments very long term relationships where our customers are capitalizing on their investments for decades that we continue to innovate and solve our right value and i think with the 3 d experience and the power by extension that we deliver we make these investments also really valuable and ready for the future on the 2nd part of the question pascal if i may on is the client airing challenge having an impact on our license we see the total opposite way because the nature of our audience is changing 4 years we have been we continue to focus on engineering production but now with the 3 d experience platform we also reach supply management costing on many other functions within the company the example i do not know is really amazing in terms of size at toyota motor also and many other clients that i could name so the intent with the platform phenomenon the 3 d experience platform is to reach audience that we could not reach before as a matter of fact the 3 d experience collaborative environment is now being used by clients to evaluate materials cost weight supply efficiency all based on the 3 d 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 long lasting growth factor on pascal mentioned that it is noticeable even with our business applications that we call our under the category of inovia where we deliver business experiences or program management project management costing even for esg reporting or co 2 reporting because the platform has this capability in short so we do not see the negative effect that is very clear thank you and maybe one very quick follow up from my side is or understand that you increased salary to reduce the attrition a bit but do you think that you need also to increase the volume of shares granted to employees in order to reduce further the attrition so any insights about the ship i think we are ship yeah if i can answer the vice chumman of the boat because that is not on the budget side it is on the shoulder side no we have i think we have a very stable predictable portfolio of allocation and we think that he it provides a good compelling incentive for people we created this together model last year which was really to provide an option for people to buy shares at a certain discount and go on to the result over a certain number of years very successful program but we integrated integrated data location as part of the overall policy so that there is no deviation i would say pascal if you want to add something i think why you do i think that is not the 1st time we discussed this i think we are extremely we have a lot of discipline on this why so because if you want this to be long term and not only one of you need to integrate it in your business model if i compare with the competitors or the peers usually they allocate an envelope which could be sometimes 3 times bigger however i think it is not sustainable over the time especially if you look at at the end how much of the operating profit goes through this i think do your job do the sanity check you will see its balance its fare its variable and sustainable and that is basically our philosophy and our principle so you could count on us to continue what we did in the same manner thank you and congratulations for the opportunity to present thank you the next question comes from the chairman of charles brennan from jeffree please ask your question great good afternoon thanks for taking my question hopefully a 2nd time across the industry we are seeing this cloud momentum gather pace and its reference in your statement with some of your legacy customers moving to the cloud so i was wondering if i could ask 4 questions related to the cloud the 1st 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 traditionally said that the move to the cloud 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 navy or solid works moving to the cloud those are both traditional license product lines and i am just wondering if we are starting to get to the stage where you are starting to see traditional licenses cannibalized by the cloud thirdly it feels like some of your competitors are being a little bit more progressive in driving this agenda i am just wondering what it would take for you to be a little bit more proactive in enforcing a shift to the clouds you are obviously doing that in the life sciences vertical i guess ruben is well placed to manage a more progressive cloud transition i am just wondering what the catalyst would be for you to go down that route and very lastly on m a i guess traditionally we see a bigger transaction from dasa every couple of years i guess we must be getting into the window where we do the next one should we assume that any future m a from here will be of a cloud based business model and is that one of the catalysts that is going to get you to the target of having 30% of the revenues in the cloud thank you wow we could do probably the rest of the code not your question charlie but ben i want to take the 1st one i could comment on the product portfolio on pascal of course stepping 1st of all we have reached a point where 1st of all the cloud approach for us above all is a way to reach new category of users 2nd the cloud approach for us is about providing new delivery system for the capabilities we have roles process and solutions why having browser native services on mobile tablets and pcs is a big thing for the nature of software we do on the ikea story with 4000000 users in a few months is an illustration exactly of that it is all going through browser based same as you mentioned short on the clinical trial but we are doing that also for design we are doing that as a matter of fact the portfolio as a return point where now there are more solutions products and roles on the cloud native than we have on premise however i want to make sure it is clear we love the on premise there are programs on the on premise we will become private clouds they will become absolutely private clouds 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 the value of doing that is so we value this hybridization to reach the audience and provide really a 3 d for all approach that will make the difference on accelerate the platform phenomenon across all functions if you think about people now doing supply negotiation in the past they were using erp dashboards now they are looking at the product itself and they have the price on the pot and they know where it is sourced from it is a new word from the we do metiverse before metiverse because they see what is happening so enough said but they do not seek an availability i see massive comparability on that and just to echo what you say bernat you were mentioning enovia again you still have time to understand what enovia is about today enovia is not anymore only the product lifecycle management capability as bernat say it is a set of business applications you know allowing the procurement to source the cost to negotiate to contract allowing program manager to run that program to do their review to manage their supply chain this is what we are talking about and it is an extension compared to what we used to do so that is 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 similar works you have denier works you have inovia works and those set of services are not well deployed in the mainstream market right now and by the way under works family they are all cloud they are all cloud all of them so that is the reason why it is really an extension and it is still an extension compared to 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 is 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 is not aligned with your customers business model knowing at the end the license or subscription we are doing a 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 concert with a lot of alignment with our customers that is i think making a big difference compared to many of our competitors and last but not least the question related to a minute yeah i mean you noticed that we will be the leverage almost in 6 months from now so which gives us the ability to do all the move if we want the cloud is not the purpose the purpose is to expand what we do having the ability to expand the addressable markets and maybe change the nature of what we do for example if we want to focus on the data centricity of our solutions and technology for sure the cloud is probably the way to do it but again it is a means it is not the goal so that is what i can say at this stage it is probably too early to speak about it and maybe i do not know at the time of the capital market day in june we could probably discuss much more open into this topic perfect thanks much thank you john next question please thank you the next question comes from line of jay blish howard from grouping securities please ask your question thank you hello everyone i will ask all my questions at the same time just given the time meaning on the call 1st could you talk about the performance in 2021 and what your expectations might be for 2022 with respect to your 2 principal sales channels would you now call cse and cpe in a formerly bt and bs of course could you comment on those 2 channels and anything you might be doing to invest in or alter perhaps either of those channels secondly one thing we see among a number of your principal competitors is an implementation of or plan to implement a faster product release cadence we see this in the opencad and p l e l m for example and i am wondering if in lieu of your historical summer and winter releases that you have done for many many years there might be some rationale for accelerating your product release cadence particularly in alignment with your cloudy business thirdly on 3 dx one thing that seems to be occurring is that within the overall 3 dx number while anovia seems still to be the largest part of it as it has been other brands like catia v 6 are growing their contribution if you could comment on that and whether you think that brands other than anovia might eventually account for the majority of the 3 dx business and lastly on 3 dx works i understand that is still quite early of course at least 6 quarters in market but do you think that you have any visibility to penetrating let us say more than 10% of the solid work space with 3 dx works and thereby make it an increasingly material business thank you a few clarification pascal if i may i will put the 1st of all daso system is providing not any more functionalities but we are providing roles processes on industry solutions 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 on no one of the competitors are doing that so it is important to understand it the 2nd thing is and then i will let pascal comment on the channel performance the 2nd remark is we do 6 weeks k dons delivery on the cloud so jay please notice that for a large percentage of our install base we are already there every 6 weeks the world is getting new capabilities and it is working extremely well with an sle which is very high on providing satisfaction some large companies are already there we took the example of a big it is all cloud 100% we all know for 3 d collaborative environment suppliers all cloud every 6 weeks it is updated so we are already 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 do not count katya on the 3 d experience like or super scan on uren can explain more we count katya for katya we count tell me for them yeah each bronze for what they are no matter if they are independent or if they are based on the 3 d experience platform so we continue to keep that integrity in the way we report now on last thing about the 3 d experience works it should be noticed that outside so it works everything new is native cloud similar words is native cloud on only cloud for solidwask customers and we have also now a full suite of solidwask functionalities that are delivered on a browser and this explains the incredible success of cloud in china believe it or not more than in every other countries because i think in china we have the approval to run cloud or all licenses on really distributed in a big way so that is all what i wanted to clarify on pascal maybe you want to on the channel maybe i can say if you work so 1st of all you know 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 models so if you follow me on this all of them are growing higher than 20% so when i say it is a broad base it is really a broad base and it is what we call the process channel which has the best performance in terms of due license this year in 2021 so by being more close to 30 than 20% so and it is not a surprise when you think about it because during the pandemic the direct cells resisted relatively well the mainstream the theory also but the process the supply chain we are really the one being on the pressure and we have been able to almost catch up the lag in 2020 and 2021 so i think we are relatively on a good path to complement what bernasse on the 3 d experience distributed across all the brands you have to be a little bit careful this is true that the tenovia for inovia almost to serve of the revenue of inovia is 3 d experience based but it is a serve more than a serve for the lma also for catia so it is not the only one okay if i may quickly my annual question on solid works unit volume my calculation is that it looks like your 2021 solid works new commercial seed volume was similar to perhaps slightly better than where you were in 2019 so perhaps just around 76000 or so and not quite back to where you were in 2018 just yet this is true but with one big difference the average seed price increases which means we are more and more capable to enrich the package and one of the reasons you should remember i will say 60% of the units are coming from existing customers so they are the one not buying any more the base package or the one buying the full package that is basically the reason why also you have such a growth it is a combination of units and averaging also by the way thank you for the headcount and hiring comments that is always useful on the side thank you jeff by the way you will have a neighbor because hoover and the family are still in new york for a few months and he will probably fly to new york in the coming weeks that is right great i will pick you up at the airport okay maybe later for coffee next question please thank you the next question comes from ryan of new steer from redburn please ask your question hi thanks very much i just have a couple of quick ones the 1st one is just looking at sales and marketing expenses and i suppose the off ex cost ratios in general quite clearly as we have gone through the pandemic because there is travel and also hiring you are running with 1000 marketing at around about 3 to 400 places to point below where we were sort of pre pandemic i am just wondering would you expect over the next couple of years for that to pick up to closer to the sort of 29 30% cost ratio that we have seen in the past are there structural reasons as to why henceforth 1000 marketing should be at sort of a structurally lower level that is the 1st question neil pascal will also answer these questions so you know as the chief operating officer i learned something during the pandemic we have been capable to grow without having more resources and believe it or not we have increased dramatically the productivity if i compare to 19 it is per head per salespeople it is more than a relevant person so why i am seeing this because it is going to be a combination between obviously more resources because we need to reinforce the coverage we have in certain regions of the world or certain verticals but at the same time i still believe we still have we still can continue to improve the productivity maybe we are not at this level every year but at least fewer percentage point it is probably something we could be able to achieve so and this will give probably the ability for us to finance a different go to market because we are talking about the traditional one but there are activities where we need to invest because it is a different way to go to market and still on bright and unique and we still need to invest so the net is it will not be maybe you know to have a big difference however we have some lever to extend the different nature of the goutou market we have that is probably the way we can get it so mister clara i used to just think that we will see quite an over the next couple of years 1000s of markets in cost ratio will go back up but perhaps not back up to the 30% level or are you suggesting it is more sustainable at the sort of 25 26% level no no it would increase because i say to you we did not hire almost one single person each one last year okay i mean it is not sustainable however if you do the math you have to include some productivity effects because we had some productivity the last 2 years and now it is part of my duty to make sure that we grow the coverage but at the same time we are also improving the productivity okay thank you and just zeroing in on life science is obviously taking all of the commentary together with regards to the growth in meditation and so forth it looks as though the softness that you saw in q 4 quite clearly would be sort of the original accelerist businesses is that a little bit surprising that is more on the discovery side i think their products set have you actually signed the deferral there or is that sort of if you like a permanent deferral and you will never fully recover that revenue as we go through the 2020 year well you were happy happy to so you know the impact that we had in the 4th quarter is temporary these are 2 renewals that we are actively working on too close in i would say early 2022 it could be the 1st quarter it could be the 2nd quarter yeah these are 2 major customers of ours that we have established relationships and it is only a question of time i think the other part that i would like to add to the bio media business as well in life sciences we are also aggressively transforming bio media towards a more subscription model than what it used to be because it was heavily dependent on licenses and that creates some variability from time to time so that is another factor that we will talk about throughout 2022 thank you great thanks for fitting me in just a couple quick ones on a couple of the brands 1st on somalia it is nice to see double digit growth there it has been doing quite well for the past few quarters from what i can remember so my question here is is the strength we are seeing from share gains versus simulation competitive market or is it more broader industry strength recovery from that similarly i think there are 2 major factors where basically we create a game changer situation number one on the solidworks install base customer way i used to use our competitor product on desktop now we are offering cloud based simulation extremely successful easier to provision to put in operation and it has created a very nice dynamic in what we call the works family john paolo is doing a very great job john paolo vashi on this topic in fact he is going to work on the full works family and not only so it works on we have just announced that the new ceo of solidworks is manish kumar but john powell is taking the full scope responsibility for 3 d expanse works that is one driver and the 2nd one is multi physics platform based integration which is connecting the power flow the emag the stress and all of these together in a consistent environment and we see a lot of customers moving from isolated simulation to integrated system simulation i think it is unstoppable in my mind and we have plenty of opportunities to continue to sustain a strong growth in this area perfect and then maybe one quick final one you know solidworks 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 are right i mean if you remember the worst was really the 1st product line to recover and there is no base effects compared to that here and the 8% 8 to 9 is a good number okay perfect thank you all and have a good afternoon thank you everyone for participating it is always a great pleasure to exchange with you and address your questions and i know that pascal and reuben are now committed to do road shows and visit you as quickly as possible and 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 of a conference for today thank you for participating you may all disconnect have a nice day",
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      "reference": "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 2 of this siemens healthineers presentation this conference call may include forward looking statements these statements are based on the company is 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 mister marc koebernick head of investor relations please go ahead sir thanks operator and welcome dear analysts and investors to today is call also from my side our 1st quarter results were released at 7 0 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 am sitting here with bernd montag ceo of siemens healthineers and jochen schmitz cfo we will be taking you through our 1st 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 2 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 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 q one 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 one.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 \u20ac329000000 of rapid antigen sales varian had a very solid start to the fiscal year and contributed \u20ac750000000 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 q one 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 \u00a20.55 in q one free cash flow was strong with \u20ac556000000 we have raised the outlook for the group in terms of comparable revenue we now expect 3 to 5% growth from previous knee 0 to 2 for adjusted basic earnings especially we expect 2.18 to \u20ac2.3 cents from previously 2.08 to 2.20 this increase is the result of higher than expected antigen revenues we now assume 700000000 of revenues out of rapid antigen testing in fiscal year 22 so while it looks like it is 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 is 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 3rd 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 1000000s 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 us look at some of the most recent examples 1st the magnetom free max our lightest smallest and most cost effective mister system the magnetom free max comes with a basically helium free technology that is significantly reduces total cost of ownership and therefore makes mister 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 mister could not go before buyer decisions are driven by favorable infrastructure requirements and ease of use especially for those 1st 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 1st 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 1st 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 35000 patients were already scanned using the new system of 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 q one we were capable to sign a contract for more than 40 atellica solution analyzers with ascent in california making it one of the country is 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 15000 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 3 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 3 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 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 \u20ac750000000 at the same time varian has been capable to further expand its its strong order backlog with an equipment book to build off one.23 in the 1st quarter documentation of this strong performance are 2 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 \u20ac117000000 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 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 1st quarter in fiscal year 22 as bernd highlighted before we see the momentum from fiscal year 21 to continue in the 1st quarter of our fiscal year 22 let me start with giving some color on the dynamics and the equipment orders 1st 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 one.2 in q one 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 q one with 329000000 of revenue primarily in amea which brings us to the overall 9.55% comparable revenue growth bear in mind that we received 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 q one 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 q one we saw significant equipment grows in china due to government backed preparations for potential 2nd covid 19 wave in q one we also saw tearing from foreign exchange translation of around 3 percentage points so revenue in q one 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 is q one was exceptionally good since we posted the highest margin of the fiscal year in q one which is quite unusual so we see some degree of normalization in the q one margin this year on top of this we saw 2 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 . 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 \u20ac30000000 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 70000000 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 \u20ac556000000 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 q 3 onwards let us now have a look at our segment performance as berndt has already covered varian i will commenting the remaining 3 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 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 is 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 1st 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 q one 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 q one margin in advanced therapies was down to 14.3% in q one 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 rapid antigen revenue contribution of 700000000s euros in fiscal year 2022 up from previously communicated 200000000 since our fiscal year 2022 outlook announced 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 q one and q 2 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 2nd 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 1st half to then decline sharply in the 2nd half due to the expected lower demand and price erosion finally a few comments on the q one 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 will see on the slide the 4 topic that we currently consider material and the year over year impact on adjusted ebit in the 1st half and the 2nd 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 1st half year turning into a very negative year over year impact in the 2nd half due to the slowing demand and at the same time comparing against the very strong 2nd half of last fiscal year regarding foreign exchange as said before we see a translational tailwind of around 3 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 for 3 to 6 months forward the impact on the ebit line is usually trading the top line impacts by the said 3 to 6 months consequently we expect a negative impact from foreign exchange on the 1st half bottom line turning . in 2nd 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 2nd half we expect the tailwind in the 2nd half the fiscal year to be larger since we booked in last year is q 4 the employee bonus provision of \u20ac56000000 the tailwind from incentives in q one 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 3 main messages that sum up our current situation and what we expect for the remainder of the year 1st 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 2nd we see the headwinds mainly in procurement and logistic cost of around 100 base points in margins year over year skewed towards the 1st half of the fiscal year these headwinds have 2 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 3rd 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 100 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 \u20ac700000000 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 \u20ac2.18 and \u20ac2.30 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 \u00a210 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 2nd half of the year let me also add a comment on what we expect in q 2 where we have obviously better visibility for comparable revenue growth we expect momentum from q one to continue into q 2 for all segments on the margin side we expect imaging margins in q 2 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 3 segments might end up around what is likely lower compared to q one and with this i close my presentation and hand it over t to you mark for q a thanks johann so 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 is question and answer session where we would like to ask you to limit yourself to 2 questions if you wish to ask a question please press the star key followed by the digit 5 on your telephone keypad again ladies and gentlemen please press star 5 on your telephone keypad so great i see you are lining up here 1st caller on the line would be veronika dubajova from goldman sachs veronika your line should be open please ask your questions . hi guys good morning and thank you for taking my questions i have 2 please one is on the covid 19 guidance i mean obviously you you have already delivered 329000000 of of sales in the 1st 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 2nd quarter so maybe johann you can give us a little bit thinki a little bit of your thinking on you know why q 2 should not be at least as good as q one and in that context why the 700 might be maybe a bit more cautious i know you mentioned pricing but i am just curious you know in terms of demand if you can give us a little bit of insight in into what you are seeing at the moment that would be my 1st question and then my 2nd question is on the imaging margin obviously coming in at around 20% in in q one and assuming q 2 is similar that does leave you quite a lot of work in the 2nd half to do how much visibility do you have on component pricing and you know transportation costs as you move into the 2nd half of the year have you been able to lock in some prices there that help you 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 on let me start with antigen 1st yeah i mean . a as you as as you s as you know we were always relatively conservative with assuming in our outlook an antigen revenue portion yeah and w we have good visibility 0 on on the 700000000s yeah and i i would also expect to see a relatively similar level of revenue in q 2 as as we saw in q q one at least yeah and this leaves then some trailing out antigen revenue for the remainding remaining quarters yeah that is that our is our current thinking i mean there are a lot of i would see variables still open yeah pricing availability channel development in the united states and 0 and other things yeah which led us to give you i would say i would say a very balanced yeah guidance for 700000000 a assumption for 700000000 in our outlook yeah on the imaging margin i mean you asked here several questions around this when last year you saw quite some quite some i would say spread in the margins yeah from 18% in q 3 up to i think 20 23 24% in in in the in the in in the highest quarters and we started now with saint and and ended up on average with 21% yeah . inaudible was 20% with significant headwind from foreign exchange as well as procurement and logistic cost i mean we expect those procurement logistic cost to be skewed towards the 1st 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 and and we have a a clear plan to get to to a clear plan to get to to the lower end of of the range yeah as i highlighted yeah but visibility is is beside backlog yeah where we have good visibility strong i would say 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 am still confident that we can reach the lower end of the bend very clear thank you so much johan thanks veronica so then i would head over to the next person on the line this would be patrick wood from bank of america patrick you should be live now please ask your questions perfect thank you very much for for taking my questions i guess the 1st one predictably on the the margin side i am 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 are actually doing within the business to offset those costs some detail there would be great the other side maybe actually on the demand side of things you know the near it is good to know it is in the you know the early early launch phases with early adopters but if you were asked when when should we expect it to become more in a full commercial launch is that a you know really back off of this year or you know when do you feel you are going to be able to put more more of the pedal down and and push the product in a more aggressive way thanks thank you patrick so maybe i rephrase the question yeah how do we offset 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 and i mean one big topic is is of course to very fully manage pricing yeah and also to make sure that that we we use our pricing power and there i am we have we have good signals yeah that that we we a we also make good progress on that front yeah i mean we see it also in the order book yeah that that that pricing quality is is is is is good yeah so do not only look at the at the at the cost side yeah and when it comes to the component supply aspects i am i believe that we we are getting into more more stable waters yeah which which will which which which will also help to to ease the effect from the area but in the end i mean i think please bear in mind 2 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 1st and big topic to achieve yeah and secondly we will manage very carefully the cost implications but on the other hand there is a big topic in in the in the in then it comes to pricing power and and also passing some of these effects on so to say when it comes to the fortune counting i mean this this year is is the year of a of a roll out 2 selected customers yeah where we were so that the i mean an early commercial rollout i would say the the full commercial effect you will see in the next fiscal year but what we what we see so far in terms of interest in terms of also real demand but also in terms of price realization is very very encouraging and maybe patrick one other aspect on that margin topic maybe we have 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 does not come for free yeah we need to be clear about this yeah this is a deliberate decision yeah and that is 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 and and i think we feel so far in relatively in a relative term speaking comfortable with that decision yeah and and 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 do not expect this to happen fabulous thanks for taking the questions any questions so next one on the line would be lisa cly from bernstein lisa line should be open please ask your questions hi there i have 2 questions on that ivd business 1st on your us antigen revenues are you selling to specific government programs or are you going to pharmacies 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 2nd question just on the ivd business x antigen nice to hear that there is 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 go 1st here i mean the the primary customer group when it comes to antigen testing or rapid test in the united states is is let us say large customers yeah and we are not and we are not we do not have the channels yeah and and and not the ambition yet to go into the into 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 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 in in in terms of 1000000s of tests which need to be delivered at once and this is also one aspect we are now living up to in the us when it comes to the government program we are also looking at larger retail chains yeah and and and and and and we will see how that how that market develops yeah but that is currently baked into our into the forecast of the 700000000 when it comes to the core business i mean yes it had a in diagnostics i am very happy with the with the with the start we had here yeah it it shows a nice continuation of the trend of of a step by step i i i improvement towards the the targets we have set for this business th then it comes to how how close this business is to the let us say pre pandemic levels i think it is pretty it is i i mean i can not give you a clear number yeah i mean but it is more in the in the in the 90 to to a 100% normal yeah but what you still see and which is which is when you double click on it is that when it comes to the testing menu yeah there might be some shifts yeah compared to what normally has been done compared to 2 years ago there maybe 2 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 we are largely back to to to normal to a normal situation in that business okay thanks for that inaudible okay next one on the line should be james from jeffreys james your line should be open so please ask your questions all right thank you so much it is james inaudible from jeffreys 2 questions please so just on procurement and logistics and you mentioned you do not have a lot of visibility so i am just curious what is changed in the past 3 months when you 1st gave guidance you know where were the additional pressures which were not initially anticipated and without that visibility how do you have confidence we were not the additional pressures in the 2nd part of the year and then my 2nd question is just on inaudible i think you know you said it is going to be included in comparable sales growth from q 3 this year i think we just looked back a bit i think in q 3 before i think you said it was around 17% can not remember the q 4 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 in q one so we can see the the trajectory for that thank you yeah thanks for the question james i think what has changed since the initial assumption was that i think we we we saw i would say the the shortages and the the the necessity to buy at spot rates certain components ha has increased yeah relative to where we stand at at early november 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 is because it is not only price of components yeah it is even when you have shortages you also need to be super agile and flexible in your internal processes which 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 is 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 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 is 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 to optimize our internal processes according to the challenging environments yeah on on the variant side on a performer basis yeah the growth rate on revenue in in q one 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 is great thank you thanks james so next one online should be inaudible from inaudible inaudible yeah you should be live hello good morning dan good morning johan thanks thanks for taking my questions i have 2 the 1st one a and sorry if you mentioned that in your pre prepared remark but the the line was a bit patchy but it relates to the diagnostics margin excluding the the covid contribution i think you have a guidance for for fiscal year 2022 which is to reach a mid single digit to high single digit margin for for the the underlying diagnostic business so just curious whether that was in line . whe whether the q one margin was in line with that guidance or or maybe marginally above and any help in understanding profitability of the covid tests i in q one 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 2nd question relates sorry for that again to the logistics and procurement costs it is more looking at the midterm guidance that you had indicated that your capital market day back in november you you you have said that you expect an improvement on that side in age 2 so you would say that there is nothing structural there that could 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 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 the the procurement and logistic costs behind in in diagnostics it is primarily the logistic cost currently yeah and we feel but we feel well on track to get to stay in that line and and see progress a as we proceed through the year yeah on the procurement and logistic front i do not see this as a critical item for our midterm targets yeah we consider this a temporary problem yeah which should should be dealt with over time and as dan already said beforehand when we have also mitigation measures when you when you extend this topic not only to covid 19 but also to the inflation topic yeah that we can that we can also in a in a i would say in a very meaningful way address it by by significant price discipline yeah and we have initiated the measures and we will see we expect to see also benefits from this kicking in in the in the l in the i mean according to when the the the orders come in yeah and turn that into revenue more in the in the later end of this fiscal year and then in the in the next years yep okay thanks yeah then i would pass it over now to hassan from barclays hassan your line should be open i can not hear you let me just a 2nd i dunno if we have any technical issues here maybe just a 2nd hassan i hope we get you into the line in a 2nd or 2 please record your name after the tone and press the pound key the conference is in presentation mode okay so we try it again crosstalk which is in the conference you are . yo are you live now hassan give us yes yes wonderful hi i can hear you now mark thank you thank you brilliant i have 2 questions please so firstly just to follow comments on the top line your competitors have clearly seen headwinds and have talked about deferred installations i is this something that you are seeing at all or is this getting worse in in fiscal q 2 and then 2nd 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 1st of all and and here i c coming back to johan is point yeah yeah we say the we made a decision to deliver but on the other hand we we have the to deliver but on the other hand we are we have the ability to deliver you know which is i think something which sets us apart yeah because here really this organization does a wonderful job here in in in extremely quickly reacting new to new situations i mean it is similar to us and what we do in the antigen tests and so on yeah so it is very very encouraging and i am very proud how the organization is dealing with the with the with the topics when it come to . i mean your question is more about the 0 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 reacting and and and and prioritize then one customer over the other 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 q one will will continue and here we really stand out in the market and to some extent our ability to deliver yeah helps us to to to to n to to even game share yeah yeah because s some of the the the some of the delivery times of of competitors are just not not what the market accepts and that brings me also to the other topic yeah when it comes to when it comes to pricing it is it is i i i . of course the the p some of the pricing which which which which we have is set by the you know at the point of the order intake and as you know in our business typically on the on the imaging site orders the time between order and and r and and revenue or between book and bill is is in the range of 6 to 9 months yeah so that means yeah that pricing measures yeah which we have initiated and which we see in the order book here will also materialize towards the 2nd half of the year and we see 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 when it comes to customers yeah so and as a last point please also bear in mind here about 50% or more 55% of our revenue is recurring revenue and in . and f and especially when it comes to the service aspects yeah we have also price adjustment clauses and so on and are also protected yeah when it comes to in when it comes to infla inflationary tendencies yeah perfect thank you so much thanks ansan sorry for the technical problems so now we hand over to daniel wendoff you are the 2nd but last one on the queue daniel 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 1st question on the very end top line development maybe you can you can tell us a bit how the combination now with inaudible as helped through that if at all and yeah maybe give a give a few examples what 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 atellica low to mid throughput solution the ci 1900 what is the key marketing message you would you would . 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 thing standing out for the atellica solution in the mid to the low to mid segment thank you okay so so thank you daniel i mean looking at at varian there is on the one hand when it comes to the revenue development very a very very strong a recovery of the business yeah coming from from from from the pandemic and . 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 is what we see on the order book yeah we see many bills yeah some of them have already been booked yeah like like the one example i gave on oulu in finland but many are in what we call the funnel yeah which is the s project the sales force is working on where there is a a a super encouraging and momentum across the entire 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 you know specialty oncology customers who know i i or or who are s s strongly tied to varian here or have strong connections who and who know when to go into the 0 a ha or expand the the relationship to imaging and it ca w and and and it can be using the strength we have in c level relationships as inaudible as classic if you wish to pull in the varian team and to use this additional additional effect it is using our strength as inaudible classic again yeah in in in parts of the world were varian has not been as strong yeah in terms of sales presence sometimes not even having a direct sales force 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 . i mean it is not only a very strong start on the revenue side in in in in varian with the 750 but you need to look at the book to bill of one.23 yeah so that m t that that the orders have been even 23% more than that yeah so here a clearly very very strong and and i i a a start and and i am very very bullish when it comes to this 2nd question was . crosstalk the ci 90 what is the what is the what is the positioning of the product basically it it s it expands the philosophy of atellica solution yeah which is highest throughput highest quality at . so highest quality test in the in in high 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 hospital networks who use the quote unquote big atellica atellica solution in the hop and 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 and the 3rd topic is it is an ideal system for for labs in the emerging countries very good thank you thank you so now we go over to the last one for today that should . the last not but not least falko freidrichs from deutsche bank falko you should be live now thank you and good morning i have 2 questions as well please firstly on your new imaging launches how how would you describe the the replacement behavior of your customers in light of these launches 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 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 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 thank you falko on on the imaging launches 2 . i think they come in 2 different buckets yeah on the one hand when it comes to what we do with the magnetom free max and also free star which is the smaller version of it this is about creating new ma markets for mri and it is bringing mister to places where where it where where it could not go before yeah so to see to . 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 and we are very happy with what we are seeing that the products exactly do that yeah bringing mister to the outpatient clinic which so far m only had ct or bringing mister to places in emerging countries which did not do it or bringing mister to to 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 this is . i mean i i commented before yeah that that v t th the f th th this is in the an early phase of of of launch yeah where we have where we have a lot of excited and exciting customers who are who come in either from the academic medial centers or in a very prestigious private institutions here the topic of a 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 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 i sometimes use this a little bit maybe trivial analogy of comparing photon counting ct to flat panel 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 the next generation offers just little improvements yeah maybe i will 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 . 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 . this is a success we had 00 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 and it . 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 there is 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 okay thank you okay so this ends our call for today thanks for your participation for your continued interest in siemens healthineers and your questions in today is 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 til then stay healthy your health and your esteem that will conclude today is 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 . the conference is in presentation mode the conference will b . healthineers com investor relations be available on the investor relation section of the s . stay healthy your health and your esteem that will conclude today is 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",
      "prediction": "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 2 of the siemens healthineers presentation this conference call may include forward looking statements these statements are based on the company is 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 mister mark kubenick head of investor relations please go ahead sir thanks operator and welcome dear analysts and investors to today is call also from my side our 1st quarter results were released at 7 amct this morning and you can find all the material presentation earnings release and the recording of the call on our ir webpage i am sitting here with bant mottag ceo of siemens health and ears and johr schmitz our cfo who will be taking you through our 1st 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 2 questions each some things never change with this i pass the word over to our ceo brent montag brent the floor is yours thank you mark good morning dear analysts and investors thank you for dialing in 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 q one which shows that we have been able to take the momentum from 2021 over into the new financial year despite a quite challenging environment we increased our order backlog with an excellent equipment book to build rate at one.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 \u20ac329000000 of rapid antigen sales baryon had a very solid start to the fiscal year and contributed \u20ac750000000 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 q one 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 \u20ac55 cents in q one free cash flow was strong with \u20ac556000000 we have raised the outlook for the group in terms of comparable revenue we now expect 3 to 5% growth from previous year 0 to 2 for adjusted basic earnings per share we expect 2.18 to \u20ac2.3 cents from previous need to 2.20 this increase is the result of higher than expected antigen revenues we now assume 700000000 of revenues out of rapid antigen testing in fiscal year 22 so while it looks like it is 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 market stay 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 winning precision 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 submillimeter accuracy whether it is cancer neuro or cardiac disorders the importance of precision in treating patients is what makes variants 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 with user side effects in short makes therapies better for patients our 3rd strength 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 1000000s of patients before and for connecting patient winning with precision therapy our unique capabilities allow us to pioneer breakthrough innovations to fuel further growth let us look at some of the most recent examples 1st the magneton free max our lightest smallest and most cost effective mister system the magneton free max comes with a basically helium free technology that significantly reduces total cost of ownership and therefore makes mister 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 settings where mister could not go before buyer decisions are driven by favorable infrastructure requirements and ease of use especially for those 1st time users it was released in august 21 and we see a steady order ramp up also for the little sister the magnetome free star the neotome alpha is the 1st 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 neotome alpha on november 18 21 described by the fda as the 1st major imaging device advancements for a ct in nearly a decade neotum aepha is seeing an impressive customer interest in both private and academic institutions our customers confirm that photon counting technology has the potential to become the new global technical standard in ct in the decades to come more than 35000 patients were already scanned using the new system as of today and we started to book orders in 5th year 2021 for a selected customer group of early adopters already atelica is ci 1900 atelica is solutions little sister is targeted towards mid sized labs hub and spoke settings in the emerging countries it brings the atelica philosophy of combining quality and throughput to even more customers worldwide speaking of atelica in q one we were capable to sign a contract for more than 40 atelica solution analyzers with ascent in california making it one of the country is largest single site atelica solution locations turning the page over to precision 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 15000 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 stroke treatment all of this is enabled by the glue of digital data and ai like our ai ret companion or variance 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 3 company wide growth vectors that we presented at our capital market name 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 3 company white growth factors 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 end 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 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 \u20ac750000000 at the same time varian has been capable to further expand its strong order backlog with an equipment book to build of one.23 in the 1st quarter documentation of this strong performance are 2 notable long term partnerships we signed with the olu university hospital and the u s oncology network the partnership with olu university hospital and 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 healthiness will provide a 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 u s oncology network further extending the existing partnership the u s 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 \u20ac117000000 and a margin of 15.7% varian is already right in the middle 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 yohun for the financials and our updated outlook let me just say how proud i am on how we as a team have managed these 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 yuhan thank you band 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 1st quarter in fiscal year 22 as the band highlighted before we see the momentum from fiscal year 21 to continue in the 1st quarter of our fiscal year 22 let me start with giving some color on the dynamics in the equipment orders 1st 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 of one.2 in q one 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% x 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 growth momentum and at the same time as and as important to our unique resilience in extremely challenging environments in particular the appearance of the omicron variant accelerated the momentum of the antigen business in q one with $329000000 of revenue primarily in emea which brings us to the overall 9.5% comparable revenue growth bear in mind that we received the eua approval for the u s market only at the end of december therefore we did not see u s revenue from the antigen business in q one 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 which saw very tough comms in the prior year quarter last year in q one we saw significant equipment growth in china due to government backed preparations for potential 2nd covid 19 wave in q one we also saw tailwind from foreign exchange translation of around 3 percentage points so revenue in q one grew by around 12% if you take out portfolio effects only this growth we saw also drop through to the bottom line with 12% growth on our adjusted earnings per share this quarter obviously there were some moving parts in between adjusted ebit margin came in at 17.6% below the stela praye quarter bear in mind that last year is q one was exceptionally good since we posted the highest margin of the fiscal year in q one which is quite unusual so we see some degree of normalization in the q one margin this year on top of this we saw 2 major headwind disk water 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 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 abit line we posted \u20ac30000000 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 to 70000000 expenses financial income net for the full fiscal year unchanged to our guidance from early november tax rate came in at 29% slightly above prior year quarter regarding cash we had also a very strong start to fiscal year 2022 in generating free cash flow with a strong free cash generation of \u20ac556000000 despite significantly higher bonus payouts and the ongoing challenges in the supply chain with its impact 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 prioriac water yet and therefore is not included in the comparable gross numbers yet we will include varian in our comparable gross from q 3 onwards let us now have a look at our segment performance as bant has already covered varian i will comment the remaining 3 imaging 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 priori growth fueled both by healthy underlying growth in the core business as well as 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 years record margin partially due to headwinds from foreign exchange and procurement and logistic costs our marketing and sales activities for the new prog launches in the 1st quarter also impacted the margin slightly negatively diagnostics showed excellent growth driven by 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 acritive 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 costs which were over compensated 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 q one 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 q one margin in advanced therapies was down to 14.3% in q one 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 costs of around 150 bibs and also by ongoing investments for corindis in our diagnostic business we now assume a higher rapid antigen revenue contribution of \u20ac700000000 in fiscal year 2022 up from previously communicated 200000000 since our fiscal year 2022 outlook announced 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 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 q one and q 2 and then softening demand during the summer months additionally pricing has come down substantially for tenders in germany and considering we are not the only player to receive the u s approval for its covid 19 entigensges we should see how pricing and volumes evolve over time in the united states so the overall market becomes more and more competitive with more capacity overall therefore we expect revenues to decline sharply in the 2nd half profitability in the segment is largely a result of the development in volume and prices we expect profit accretion from rapid antigen peaking in the 1st half to then decline sharply in the 2nd half due to the expected lower demand and price erosion finally a few comments on the q one 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 see on this slide the 4th topic that we currently consider material and the year over year impact on adjusted ebit in the 1st half and the 2nd 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 1st half year turning into a very negative year impact in the 2nd half due to the slowing demand and at the same time comparing against the very strong 2nd half of last fiscal year regarding foreign exchange as said before we see a translational tailwind of around 3 percentage points in 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 for 3 to 6 months forward the impact to the ebit line is usually trading the top line impacts by the set 3 to 6 months consequently we expect a negative impact from foreign exchange on the 1st half bottom line turning in 2nd half the topic of impacts from incentives followed us 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 capped this year so any incentive impact 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 2nd half we expect the tailwind in the 2nd half of the fiscal year to be larger since we booked in last year is q 4 the employee bonus provision of \u20ac56000000 the tailwind from incentives in q one was largely compensated by higher travel and marketing costs and now to the impacts from procurement and logistic costs related to the current situation of global supply chains we are aware that this is a big topic currently also in the capital markets so let me give you 3 main messages that sum up our current situation and what we expect for the remainder of the year 1st very important we did not see material impacts on our revenues from supply chain issues so far and we assume 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 2nd we see the headwinds mainly in procurement and logistics costs of around 100 base points in margins year over year skewed towards the 1st half of the fiscal year these headwinds have 2 main driver one driver is price increases due to shortages most notable in the electronic components and in certain raw materials like metals the other driver is logistic cost including structural changes e g switching from c to air freight and mitigation measures in our manufacturing to secure production and this brings me to the 3rd 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 all be it we manage the situation relatively speaking very well the 100 base points here we 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 osc look for fiscal year 2022 due to the new assumption of \u20ac700000000 for rapid antigen revenues in fiscal year 2022 consequently we raised the revenue target for diagnostics to low single digit negative growth this raises the outlook for the group to 3 to 5% comparable revenue growth we also raised the outlook for adjusted basic earnings per share the range for the adjusted eps is now between \u20ac2.18 and \u20ac2.30 this new range obviously includes the different profit impact that we have discussed before e g the headwinds from procurement and logistic costs as well as the higher rapid antigen contributions and diagnostics this results in a net impact of around \u00a210 higher outlook by which we increase the outlook for adjusted earnings per share the diagnostic margin in fiscal year 2022 is now expected in the low teams 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 in the range of 22 to 23% we currently expect the imaging margin to be around the lower end of the range mainly due to the 4 mentioned headwinds from procurement and logistic costs this reflects an element of caution since there is uncertainty especially how headwinds and mitigation measures replay out in the 2nd half of the year let me also add a comment on what we expect in q 2 where we have obviously better visibility for comparable revenue growth we expect momentum from q one to continue into q 2 for all segments on the margin side we expect imaging margins in q 2 to continue to be somewhat below the 22 to 23 margin range where as we expect the other segments some more pressure from procurement and logistics costs so margin and the other 3 segments might end up around or slightly lower compared to q one and with this i close my presentation and hand it over to you mark for q a thanks joachun so i will be obviously managing the q a but let me just hand it also briefly to the operator to start the q a session thank you gentlemen we will start today is question and answer session where we would like to ask you to limit yourself to 2 questions if you wish to ask a question please press the star key followed by the digit 5 on your telephone keypad again ladies and gentlemen please press star 5 on your telephone keypad hi guys good morning and thank you for taking my questions i have 2 please one is on the covid 19 guidance i mean obviously you have already delivered 329000000 of sales in the 1st quarter i am just looking at the 700 it seems to me like there might be some room for outside even just thinking about the 2nd quarter so maybe johanna you can give us a little bit of your thinking on why q 2 should not be at least as good as q one and in that context why the 700 might be maybe a bit more cautious i know you mentioned pricing but i am just curious in terms of demand if you can give us a little bit of insight into what you are seeing the moment that would be my 1st question and then my 2nd question is on the imaging margin obviously coming in at around 20% in q one and assuming q 2 is similar that does leave you quite a lot of work in the 2nd half to do how much visibility do you have on component pricing and transportation costs as you move into the 2nd half of the year have you been able to walk in some prices there that help you and therefore how do you risk just that 22% on a full year basis thank you hello veronica thank you very much for the good questions let me start with antigen 1st as you know we were always relatively conservative with assuming in our outlook an anti generative new portion and we have good visibility on the 700000000 and i would also expect to see a relatively similar level of revenue in q 2 as we saw in q one at least and there is leaves then some trailing out antigen revenue for the remaining quarters that is our current thinking and there are a lot of i would say variables still open you are pricing availability channel development in the united states other things which led us to give you a very balanced guidance for 700000000 assumption for 700000000 in our outlook on the imaging margin when you asked several questions around this last year you saw quite some i would say spread in the margins from 18% in q 3 up to i think 20 23 24% in the highest quarters and we started now with an ended up on average with 21% my side now is 20% with significant headwind from foreign exchange as well as procurement and logistic cost we expect those procurement logistic costs to be skewed toward the 1st half of the fiscal year this is our assumption visibility is not super great in this regard but this is what we can not assume and we have a clear plan to get to the lower end of the range as i highlighted visibility is beside backlog where we have good visibility strong i would say i would say it is strong security on the top line and i think we still have some limited visibility on certain cost items but i am still confident that we can reach the lower end of the bend thanks veronica so then i would head over to the next person on the line this would be patrick wood from bank of america patrick you should be live now please ask your questions perfect thank you very much for taking my questions i guess the 1st one particularly on the margin side i am 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 are actually doing within the business to offset those costs some details there would be great the other side may be actually on the demand side of things the near thom good to know it is in the early launch phases with early adopters but when should we expect it to become more in a full commercial launch is that a really back off of this year or when do you feel you are going to be able to put more of the pedal down and push the product in a more aggressive way thanks thank you patrick so maybe i rephrased the question here how do we offset the cost i mean the other thing is also how do we preserve margins here because margin is the difference of price and costs here and one big topic is of course to very carefully manage pricing and also to make sure that we use our pricing power and there we have good signals that we also make good progress on that front we see it also in the order book that pricing quality is good so do not only look at the cost side here when it comes to the component supply aspects i believe that we are getting into more stable waters which will also help to ease the effect from there but in the end i think please bear in mind 2 things on the one hand i think we did a great job also compared to some of our competitors in safeguarding the top line which is i think the 1st big topic to achieve here and secondly we will manage very carefully the cost implications but on the other hand there is a big topic in when it comes to pricing power and also passing some of these effects on so to say when it comes to the photon counting i mean this year is the year of a rollout to selected customers where we will so that the i mean an early commercial rollout i would say the full commercial effect you will see in the next fiscal year but what we see so far in terms of interest in terms of also real demand but also in terms of price realization is very very encouraging and maybe patrick one other aspect on that margin topic maybe we have made a deliberate decision to have a clear prioritization to be able to deliver our products to our customers currently this does not come for free we need to be clear about this this is a deliberate decision and that is also why we currently do not see any material impact on the top line because of the strength of our team but also based on the decision we made and i think we feel so far in relative terms speaking comfortable with that decision and we will obviously observe it very very carefully if things would get out of control in this regard we might need to do things differently but we do not expect this to happen thank you thanks for taking the questions questions so next one on the line would be lisa clive from bernstein lisa the line should be open please ask your questions hi there i have 2 questions on the ibd business 1st on your us antigen revenues are you selling to specific government programs or are you going to pharmacies more of a sort of direct to consumer approach just curious to the channels and whether you may expand that over time and then 2nd question just on the ivd business ex antigen nice to hear that there is some decent revenue growth and margin improvement there if we think about the underlying demand for sort of routine tasks 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 go 1st here i mean the primary customer group when it comes to antigen testing or rapid tests in the united states is let us say large customers and we are not we are not we do not have the channels here and not the ambition yet to go into the into a scattered retail space so number one is of course the big government programs this is also what our strength is and has been in europe we have the claim to fame for siemens hothiniels as a super eji company was to make sure to deliver big quantities of super reliable tests with high confidence and certainty so in terms of 1000000s of tests which need to be delivered at once and this is also one aspect we are now living up to in the us when it comes to the government program we are also looking at larger retail chains here and we will see how that market develops here but that is currently baked into the forecast of the 700000000 when it comes to the core business i mean yes it had a in diagnostics i am very happy with the start we had here it shows a nice continuation of the trend of step by step improvement towards the targets we have set for this business when it comes to how close this business is to the let us say pre pandemic levels i think it is pretty it is i can not give you a clear number i mean but it is more in the 90 to 100% normal yeah but what you still see and which is which is and then you double click on it is that when it comes to the testing menu there might be some shifts compared to what normally has been done compared to 2 years ago maybe 2 years ago more wellness tests and now there are still more secondary covid related tests which are baked in because of some covid related comorbidities or so but overall we are largely back to a normal situation in that business okay thanks for that okay next one on the line should be james from jeffries james your line should be open so please ask your questions hi thanks very much it is jane sainte empis from jeffries 2 questions please so just on procurement and logistics you mentioned you do not have a lot of visibility so i am just curious what is changed in the past 3 months when you 1st gave guidance where were the additional pressures which were not initially anticipated and without that visibility how do you have confidence we went to additional pressures in the 2nd part of the year and then my 2nd question is just on very naturally i think you said it is going to be included in comparable sales growth from q 3 this year i think we just looked back a bit i think in q 3 before i think you said it around 17% can not remember the q 4 number of stuff in my head but from april i think you sort of set low teams to expect so just one of you can give us a flavor what that was in q one so we can see the trajectory for that thank you thanks for the question james i think what has changed since the initial assumption was that i think we saw i would say the shortages and the necessity to buy at spot rates certain components has increased but if to where we stand at early november secondly as i said before and we deliberately made the decision to prioritize the ability to be able to deliver to our customers and by this we had to do because of the difficulties because it is not only price of components when you have shortages you also need to be super agile and flexible in your internal processes which sometimes also leads to i would say to certain disruptions in your internal processes which might also lead to later ability to manufacture things and therefore you also have certain logistic challenges following up here and that is also why i said structural changes from sea to air freight and things like this i would say the tension just increased across the board but as bern said what we currently see is that we see a stabilization of some in particular in the supply side of component certain things which gives us i would say some confidence in being able even to measure that even better than we have already measured today and there is also the learning curve we can not walk through we are being under this pressure in the organization is helping to optimize our internal processes according to the challenging environments on the very inside on a pro forma basis the growth rate on revenue in q one was in the low teens again super strong start fully in line what we have guided for for for variant for the full fiscal year that is great thank you so next one online should be julian do not worry saying julian should be live hello good morning dan good morning jaren thanks for taking my questions i have to the 1st one and sorry if you mentioned that in your pre prepared remarks but then the line was a bit patchy but it relates to the diagnostics margin excluding the covid contribution i think you have a guidance for fiscal year 2022 which is to reach a mid single digit to high single digit margin for the the underlying diagnostic business so just curious whether that was in what whether the q one margin was in line with that guidance or maybe marginally above and any help in understanding the profitability of the covid tests in q one would also be helpful i think you had previously indicated that the pricing had been maybe halved in some instances so just willing to understand what the profitability of the underlying business and the covid test if possible and a 2nd question relates sorry for that again to the logistics and procurement costs it is small looking at the midterm guidance that you had indicated at your capital market day back in november you have said that you expect an improvement from that site in age 2 so you would say that there is nothing structural there that could prevent you from reaching your midterm guidance both in aging and diagnostics for the next few years thanks for the questions as you rightfully said our guidance 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 this range in the range what are the lower end also due to the fact that we had significant as we highlighted significant headwind form foreign exchange as well as the procurement and logistic cost behind in in diagnostics it is primarily the logistic cost counter and we feel but we feel well on track to get to stay in that line and see progress as we proceed through the year on the procurement and logistic front i do not see this as a critical item for our midterm targets we consider this a temporary problem which should be dealt with over time and as band already said before and we have also mitigation measures when you extend this topic not only to covid 19 but also to the inflation topic that we can also in a very meaningful way address it by significant price discipline and we have initiated the measures and we will see and we expect to see also benefits from this kicking in the in the in the i mean according to when the the orders come in and turn into revenue and more in the in the later end of this fiscal year and then in the next year is yeah okay thanks for the help then i would pass it over now to hassan from barclays hassan your line should be open i can not hear you i may just a 2nd i do not know if we have any technical issues here maybe just a 2nd hassan i hope we get you into the line in a 2nd or 2 please record your name after the tone and press the pound key the conference is in presentation mode okay so we tried again she is in the conference are you live now hassan give us a hand yes i can hear you now ma thank you brilliant i have 2 questions please firstly just to follow up with the comments on the top line your competitors have clearly seen headwinds and have talked about the 3rd installations is this something that you are seeing at all or is this getting worse in fiscal q 2 and then 2nd could you elaborate on your comments on pricing and whether you have any meaningful ability to offset cost increases in pass a month to customers or are you seeing overall level of pricing deflation thank you hassan 1st of all and here i coming back to jurgen is point we made a decision to deliver but on the other hand we have the ability to deliver which is i think something which sets us apart because here really this organization does a wonderful job here in extremely quickly reacting new to new situations i mean it is similar to also what we do in the antigen tests and so on very very encouraging and i am very proud how the organization is dealing with the topics when it comes to i mean your question is more about i understand it as outbound logistics the question of is are customers ready to take the orders and so on so here we are very flexibly reacting and prioritize then one customer over the other vcvr confident when it comes to the visibility we have in turning the order book into revenue also in the short term that this challenge is not increasing and you can trust us here that the the way we were able to handle it in q one will continue and here we really stand out in the market and to some extent our ability to deliver helps us to even gain share because some of the the some of the delivery times of competitors are just not what the market accepts and that brings me also to the other topic and it comes to pricing it is of course the sum of the pricing which we have is set at the point of the order intake and as you know in our business typically on the imaging side orders the time between order and revenue or between book and bill is in the range of 6 to 9 months so that means that pricing measures which we have initiated and which we see in the order book here we will also materialize towards the 2nd half of the year and we see actually a good acceptance of this both internally so to say in the sales force but also that when it comes to customers and as a last point please also bear in mind here about 50% or more 55% of our revenue is recurring revenue and especially when it comes to the service aspects we have also price adjustment clauses and so on and are also protected when it comes to inflationary tendencies here perfect thank you so much sorry for the technical problems so now we hand over to daniel randolph you are the 2nd but last one on the queue daniel your line should be open please ask your questions yes good morning everyone i hope you can hear me well thanks for taking my questions i have a question the 1st question on the variant top line development maybe you can tell us a bit how the combination now with variant part of human self in years helped to that if at all and maybe give a few examples what really drove the webing line if it was held at all by being part of the same itself and then i have a question on the italica load to mid throughput solution the ci 1900 and what is the key marketing message you would you would give customers here on this front given that the end market is slightly different competition is slightly different so what is really the key thing standing out for the atelica solution in the midst to low to mid segment thank you thank you thank you daniel looking at adverian there is on the one hand when it comes to the revenue development a very very strong recovery of the business coming from the pandemic and which on the one hand is triggered by a very very strong competitive situation of variant as a quote unquote standalone business but in addition and that is what we see on the order book we see many deals some of them have already been booked here like the one example i gave on olu in finland but many are in what we call the funnel which is the project the salesforce is working on where there is a super encouraging and momentum across the entire globe in the sales teams to team up and to work jointly on opportunities and that goes in both directions specialty oncology customers who are strongly tied to varying or i have strong connections and who now want to go into the or expand the relationship to imaging and it can be using the strength we have in sea level relationships as seaman southiniers classic if you wish to pull in the varian team and to use this additional effect it is using our strength as seaman southiniers classic again in parts of the world where varian has not been as strong in terms of sales presence sometimes not even having a direct sales force 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 i mean it is not only a very strong start on the revenue side in varying with the 750 but you need to look at the book to bill of one.23 years or that the orders have been even 23% more than that so here are clearly very very strong and start and i am very very bullish when it comes to this 2nd question was what is the positioning of the product it expands the philosophy of atelica solution which is highest throughput highest quality so highest quality test in high throughput so the unique mix we bring as siemens healthineers as an engineering company in the lab to new customer groups and these are on the one hand the mid size labs in the developed countries very importantly hub and spoke deployments that means hospital networks who use the big atelica solution in the hub and the small atelica in the associated spoke places which brings them on the one hand so called reside concordance the same test resides but also allows them to purchase the same reagents and so on so this is a big requirement in the market and the 3rd topic is it is an ideal system for labs in the emerging countries very good thank you so now we can go to the last one for today that should last but not least farco fridris from deutsche bank farco you should be live now thank you and good morning i have 2 questions well please firstly on your new imaging launches how would you describe the replacement behavior of your customers in light of these launches so is it that the replacement cycles might actually be shortened a bit now because your customers really want to get their hands on this new technology or is that not really the case and then secondly on advanced therapies can you just provide a bit more color on the underlying trends you see at the moment with regard to the recovery from the pandemic and potential 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 thank you fico on the imaging launches i think they come in 2 different buckets on the one hand when it comes to what we do with the magnum tomb free max and also free star which is the smaller version of it this is about creating new markets for mri and it is bringing mister to places where it could not go before so from that point of view it is independent of replacement cycles to answer your question because it is so to say comes on top of the normal course of business and we are very happy with what we are seeing that the products exactly do that here bringing mister to the outpatient clinic which so far only had ct or bringing mister to places in emerging countries which did not do it or bringing mister to clinical specialties outside radiology so irrespective of replacement cycle this is typically installations where there is no mri before on the photon counting ct i commented before this is in the early phase of a long share where we have a lot of excited and exciting customers who are coming either from the academic medical centers or very prestigious private institutions here the topic of a shortening a replacement cycle can definitely happen because one of the reasons to buy the product is to stay at the forefront of medical research 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 and when your business model is to be competitive 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 because i sometimes use this a little bit maybe trivial analogy of comparing photon counting ct to flat panel tv or to hdtv when a technology like this is available people make the decision to go to the next level product earlier than the next generation offers just little improvements maybe answering your question on the americas we just highlighted that the 80th had a strong quarter in the americas i think that is also as you know this is not a book and build business so it was nothing which happened at the end of the day in the quarter from an market success this is a success we had over the last years with a strong order intake also on the at side which then materialized in the quarter as revenue and by the way it was across the border of america this was not us only it was also on a much lower scale very good revenue growth in latin america on the at side so i think nothing what you can really point out to particular in the quarter but it was a particular driver of the revenue line in the quarter ok thank you so this ends our call for today thanks for your participation for your continued interest in siemens hethanyes and your questions in today is call we look forward to seeing some of you on our roadshow in the next days or at the london conferences early march or at the barclays conference in florida in person maybe till then stay healthy your hethanyes team that will conclude today is 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 addresses corporate seemens 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 healthandears com investor relations stay healthy you will head to new york is team that will conclude today is 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 seemens healthineers com investor relations",
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      "reference": "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 one 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 good afternoon everyone and i would like to apologize for the long hold we . the call operator had some technical problem so let us begin the call apologies again i would like to thank everyone for joining us today to discuss mtn ghana is annual results for the year ended 31st december 2020 i am 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 is initiatives and provide updates on some regulatory matters after which he will delve into the company is 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 i would like to again you know apologize for the delay due to technical issues we will 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 will 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 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 1st half of the year with some signs of improved economic activity in the 2nd 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 is data from the ministry of information ghana has had 81245 confirmed cases 6614 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 are 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 is 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 0 rated all mobile money p 2 p peer to peer transfers up to a value of gh 100 per day from march 2020 this did not only save our customers over gh 94000000 in fees but also facilitated greater social distancing and deepened financial inclusion to increase the adoption of digital currency we are happy to announce that this offer is still active to further support government is efforts the mtn ghana foundation donated gh 5000000 worth of ppes and other essentials to the government is 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 will continue to prioritize the safety of our customers and our people through this period and beyond in supporting the efforts of government agencies we 0 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 is 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 $25000000 donation to support the african union is covid 19 vaccination program the donation will help secure up to 7000000000 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 is efforts to fight covid 19 was gh 139000000 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 are 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 1500000000 ghana gh 1500000000 in network capacity and infrastructure expansion as part of this we rolled out 200 2 g 200 3 g 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 1875 total 4 g sites nationwide that is 1875 total 4 g sites nationwide this translated to a 71.7% 4 g population coverage and we are committed to our mission of having 4 g 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 one 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 p 2 p 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 0 impact on the bottom line for a like for like comparison digital revenue would have grown by 34.5% year on year we have come a long way in our digital journey and we are 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 one year on year our reported earnings before interest tax depreciation and amortization grew by 20.8% with a corresponding margin expansion of one.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 0.05 per share so that is 5 ghana pesewas per share bringing the total dividend for 2020 to 8 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 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 are optimistic that we will 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 are 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 will 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 is 25th anniversary the year 2021 marks a significant milestone in the journey of mtn ghana is contribution to providing vital telecommunication and digital services in ghana as part of our 25th anniversary we are committing the equivalent of us 25000000 which is approximately gh 150000000 to a fund supporting ghana is 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 is 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 one 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 one the 1st question we have is from john kim from ubs hi everybody thanks for the opportunity 2 unrelated questions please firstly 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 of the of the collective dividend up to group question mark 2nd question i know that there has been some legal process around eh mtn ghana being declared dominant that is 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 1st question about cash flow to group i was not sure it was just a statement or a question i was not quite sure what the question itself was sure my understanding is that ghana pays a management fee to group and it is also entitled to a share of the dividend at the ghanaian level and my understanding from what you said earlier is that is about an 83% ownership question mark okay please so what was the question you want us to clarify that or because you have restated the facts and it is correct i am not sure what you are what exactly the question is all right sorry 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 will 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 7 remedies that were that were imposed on us and which was a 30% reduction in asymmetric interconnect rate and we continue to have dialog and discussions with the regulators while we look at the implementation of the remaining 6 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 is 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 is really what the discussions are about and the engagements so far have been encouraging however you know it is 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 will be able to resume discussions in progress and and we will be able to give an update at the next quarterly investor call thank you i will 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 for for dividends and well dividend and the the the management fee that we expect to pay it counts up to gh 949000000 we are paying dividends of 840 there about and management fee of 268000000 okay helpful thank you thank you the next question we have is from myuran rajaratnam from mibfa hi guys thanks for the opportunity to ask questions 1st question is about the interconnect traffic regulations and smp we saw that the voice revenue increase was not great actually was a decrease of some sort in the 4th 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 additional competitive pressure or anything like that because you added subscribers so i am just trying to understand what are the dynamics behind this some color would be useful and the 2nd question is excluding your you know wonderful product in wireless broadband fixed broadband what is the average data usage per megabu byte in megabytes 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 are currently seeing somewhere between 3.5 gb per customer per month to somewhere around 4 4 gb per customer per month so that is the average that consumers are using obviously that that number has increased 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 q one into q 4 however the q 4 trend is actually a bit of an anomaly 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 are seeing in q one at least in january so far with double digit growth year on year for the month so again just to put that number into context there were some once off adjustments and you know interconnects was related to that and then the 2nd component which is not a one time eh but a permanent adjustment will be the smp however the smp effect is is less than one of total revenue it is about 0.6% so that effect is is not the the most significant driver of the trend that we are seeing so would expect to to come back to our normal trends around you know late single digits to to early double digits as far as the voice the voice growth year on year goes great just to come back on the data usage per subscriber is that 3.5 to 4 gb per mobile subscriber or is that also contains in the denominator your fixed wireless lte product also so just no it is the mobile 0 the mobile subscriber 0 that is pretty good thank you thank you so much . thank you the next question we have is from preshendran odayar from nedbank hi everyone congratulations on the results and thanks for the opportunity to ask questions i have got 2 quick ones i think the gist of it have been answered but just on your q 4 operating metrics so you know your revenue and ebitda it seems to have slowed down in the last quarter now i know you on the last question on myuran is question you that you mentioned that there were some one off adjustments was there anything else that was causing the slowdown because y you know up until september it was looking pretty strong both in terms of like i said revenue and and margins but quarter 4 looks quite weak and a huge slowdown and then the 2nd question if i can i know you guys announced a buyback of 1100000 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 2 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 to get to 25% thanks okay thank you very much let me take the 1st question and i will have kobi answer the question on the buyback and what the implications are for localization so in terms of the 1st question i think you know there are 2 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 once once we had easing up easing up of supply chains we are 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 we are not as aggressive in capex spend as we would normally be and a lot of that capex ending up being spent in q 4 so that is the explanation for the bottom line side and my previous answer should hopefully address the revenue side of that as well well thanks yeah i . 0 sorry yeah okay so on on the buyback it is it is it is due to kro kyc issues as you are aware we have we have managed this process with the regulator so we are going through the process of updating the kycs of the related par eh par eh parties we have gotten to the end of the process where the outstanding ones . 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 per the ipo initial ipo that we had that that number is locked it does not have any impact on that kobi i mean can you give us an indication of how many of those that 1100000 share or subscribers have actually done their kyc so is the impact going to be a lot less than the one one the l the last check of of it it is 1420 potential 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 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 the conservative guidance is there you know potentially more competitive pressure on the voice horizon huh so yeah . given changes in termination rates and then 2nd question just on your digital revenue could you tell us how many ayoba users you actually have and and what kind of revenue opportunities you have seen there whether that is starting to scale somewhat okay all right so let me just try to give some context 1st of all on the voice side yes we are seeing you know double digit voice growth so far this year it is one month in the year however what i said before . 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 is the 1st reason why the you know the estimate is in the 13 15 the 2nd component is that you know one smp deployments or remedy implementation has only status so there will 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 have maintained the estimates of 13 15 despite the impact incremental impact of some of the smp measures and so i think you know it is it is a it is a it is 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 700000 ayoba users and in terms of revenue today i mean we are not really generating revenue from ayoba it is a platform strategy that we have in mind ayoba is intended to be a super app so at this stage it is 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 are 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 i just want to check on the regulatory developments i mean i i know there are some some some implementations are made right now and what is what is your take from the discussions that are ongoing with the regulator and do you expect a any more any more coming up on this okay okay thanks for your question w i think the 1st thing to point out is that there were 7 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 are 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 have implemented the one which is a 30% reduction in asymmetric interconnect and we will continue to monitor that as we go forward and maybe maybe if i can just follow up i mean what would you think broadly that the implications would be given that the government here is 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 is it is a very difficult question to to to answer 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 is an acquisition from a buyer you would understand their investment appetite their ambition of a new buyer if it is really you know just to hold the same position if it is really to challenge for number one number 2 if it is really to build scale and based on that understanding we would 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 is 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 is role may be just to hold and attract new investors . so we are 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 will have a much more concrete sense of the impact so my my apologies i will not 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 speak with you i i again want to apologies i again want to ask about revenue that some of the other questioners have asked about undoubtedly in total it was a great year for 2020 but as others have mentioned you know q 4 the revenue pace was a little softer and i have heard everything you have said so far but i still have a few eh you know uncertainties about the q 4 numbers so you know my observation is that sequentially if we look at the 2 prior years you know going back to 2018 q 4 revenue was 15% higher than q 3 and in 2019 it was 9% higher but you know this year it was basically flat i i heard you say there were some one offs but that would be quite a bit of one off to 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 1st 3 quarters could it be that things are normalizing and so the the slower growth is the result of the normalization although your guidance you know as mentioned is sort of unchanged so that maybe is counter to that point or was there just anything else unique about q 4 other than the one offs or maybe the one offs were bigger than i thought i am just still s you know still looking for additional some kind of clarity on that if you if you could explain q 4 sure let me let me start by saying if we if we normalize the effects for the adjustments that we made q 4 over q 3 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 is a starting point right okay if i take the 2nd point or are we seeing you know a change in trend from a consumer behavior standpoint the answer is yes i mean we are 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 q one to q 4 trend it it does not suggest that there is a there is a specific issue right if we look at what happened in q 4 most of our schools went back and and and therefore the usage of data from home would have gone down but that will be compensated for by other eh you know other behaviors so there is 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 q 2 q 3 would be reversed as well so there is quite a lot of mix going on but organically yes we are seeing a slower growth in voice than we are seeing for the other areas which is expected but not to the extent that the numbers will depict here because we normalize we are seeing something like a 9% year on year growth okay but 9% sequential from q 3 to q 4 that is correct yes if not the one offs okay so that is . thank you for clarifying that that is more than i would have guessed and and maybe you said that number at the beginning and i missed it but yeah no problem so w w what . i mean given that is such a large number what what kind of one offs what kind of adjustments would these be i guess that . it clarifies one answer and then raises a new question of just what what are those sure i would not have even guessed that kind of 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 2 those are the 2 areas that we made the adjustment okay were were these . i gu so i am going to ask this because i think it is it is on my mind and probably others and i understand you probably will not give me a . will not be able to answer it but i will just ask anyway for the benefit of everyone you know sometimes we see when a company has a great 9 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 do not necessarily have to be recognized are recognized in in q 4 and so i just can not help wondering if that is the case of . maybe the q 4 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 is a a creative question but no the answer is no you know we had to make these adjustments and and we should see an even out of these through the year so . okay well fair enough thank thank you for answering you are 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 questions around momo please m maybe starting with the structure of any potential transaction that takes local ownership to 30% by the the new timeline just curious eh y how do you ensure that the interests of mtn ghana is shareholders are not only protected but maximized in case of a transaction and y how you you know what kind of transaction options do you foresee to get to 30% okay so at this point i mean it is you know it is a bit early for us to tell 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 and therefore we are 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 are asking . really applies to the 5% surplus above the 25% and and we have not 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 will share you know we will share that with you and but in the shareholder yeah but again in the interest of . the interest of shareholders will absolutely be taken into consideration sorry yes yes one for effect which has dilution and you know things like that i am sure that is where the question is going yeah no that i did not even think about the indirect so that is really helpful just on that point the esop will that need to vest in 2021 for it to count as local shares or does it have a longer vest duration no it has a longer vesting duration so there are 2 components there in about 3 years to 5 years so . okay so you would you would recognize the local i guess you would recognize these shares as they vest in terms of them as they count as local shares right that is right but the allocation . will be made and reserved but they would be they would become real shares once they vest yes okay okay great and just operationally on on momo . the monetization has been really impressive i if you look at this the revenue per average user can you just talk about some of the initiatives that you have put in place this year or whether consumers have changed the way they they use momo that have that have driven that monetization and then 2nd part of that question is i i have noticed that the subscriber growth in momo has lagged voice and data in the year and i was wondering you know w what do you think is prevet preventing faster adoption and penetration among your voice users okay i think i think a way to think about that . let me just start with the growth in momo 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 have just had then it is 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 is the 1st point in terms of monetization a a number of things have happened you know one we have increased subs by about 16% but we have also seen a significant increase in usage in average transactions per user and it is 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 2 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 have seen you know significant growth there upwards of 5 transactions per month last year we were sort of around the 4 to 4.5 so it has 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 is great and and that is also in the context of 0 rating on on the 100 cedis that that kind of growth that is correct yeah that is correct that happened end of the year right okay sure yeah eh could you just from that point selorm if you do not mind w i 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 sticky in nature sure so if i take our advance services in total we are you know we are talking sort of 12% to 15% in in terms of percentage of revenue so you know it is there is 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 p 2 p cash in cash out will start to normalize in terms of incremental growth and so for us it is 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 so that is really really the response to that great last one just on this is just related to the the float size which you saw on the balance sheet i think you have exceeded a $1000000000 it is about doubled versus the 2019 december close and i calculate that . i do not know if this is the right way of doing it but if you look at kind of an average wallet size it is 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 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 1st thing to note is that the float covers a couple of different areas it covers our merchant 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 is it is hard to take that number and just divided it by the number of customers and get the wallet size . yeah that is what i thought okay that is what i thought thank you for that clarification you are welcome thank you so we have a few more questions on the conference call do you have time to take a few yeah hi 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 good afternoon good morning congrats on the great results couple of questions from me could you just talk about the growth in both voice and data you are seeing do you have any indication if these are market share gains is the market growing as quickly as you guys and could you talk a little bit about sort of any kind of pushback from your 2 competitors it sounds like as you said tigo and airtel that is a bit more complicated but i am just . any update on competition would be helpful also the gh 139000000 that you guys booked as related to sort of covid initiatives i am assuming that is 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 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 i in that last year i think you you guys were closer to 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 is the the growth in that that advanced services coming from it sounds it sounds like you guys are gaining good momentum there okay thanks thanks for the questions let me start with advanced services last year we are just around 10% not 3% so we have seen something like a you know 40% to 50% growth in that line in terms of the percent of mom m mobile money revenue so that is just to clarify in the numbers you have okay and the growth is really the growth is really coming from payment where you know . we have continued to expand the number of . merchants we have all right we came out of last year with about thanks so much i think 150000 merchants end of this year we ended this year with over 170000 merchants and we continue to see increased activity at various merchant points so the expansion of the merchants increases your ability to use . and the opportunity to use your mobile money wallet and in the year with a pandemic where there have been a lot of restrictions and things like that that has also helped accelerated accelerated the change in behavior and and can i ask the the the relationship that mtn group announced with mastercard is that is that being implemented in ghana as well and is that eh eh . hi yeah that is a that is a global deal for us so yes it will an implication for ghana as well okay okay now your your 2nd question was you know the 139000000 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 have given up in revenue so the 139000000 includes the 94000000 of p 2 p for mobile money limited and the balance of that would be what we spent in cash which would show up in our income statements so yes we have continued a p 2 p the free p 2 p gh 400 daily we have 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 do not have any need for it so these numbers will be baked into 2021 as well got it so the so the 3rd question was on voice and data and if we are seeing market share growth you know i think in voice market share has been marginally growing but it is fairly flat but in terms of of data we have seen some market share growth unfortunately we have not 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 is hard to give a very concrete sense of you know whether we are seeing market share in data or not 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 would see growth especially during the covid period so i would expect that 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 is sorry just . a go . 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 do not 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 will 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 are also expanding our technology so that we can have 4 g on every site in the coming years and that continues to be our focus and and also build out our home network 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 . is is there any competitive response there i mean are are you guys my understand i mean the bit of digging i can do to try to understand sort of the distribution and agent network for vodacom and airteltigo i mean it it seems very very limited 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 is not and you know the for us if you think about mobile money today i mean you know we are talking by the mtn definition about 10000000 customers we have a population of about 30 maybe 231000000 so the i mean that is 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 one but if you look at the frequency of transactions it is 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 is at such a nascent stage i mean even though you have seen float numbers of 6000000000 and above i mean we are at a very very young stage in terms of the mobile money opportunity so we do not 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 so we encourage it we we you know we also do think there is an innovation engine that is 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 do not see that as a negative at all we would encourage more people to invest because it drives the whole market there is still you know 90% of cash usage in ghana at the moment despite the pandemic and all of that so there is a lot of work to be done and you know if we all bring our energies together as an industry we will get the ecosystem to grow and we will all benefit from that got it all right thanks so much and congrats again on the good great results you are welcome thank you final question is from brad virbitsky from equinox partners thank you for thank you for giving me the chance to ask the question i have 2 questions the 1st is in the comments you talk about investing gh 1500000000 in network expansion whereas the capex for the year is r roughly around a 1000000000 so i assume that you know the incremental half a 1000000000 cedis came out of the income statement i am i am curious sort of what what part of network expansion you capitalize and what part you expense and then the 2nd question is so you you talk about 2021 being the year of the digital or your digitalization eh what specific initiatives are are you doing around that and what is that 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 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 will take the 2nd 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 6 pillars that we have 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 is not only a good to have or a nice to have but it is a need to have so that we can continue to work effectively and support the business so that is the 1st component and i will not dwell too much on you know what that means but we can go into the details there the 2nd one is really on our product side where to to look at some of the initiatives we have launched we have gone from using scratch cards you know 15% 20% of our recharge sales came from scratch cards 2 years ago and we have dropped that to about 5% last year and we are seeing we are going to get to 0 by the end of this year and again that is 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 recharge from you would have online channels as well websites channels and things like that when we think about becoming a platform player in the next 3 to 5 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 are looking at implementing micro apps so you could think of wechat in you know in asia that is really what ayoba looks like so currently we have about 6 or 7 micro apps already implemented and we will 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 is a very exciting time for us we are 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 have not if have the right digital platform so mymtn is really the pivot for that where we are 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 is a big focus for us this year 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 so that is just to list a few of them but there are several other things that we are 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 are doing to simplify the journey and the experience for our customers and finally on the technology side ensuring that our technology platforms and infrastructure can support a digital ecosystem so the network this is why having 4 g on every site is important to us and 2 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 is quite a lot baking there that we are working on we are going to be very busy this year all right so on the on the great thank you that was 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 is is the 858 that maybe you made reference to but the total capex for 2020 when you you you check it under ifrs 16 was 1489 and under ias 17 is 1397 so so the that is our capex 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 yeah licenses and software that are related to network systems sorry can you c clarify on the capex question so the the number that i saw was 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 360000000 so tho those add up plus other software and licenses so eh eh okay maybe maybe we will have to look at what you are looking at and give you better clarity but okay and in just this . one quick follow up on that is how much of your capex would you consider to be growth capex relative to maintenance capex come again i did not quite catch what he said how much your capex is would you consider m m maintenance of the existing network versus . maintenance maintenance you have to look at opex so maintenance does not form part of capex 0 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 is incremental capacity in 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 is what i what i suggested so so maybe we will pick it up jeremiah take notes and and then let us 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 yes please so i would like to thank everyone for making time for to join us today for this call again i would like to apologize for the long hold at the start of the call and the extension of the time of the call as a result of this hold i know there are quite a number of questions in the queue but i will be glad if if you can reach out to me and then i can assist you with your unanswered questions and you can also visit the investor page on our website that is mtn com gh to download our financials and access any other relevant investment information which includes the transcript and audio for this call which i will be adding up in the coming week so thank you and you may now end the call thank you ladies and gentlemen that then concludes today is conference thank you for joining us you may now disconnect your lines",
      "prediction": "good afternoon ladies and gentlemen and welcome to the mtn ghana 2020 annual results call please note that all participants are currently in this and only mode there will be an opportunity to ask questions later during the conference if you should need assistance during the call please signal and operate by pressing star in one start in 0 please note that this call is being recorded i would now like to turn the conference over to jeremiah opogu please go ahead sir okay good afternoon everyone and i would like to apologize for the long hold the call operator had some technical problems so let us begin the call apologies again i would like to thank everyone for joining us today to discuss ntn ghana is outdoor results for the year ended 31st december 2020 i am jerry mauro poku investor relations manager for ntn ghana with me on the call today i am saloma dadevro ceo of ntn ghana kobla bensiancho acting ceo for mcn ghana and tatu motulandi a group executive for investor relations so salom will speak about mtn is covid initiatives and provide updates on some regulatory matters after which he will delve into the company is annual performance and outlooks before we move on to the q a session which will be facilitated by the call for a break down with that over to you salom thank you very much jeremiah good afternoon to everyone and thank you for making the time to join us on this call today i would like to again apologize for the delay due to technical issues we will 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 we will talk about our initiatives to support the fight against covid 19 and then update you on our operational performance as well as patch on some regulatory issues 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 impacts across the globe in ghana we experience an excellent construction in the 1st half of the year with some signs of improved economic activity in the 2nd 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 m 10 gun and our staff have also been impacted by covid 19 not expanding the initiatives we put in place to ensure the safety of our people on yesterday is data from the ministry of information gun has had 81245 confirmed cases 6614 of which are still active and 584 unfortunate death for us at mtm ghana we have had a total of 158 of our staff who tested positive with covid 19 we are thankful that 80 of those have since recovered all those sadly one employee has passed on our thoughts are with the faculty of our lost colleagues and with the nation as we go through these tough times together it is 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 is organas in support of our customers we have serrated all woman ip to p psp transfers up to a value of 100 ganas cities per day from march 2020 this did not only save our customers over 94000000 ganas cities and fees but also facilitated greater social distancing and deep in finance and inclusion to increase the adoption of digital currency we are happy to announce that this offer is still active to further support government efforts the ntn gana foundation donated 5000000 gana cities worth of ppes and have a resensual for the government is covid 19 trust fund for all wants distribution to frontline medical workers we also deployed pps and sanitizers as well as ensure the adherence to all covid 19 safety protocols across our branch network and offices we will continue to prioritize the safety of our customers and our people through this period and beyond in supporting the efforts of government agencies we have curated several public websites providing help 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 providing this until the end of the pandemic mtn ghana supported with several other initiatives targeted at education institutions government agencies and various ministries at the forefront of the fight against covid 19 the details of which are included in the cens release document in august 2020 we launched the byuis campaign to encourage ganyandz to wear their face masks and to wear them correctly and this transitions into mtn is global weary 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 the $25000000 donation to support the african union is covid 19 vaccination program the donation would help secure out to 7000000 doses of the vaccine for health workers across the continent contributing to the vaccination initiative of the african census for disease control and prevention mtn gana is pleased to play its part in this initiative to support the government of ghana at the end of december 2020 the cumulative value of mtn ghana is efforts to fight covid 19 was one to 99000000000 ghana seas 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 our quest to make the lives of our customers to hold a brighter i will now tend to operational results for the year 2020 we are pleased with our overall performance in a very challenging period but good growth in our subscriber base which was helped by the heightened need for reliable and resilient data and digital services in this area of the pandemic to help maintain the quality and availability of service for our data and mobile money customers we invested 1500000000 gunner cities in network capacity and infrastructure expansion as part of this we ruled out 202 g 203 g and 950 lt sites which helped relieve the pressure on our infrastructure and significantly enhance our service delivery across the our smart traffic deployment helps support a 105% growth in data traffic and reach one.875 total 4 g site nationwide that is 1875 total this done limited to a 71.7 4 g population coverage and were committed to our mission of having 4 g on every site in the coming year 7th revenue growth remains in the double digits expanding by 16.4% year on year driven by good growth in voice beta and more money and digital voice revenue grew by 8 one year on year and was supported by 23.4% increase in our subscriber base as well as various customer value management initiatives which help manage churn and improve use the contribution to service revenue from voice continues to decline reaching 41.8% from 45% in the year prior as other services increase their contribution in languedeau is 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 well money revenue grew by 32.2% year on year as a number of active users increased by 16.3% this was the result of various promotions in the year increased p 2 p transactional activity and the upper of more advanced services such as retail merchant payment and international remittances in line with our revenue diversification strategy lower your 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 the view to the impact of applying a principal versus agent accounting standard across the mtn group in 2020 with 0 impact on the bottom line for a like for like comparison digital revenue would have grown by 34.5% year on year we are coming a long way in our digital journey and we are pleased to report a 3 8% surge in a number of active subscribers going to some enhancements in our video and gaming offerings major in the period we also observed the increased adoption of my mtn and our u of s c r a p s and we intend to employ strategies to continue this growth the digital revenue contribution to santa is revenue declined accordingly from 3.9% to 3 one year to year our reported earnings before interest tax depreciation and amortization grew by 20.8% with a corresponding margin expansion of one.9% each point to 52.7% we continue to manage our costs efficiently and benefited from uptx reductions arising from covid 19 impact and digital distribution efficiency this resulted in healthy expansion of our ebitda and ebitda margin the overall improvement in our revenue lines coupled with our prudent cost management and efficiency resulted in a 38.4% growth in profit after tax and after reviewing the full year performance as we have recommended a final dividend of ghana cde 0.05 per share so that is 5 going to per swiss per share bring it a total dividend for 2020 to 8 nano per swiss 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 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 makers however due to the elections in december and the ongoing veteran appointments of the substantive ministries these discussions have stalled since early since late november to early december we are optimistic that we will continue these discussions to influence the implementation of the remedies to achieve smp going forward our primary objective is to ensure that the remedies that are implemented have a long term impact on the sustainability of the industry in terms of localizations we are committed to continue to progress localizations to achieve a 25% localization target agreed with the government of ghana in december last year december 2020 we launched an employee share options program which is committing an additional 4.41% towards localization so that brings our total the sens 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 will update you subsequently on the plans to achieve the remainder of the localization as we go through the year in terms of mobile money payment systems and services act the localization requirements will achieve a 30% localization by the end of december 2020 has also been revised the central bank has recently informed us by extending the timeline from december 2020 to january 2022 we are considered to work with our advisors in developing the plans to build or 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 updates on our progress in subsequent releases just a quick update on mtn gan is 25th anniversary the year 2021 marks a significant milestone in the journey of mtn gan is contribution to provide environmental telecommunication and digital services in ghana as part of our 25th anniversary we are committing the equivalent of 25000000 u s dollars which is approximately 150000000 ghana city to fund supporting ghana is post covid 19 recovery efforts m t and 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 is 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 governments and our partners in terms of the outlook the outlook for 2021 will be shaped by the extended impact of the pandemic while economic group projections by entities such as the world bank and the imf are optimistic remain cautious due to the potential longer term than the effect of covid 19 on the ghana economy as a business 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 our guidance range of 13 to 15% and employ prudent cost strategies to continue to improve our margins and federal ensure growth in our bottom line mtingana will continue to prioritize its investments in infrastructure expansion to meet the needs of ganyans in this era of accelerated digitalization continued growth in sevis revenue would likely 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 are there for designated 2021 as the year of the customer the digital experience i will now hand it over to the conference called auperita for questions and answers thank you very much ladies and gentlemen at this stage if you would like to ask a question please press star and then one now if you decide to withdraw the question please press star and then 2 again if you would like to ask a question please press star and then one the 1st question we have is from john kim from ubs hi everybody i am going to be asking you the opportunity 2 unrelated questions please firstly 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 of the collective dividend up to group question mark 2nd question i know that there has been some legal process around antian ghana being declared dominant that is done and dusted and have you seen any remedies or do you know of ones to come thank you okay thank you for your question can you just clarify the very 1st question about cash flow group i was interested if it was just a statement or a question i was not quite sure the question itself was sure my understanding is that ghana pays a management fee to group group and it is also entitled to a share of the dividend at the ghanaian level and my understanding from what you said earlier is that is about an 83% ownership question mark okay so so what was the question you want us to clarify that or because you have re spaced the fact that it is correct i am not sure what exactly the question is sorry can you quantify that for us at either rans the cd or more dollars please okay on the total dividends those money meant that you paid up to group please okay all right so i will hand that question over to to copy who is the actual cfoa before cob comes in let me just answer the question on smp and yes you know you mentioned what is the correct significant market power market player in july 2020 and soon as there have been a number of developments at this stage in october 2020 we implemented one of the 7 remedies that were imposed on us and which was the 30% reduction in asymmetric and the connect rate and we continue to have dialog and discussions with the regulators while we look at the implementation of the remaining 6 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 is really important because that would ensure that there objectives of smp are met broadly as opposed to a reduction in mtn to perform based but minimal impact on the industry so that really was a discussion they are about and the engagement so far have been encouraging however you know it is stalled to some degree following the election in december and the ongoing process to appoint the substantive minister for communications and so ones that process is concluded we will be able to resume discussion and progress and we will be able to give an update at the next quarterly and best of call i will hand over to colby now to give it a number of these details for the dividend and management to get up to date thanks thank you this is kobe for dividend and for dividend and the the management fee that we expect to pay it comes up to 9 and a foot 9000000 run as it is we are paying dividends of 840 thereabout and the management fee of 268000000 okay helpful thank you thank you the next question we have is from mayur and rajaratnam from mupfam hi guys thanks for the opportunity to ask questions 1st question is about the interconnect traffic regulations in s p we saw that the voice revenue increase was not great actually was a decreased system sort in the 4th 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 an additional competitive pressure or anything like that because you added subscribers i am just trying to understand what are the dynamics behind this some color would be useful and the 2nd question is excluding your you know wonderful product in wireless broadband fixed broadband what is the average data usage per megabits per customer thank you okay well thank you very much let me start with the average data usage customer and we are currently seeing somewhere between 3.5 gigs per customer per month to somewhere around 4 gigs per customer per month and so that is the average that consumers are using obviously that number has increased during the year based on the demand for data and digital services as a result of covid 19 now the question you asked on voice yes the voice trend if we look at the voice trend quote from the quote from the quote from 2020 you would see a decline from a q one into q 4 however the q 4 trend is actually a bit of an anomaly because there is some one time adjustment of the effects that are taken place so you know that is true all that to the top line revenue as well if you look at their year and year as falling and in terms of voice just to give you some conflict what we are seeing in q one at least in january so far we double digit growth year and year for the month so again just to put that number into context and there were some one of the adjustments interconnects will relate to that and then the 2nd component which is not a one time but a permanent adjustment will be the smp however the smp effect is less than one of total revenue it is about 0.6% and so that effect is not the most significant driver of the trend we are seeing so would expect to come back to our normal trends around late single visits to early double visits as far as the voice growth year and year goes great just to come back on the data usage per subscriber is that 3.5 to 4 big mobile subscriber or is that also contains in the denominator your fixed wireless lte product as well so just one sub threadation and mobile all about subscribing 0 that is pretty good thank you so much thank you the next question we have is from prashanthan odaya from netbank hi everyone congratulations on the results and thanks for the opportunity to ask questions i have got 2 quick ones i think the bits of it has been answered but just on your q 4 operating metrics so you know your revenue and ebitda it seems to have slowed down in the last quarter i know you are on the last question on my urine question you mentioned that they were someone of the just ones was there anything else that was causing the slowdown because you know up until september it was looking pretty strong both in terms of like i said revenue and margin but quarter 4 looks quite weak and a huge slowdown and then the 2nd question if i can i know you guys announced a buyback of 1100000 shares in december and i think this has had like a deadline to get kyc for the subscribers done by the 23rd which was about 2 days ago is there any updates on that on how much you guys have to do and how does it impact your overall localization to get to 25% thanks okay thank you very much let me take the 1st question and i will have kobe answer the question on the buyback and what the implications are for localization so in terms of the 1st question i think that is really thick when you look at the overall performance you mentioned revenue and ebitda i believe the answer i gave previously on the revenue side should satisfy the revenue trend however if you look at the ebitda trend as well you know to what some impact and an appearance of the slowdown the reason for that is primarily once we had ease and up of supply chains we are able to accelerate for federal accelerate our cupcake deployment and that has a direct impact on our aba desk so for the previous because of that slowdown we are not having a record in cut up spend actually with normally being and a lot of that capex and that that being spent in q 4 so that is the explanation for the bottom line side and my previous answer should hopefully address the revenue side of that as well on the buyback it is due to coi c issues as you are aware we have managed this process with the regulator so we are going through the process of updating the k wises of the related parties we have gotten to the end of the process where the outstanding ones will be brought back and sold onto the market again so that is the position yeah it has no effect on the stock point 5% because that one is locked the ipo initial ipo that we had that number is locked it does not have any impact on that i mean can you give us an indication of how many of those that 1100000 share or subscribers have actually done the kyc so is the impact going to be a lot less than the one one the last shift of it is 1420 potential actual who does a data via a protein line all right thank you very much gentlemen welcome thank you the next question we have is from jonathan kennedy good from jp morgan good afternoon i just wanted to come back to your revenue guidance of 13 to 15% you mentioned that voice was growing double digits so far this year and the other lines are all growing 20% north of that so just trying to understand why the conservative guidance is there potentially more competitive pressure on the voice horizon given changes in termination rates and then 2nd question just on your digital revenue could you tell us how many iyoba users you actually have and what kind of revenue opportunities you see in there whether that is starting to scale somewhat okay so let me just try to give some context 1st of all on the voice side yes we are seeing double digit voice growth so far this year one month in the year however what i said before was that we expect only voice growth year on year somewhere between the high single digits to the early double digits right voice is something like 40% or 41% of total revenue so a single digit late single digits to early double digits year on year growth will pull down the bulk of the total revenue so that is the 1st reason why the estimate is in the 5th and the 5th percent the 2nd component is that you know one s p deployment or remedy implementation has only started so there will be some incremental impact of s p the kind of where we land with the ministry which while a new development before we gave our estimates of 13 to 15 we have maintained the estimates of 13 to 15 despite the impact the incremental impact of some of the s p measures so i think it is a reasonable assessment of where we believe we will land by the end of the year in terms of ayova users we ended last year over 700000 ayova users and in terms of revenue today i mean we are not really generating revenue from ayova it is a platform strategy that we have in mind are you very intended to be a super app so at this stage it is really driving adoption and building a usage behavior and monetization will be at another stage and so from now revenue is not a primary focus we are just building a base so that we can expand on the platform capabilities of our year old as part of our long term strategy thank you thank you the next question we have is from samuel rajfapul from hsbc please go ahead hi i just wanted to check on the regulatory development i know some of the new positions are made right now and what is your take for the discussions that are ongoing with the regulator and do you expect any more new rules coming up on this regard okay thanks for your question i think the 1st thing to point out is that there were 7 remedies that were imposed at a time of you know sending fbsmp and designation and although only one has been implemented while our discussions have been encouraging we would expect a few more to be implemented through the year what we are focused on currently in our engagement is really their implementation the definition of those specific remedies to ensure that the broader objective of best in piece achieved and you know those discussions like i said have stalled since the elections and once the substantive minister has put in place we will resume those discussions and progress to a point where we can give you something more specific from that in the next quarterly update but for now we will implement the one which is 30% reduction in asymmetric and so connect and we will continue to monitor that as we go forward and maybe if i can just follow up i mean what would you think probably the implications would be given that the government is planning to acquire or propose to acquire one of these smaller operators there so what kind of potential implications do you foresee there from that move it is a very difficult question to answer because there has really been very little shared on this acquisition by government of ltltgo now just to point out typically in a situation where there is an acquisition from a buyer you would understand the investment appetite the ambition of a new buyer if it is really just to hold the same position if it is really to challenge for number one and if it is really to build scale and based on that understanding we will deal with the model a potential impact at this point the only thing that has been shared is the fact that government interest is to ensure that jobs are secured and jobs are staged 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 is role may be just to hold and attract new investors so we are still at a very early stage as far as what they are what the outcome of this process would look like and based on that would have a much more concrete sense of the impact so apologies i am going to give you a real sense and we continue to monitor this and to the extent that we can share thoughts and impacts we will sure thank you thank you the next question we have is from nick pajit from fonterra capital hello and again thank you for the opportunity to speak with you i again want to apologies i again want to ask about revenue that some of the other questioners have asked about undoubtedly in total it was a great year for 2020 but as others have mentioned you know q 4 the revenue pace was a little softer and i have heard everything you have said so far but i saw a few you know uncertainties about the q 4 numbers so you know my observation is that sequentially if we look at the 2 prior years you are going back to 2018 q 4 revenue was 15% higher than q 3 and in 2019 it was 9% higher but this year it was basically flat i heard you say there were some one offs but that would be quite a bit of one off to be that to explain all of that difference so i wonder is there something else like covid really helped your revenue in the 1st 3 quarters could it be that things are normalizing and so the slower growth is the result of the normalization although your guidance as mentioned is sort of unchanged so that maybe is counter to that point or was there just anything else unique about you for other than the one offs or maybe the one offs were bigger than i thought i am just still still looking for some of the small kind of clarity on that if you could explain q 4 sure let me start by saying if we if we normalize the effects or the adjustments that were made q 4 over q 3 would have been about a 9% year on year growth they would have been in line with 2019 as you mentioned so that is a starting point right and if i take the 2nd point or are we seeing a change in trend from a consumer behavior standpoint the answer is yes i mean we are seeing a lot more people using data and digital as far as you know the pandemic goes things and behaviors from you know people going to physical school and now at home working and but if i look at the q one to q 4 trends it does not suggest that there is a specific issue right if we look at what happened in q 4 most of our schools went back and therefore the usage of data from home would have gone down but they will be compensated for by other you know other behaviors so there is quite a lot going on in terms of shifts in behavior and one the reason of the restrictions start to unfold those behavior changes that we saw in q 2 q 3 would be reversed as well so there is quite a lot of mix going on but organically yes we are seeing a slower growth in voice than we are seen for the other areas which is expected but not to the extent that the numbers will depict you because we normalize we are seen something like a 9% junior group okay 9% sequential from q 3 to q 4 x ray going off okay so that is thank you for clarifying that that is more than i would have guessed and maybe you said that number at the beginning and i missed it no problem i mean given that is such a large number what kind of one offs what kind of adjustments would these be i guess that it clarifies one answer and raises a new question of just what are those i would not have guessed that kind of one offs could occur sure so outside of smp and those interconnects and there was also a principal agent adjustment on the digital side of that fact that 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 2 areas that we made the adjustment okay were these so i am going to ask this because i think it is all my mind and probably others and i understand you probably will not give me a we will be able to answer it i will just ask anyway for the benefit of everyone sometimes we see when a company has a great 9 months you know they take the foot off the accelerator a bit and they still report a very good year or you know discretionary items that do not necessarily have to be recognized or recognized in q 4 and so i just can not help wondering if that is the case of maybe the q 4 you report is a bit of a low aberration because you could still have a great year anyway and that just you know sets you up for you know another good growth year next year no it is a creative question but no the answer is no you know we have to make these adjustments and we should see uneven out of these through the year okay fair enough thank you for your answer you are welcome thank you the next question we have is from ali naseer from burgess hi salaam and team thank you for the opportunity i just have questions around moment please maybe starting with the structure of any potential transaction that takes local ownership to 30% by the new timeline i am just curious how do you ensure that the interests of the ntn ganja shareholders are not only protected but maximized in case of the transaction and how do you do you know what kind of transaction options do you foresee to get to 30% okay so at this point i mean it is a bit early for us to tell however what i can say is if you look at the skankom level skankom is more money limited the whole unit of scenario of skankom and then we are able to achieve the 25% of skankom and split the shareholders across more money limited we would have achieved 25% of the 30% so the question you are asking really applies to the 5% self loss above the 25% and we have not defined a structure for that as yet but just to sort of explain the components of the 30% that will be impacted by the question that would be the 5% that remains and once we make progress on this we will share that with you but again that is really interesting the interest of share will absolutely be taken into consideration for effect which i was saying you should and things like that i am sure that is where the question is going yeah no but i did not even think about indirect threats really i think just on that point the esol will that meet the best in 2021 for it to come to local shares or it does not have a longer best duration there has a longer best integration and so there are 2 components there and about 3 years to 5 years okay so you would recognize the local i guess you would recognize the shares as they account as local shares right that is right but the allocation would be made and they would be they would become real shares once they have asked okay and just operationally on momo the monetization has been really impressive if you look at this a rather good average user can you just talk about some of the initiatives that you have put in place this year or whether consumers have changed the way they use momo that have given that monetization and then the 2nd part of that question is i have noticed that the subscriber growth in momo has led to voice and data in the year and i was wondering you know what do you think is preventing faster adoption and penetration among your voice users okay i think a way to think about that let me just start with the growth in momo 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 it in a year like we have just had and then it is 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 on the index in days and previous years and momo may have done better which is why you have seen it you know a slight difference in the percentages but if you look at the actual numbers momo and active data are exactly the same using the mpn definitions which for me suggests that momo is actually doing quite well so that is a fair point in terms of monetization a number of things have happened one we have increased steps by about 60% but we have also seen a significant increase in usage in average transactions per user and it is really important because if you look at other markets a muchier knefer example the biggest driver of output growth is increased frequency of transaction and to increase frequency of transactions across a broader base of sub products within the more money suite when we think about advanced services things like our loan products the national remittances payment services those new products allow users to have a higher level of stickiness and subsequently a higher level of usage pay use up a month so we have seen significant growth there upwards of 5 transactions a month last year we are sort of around the 4 to 4.5 so it is a 20 30% increase in usage frequency as well so those are the primary drivers and as we continue to expand our product portfolio we should continue to see these usage frequencies increase over the coming year as well that is great and that is also in the context of 0 rating on the 100 study that is kind of real that is correct that happens in that earlier right okay okay just on that point i will just note if you do not mind as if you look forward or maybe just looking at 2020 how did this get out between peer to peer and some of the new products that are more sticky in nature sure so if i take our advanced services and total we are talking sort of 12 to 15% in terms of the sense of revenue so they are still growing the product mix is concerned 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 more money because the basic transactions p 2 p cash in cash out will start to normalize in terms of incremental growth so for us it is 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 so that is really really the response to that great last one just on this is just related to the float size which you show on the balance sheet i think you have exceeded the $1000000000 it is about doubled versus the 2019 december close and i calculate that i do not know if this is the right way of doing it but if you look at kind of an average wallet size it is now over 100 us dollars about 107 and i was just wondering if that is consistent with what you observe or am i looking at things from an accounting basis because that seems like a big number for ghana and the wallach side sure and i think the 1st thing to note is that the flows covers a couple of different areas it covers our merchants it covers our consumers and it covers our agents and i believe sort of the bank food may be part of that as well so it is hard to take that number and just divide it by the number of customers and get the wallet size yeah that is what i thought okay that is helpful thank you for that clarification you are welcome thank you so now we have a few more questions on the conference call do you have time to take a few yeah hi maybe we can take more questions and then we can end the call not a problem we are just from darren is from 337 pertier capital hi good afternoon good morning congrats on the great results a couple of questions for me could you just talk about the growth in both voice and data you are seeing do you have any indication if these are market share gains as the market growing as quickly as you guys and could you talk a little bit about sort of any kind of pushback from your 2 competitors that sounds like as you said tigo and i am going to tell that is a bit more complicated but i am just any update on competition would be helpful also the 139000000 cds that you guys booked as related to sort of covid initiatives i am assuming that is on the income statement and it is it fair to assume that a lot of that comes out in 2021 or are these going to be recurring expenses and then last question i just want to confirm you said the advanced services in momo is around 12 to 13% of revenue last year i think that was you guys were closer to maybe 2 or 3% in that line am i right in saying that and can you just unpack that a little bit where is the growth in that advanced services coming from it sounds like you guys are gaining good momentum there okay thanks for the question let me start with advanced services and last year we are just around 10% not 3% so we have seen something like 40% to 50% growth in that line in terms of the percent of low money revenue so that is just to clarify and the numbers you have and the growth is really coming from payments where we have confused with the number of merchants we had we came out of last year with about 150000 merchants over this year we ended this year with over 170000 merchants and we continue to see increased activity at various merchants points so the expansion of the merchants increases your ability to use and the opportunity to use your mobile money wallet and we are here with a pandemic where there have been a lot of restrictions and things like that that also accelerates and helps accelerate the change in behavior and kind of the relationship that mtm group announced with mastercard is that being implemented in ghana as well that is a global view for us so yes it will have an implication for ghana as well okay okay now your 2nd question was you know the $1990000 and just to break it down this is you know the the covid impact for us in terms of what we spent in cash but also what we have given up in revenue so the one.99 include the $94000000 of p 2 p for more money limited and the balance of that will be what we spent in cash which would show up in our income statement so yes we have continued a p 2 p the free p 2 p 400 ghana cvs daily we have 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 do not have any so these numbers will be baked into 2021 as well got it the 1st question was on voice and data and it was being market share growth i think in voice market share has been marginally growing but it is fairly flat but in terms of data we have seen some market share growth unfortunately we have not had a recent the recent release from the nca are regulated on the industry position and the numbers we have are quite old so until we receive that it is hard to give a very concrete sense of whether we are seeing market share in data or not i know all the operators as an industry that was assured in demand for data and therefore to the extent that you are able to provide a capacity you would see growth especially during the covid period so i would expect that you know market share may have grown marginally in data or it would mean about fluemics and the daughter of being an entire industry effect from covid 19 no no you continue on no i was just going to say in terms of competition i mean the dynamics in the marketplace have been linked to the acquisition or the exit of intel and potentially really come from the market like i said before we do not have enough deal to really ascertain and assess what this means for our business going forward and that is not as we have more information information will 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 are also expanding our technology so that we can have 4 g on every site in the coming years and that continues to be our focus and also build out our home network and where we see a lot of opportunity in the future can i just one related question on competition and mobile money i mean are you seeing is there any competitive response there i mean you guys my understanding i mean a bit of digging i can do to try to understand sort of the distribution and agent network for vodacom and airtel tego it seems very very limited are they even trying in mobile money at this point or is the game yours right now you know it is absolutely moving and for us if you think about mobile money today we are talking by the mtn definition about 10000000000 customers we have a population of about 32 31000000 so i mean that is only 30% of the total population from an active more 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 one but if you look at the frequency of transactions it is 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 the contingency drives behaviors towards electronic currency more money currency things like that so one extent at this stage of the game any effort from our competitors would help accelerate the growth in the industry because it is at such a nascent stage i mean even though you have seen low numbers of 6000000000 above i mean we are at a very very young stage in terms of the more money opportunity so we do not see growth from our competitors as compromising the pie we really see that accelerating the growth of the pie and we can have a much larger share of that growth in terms in terms of the growth of the pie we can have a much larger share of that incremental growth so we encourage it we also do think there is an innovation engine that is lacking in the marketplace and some of the initiatives from the central bank to drive the 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 do not see that as negative at all we would encourage more people to invest because it drives the whole market they have filled you know 90% of cash usage and gun are at the moment despite the pandemic and all of that so there is a lot of work to be done and if we all bring our energies together as an industry we will get the ecosystem to grow and we will view it all benefit from that got it alright thanks so much and congrats again on the good great results you are welcome thank you final question is from brad wertzky from eponox partners thank you for giving me the chance to ask a question i have 2 questions the 1st is in the comments we talk about investing a 1000000000.5 cd and network expansion whereas the capx for the year is roughly around a 1000000000 so i assume that the incremental half of 1000000000 cds came out of the income statement i am curious sort of what part of network expansion you capitalize and what part you expense and then the 2nd question is so you talk about 2021 being the year of the digital or your digitalization what specific initiatives are you doing around that and what is that so the last part of your question is when you sort of dropped off if you can just start from the year of the customer and what initiatives yeah what specific initiatives are you doing around that this year what does it really mean to be the year of the digital customer okay all right so i will take the 2nd question and the copy will answer the question of the capex where we look at the core capex versus the rest you can give it a details there so let me start with a year of the customer so when we talk about a year of the customer there a number of different things that we look at we have about 6 pillars that we have developed in terms of digitize on our business and 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 is not only a good to have or a nice to have but it is a need to have so that we can continue to work effectively and support the business so that is the 1st component and i will not dwell too much you know what that means but we can go into the details there the 2nd one is read on our product side where today if you look at some of the initiatives we have launched we have gone from using scratchcards you know 15% 20% of our recharge sales came from scratchcards 2 years ago and we have dropped that to about 5% last year and we are saying we are going to get to 0 by the end of this year and again that is 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 my mtn app for example we have electronic sales of recharge as far as agent goes and you have these different channels that you can purchase recharge from you would have online channels as well website channels and things like that when we think about becoming a platform player in the next 3 to 5 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 access in our apis and connecting to us you know without having you know significant interaction with us looking at our ayova super app which started off as a messaging app but we are looking at implementing micro apps so if you think of wechat in asia that is really what ayova looks like so currently we have about 6 or 7 micro apps already implemented and we will continue to expand on that looking at relevant local apps that can sit within the ayova ecosystem and continue to expand that so it is a very exciting time for us we are bringing a lot of things together we see ourselves as sort of a central player where we can be the core of a lot of these transactions and the innovation from the startup industry can be on the outside of that core and connect to that core to be able to provide their services to get the end 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 have to write digital platforms so my mtm is really the pivot for that where we are seeking to allow people to do things themselves we want to increase the percent of self service interactions without support team and that is a big focus for us this year so there are a 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 we need 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 so that is just to list a few of them but there are several other things that we are doing beyond just support beyond just sales channels on the product side simplification about portfolio digitizing their interactions consolidating our short codes these are all things we are doing to simplify the journey and the experience for our customers and finally on the technology side i am ensuring that our technology platforms and infrastructure can support a digital ecosystem so the next work this is why having forgery site is important to us and 2 looking at modernizing our ielts 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 is quite a lot of bacon there that we are working on we are going to be very busy this year all right so on the on the yeah on the apex side just just to clarify all cape x spend couple lives within the video okay so none is set aside for any other and beyond that the core kipx is the h 5 h that may be in little reference to but kitsa of kipx for kinj 10 t when you check it on the ifr 16 was one.489 and under ias 17 is one.397 so that is our kipx details so all of them are capitalized within the kinj 10 t and just to add that the difference between the core and the total will be things like licenses right yeah licenses are software that are really depth network systems sorry can you clarify on the campus question so the number that i saw was even when you add the licenses and whatnot it was still only just over one yes of all because we have we have spectrums as well as core network assets the systems will be around 60000000 so those are the plus other software and licenses so maybe you have to look at what you are looking at and give you fed authority but a little bit okay and just one quick follow up on that is how much of your capex would you consider to be growth capex relative to maintenance capex how much of your how much of your what you consider maintenance of the existing network versus maintenance so maintenance does not form parts of but i think to clarify i think the question is you know we have a maintenance cupcakes which would be we need to implement that to keep the network going with the existing capacity and then there is incremental capacity and coverage i think i think i have to keep to the same network yeah perhaps we can take that offline and look at the breakdown if i may suggest that yeah that is what i suggest so so maybe we will pick it up germa take notes and then let us get back to you on the details okay thank you 1st appreciate the time thank you sir do you have any closing comments yes please so i would like to thank everyone for making time to join us today for this call again i would like to apologize for the long hold at the start of all and the extension of the time of the call as a result of this food i know there are quite a number of questions in the queue but i will be glad if you can reach out to me and then i can access you with your unanswered questions you can also visit the investor page on our website that is ntn com gh to download our financials and access any other relevant investor information which includes the transcript and audio for this call which i will be adding up in the coming week so thank you and you may now end the call thank you ladies and gentlemen that then concludes today is conference thank you for joining us you may now disconnect your lines",
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      "reference": "ladies and gentlemen good evening and welcome to hdfc bank limited is q 3 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 mister srinivasan vaidyanathan chief financial officer hdfc bank thank you and over to you sir good evening and a warm welcome to all the participants 1st 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 q 3 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 82000 crores we were mandated for 8 ipos indian bond market also saw a total fundraise of approximately inr one.87 lakh crores in the quarter the bank maintained its ranking as one of the top 3 arrangers in the inr bond market now with that let us go through 5 themes at a high level before we delve into the quarter financials one the bank is balance sheet continues to get stronger for instance the capital adequacy ratio is at 19.5% cet one at 17 one liquidity is strong as reflected in our average lcr for the quarter at 123% balance sheet remains resilient the gnp ratio is at one.26% floating and contingent provisions aggregating to inr 10100 crores has been de risking the balance sheet and positioning for growth 2 investments in key enablers are picking up in executing our strategy we opened 93 branches in the quarter 171 branches year to date 9 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 5000 people in the quarter 14300 plus people during the 9 months period we have onboarded about 17400 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 90000 users concurrently a significant step as most of our customers now rely on digital channels for banking needs the bank has migrated 4 data centers in bangalore and mumbai to state of the art facilities the bank is moving to the next level of disaster recovery with doctor automation and implementation of hot doctor active 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 q 3 we received a total of 245000000 visits on our website averaging 31000000 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 3 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 2400000 new liability relationships 6400000 new liability relationships during the 9 months period of this financial year exhibiting a growth of 29% over the same period last year 4 our market leadership in digitizing the economy is setting new high in q 3 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 2 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 one lakh plus active distribution points we have over 5000000 customers with easy emi options the bank merchant offering is scaling to provide enhanced value added services across various segments the bank has 2850000 acceptance points as of december with a year on year growth of 35% the bank is acquiring market share stands at approximately 47% with a 19% share in terminals processing about 300000000 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 5 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 q 2 continued its stride in q 3 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 one and year on year growth of 29.4% reflecting underlying economic activity and continued market share gains now let us start with net revenues net revenues grew by 12 one to inr 26624 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 one 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 8184 crores was up 9.9% versus prior year and up 10.6% versus prior quarter fees and commission income constituting about 2 thirds of other income was at inr 5075 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 1046 crores for the quarter prior year was at inr 1109 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 1113 crores includes recoveries from written off accounts and dividends from subsidiaries now moving on to expenses for the quarter at inr 9851 crores an increase of 14.9% over previous year year on year we added 294 branches bringing the total branches to 5779 since last year we added 1697 atm cash deposit and withdrawal machines taking the total to 17238 we have 15436 business correspondents managed by common service centers which is higher by about 1900 slightly over 1900 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 one.26% of gross advances as compared to one.35% in prior quarter and one.38% on a pro forma basis in prior year it is pertinent to note that of the one.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 one.6% about inr 4600 crores as against one.8% in prior quarter agri seasonally has contributed approximately inr 1000 crores to slippages or about 25 basis points annualized rate during the quarter recoveries and upgrades were about inr 2400 crores or approximately 25 basis points write offs in the quarter were inr 2200 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 2 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 1821 crores as against inr 2286 crores during the prior quarter total provisions reported were inr 2994 crores against inr 3924 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 8600 crores the bank is floating provisions remained at inr 1400 crores and general provisions were at inr 6000 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 one.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 10342 crores grew by 18 one over prior year we will give you some color on some balance sheet items total deposits amounting to inr 1445918 crores is up 13.8% over prior year this is an addition of approximately inr 40000 crores in the quarter and inr 175000 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 681225 crores with savings account deposits at inr 471000 crores and current account deposits of inr 210000 crores time deposits at inr 764693 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 1260863 crores grew by 5.2% sequentially and 16.5% over prior year this is an addition of approximately inr 62000 crores during the quarter and inr 179000 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 one 18.4% cet at 17 one 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 50478 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 q 3 growing 9% quarter on quarter and 11% year on year for the quarter hdbfsl is net revenues were inr 1982 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 1024 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 one 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 q 3 with an increase of 58% year on year hsl is digital account opening journeys are running successfully there has been a significant increase in overall client base to 3400000 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 will 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 one 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 the 1st question is from the line of mahrukh adajania from elara capital please go ahead hello congratulations my 1st question is on credit cost so if the total credit cost including contingencies has come below 100 after many quarters around 3 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 excuse me sir i am 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 is 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 2nd 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 is how you need to look at it but if you look at our npa one.26% can bounce around at any time 10 20 basis points up and down 2 quarters ago one.47% now one.26% so it can go up and down within a small range that is 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 one.2 one.3 thereabout that is 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 is wherein last go back to pre covid that is 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 is always that the pull and pressure between the business and the credits that happen so i would not 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 will not 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 5000 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 is one thing which does not need to recur every quarter but it can happen every other quarter depending on what programs we run right but that is part of running the business and the sort of growing the franchise right so that is one thing to think about 2nd 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 does not 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 have 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 am talking about the payment products the cards customers right the credit line utilization is at a low it is like 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 is 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 is 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 will 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 4 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 4 x right now it is 5 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 is 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 is a combination of both the environment the economic activity in the environment and the customer behavior to get on with that could be 234 quarters i would expect that i do not want to venture to predict exactly what it is because there is 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 is 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 the 1st 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 23000 that is one.37 works out to be around inr 17000 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 18000 crores plus there would be a r one number so both put together is around 25 900 notes to accounts also mentions that the double counting between r one and r 2 is around inr 2700 crores or something like that so the net number works out to be around inr 23200 crores whereas our comment shows that it is around inr 17200 crores so that is a gap of this around inr 6000 crores okay got it got your question see it is based on what is the template right somebody signed the template and we fill the template up and put up there right so that is something different and so it is a good point that you raised right the inr 25000 what was there is what did you grant as a restructuring in r one and r 2 when you add up that is what it is and if you eliminate the double count it is like inr 22000 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 18000 crores right last september and currently we say inr one.37 crores that is inr 17500 crores or so so 1st the inr 18400 crores to inr 17500 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 is a part of what from september to december things have moved right but between the inr 22000 crores to what we reported in september inr 18000 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 is 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 18000 crores and now it is inr 17500 okay so srini just correct me if i am wrong if i look at the september disclosure right the r one plus r 2 minus the double counting as per the notes to accounts was around inr 22500 crores of which there were npls and the amount repaid of the r one amount that you mentioned in the notes to accounts so that number was around inr 20400 crores whereas as per our disclosure in september was inr 18200 crores so the inr 2000 crores what is 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 r one and r 2 so the as for the notes to account it could be around inr 23200 crores but after the recovery npls everything and the repayment etc it is around inr 17500 crores this quarter notes to account simply calls for it was again mandated right it calls for reporting only r 2 as originally granted which is reflecting inr 18000 crores or something in the notes inr 18000 crores is not the outstanding right inr 17500 crores is the outstanding so whatever was mandated to show in the notes that is what we showed but both when i talked and i gave the one.37 that is inr 17500 crores this is r one r 2 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 2nd 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 one.37 then out of this one.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 2 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 is 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 2 years right and again if there was one year of loan left and 2 years granted now the person has got it for over 3 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 one.37% so it is around whatever that 7% to 15% of the book can keep based on your analytics or the customer data that you have no i do not want to venture into extrapolating for the 10 20 basis points into various time periods yes got it got it okay the 2nd 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 3 specific products one is payment products 2nd one is the commercial and rural banking it is growing very fast at around almost 30% y 0 y and lastly corporate and wholesale banking since we have developed quite a bit of capabilities over the last 2 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 will 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 2 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 2 year growth right a longer period and that includes the covid period too we have grown at 35% right but call it high teens annual that kind of a growth rate that is why and similarly you can go back for 5 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 is 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 179000 crores in the past 12 months a inr 325000 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 is 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 13rd of the country is 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 2 quarters does not establish what the growth is it is about the consistency of growth and over a period of time and that is 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 1st 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 +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 17500 crores one.37% understood thanks the 2nd 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 3 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 do not 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 one.2% one.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 2 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 2 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 would not 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 is the kind of so your 2nd 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 1000 crores today it is built up it is more than inr 8500 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 is 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 2 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 2 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 1st 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 is 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 have announced a partnership with the 2 entities so can you just talk about this partnership with fintechs or the entities that you are 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 is the time i will take 2 or 3 minutes or so to describe right how we think about it and you can see whether it fits in with what you are all thinking in a bank you like to look at things in 3 different kind of activity call it like that right one is the customer acquisition the 2nd one is customer servicing and 3rd 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 3 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 2400000 liability relationship that is 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 is 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 is part of the cost of acquisition model that is 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 is 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 3rd less than a 3rd little less than 30% of our customers provide little more than 2 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 is 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 have 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 20000000 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 not be delivered through a mobile banking or an internet banking or a fintech partnership or any other partnership can not be delivered right it gets delivered through because that is where the value comes through a relationship approach right so that is something that the capability is coming from there so that is probably i will leave it there i have taken a minute or 2 more than what i have said i will do i hope that gives a perspective of how we think about it yes yes thank you so much srini we will 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 should not 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 3 years 5 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 is the band at which by the way that is based on average assets not interest earning assets because we do not want to get confused with denominator being what it is denominator in this case that i quoted the numbers is average assets because there is processory thing in the industry about using interest earning assets but that is a different matter i would say 3.94% to 4.4% 4.5% right that is 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 is in mid 40s and it is 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 2 years ago right so that is 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 is 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 5 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 will 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 3rd right now right about 31 32 slightly under 13rd 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 2 to 3 years ago when we were in the mid to high end of that nim range the components that means the composition of these 2 they were very meager right we are very low i would not 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 am saving deposits not necessarily on the time deposits it can come with a lag right so that is 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 is what i was coming to that if your nims tend to move up should not your operating profit be better than loan growth is the limited point i was trying to get that saurabh it is a good point that you say right but from at least my point of view my perspective i will 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 do not make any other change just allow these 2 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 is 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 do not 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 2 years to 3 years to be in a reasonable state and between 5 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 is how historically we have been because continuously we have added branches so if you think about in the last 5 to 10 years we have added 2600 branches in the last 5 years to 10 years in the last one years to 3 years we have added 1100 branches right and so that these are the kind of investments continuously we do to model so that it is 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 am 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 is always difficult to 2nd 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 am 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 are 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 2 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 will address that because it is easy to address we will come to interchange see mdr we do not make on a net basis we do not make much we do not 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 3rd party card card our mdr business case interchanged through a 3rd party issuer so mdr business as such is pretty neutral but we still very very vehemently pursue mdr relationship or merchant relationship 2850000 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 is part of that strategy so that mdr as such there is nothing to take it away on mdr because it is nothing there to take it away so that is 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 not 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 mister vaidyanathan for closing comments 0 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",
      "prediction": "ladies and gentlemen good evening and welcome to hdsp bank limited qc fy 22 earnings conference call on the financial results presented by the management of hdsp 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 brief commentary by the management should you need assistance during the conference call please signal an operator by pressing 0 on your touchstone phone please note the discussions are being recorded i would now like to hand the conference over to mister sheena vassen by jonathan chief financial officer hdfc bank thank you and over to you sir good evening and a warm welcome to all the participants 1st to start with the environment and the policies that we operated in the quarter where conducive for growth with good tailwind from monetary and fiscal policy you all know about the activity indicators bearing better in q 3 like the pmi gst collections e vables etc etc they are also off to date about the cpi or the policy rate stance and the liquidity conditions now in that backdrop the equity capital market was robust in the quarter private issue was raising almost 82000 crores we were mandated for 8 ipos indian bond market also saw total fund rates of approximately one.87 lakh crores in the quarter the bank maintained its ranking as one of the top 3 arranges in the inr bond market now with that let us go through 5 teams at a high level before we dwell into the quarter financials one on the banks balance sheet continues to get stronger for instance the capital adequacy ratio is at 19.5% cet one at 17 one liquidity is strong as reflected in our average lcr for the quarter at one.23% ballot sheet remains resilient the gnp ratio is at one.26% coping and contingent provisions are aggregating through this 10100 growth helps in de risking the ballot sheet and positioning for growth 2 investments in key enablers are picking up in executing our strategy we opened 93 branches in the quota 171 branches year to day 9 month 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 there are more than 5000 people in the quota 14300 plus people during the 9 month period we have onboarded about 17400 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 and we have taken the steps necessary to ensure our customers are great and consistent experience in whatever channels they choose to bank with us he initiatives like a streamlined modern customer experience of 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 fully revamped payment offering we have taken multiple steps to ensure ensure robust scalable and secure technology set up strengthen even further some key initiatives include capacity for u pray has been tripled net banking and mobile banking capacity has been doubled to manage 90000 users concurrency a significant step as most of our customers now rely on digital channels for banking needs the bank has migrated core data centers in bangalore and mumbai to state of the art facilities the bank is moving to next level of disaster recovery with doctor automation and implementation of rdr active access setup for key applications significant upgrades in network and security infrastructure to support our exponential growth in digital transactions our digital capability is coupled with rich data and customer is behavior take for instance take for instance the traditional retail product where in close to 80% new loans both with digital scorecards are automated handwriting in q 3 we received a total of 245000000 visits on our website averaging 31000000 unique customers per month as per our analysis we had 30 to 70% more visits on our website with our public private sector peers of course 60% of the visits were through mobile device indicating the mobile simplicity of the footfalls acquiring new liability relationship is setting new high preparing for broad facing and deepening relationship from times to come here is a quote that we opened about 2400000 new liability relationships 6400000 new liability relationships during the 9 months period of this financial year exhibiting a growth of 29% over the same period last year 4 our market leadership in digitizing the economy is setting new high in q 3 we achieved the highest level issuance of with 9.5 life card issuances since late august when the recommence issuance of new cars the so far issued 13.7 lakh cars credit cars spent for the bank has grown 24% year on year and debit cards spent has grown 14% year on year the spend growth reflects both increased customer engagement and economy improvement from the consumption perspective in similar lines to our cac partnership and to scale our business further they have signed nous with 2 large payment banks for distributing certain products this opens up further opportunity to scale among other places both in familiar urban and rural areas leveraging partner distribution access and feed on street we have further scale emerging growth segments such as ecemi consumer viewables targeting our preferred customers through segmented sales and marketing consumer finance business has one +one lack plus active distribution points we have over 5000000 customers with ecemi options the bank merchant offering is scaling to provide enhanced value added services across various segments the bank has 2850000 acceptance points as of december with a year on year growth of 35% the bank is acquiring market shares stands at approximately 47% with a 19% share in terminals processing about 300000000 transactions per month bank has been focusing in serial locations and is investing in training and offering segment specific solutions over 50% of new merchant sourcing is from serial locations 5 asset volumes are gaining momentum to reach new heights driven through relationship management digital offering and wealth of products in the wholesale segment profits continue to generate strong cash flows across sectors resulting in fair degree of prepayments trade continue to be an opportunity for critical factoring invoice financing export financing import financing or some of the products reponspaded into growth they are also making progress in mnc segment with their ambition to be the largest player in the space copper banking and other wholesale loans grew by 7.5% over prior year and 4.4% over prior quarter on the retail access point the momentum picked up observed during q 2 continued stride in q 3 as well witnessing the robust sequential asset growth of 4.7% and year on year growth of 13.3% this has been it has been on the back of a strong incremental dispersal during the project commercial and rural banking businesses are robust growth disorder this is seeing a sequential growth of 6 one and year on year growth of 29.4% reflecting underlying economic activity and continued market share gains now let us start on start with net revenues net revenues grew by 12 one to 26624 growth driven by an advances growth of 16.5% in 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 one this is in the similar range of previous quarter net interest income growth is reflective of underlying shift from unsecured lending essentially gravitating towards 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 8184 was up 9.9% versus prior year and up 10.6% versus prior total fee is in commission income constituting about 2 thirds of other income was at 5075 growth and grew by 2% compared to prior year and 2.6% compared to prior quarter retail constitutes approximately 93% and wholesale constitute 7% of fee is in commission income fees excluding payment products grew year on year by 17% and fees on the payment products decreased 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 the wall for increases in addition during the festive period we offered certain fee waivers to incentivize customer engagement effects and derivatives income at 949 growth was higher by 69% compared to priori reflecting quicker than activities and spread trading income was 1046 growth for the quarter priori was at 119 growth and priori growth was at 676 growth some of the gains from investments were monetized in line with our strategy other miscellaneous income of 1113 growth includes the recovery from return off accounts and dividends from subsidiaries now moving on to expenses for the quarter at 9851 growth and increase of what 14.9% over previous year year on year we added 294 branches bringing the total branches to 5779 since last year we added 1697 atm cash deposit and withdrawal machines taking the total to 17208 we have 15436 business correspondence managed with common service centers which is higher by about 1900 slightly over 1900 compared to the same time last year the cost income ratio for the quarter was at 37% which is similar to the prior year level as previously mentioned when 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 funds moving on to the next slide as a quality gene peer ratio was at one.26% of growth advances as compared to one.35% in prior quarter and one.38% on a performa basis in prior year it is pertinent to note that of the one.26% gene peer ratio about 18 basis points are standard these are included by s pas as one of the other facilities of the borrowers in npa net npa ratio was at 0.37% of advances net advances preceding quarter was at 0.4 the annual slipage ratio for the current quarter is at one.6 about 4600 crores at against one.8% in prior quarter agree seasonally has contributed approximately 1000 crores to slipages or about 25 basis points annualized rate during the quota recoveries and upgrades were about 2400 crores or approximately 25 basis points ditops in the quota were 2200 crores approximately 23 basis points sale of npa about 260 crores approximately 2 basis points in the quota included in one of the categories above now looking at check bonds and restructuring and so on the checkdowns rate continues to improve in december across most of the retail products and is not only back to pre pandemic level 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 is back to pre covid level and in some cases better than pre covid levels the better improvement the improvement in bounce and demand resolution rates at aggregate level amongst other things illustrates the overall portfolio quality the restructuring under rba resolution framework for covid 19 as of december ends stands at 137 basis points this is at the borrower level and includes approximately 28 basis points of other facilities of the same borrower which are not restructured but included here to give some color on researcher accounts 40% are secured with good collateral and with predominant good symbols score which we feel is comfortable of the unsecured portion approximately 2 3 per salary at customers and about 40% are good symbols scores more than 700 the demand resolution is showing encouraging trends covid restructuring has been an enabler to our customers to tide over the uncertainty in the last few quarters initial indicators suggest that most of these customers are now questioned to resume their payment with minimal impact to overall quality of the advances of the back as mentioned previously impact of restructuring on our gnp ratio could not can be 10 to 20 basis points at any given quota we talked about it last quarter and mentioned that the core positions the core specific loan loss positions for a quota the 1821 court as against 2286 courts during the prior total provisions reported with 2994 crores against 3924 crores during the prior quarter total provisions in the current quarter included additional contingent provisions of approximately 900 crores the specific provision coverage ratio was at 71% there are no technical rate of or head office and bank books are fully integrated at the end of current quarter contingent provision towards loans were approximately 8600 crores the bank is voting process remained at 1400 crores and general provisions were at 6000 crores total proceans comprising specific floating contingent and general proctions were 172% of gross non performing loss this is an addition to security held as collateral in several of the cases looking at 2 another lens floating contingent and general proctions were one.27% of gross advances as of december 4th now coming to credit cost ratio the core credit cost ratio that is the specific loan loss ratio is at 57 basis points for the quota against the 76 basis points for the prior quota and 116 basis points on a performable basis for prior year recovery seats are recorded as miscellaneous income amount to 25 basis points of gross advances for the quota against 23 basis points in the prior quota 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 10342 grew by 18 one over prior year we will give you some color on some balance sheet items total deposits amounting to 14 lakhs 45918 crore is up 13.8% per year this is an addition of approximately 40000 crores in the quarter and one lakhs 75000 crores since prior year retail constituted about 83% of total deposits and contributed to the entire deposit growth in last year cafa deposits registered a robust growth of 24.6% year on year ending the quarter at 6 lakh 81000 25 growth with savings account deposits at 4 lakh 71000 growth current account deposits at 2 lakh 10000 growth time deposits at 7 lakhs 64693 grows 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 the deposit comprises 47% of total deposits as of december total advances where 12 lakhs 60863 goes grew by 5.2% sequentially and 16.5% over prior year this is an addition of approximately 62000 crores during the quarter and one lakhs 79000 crores since prior year moving on to capaad which i covered in the beginning total cut of the basel 3 guidelines total capital equity 19.5% here 118.4% cet at 17 one which i covered previously now getting on to some highlights on hdbss this will be on india space the total loan book as on december 31 stood at 60478 wrote with a secured loan book comprising 74% of the total loan 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 developments have picked up in q 3 growing 9% quota on quota and 11% year on year for the quota hdbfss net revenues were 1982 crores a growth of 15% roses and contingencies for the quarter were at 540 crores including 97 crores of management overlays against 1024 crores for prior year profit after tax for the quarter was 304% compared to a loss of 146 floors for the prioriate quarter and the profit after tax of 190 to close for the sequential quarter as of december end gross stage 3 stood at 6.05% flat sequential quarter 80% of the stage 3 booked is secure carrying erosion 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% liquid coverage ratio was strong at 222% stb is funded with the cost of points of 5.9% the ratio is at 20.3 with a tier one at 14.9 with markets opening up and customer accessibility improved to near free covid levels we believe the company is well poised for a healthy growth from here on subject to any impact on further waves of covid now few words on hsl again on india is basis hsl the security is limited with its wide network percent of 213 branches and 147 cities and towns in the country has shown an increase of 58% year on year in total revenue to 536 net profit after tax of $258.3 is an increase of 58% year on year hsl is digital account opening journeys are running successfully there has been a significant increase in overall client base to 3400000 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 concerns of balance sheet p l and human capital while the effect of the latest covid wave is not clear which we will have to watch out over the next few weeks to see in very turn we are confident of navigating through this applying our learning from past waves our growth is accelerating leveraging on our people product distribution and technology the portal results reflects the cost of growth of 14% advances growth of 16% profit tax increased by 18% delivering return on asset over 2% earnings per share in the quarter of rupees 18.7 book value per share increase in the quarter by rupees 19.4 to 414.3 with that thank you very much whether that may request the operator to open up for questions please thank you very much ladies and gentlemen we will now begin the question on the session anyone who wishes to ask the question may press star and one on your touchstone telephone if you wish to remove yourself from the question queue you may press star and 2 participants are requested to use hands as well as near question ladies and gentlemen we will wait for the moment while the question queue resembles the 1st question is from the line of maruka janya from inala capital please go ahead hello congratulations my 1st question is on credit costs so it is the total credit costs including contingency has come below 100 after many quarters around 3 years now assuming that there is no further covid wave is that the new normal we are here like we can see over the next few quarters thank you i hope i can hear some excuse me sir i am so sorry to interrupt may i please request you to speak closer to the phone sir your audio are clearly audible okay i will read again i moved my chair but it is okay yeah madam thank you yes valid question and appropriate thanks for asking that see we are coming from a covid cycle where our booking have been from a retail point of view have been benign 2nd from a wholesale point of view which we have shown very highly rated carpets so we come through the cycle and now starting to begin to get the retail out the recent fintages when we look at the recent index performance they are far superior both the entry level scores and the customer profile in terms of how we opened up and started they are superior and whether this is a new norm i would not say that this is a new norm this is you have to look at credit cost normally over a period of a few years you have to look through a cycle and that is how you need to look at it but if you look at our npa one.26 can bounce around at any time 10 to the basis points up and down 2 quarters ago one.47 now one.2 one.26 so you can go up and down within a small range that is where it can come from a credit cost point a few well we are not given a particular outlook as such but we have average in the past call it one.2 one.3 they are about that is the kind of range at which the total cost of today total provisions that have come up with current quota is at about 95 so that is that is they call it a little lower than that right so in a broad range if you think about 100 to 120 kind of a basis point that is where in a last go back to pre covid that is the kind of range at which we have operations right and if 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 for policy so there is a policy reaction that comes in right there is always that is the pull up pressure between the business and the credit that happens so i will state that 50 or 60 basis points total credit costs or the specific losses or the total cost of 95 basis points as a good standard for a long time to come but this is the current focus where we are okay thank you so much my next question is on fees you did mention that payment and credit card related fees decline but were there any one of the more i mean if you could give more color was there any one of the times emotional expenses which will not recur so there will be no obvious you know get a clear outlook on the trajectory in the next few quarters okay again good question thank you see the fees 5000 are gross that we reported is 2% right in the past we have done pre covid if you think about it before there were a waiver so on and so forth we have done 20% of it we have consistently said the way to think about the fees is somewhere where it should settle is miss you high teens kind of places where it can settle normally and again this quarter if you think about excluding the payment products 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 so that is one thing which does not need to recur every quarter but it can happen every other quarter depending on what programs we run but the spot of running the business and the spot of growing the franchise so that is one thing to think about 2nd even from a card is 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 does not come true customers used to take cash advances that was on a lower end so the cycle has to turn a little more on that and so you see some cash advances coming through and from a policy point of view until recently we were tight on the credit limits so there is a credit limit over the credit limit there is some fees that will come that is also lower because from a policy point of view it has been cautious on that 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 so that is one aspect that you think in terms of the impact but then the broader conflicts is required in terms of what is the overall so if you think about the customers itself particularly i am talking about the payment products the card customers right the credit line utilization is at a low it is like on k tex of the pre pandemic level so while the spend levels are up 24% and the interchange is quite robust and good with a good deal 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 is one thing on the people who are spending so the thing they have paid and then if you think about this they are all paying what is happening to their reward work types right that is also at about 0.7 to 0.8 of the pre covid levels in terms of the revolving on cars so there is much more room for people to get into those revolver type so that is part of what the strong quality of the book that exists today and that is part of what some of the fees that come are also muted which are connected to that i will give you another perspective to think about on the cars for instance on the customer is liquidity the purpose balance is most of our card customers have liability relationships with us we have a good amount of liability relationships card customers contributed almost 4 x this is pre covid if we access the a r of cards which is the card loans on both at an aggregate level at an aggregate level the liability balances of the card customers were typically in 4 x right now with the 5 x so which means customers are sitting in good amount of deposits and liability balances with that so this is the economy is come down now this with the huge amount of liquidity and cash at disposal with people now it is starting to pick up and go and so this is part of the cycle growth that we expect that to come back to a reversal right from a long term point of view mid teens to high teens is what we have said in the past that is what one should expect from a far seased point of view thanks but how in your attachment how many quatos would it take to reach that on some it depends it is combination of both the environment the economic activity in the environment and the customer behavior to get on with that could be 2 3 4 quarters i would expect that i do not want the venture to predict exactly what it is because there is no exact signs that tell where it is but typically that is what you would 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 zone growth gets back the ppop issues more or less mimics the zone growth that is what historically that we have shown that is very historically we have performed right that is the kind of what the zone growth is the headline that is what most of the lines operate tend to be similar as we go along okay thanks a lot thank you thank you the next question is from the line of alpehmata from isl security please go ahead hey thanks so thanks for taking my question i am congress on the recent set of questions the 1st question is about the reconciliation between the on the infrastructure loads what we see in the goods flow accounts that works out to be around 23000 and it is one.37 it works out to be around 17000 so how do you reconcile both these numbers okay when you see what it says then i see notes to accounts the total number works out to be around 18000 grams plus there would be a r one number so both put together is around 25 900 notes to account also mentions that the double counting between r one and r 2 is around 2700 crores or something like that so the net number was out to you around 23200 crores whereas our command menu issue was added around 17200 crores so that is the gap of these around 6000 crores okay got your question see it is based on what the template right somebody find the template and we fill the template up or put up there right so that is something different and it is a good point that you raise right the 25000 what was there is what did you grant as a restructuring in r one and r 2 when you add up that is what it is and if you eliminate the double count it is like 22000 right this is 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 was what you see there last september we reported 18000 crores right last september and currently we say one.37 that is 17500 crores of sofasnichi so 1st what would be the 18400 to 17500 the movement they call that about 900 crores of women half of it is moved to npa half of it is a net of various recoveries and adjustments so that is part of what from september to december things have moved but between the 22 to what we reported in september 18000 that is a net of whatever happened before september which is between what happened to npa what happened to various recoveries and adjustments around that time as we speak in september that is part of i think some of you picked up the number of what was originally granted but what was outstanding as of september 18000 and now the 17500 okay so really just correct me if i am wrong if i look at the september disclosure right we r one plus r 2 minus the double counting the extra the notes to account was around 22500 of which there were enfirs in the amount repaid of the r one amount that you mentioned in the mutual account so that number of around 20400 whereas as for your disclosure in september was 18200 so the 2000 crores was the difference between the amount which was reported as a sub tenure and between the result dates is that my understanding correctly sir i can not wait various other recoveries and other things that came until the reporting date okay okay and right now also is the similar situation wherein you have not reported the nps and the repaid amount out of r one and r 2 so the as per the notes you account it could be around \u20ac23200 but after the recovery nps everything and the repayment etc it is from 2021 this quarter this quarter notes to account simply calls for this is again mandated right the calls for reporting only are 2 as originally granted it is reflecting 18000 crores or something in the notes 18000 crores is not the outstanding right it is 17500 is outstanding so whatever was mandated to show in the notes that is what we showed but when i talked and i gave the one.37 that is the 17500 this is r one r 2 whatever is the recent setting outstanding on the balance sheet that is the number that you are mentioning that is correct okay the 2nd 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 cross and period at any given point in time but that could be a situation that almost 25 30% of this book can sleep 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 is around one.37 then out of this one.37 only 20 basis points can keep in to a clear category i just wanted to clarify that okay see by the way there is no particular fine for 1020 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 which i alluded to say for example the one that i gave about party persons are secure right fully collateralized and we with a good good the sibhupya score which we feel very comfortable with right then on the unsecure portion we said about college roughly about 2 thirds or so of the family customers where we feel quite comfortable and then on the balance where we keep watch about 40% or so are good civil scores it will score more than 700 or so so based on various these kind of analysis that is where we should set we feel comfortable that 10 to the basis points at any particular point in time that can be within our tolerable range and from a restructuring point of view generally the restructuring can run up to 2 years and again if there was one year of a loan left and a 2 years granted now the person has started for over 3 years to go okay so again just again clarifying over here is almost 15 to 20% of the book can sleep as per your analytics is that the number correct now that 10 20 basis points is this of one.37% so it is around whatever that 7 to 15% of the book can be based on your analytics or the customer or data that you have i do not want to venture into extrapolating the 10 20 basis points into various time periods yeah i got it okay the 2nd question is related to the credit growth historically we had a multi cola x multiple of the system credit growth that we always used to guide about but as just an indicated number but now when i see at the system level because of the consolidation in the larger segment or within the psu but the system may be growing at exposant but the private sector banks are growing much faster than that and some of our larger pre years are also growing at a significantly higher rate than that of the system how do we see our credit growth do we still maintain that x percentage that we used to talk about in the past or we can have a better opportunities to grow much faster and gain market share secondly your comments on the 3 specific products one is payment product 2nd one is the commercial and rural going to be growing very fast around almost 30% by a while and lastly corporate and homes in 19th since we have developed quite a bit of quite a capability over the last 2 years and grown with more compressing as a share of overall low boost so this is my question thank you okay no thank you a long question but i will try to be a short and crisp as possible so you know if you think about the loan growth and the market share one thing is that our loan growth is consistent consistently growing including during the covid period and one has to look at it not one quarter 2 quarters but over a longer period of time one has to look at how we are growing rather than one period so essentially looking at the consistency of growth over a longer period for example you can take a 2 year growth a longer period and that includes the code period 2 we have grown at 35% right that is called as high team aluminum that kind of a growth rate that is what so and similarly you can go back 5 years 5 years period between 2016 to 21 or something like that again about 2 plus a little more than double call it high team type of growth that is what you have in that tank so one has to evaluate in the current circumstances one also has to evaluate based on the incremental basis right what is 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 the last 10 79000 crores in the past 12 12 months a 3000000000 crores in 24 months and again we focus on appropriate products you 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 it is 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 pre premence happening that is about 700% of what year on year we see in the wholesale on the commercial and rural enormous opportunity and very fast growing about a 3rd of the country is gdp is contributed but 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 you are seeing in a sequential growth that 4.5% or so so net net i mean coming back to the same summary which is now one quarter or 2 quarters does not establish what the growth is it is about the consistency of growth and over a period of time and that is how you 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 and secured in retail across commercial and rural and wholesale so across various product spectrum customer spectrum thank you the next question is from the line of faculty kaka from goldman sachs please go ahead thanks hi srimi good evening raghur here a couple of questions 1st one on the asset quality but just under the confirm was there any new restructuring that created this quarter no no new restructuring but part of that the net change that i gave you 500 crores which is the +and the minus net of 500 which is whatever was in the pipeline that came through that was about 500 crores also that knew that came in but that was not a new granted application granted whatever was in the pipeline that came but then the pay rounds and other things that happened so net net it is the 17500 on .37 and i guess right the 2nd which is only slippages and credit costs i think i think maru kosho has this point question on the credit costs also 95 basis and flippage also are one of the lowest that is in the last 3 quarters assuming no pandemic impact you think you know 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 protein building come through okay and this is a good question used to touch upon another aspect of what maruk also touched upon but you know as a bank we do not need one particular outlook or a forecast in terms of how to look at the credit that all i can point to is too historical to say that in the recent covid time period we operated one.2 one.3% kind of thing if you go to little before the covid period 100 to 120 basis points somewhere there we operated correctly including the contigent process about 95 basis points but yes over a period of time again when you look at it we should revert to that kind of a what was a pre covid need type of a mean reversal should happen towards there and current causes is reflective of what we have booked because the recent windtages call it the 18 months or 15 18 21 months type of windtages that we have booked across various segments right across various segments they are of very good quality retail book you know is typically 2 years on average retail book and that is 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 existing to bank a personal loan or call it 2 thirds to 70% existing to bank card loans but now the innovation lab is making progress towards using alternative data from the market to see how new to bank could be as efficiently scored and pass through the master on the scoring models to get it so yes i would not ask you to project based on the current quarter but you think about it from a pre covid norm what it is and that is the kind of so your 2nd aspect of the question on the building or the provisions and so on right our buildup of the contingent process goes back several quarters and much before the onset of the covid period for example if you look at june 19 or so when we initiated a buildup of our contingent process that was to argument our countercycled proportions then at that time the contingent process was less than 1000 crores today it is built up in more than 8500 crores right or about 70 basis points of grass advances or 80 basis points including floating protions the way whichever way you look at it right what it does is that it takes the balance it makes the balance sheet much more resilient for any shocks uncertainty pandemic can bring and such what does such a the silimseed 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 is how we should think about we evaluated quarter to quarter there is no pre planned type of how the how this runs we take it as it comes in the quarter and evaluate it but it changes to a question the other question was on the credit card or the payment for profitability you laid out a few points why it was you get this quarter but when you think about the structural profitability of this product and also what regulations are thinking any thoughts as to how we should think about what are the components that would still remain the administrative while the components which could witness some pressure you pointed about the fee waiver the maintenance fee etc sort of coming down so how should you think about more from a one to 2 year perspective good question right we will come to that the regulatory or any other thing that we will come to that but from a overall buoyancy point of view see that there was the 1st aspect of a car that is about the spent and the spent is quite fixed up 24% or so a year on your interest 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 the period of the code came down now it needs to go up as a still credit line utilization is at about 0.8 of the fee 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 is up and from a fee charging point of view there are various 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 any other type of fees that can be a regulatory constraint also comes to the cost right so that means you need to think about not just the fees it is also you need to think about the cost that goes to the fee for example if there are certain fees that goes up there has to be certain cost also that goes up right and what are the type of costs that can go up 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 cash tag call it the sales promotion the marketing promotion they all have some linkages across the p and m right from top to bottom these are the kind of linkages one cannot look at only one isolation as a structural change right there is no such structural change but if there were to be a structural change one has to look at it across all the field the lines in terms of what is discretionary and what supports what right and then accordingly one has to model but from an aggregation the cost profitability model should remain intact irrespective of whatever as question on the digital strategy you know you even also partnership with the entities so we are just talk about this partnership with penta so the entities that you are looking about and how does it sort of feed into your digital tool for those strategy to acquire and retain the customers and also from operating at which point of view that is the last question thank you shaita okay thank you i know this is more of a key question and getting talked about everywhere in terms of partnerships and how you think about and the cost to income and so on and so forth maybe it is a time i take 233 minutes or so to describe right how we think about it and you can see whether it fits in with what you are all thinking in a bank you will have to look at things in 3 different kinds of activity call it like that one is the customer acquisition the 2nd one is the customer servicing and 3rd one is relationship management so this is the continuum of how one engages with the customer at work time the various fin techs and the partnerships that we are all talking about is on the front end there on the customer acquisition side we have several channels for acquisition branch we have a virtual relationship model we have a 3 time street model we have a physical dsa model right and then now we have a digital marketing model developed over the last 3 years based on analytics and now we have a partnership model that is call it a fintech partnership for any other type of partnership that you think about that is another model and we do get gave you some time ago in terms of regarding 2400000 liability relationships that is the key ingredient that comes in based on which every other product starts to work on that and so that is the kind of inflow of customers so you get little more accelerated customer acquisition at the end of the day you mission the effectiveness of that to the better cost of acquisition which is the optimal cost of acquisition that is where it is graduated h 2 if our 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 that is the part of the cost of acquisition models that is how you think about that then certain other fintech or a service or a mobile banking feature or very 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 is 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 customer is activity in an optimum manner so is that you measure through how we are executing on that aspect of it right now on the relationship management which is where the most stops the money right which somewhere in the parts we have done we have said last year i think you mentioned this call it about the 3rd less than a 3rd less than 30% of our customers provide little more than 2 thirds of value to the back right and 30% of the customers are the ones where we have relationship management so at the end of the day you can bring in any customer through any channel optimum cost of acquisition you service them through digital approach to any way at the end of the day the value it comes through relationship management that is what at least in our case we have published that and we have talked about this in the past so you just about the relationship management that brings them now there are certain things in relationship management for example in the relationship management we talked about over the last 12 months during the course period the analytics based engagement with the customer with the next best action that we implemented 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 20000000 customers we have recommendations that we have an engagement with mob again it is digitally driven proprietary driven internally through analytics technology helps there but the delivery is through relationship management it cannot be delivered through a mobile banking or an internet banking or a fintech partnership or any other partnership cannot be delivered it gets delivered through because that is where the value comes through a relationship approach so that is something that the capability is coming from there so that is i will probably leave it there i will take a minute or 2 more than what i said i will do on that so that gives the perspective of how we think about yes yes thank you so much shini it is definitely taken off time as well thank you so much thank you the next question is from the line of sora from jb morgan please go ahead hi good evening shini so just one question 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 you know if great rise you clearly seem to be better positioned so would you expect that the ninch should go up from here and in that context you know your comment that the pop will go inland with the one goat should not highly this could be better thanks okay so thanks for asking again a very key part of the part of the dynamics from the p l to think about right historically period of 3 years 5 10 15 right we have seen all of those which you have seen too the bank has operated in the band of call it 3.94 to 4.45 right 4.44.5 percent that is the band at which by the way that is based on average assets not interest running assets because you want to get confused with the denominator being what it is denominator in this case that i quoted the numbers is average assets because there is a process that i think in the industry about using interest running assets but that is a different matter okay 3.94 to 4.4 4.5 right that is the band acreage currently we are at the low end of the band because the retail products where we see much more of yield coming much more of a spread coming and it comes with the higher rwa right it comes with a better with the higher risk rating on those right that comes there we brought that down and this is in the mid party and it is starting to take its own legs and start to grow so one is that it needs to take its time to grow back to what it was call it 2 years ago so that is the journey and the journey if you look at the sequential that you see about 4 and a half percent call it 18% or so as the growth on the retail portfolio and the next part of that could also be on the retail front itself the mix of the retail front whether in the current rate scenario what sort of loans that yield 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 so it is going to take a few quarters for that to come back but within that as we came out of covid and started to focus on this we have 5 categorization for the carpet sargreate segment which where many of our high yield products are targeted to category a b c d e and category a b c catia catia catia is the kind of a very popular where we have had a group success to start with right now and we should have broad base as we go along with better yield and rates also going up so that is something to keep in mind that the other aspect of it is also the government signal the government segment in our analytics risk analytics model can typically be a low risk relative to the risk and will come in a risk based pricing model it will come with a relatively low risk and risk so that is something also we have focused and continuing to focus on that also so at the end of the day it will take few quarters for this mix of retail and within the mix of retail should 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 you can think about the name coming up the other aspect of the name is also about the race itself right if you think about the repo rate lomes link to repo rate slightly under a 3rd right now about 3132 slightly under 13rd of our loan book is linked to a repo rate and about the little mid single digit of source linked to tables and so which is if you go back to 3 years ago when we were in the mid to high end of that name range the confidence that that means the composition of these 2 were very meager very low 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 when the rate drops move that will have an impact on the cost of funds too but the cost of funds can come with a lag and savings deposits may not necessarily on the time deposits which can come with a lag so that is the kind of way you think about it saying one is the rate environment and another is a remix of retail that can come and bring in that so i think it should move up so that is what i was coming to that if your nim tend to move up should not your operating profit be better than doing growth is a limited point i was trying to get that so it is a good point that you say right but from at least my point of view my perspective i will tell you that you need to be continuously investing 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 hey do not make any other change just allow these 2 changes change the mix on the loan and change the segment between the retail get to the higher yield segment and should that be yes it will be but you know that this is not a unidimensional model right it should be a dynamic model yes you inverse for the future that is why i wrote it to in my opening remarks about the branch about the people is investments about the technology investment we need to do that for the future you do not see return on it today you will see return on it in a couple of years time right because the branch maturity model takes anywhere from 2 to 3 years to be in a reasonable state and between 5 to 10 years to get to be a robust state right save with people is productivity and so we need to make those continuous investments on those and so that is why the one that i mentioned that the pre provision operating product or ppop is the making kind of a lending growth rate that is how historically we have been because continuously we have added branches so if you think about in the last 5 to 10 years we have added 2000 600 branches in the last 5 to 10 years in the last one to 3 years we have added 1100 branches and so that these are the kind of investments continuously we do to model so that it is dynamically maintained for a longer term to come thank you sini thank you thank you thank you thank you thank you thank you thank you thank you thank you thank you thank you the next question is from the line of suresh kanpati from macquarie please go ahead hi i have a question on the fees for the payments products are you seeing pressure on interchange fees at the mdr levels coming down the reason why i am asking this question is that 1st of course you can just tell us what has been the experience secondly from the new digital payments paper i know it is always difficult to 2nd guess what the regulator is thinking but you really think there can be further reductions with respect to mdrs and debit cards can there be something on credit cards can upi be monetizable i am just asking all these questions because everything has got to do with the payment related fee so if the regulator is thinking only in one direction it has to bring down the transaction cost then this is not going to be one sort of phenomenon you are 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 rini thank you thank you suresh and it is indeed important to address it and think about and say about what we think there are 2 aspects to this one is the experience itself in terms of what we see on the interchange or the mbr there has been no pressure on interchange or mbr from a rate point of view 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 free line the rate is quite all right now when the mdr will address that because it is easy to address will come to interchange see mdr we do not make on a net basis we do not make much we do not make anything on mdr for that matter that means if it is an internal customer that means we have an issuing card our mdr business pay is interchanged to the issuing card and if it is a 3rd party card office card our mdr business pay is interchanged to a 3rd party issuer so mdr business as such is pretty neutral but we still very very very dramatically pursue mdr relationship or merchant relationship 2.8 to 8500000 and continuously grow that because of the standard strategy which is along with that comes the liability and comes the asset value right which liability we have already started and assets we are working on their model we have come to a reasonable value there we still have to do a lot to grow there but that part of that strategy so that india has such there is nothing to take it away on india because there is nothing to take it away so that is what now coming to the interchange it is being held steady if there is any other pressure on interchange suresha is alluded to earlier in some other context of the question which is see interchange in isolation perhaps should not be looked at interchange should be looked at in the context of what is the reward that is offered on the car what is the reward cost of the reward points cost of the cash that costs that are that cash that cost which is there cost of the sales and promotion marketing type of cost that are there right so when you when you draw a p and l only on the sale so that means keep the rewards to the site keep those people who do the the cache advances and who do the limit enhancements or spend more on the limits and do habitually pay late and keep them to the file and you send a pure transaction if you see and you draw a p inter on the transaction it is like that mdr sandwich strategy you keep the customer engaged because you got a growth on the liability side of the customer and you are able to do certain things on the other side of the customer so if they interchange for any reason which you can not predict for any reason the rest move up or down then you get the other level on the field and get operated right which is then you look at roas and you look at your cash tax then you look at your marketing and sales promotion and so you look at all of those and try to manage the pnn to profit okay okay thanks thank you thank you ladies and gentlemen that was the last question for today i would now like to hand the conference over to mister vaidyanathan for closing comments okay thank you david thanks for all the participants for dialing in today we appreciate your engagement and if you do have anything more that we could help you from your understanding of a g ceti in our investor relations will be available to talk at some point in time in the future please stay in touch with us thank you thank you anbiyyav of hdst bank limited that concludes this conference thank you all for joining you may now disconnect your lines",
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      "reference": "ladies and gentlemen thank you for standing by i am 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 2nd 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 0 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 2nd 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 is views as of today is date only we do not undertake any obligations to update or revise this information except as require by law certain statements made on today is call are forward looking statements actual results may differ material from these forward looking statements please refer to today is earnings release as well as the risk factors described in the safe harbor slide of today is presentation today is 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 is call please refer to the appendix of our supplemental slide deck as well as today is 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 is website with that i will hand it over to our ceo murat thanks helin we are so excited to have our 1st earnings call ever as the only nasdaq listed turkish company before we dive into the 2nd 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 is 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 1st ever nasdaq listed turkish company let me stop here and now turn to our 2nd quarter results next slide please in the 2nd quarter our gmv grew by 38% compared to the same period of last year to 5900000000 turkish lira in line with our plan this perform brings the 1st of gmv growth to 58% on a yearly basis total number of orders in the 2nd quarter were 13100000 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 2nd 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 1800 stores overall this results indicate our ability to deliver strong growth across the ecosystem let us 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 6 fulfillment centers covering more than 120000 square meters strategically located across turkey in the 2nd 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 1500 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 q 2 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 2 main cargo handling service in q 2 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 us 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 2nd quarter of 2021 hepsiexpress has become one of the strong players in this market with around 2600 outsourced picking and delivery agents and has expanded its ecosystem to over 40 brands and roughly 1800 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 us 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 . 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 q 2 thank you murat and hello what inspires us in our mission of being reliable innovative and sincere companion in people is daily lives in our view this broad mission boils down to focusing on key 3 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 q 2 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 13100000 in the 2nd quarters a combination of these factors has resulted in 38% gmv growth in the 2nd quarters this performance was achieved against an already strong 2nd quarter of 2020 due to baseline effect of covid 19 to normalize this effect on growth figures we have shown here 2 year compounded growth rates so for the 1st and 2nd quarter of 2021 compared to same period last year compounded 2 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 2 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 6 years ago we have gradually increased its contribution to gmv bringing it to 69% in the 2nd quarter of 2021 hence the gmv shift to 3 p 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 q 2 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 1300000000 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 33000000 members on our platform as of last year end we will continue to work towards growing our merchant base through our through these capabilities now let me elaborate on our gmv and revenue growth in the 2nd quarters as we have stated already our gmv growth was 38.2% whereas our revenue grew by 5.2% in the 2nd 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 one p plus marketplace revenue which is our marketplace model and we refer to it as 3 p 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 q 2 2021 compared to the 2nd 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 2nd quarters while our gmv grew by 38.4% in q 2 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 q 2 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 2nd quarter of last year that is primarily attributable to 38% driving number of orders as the last higher delivery service revenue generated from 3rd party operations during the same period at the bottom part of this slide we disclose the ebitda as the percentage of gmv bridge between q 2 2020 and q 2 2021 ebitda was negative tl 189000000 compared to positive tl 71000000 in q 2 2020 this corresponds to a total 4.9 percentage point decline in q 2 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 one.5 percentage point rise in advertising expenses and approximately one 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 3 p and the discounts given to our customers for temporary marketing campaigns offset by other revenue streams -one.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 -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 -0.4 percentage point margin impact through payroll and outsource staff expenses was mainly due to additional around 1200 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 189000000 now let us 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 595000000 reaching tl 749000000 in q 2 2021 this increase was primarily due to increase in changing working capital through changing trade receivables of tl 355000000 which is mainly driven by credit card receivables changing inventories of tl 301000000 and changing trade payables and payables to merchants by negative tl 97000000 our na net capex is tl 44000000 in q 2 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 569000000 as of q 2 2021 from tl 136000000 year on year now i will leave the floor back to murat to share our guidance with you now let us look at ahead to the 2nd half of the year as the 2nd 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 2nd half of 2021 we believe this to be especially important given the seasonality of our market which favors the 2nd 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 29000000000 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 2 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 1st question please the 1st question is from a line of tiron cesar with bank of america please go ahead yes hi good morning or good afternoon everyone thanks for the call and the opportunity to to get questions i have 4 questions sorry about that the 1st one is on the outlook for the market in in 2 h by reading the press release and also from your for from your comments do i understand correctly that the outlook for h 2 seems to be a little bit tougher than what you expected probably one or 2 months ago and that you need to invest more than expected to achieve the same gmv number just wanted to check if i understood that that right my 2nd question would be on the on the take rate for 2 q can you please give us some indication on the on the take rate and also help us probably understand it looks like it it dropped a little bit 3rd question would be on the contribution margin comments from the from the press release just wanted to understand better dimension of of discounts that you have given to your customers for temporary marketing campaigns if you can help with that and then the the last question would be on the 0 on dimension from the press release that you have observed some increased demand for lower margin products just wanted to to understand if if that has reversed into into q 3 and what you attribute th this to thank you so much and sorry for the many questions thank you thank you cesar for for your question for the 1st one outlook is whether outlook looks tougher or not well the recent trends observed we observed in q 2 and early q 3 are reflected on the outlook as well as the seasonality of our market which favors the 2nd half of the year and the turkish market is an inflection and this is the right time for us to prioritize our growth that is why we raise capital and are focused on investing in and delivering long term value creation in terms of the take rate our growth contribution margin declined to 2.4% 2.4 percentage points to 8.3% compared to the 2nd 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 throughout the time and also shifting electronic electronics gmv into 3 p meaning marketplace we sold more non e no more electronics from the marketplace unit and therefore this affected our gross contribution and finally the discounts given to our customers 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 in terms of lower margin products those lower margin products are mainly gadgets appliances bluetooth devices and robot vacuum cleaners and also one p one p electronic products shift into the gmv mostly those products consists of appliances mobile devices and technology devices which has lower margin compared to non electronics well depending depending on the market evolution we expect this trend ma may continue in the 3rd quarter as well but we have always been prioritizing our growth 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 firstly just following up on on the the take rate so you you mentioned that you have seen a shift from electronics from one p to 3 p 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 are seeing at the moment and then finally just on the payments i think you mentioned there that it was the the development was ahead of expectations if you could just give a bit more color on that that would be great thank you thank you miriam for the take rate well 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 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 is position please note that we are very strong in electronics and in electronics the biggest opportunity comes from offline 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 3rd question if i am not mistaken is about hepsipay hepsipay is correct yes yes yeah 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 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 is 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 will 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 1st set of results post your ipo so i have a couple of questions 1st on the on the active user base are you able to share some sort of granularity around the actual growth rates as it will be important so just anything sort of anecdotal would be would be helpful as well i know that there were there were a couple of questions on the on the take rate but i could not hear clearly my line was breaking up so the the implied take rate for the 2nd quarter is quite low 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 imply lower take rates going forward for the rest of year and potentially beyond that and my 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 professor profitability profile across your new across your new business life especially hepsiexpress thank you asli for the active user base 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 as a year end figure however our active user base and frequency keeps on increasing i can give you this guidance on the margin margin investment and the the take rate effect i can say our growth contribution margin declined by 2.4 percentage points reaching 8.3% compared to the 2nd quarter of last year and this is mainly due to dynamics in revenue growth there is a 2.5 percentage point decline in gross contribution margin driven by strategic margin investments and because of crm which is we call that temporary margin investment and those strategic margin investments are done to in electronics to fortify our market position and in non electronics to drive frequency for this 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 temporary campaigns and accordingly we invested in certain categories non electronic and electronic categories such as supermarkets and some electronic categories please note that we are very strong in electronics and in electronics the the biggest opportunity comes from offline and in order to capture these offline customers we have been making on and off basis margin investments to gain additional gmv on the 1st question expectations about the profitability the turkish market is an inflection 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 the next question maybe i can take the next question it was about the profitability for new businesses right 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 is right exactly if we see the growth opportunity we can continue those those campaigns and margin investments the key principle always will remain that we are going to 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 in gmv obviously but we will be seeing disclosure from you on the total on the total orders rather than 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 base increase and the frequency numbers in detail but on a quarterly basis we do not disclose we only give the overall growth numbers okay thank you thank you the next question is from a line 0 from a line of kilickiran hanzade with j p morgan please go ahead thank you for the presentation majority of my questions are asked but i have some more the 1st one is about competition 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 how many merchants 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 and you also mentioned about some share incentives to management i think which is now included in your payroll cost in the 2nd quarter can you please give some details about this and finally about your working capital there was a big release in the 2nd quarter so how should we think about this developing in the 2nd half from a cash flow perspective thank you would you mind yeah let me take the 1st question maybe let me just 1st remind you our well defined use of proceeds plan as you remember 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 1500 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 q 2 compared to the same period of last year and also with hepsijet with our logistics capabilities we are 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 will continue to do so i want to say thank you but is it possible for you to s share some statistics there because i really want to understand the upside in hepsi so w what is the current status about 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 . 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 is 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 q 2 both in one p and 3 p 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 management incentive plan and how much we recognize in our p l is it correct hanzade yes let me yes probably yeah okay that is correct okay i in total we have 132000000 recognized in our p l as mentioned incentive plan expense and out of this 98000000 turkish lira is based on discounted cash payments which is projected to be done within year 2021 and the 2nd part is 34000000s it is based on share based payments which will be made within the next 18 +12 +12 months according to our plan so in total we recognize 132 and discounted cash payments 98 share base payment 34 this is recognized based on vesting plan disclosed in the agreement on the working capital side yes our working capital will keep on improving in the 2nd half due to the fact that our gmv will be will continue to grow in the 2nd half and with a better management we expect to improve our operating cash flow in the 2nd half okay so we there there should not be any seasonality impacting the working capital right i mean the 2nd half of the year so you can assume the similar type of working capital management the there is always a seasonality in the 2nd half especially in the 4th quarter having said that our procurement increases significantly and we are growing significantly in the 1st quarter and based on the seasonality experiences in the past we expect the better networking capital by the end of q 4 it will 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 grocery delivery so is there any national brand here that you managed to onboard recently because we are referring to q 2 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 1800 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 1st 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",
      "prediction": "ladies and gentlemen thank you for standing by i am costen tino your course call operator welcome and thank you for joining me the hespip who wrote a conference call and live webcast to present and discuss the 2nd quarter of 2021 financial results all participants will be listening on the mode and the conference is being recorded the presentation will be followed by a question and answer session to then wanted assistance during the conference call you may signal an operator by pressing star and 0 on your telephone at this time i would like to turn the conference over to ms harin sarek blech ambassador relations director ms harin blech you may now proceed thanks sir prater thank you for joining us today for hixi barada is 2nd quarter 2021 earnings call i am pleased to be joined on the call today by our ceo murat irdao and our tfo kordhan uz the following discussion including responses to your questions reflects management views as of today is date only we do not undertake any obligations to update or revise this information except as required by law certain statements make on today is call our forward looking statements actual results may differ material from the forward looking statements please refer to today is earnings release as well as the risk factors described in the safe harbor slide of today is presentation today is press release the 6 case in our prospective file with the act on july one 2021 and other act filings for information about factors which could cause our actual results to differ material from these forward looking statements also we will reference certain non isf ris measures during today is call please refer to the assignments of our supplemental slide deck as well as today is earnings press release for a presentation of the most directly comparable isf ris measure as well as the relevant isf ris non isf ris free considerations as a reminder our replay of this call will be available on the investigation page of hpsa worldis website with that i will hand it over to our ceo murat thanks helen we are so excited to have our 1st earnings call ever as the only nasa adjusted search company before we dive into the 2nd quadriple of results i would like to take a moment to give an overview of our super rept ecosystem and focus on some of the key fundamentals that contribute to the success of a heavy brother hestibra is a homegrown company that has played a fundamental role in the development of e commerce in turkey over the last 20 years our name hestibra does literally means everything is here and is synonymous with a seamless online shopping experience and benefits from very strong brand awareness our reason is to lead the installation of commerce to that end we have evolved from an e commerce platform in an integrated ecosystem of products and services centered on making people daily life easier we operate in an attractive market that has a large young urbanized and tax saving population the turkish market is at an inflection point with a growing e commerce penetration expected to exceed 20% within total retail by 2025 that says roughly 90% of total retail is still offline opening a large opportunity for growth our super app is a detention of our value proposition and acts 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 every day need from product and services to groceries and payment we constantly see new ways to differentiate our customer experience with value services such as friction return pickup expedites delivery services cart splitting instant customer loan and our loyalty club offering also we continue to expand into new strategic assets including hepstexpress our own demand grocery delivery service hepstexpress our digital wallet companion solution hepstexpress our airline ticket based platform and hepstic mobile are inbound and cross border business with our growth oriented model we recorded a gmv growth at 64% kegar between 2015 and 2020 as we disclosed in our ipo prospectus our service operational execution capital efficiency robot logistics network this technology capabilities how those brand names hybrid business models and integrated ecosystems have positioned us as a homegrown company to emerge as the 1st ever not like this turkish company let me stop here and now turn to our 2nd quarter results next slide please in the 2nd quarter our gmv grew by 38% compared to the same period of last year to 5900000000 turkish euro in line with our plan this performance brings the 1st half gmv growth to 58% on a yearly basis total number of orders in the 2nd quarter were 13100000 which is the highest we have recorded today in a single quarter it is important to highlight that these results have been against a strong baseline effect of covid 19 pandemic last year and are driven by a greater active customer base order frequency active merchant base and total number of its key use compared to the 2nd quarter of last year has to judge our in house lab wide delivery service achieved present in every city in turkey by the end of june 2021 sales to our super adequation value proposition will continue to invest and scale our strategic assets particularly have sex spread and has to pay which are well positioned for strong growth within that context the launch of our digital wallets hesti bei giussanam and beitlin hesti brada in june 2021 hesti express our own demand grocery delivery service has expanded its partner network to over 40 brands across over 1800 stores overall these results indicate our ability to deliver strong growth across the ecosystem let us have a detailed look into key assets we operate a large sad and scalable in house logistics network with last mile deliveries fulfillment and operations capabilities powered by our proprietary technology we believe that our nationwide logistics network is key to our success we operate 6 fulfillment centers covering more than 120000 square meters strategically located across turkey in the 2nd quarter head suggests achieved presence in every city in turkey regions 137 cross stocks where it gets to much a nationwide pickup and drop off network expanded to more than 1300 branded pickup and drop off points across lockers partner local stores gate stations and retailers as a result of its expansion texi jet conducted more of retail deliveries and more of market led deliveries in q 2 2031 compared to the same period of last year with texi jet we are able to offer a variety of valid services including mda nex a delivery options delivered by appointment including weekend and pre schim of return which is a suggest picking up your return from your door at your preferred schedule in line with our efforts to enrich valid services a suggest also began rolling out 2 man cargo handling service in q 2 addressing the need for high quality and reliable service in the relevant category we believe that our robot logistics network gives us a significant competitive edge in offering strong customer experience let us take a look at another strategic asset hep c express as hep c express we aim to become a mainstream grocery shopping destination and betterly fc brodarshipra has expressed offers both instant and scheduled delivery options addressing growth relief for on demand and planned grocery shopping by the end of 2nd quarter of 2021 has expressed has become one of the strong players in this market with around 2600 outsource pissing delivery agents and has expanded its ecosystem to over 40 brands and roughly 1800 stores with presence across more than 50 cities in turkey we believe hex express will be a key enabler to attract new customers to engage our existing audience and to unlock further synergies across services in hex broad up let us take a look at cash flow pay cash flow pay is designed to be a companion wallet to spend save and mobilize money in a flexible way across online and offline channels having acquired its license in 2016 has the pain mark an important milestone by launching taxi based jusanem which i will refer to as hapsi pay wallace and an embedded digital wallace product on our platform on the 10th of june its daily penetration among eligible audiences has been faster than our expectations tasi pay wallet enabled instant returns translations and cashback along with tasi pay wallet tasi pay also introduced hpc papan a cashback points program that allows customers to earn and redeem points during purchases with the wallet on the hpc bradap platform the hpc papan program has been instrumental in the rapid growth of hpc papan wallet has the pair will enable peer to peer money transfers and will constantly explore new use cases across online and offline i do not know leave the floor to courhan or cfo to run you through the financial performance in youtube thank you murat and hello what inspires us in our mission of being reliable innovative and sincere companions in people is daily lives in our view this growth mission boils down to focusing on key 3 aspects of online shopping selection price and delivery on selection without compelling value proposition we doubled our active merchant pay as of june 30th compared to the same day 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 continuous to uphold in future on delivery our large tight 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 continuous customer growth on our platform as well as higher order frequency on a user basis as such our total number of orders grew by 38% reaching a report 13100000 in the 2nd quarter a combination of these factors has resulted in 38% g d growth in the 2nd quarter this performance was achieved against an already strong 2nd quarter of 2020 due to a baseline effect of covid 19 to normalize this effect on growth figures we have shown here 2 year compounded growth rates so for the 1st and 2nd quarter of 2021 compared to the same period last year compounded 2 year growth rates were 68% and 86% respectively indicating a continuous quarter over quarter momentum it is not mentioning that we will continue to see the baseline effect of light years on the growth figures for the upcoming 2 quarters as well let me now walk you through our hybrid business model our hydro season model offers a healthy combination of retail and marketplace having launched our marketplace 6 years ago we have gradually increased its contribution to gmb bringing it to 69% in the 2nd quarter of 2021 hence the g d sheet to 3 p 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 without comprehensive and transparent solutions to try digitally our set of advanced tools and services include the merchant portal with merchant store management tools and advanced data analytics in future we upgraded our merchant portal by introducing new modules that further contributed to overall efficiency by increasing such storage actions we also offered them advertising services through hci f so that they can effectively advertise inside and outside hci brada to drive their sales we give them access to our lead mile delivery service at zz as well as our food film and service at zlogistic where we can take care of storage handling and checking of the merchandise on their behalf we also have done get added with e commerce by providing comprehensive training sessions through our training portal last but not least we provide them with financing options to help them in their effective working capital management in 2020 our financing program exceeded 1300000000 turkish data in volume with an 11.4 times growth in merchants and supplier financing from 2018 to 2020 all these other added services have contributed to hexi brada shaping into one of the most attractive digital platforms for merchants to access 33000000 members on our platform as of last year ends we will continue to work towards growing our merchant base through our through these capabilities now let me elaborate on our g d and revenue growth in the 2nd quarter if we have paid us already our g d growth was 38.2% whether our revenue grew by 5.2% in the 2nd quarter 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 deducting return by cancellations including cargo income and excluding other service revenues and transaction fees charged to our merchants our revenue consists of fairly good which is our retail model and we refer to it as bumpy flat marketplace revenue which is our marketplace model and we refer to it as 3 p flat delivery service revenue and other revenues in direct sale of goods which is retail we act as a principal and initially recognize revenue on a closed basis at the time of delivery of the goods to our customers in the marketplace revenues are recorded on the net basis mainly consisting of marketplace commissions transaction fees and other contract rule charges to our merchants our revenue grew by 5.2% into 22 21 compared to the 2nd quarter of last year this part mainly driven by 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 remains as flat also detailed in the next slide on the upper part of this slide we show the dynamics and factors that have had an impact on our revenue growth in the 2nd quarter while our g d grew by 38.4% in 2221 our revenue growth was 5.2% reflecting the 11% response right in the share of marketplace g d please note that market place revenues are recognized on the next pages i e representing commissions and other fees whereas the direct sale of goods that is the 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 solved more electronics including appliances mobile and technology through marketplace in 2221 than the same period of last year we continue to widen our selection with expanding merchant pay and competitive prices in the market by our strategic margin investment as well as discounts given to our customers for temporary marketing campaigns accordingly we invested in certain money electronic categories such as supermarkets to drive all the frequencies and also invested in electronic categories to falsify our market position additionally we observed higher customer demands for global margin products across different categories such as digital products gadgets and appliances including accessories bluetooth devices and global vacuum cleaners there is 60% increase in delivery service revenue compared to the 2nd quarter of last year but primarily attributable to 38% right in number of orders as the less high risk delivery service revenue generated from 3rd party operations during the same period at the bottom part of this slide we disclose the ebitda as the percentage of g r leverage between q 220 and q 220 21 ebitda was -189000000 here compared to +71000000 here in q 220 20 this corresponds to a total 4.9 percentage point decline into 2020 21 compared to the same period in eba as a percentage of gmb which is driven by 2.4 percentage point degrees in gross contribution margin one.5 percentage points rise in advertising expenses and approximately one percentage points rise in other of x items excluding the cost of inventory sold and depreciation and amount of waste the 2.4 percentage point decline in gross contribution margin is driven by strategic margin investments the shifting electronic g b to 3 d and the discounts given to our customers for temporary marketing campaigns offset by other revenue streams negative one.5% for margin impact through advertising expenses lots to accelerate key growth drivers in poor business and also to scale need strategic assets we consider this expansion as an investment in our long term growth while strengthening our market position negative 0.7% point margin impact through shipping and tracking expenses was mainly driven by changing some of our delivery department mix to improve customer experience and around 23% rising unit costs negative 0.4% for margin impact through payroll and also set expenses was mainly due to additional around 1200 employees over the past year along with the impact of annual cellular lives in february 2021 as a result ebpa as a percentage of gmb resulted as 3.2% amounting to 189 m tl now let us have a look at our networking capital and free cash flow generation in the next slides these quarters be generated at some operating cash flow through effective working capital management accordingly net cash provided by operating activity increased by 500 95000000 tr reaching 749000000 tr in 2022 2021 this increase was primarily due to increase in changing working capital through changing trade receivables of 335000000 tia which is mainly driven by credit card receivables changing humanities of 301000000 tia and changing trade payables and payables to merchants by -97000000 tia our last net cut ex is 44000000 cr in q 2 2021 during these periods our investments were mainly in product development across apps 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 569000000 cl as of 23 2021 from 136000000 cl year on year now i will leave the floor back to merat to share our guidance with you now let us look ahead to the 2nd half of the year as the 2nd half of the year began the turkish e commerce market had encountered several challenges these included the nationwide extension of the bank hold a period during the celebration of 8 another in july and the list of lockdown measures as of july one 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 a reopen while these adverse circumstances impact the markets we will continue to prioritize gnv growth in the 2nd half of 2021 we believe this to be especially important given the seasonality of our market which favors the 2nd 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 invest in and delivering strong full year gmd within 28 to 29000000000 turkish 0 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 we press star followed by one on their telephone if you wish to remove yourself from the question queue then you may press star and 2 please use your hand when asking your question for better quality anyone who wants a question we press star on one at this time one moment for the 1st question the 1st question is from the land of tyrone cesar with bank of america please go ahead yes i good morning or good afternoon everyone thanks for the call and the opportunity to take questions i have 4 questions sorry about that the 1st one is on the outlook for the market in 2 h by reading the press release and also from your comment do i understand correctly that the outlook for h 2 seems to be a little bit tougher than what you expected probably one of the months ago and that you need to invest more than expected to achieve the same gene b number i just wanted to check each side i am just going to add that right my 2nd question will be on the on the thick rate for 22 can you give us some indication on the on the thick rate and also help us probably understand the 23 a little bit 3rd question would be on the contribution margin comments from the question just wanted to understand better dimension of the accounts that you give to your customers for temporary marketing campaigns if you can help with that and then the last question would be on the on the mention from the press release that you have observed some increased demand for lower margin products i just wanted to understand if that has reversed into q 3 and what you actually did to these 2 thank you so much and sorry for the many questions thank you thank you mister for your question for the 1st one also is whether the author looks up or order while the recent chance observed the observed in future and early future are reflected on the output as well as the female so far market which favors the 2nd half of the year and the turkish market is an inflation and this is the right time for us to prioritize our growth that is why we rate capital and are focused on investing in and delivering long term value creation in terms of the trade our growth contribution margin declines 2.4% 2.4% points to 8.3% compared to the 2nd quarter of last year mainly due to underlying dynamics in red and yellow growth this 2.4 kg decline in growth contribution margin is driven by as you said strategic margin investments in certain categories like electronics to 45 or market positions and in non electronics to drive further frequency by our customers and also into crm which we call this as temporary margin investment and this will be gradually reduced throughout the time and also shifting electronics g d into 3 d meaning marketplace we sold more electronics from the marketplace unit and therefore this affected our growth contribution finally the discounts given to our customers to widen our selection with expanding merchant based and competitive prices in the markets by our strategic margin investments as well as discounts given to our customers for transfer demand in campaign in terms of local margin products those low margin products are mainly gadgets appliances bluetooth devices and robust vacuum cleaners and also one speech one speech electronic products sheets into the g d most of those products consists of appliances mobile devices and technology devices which are lower margin compared to the common electronic well depending on the market evolution the expected chance map may continue in the 3rd course result but we have always been prioritizing our growth to create long term value by extracting more customers increasing our order frequency and adding more merchants expanding our selection of catalog maintaining price compactiveness and scaling our new strategic assets thank you the next question is from the nanofat did you marry him with morgan is family please go ahead hi everyone thanks for taking my questions i am essentially just following up on the tape crate so you mentioned that you have seen a shift from electronics from one piece to 3 p i was wondering what has been driving that and do you see that specifically as a permanent shift and then also just on the discounts that you also mentioned as well how much of this was sort of driven by any competitive pressures whether the 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 are seeing at the moment and then finally just on the payments i think you mentioned there that it was the development with a head of expectations if you could just see a bit more color on that that would be great thank you thank you miriam for the pay trade we continue to widen our collection with expanding merchant phase and competitive prices in the market by our strategic margin investment as well as discounts given to our customers for campaigns according to the invested in certain non electronic categories such as supermarkets to drive our order frequency and also invested in electronic categories to 45 hour markets positions please note that they are very strong in electronics and in electronics the biggest opportunity comes from offline on the competitive environment let me hand it over to murat thank you kaurat let me just quick adjust competition and let me take this question i mean let me remind you that we operate in these attractive markets that is a large young organized and tech stated population we have been operating in this market along with several players for many years and proven our growth trajectory so the turkish market is a replacement point with a growing e commerce penetration expected to exceed 20% within total retail by 20.25 that is test roughly 90% of total retail is 0 of line 10 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 version base our selection and maintaining our price competitive thickness and scaling our new strategic assets and of course our solid operational execution capital efficiency robot logistics network deep technology capabilities halve of branding hybrid business model and integrate ecosystem then positions us for success 3rd question if i am not mistaken is about hcp hcp is correct yes it is great so if the day is designed to be a companion wallet to spend save and mobilize the money in a flexible way across online and offline having acquired it is lightened in 2016 has to pay marks this important milestone by launching this juice denim have to pay wallet as an embedded visual wallet on our platforms on the 10th of june as said as we mentioned the daily penetration amongst eligible audience has been faster than our expectations but yet is too early to disclose numbers but hcpay wallet enables instant returns cancellation and cashback along with hcpay wallet hcpay also introduced a parent program a cash free points program that allows customers to earn reading points during purchases with the wallet on our platform spai will enable peer to peer money transfers and will catholic day explore new use case scenarios across online and offline actually in line with our super appability proposition we will continue to invest and scale our strategic assets to the benefit of our customers including spai which is valid positions for strong long term growth thank you the next question is from the line of tumtia ashley with goldman sachs please go ahead hi thank you very much for the presentation and congratulations on the 1st set of results poster ipo i have a couple of questions 1st on the active user base are you able to share some sort of granularity around the actual growth rates as it will be imported to tract anything sort of anecdotal would be helpful as well i know that there were a couple of questions on the take rates but i could not hear it clearly my line was breaking up the implied take rate for the 2nd quarter is quite low is this a pure mixed effect or is there any change in the take rate across categories potentially due to competitive pressure is that something that will imply lower take rates going forward for the rest of the year and potentially beyond that and my next question is what are your expectations on profitability for the rest of the year where do you see most of the pressure coming from and related to that how is the profitability profile across your new business lines especially text to express thank you arthil for the active user base unfortunately we do not share our active user base on a court related basis but we will share the increase by the end of the year as a year and a figure however our active user base and frequency keeps on increasing i can use these drivers on the margin margin investment in the trade rate effect i can say our growth contribution margin declined by 2.4 percentage points reaching 8.3% compared to the 2nd quarter of last year and this is mainly due to dynamics in revenue growth there is a 2.5 percentage point decline in growth contribution margin driven by strategic margin investment and because of here it is we call that temporary margin investment and those strategic margin investments are done to in electronics to fortify our market position and in manufacturing to drive frequency for this to bring additional grme for our company we continue to widen our selection with expanding merchant space and competitive prices in the market by our strategic margin investment as well as discounts given for our customer support temporary campaign and accordingly the investors in certain categories non electronic and electronic categories such as supermarket and some electronic categories please note that we are getting strong in electronics and in electronics there is a biggest opportunity comes from offline and in order to capture these offline customers we have been making on a not based margin investments to gain additional g i b on the 3rd question expectations about the profitability the thirdish market is an infection and this is the right time for us to prioritize our growth that is why we 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 a long term value by attracting more customers increasing order frequency and adding more merchants on our platform the next question maybe i can take the next question it was about the profitability for new businesses right let me remind you as the express we aim to become a mainstream grocery shopping destination or have to pay 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 search in a prioritized growth for our strategic assets in miami dars super f value proposition we will continue to invest in and scale our strategic assets to the better people of our customers and hcp and rfc express are particularly important to us because they are in a very strong long term growth okay thank you so basically from my understanding these strategic margin investments sort of the temporary discount fee could continue as long as you see the growth opportunity from these exactly exactly if you see the growth opportunity they can continue those campaigns and margin investments the key principle always will remain that we are going to increase our customer base merchant base frequency selection and that is our core principle thank you i am going forward from what i understand sorry for the follow up so you will be tracking we will be tracking growth in gmv obviously but we will be seeing disclosure from here on the total orders rather than breakdown of things like active user base and the frequencies we will see the total order numbers that is true by the year we will be sharing our customers base increase and the frequency numbers in detail but on a course on the basis we do not disclose we only give the overall growth okay thank you thank you the next question is from the line of kihit kiran i am glad that with j p morgan please go ahead thank you for the presentation a majority of my questions are asked that i have some more the 1st one is about competition how are you planning to respond to accelerated flat mile and fulfillment in mathematics by schedule i think they are now much bigger than you all the children side and how many merchants have been already on board for full film services because you have given some sort of statistics during the ipo and i just wanted to develop one tier and what is the share of total orders delivered by hexei what is the progress here and as you also mentioned about how we share incentives to management i think which is not included in your payroll course in the 2nd quarter can you please give some details about this and finally about your working capital that was a big release in the 2nd quarter so how should we think about this developing in the 2nd half from a cash flow perspective thank you let me take the 1st question maybe let me 1st remind you are well defined use of processed plants as you remember we have a very strong well defined use of processed plants which includes exploration of our growth flywheel the scaling of our strategic asset investing and scaling are operations logistic and technology for structure and of course driving for the challenge between that contact as we discussed briefly so far we also definitely investors and still are capabilities across designs we operate a large fast and scalable in our 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 as the jet achieved presence in every city in turkey reaching 137 cross stark whereas estimates are nationwide pickup and drop off network extended to more than 1600 pickup and drop off points across the country and as a result of this expression head to jet conduct more of retail deliveries and more of market based deliveries in q 2 compared to the same pace of last year and also with head to jet it are logistic categories they are able to offer a variety of value services especially christian is return delivery by appointment same day and next day delivery options and also let me remind you at tx at international business awards in 2021 we were awarded with a gold award for our frictional return service in the best user experience category so we believe our robots in the 6 center work gives us a significant competitive edge in opening strong customer experience as we continue to do so and one last thing thank you but is it possible for you to share some statistics there because i really want to understand the upside in hexi so what is the current status about the data i mean on the last month how many i am working share of several other servers by hexi and how many merchants have you already do not bother for the fulfillment of some substantive potential growth yes thank you so much again for the question let me tell you has the jet actually as you remember also shared in the prospectus is in the early phase of its journey and it keeps telling the number of merchants for getting on board it on the other hand it has just its chest increasing its contribution to retail deliveries as well as marketplace deliveries compared to the same period of last year so it is just growing year over year with respect to future both in one p and 3 p contribution work in terms of number of deliveries hopefully this is what happened i am the next question question that is the next question about management incentive plan and how much did you coconut in our cana is it correct or are there yes okay that is correct in total we have 132000000 decodenites in our canal as mentioned in santa clara next month and also these 98000000 turkish data is based on discounted cash payments which is projected through the term the year 2021 and the 2nd part is 34000000 it is based on share based payments which will be made within the next 18 +12 +12 months according to our plan so in total we recognize 132 and the count of cash payments 98 share date payment 34 this is recognized based on that and plan is closing the agreements on the learning capital side yes our working capital will keep on improving in the 2nd half due to the fact that our g r e will be will continue to grow in the 2nd half and it better management be a factor in true large operating cash flow in the 2nd half okay so that there should not be any seasonal to infecting the working capital right i mean the 2nd half of the year so each year we assume the similar type of 13 capital management the single basis is not in the 2nd half especially in the 4th quarters having said that our procurement increases significantly and we are growing significantly in the 1st quarters and based on the seasonal to experience it in the past we expect a better networking capital by the end of q 4 it will improve the pressure thank you very much and as i finally asked about the hexc express you mentioned about new brands to be on board in grocery delivery so is there any national brands here that you managed to on board recently because we are referring to q 2 results you cannot actually disclose any future or forward looking plants at this point but i can tell you has expressed already achieved over 40 grams and roughly 1800 stores which is more than 50 cities and also as you remember we launched water service water delivery service as well thank you very much maasli thank you a very minor issue would like to ask a question please press star in one on your telephone once again to register for a question please press star and one on your telephone ladies and gentlemen there are no further questions of this time i will now turn the comments over to management for any closing comments thank you thank operator i would like to recap what you have heard from us today our vision is to lead the situation of commerce today we are one stop shelf for our customers every day needs from product and services to groceries and payment solutions our solvitz operational execution capital efficiency robot logistics network these technology capabilities households brand name harvest based model and integrated ecosystem have positioned us as a homegrown company to emerge as the 1st ever naddaq based churchish company we operate in attractive markets that is a large young urbanized and tech static population again let us remind you the turkish market is at an inflection point with a growing e commerce penetration expected to exceed 20% within total retail by 2025 that says 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 provide our 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 it will continue to invest in our region 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",
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      "reference": "ladies and gentlemen thank you for standing by i am konstantinos your course call operator welcome and thank you for joining the turkcell is conference call and live webcast to present and discuss the turkcell 3rd quarter 2021 financial results conference call at this time i would like to turn the conference over to mister ali serdar yagci investor relations and corporate finance director mister yagci you may now proceed thank you konstantinos hello everyone welcome to turkcell 3rd quarter financial and operational results call today is speakers are our ceo mister murat erkan and our cfo mister osman yilmaz they will be delivering a brief presentation and afterwards taking your questions before we start i would like to kindly remind you to re read the last page of this presentation for our state fiber statement now i hand over to mister erkan thank you serdar good morning and good afternoon to all welcome to our presentation and thank you for joining us in the 3rd quarter we recorded 22.3% revenue growth and our ebitda reached 4000000000 turkish lira for the 1st time implying an ebitda margin of 43% 43 one growing 18% year on year we recorded a net income of 1400000000 turkish lira an all time high quarterly figure net income settled above 1000000000 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 1200000 which marks a record of the past 14 years in the 1st 9 months of the year we gained a total of 2500000 subscribers further strengthening the subscriber base for the upcoming quarters the r 2 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 3rd quarter in all 3 fronts mobile fixed broadband and iptv we delivered a strong net add performance on the mobile front we gained a net 464000 postpaid and 643000 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 one.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% . 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 2 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 60000 fiber subscribers with our high speed fiber internet offers our rollout plans are on track as we exceeded 400000 new home passes in the 1st 9 months this quarter we also welcome our 25th city in our fiber network we are pleased to register a 251000 net addition to our iptv subscribers exceeding 1000000 customers this quarter iptv is 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 r 2 growth and net addition next an update on the data usage and 4 5 g 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 34000000 subscribers signed up for 4 5 g services around 70% have 4 5 g 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 5 g 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 one.6 gigabit per 2nd which even exceeded the 5 g speeds provided by certain operators with this capability turkcell ranks among the world is top 3 operators and its fastest 4 5 g 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 2nd best next now our strategy focus areas let us 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 435000000 turkish lira the paid user base reached 3600000 up 900000 from last year we are delighted to have reached another remarkable milestone for our digital services as the iptv user base exceeded 1000000 in september tv has continued to increase its share in the tv market reaching just above 13% in q 2 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 27000003 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 499000000 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 221000000 overall backlogs from the system integration projects signed to date is at 832000000 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 is an economic and flexible cyber solution that works in physical and virtual system and as the 1st 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 281000000 turkish lira on 37% year on year growth paycell saw another remarkable quarter topping 6000000 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 1700 devices at the local smes and also launched our virtual port solution with 900 e commerce including turkcell this quarter finance cell is 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 11000000 customers and we have 24% market share in consumer loans below 5000 turkish lira one of finance cell is 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 representative 2 rates and higher limits without negatively impacting the historically low cost of risk levels next slide let us 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 3 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 8900000 mobile subscribers on a 14% rise year on year revenue growth in local currency turn was 24% yearly exceeding 20% for the last 4 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 . in belarus we focused on digital subscription in the 3rd quarter one out of 5 new customers opted for live through digital services . 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 9 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 14500000000 turkish lira and expect to register an operational capex over 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 3 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 us take a closer look into our q 3 financials in q 3 we recorded a 9400000000 tl top line on . 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 1st 9 months growth exceeded 21% our ebitda reached 4000000000 tl level on a 19% increase net income was solid at 1400000000 tl marking 18% yearly growth mainly driven by sub top line growth the bottom line has settled consistently above 1000000000 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 1700000000 tl incremental revenue 1000000000 tl derived from turkcell turkey this is all possible with a larger subscriber base r 2 growth and upsell efforts with price adjustment 258000000 tl from international subsidies support the top line mainly due to robust subscriber and r 2 performance of ukrainian operations as well as the positive impact of currency movement our tech fin segment had a 76000000 tl positive impact paycell and finance cell has supported this with an annual growth of 53 and 28% respectively the other segment contribution of 334000000 tl was mainly driven by increased equipment sales this quarter our ebitda margin was at 43% percent the main factors behind the one.3 percentage points margin of contraction year on year were as follows 1st 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 700000000 tl in this quarter mainly due to the currency movement a cash position of around $1400000 equivalent which is mainly in fx covers our debt service until 2025 we maintained our leverage below one time in this quarter despite the 2nd installment of the last year is dividend amounting to 862000000 tl excluding the financing business this was at 0.8 times the same level as the previous quarter we generated just over 1000000000 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 $172000000 as at the end of q 3 and we continue to target a neutral to long fx position going forward next slide now let us 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 is portfolio ended in q 2 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 2000000000 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 q 3 q 3 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 is solid operational and financial performance paycell continues to see increased recognition with the contribution of rising active customers and merchant numbers in q 3 in fact paycell is 3 month active users reached 6000000 and the number of merchants hit 14000 the most popular product on our platform pay later delivered another strong performance in q 3 pay later volume rose by 84% to 455000000 tl year on year transaction volume of paycell card has increased to 6 fold of the same period last year and reached 657000000 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 is payment channels to paycell is virtual ports providing a revenue channel for paycell and saving for turkcell thanks to our increased focus on this business pos transaction volume reached 475000000 tl in this quarter overall in q 3 paycell revenues increased by 53% to 119000000 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 1st 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 1st 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 is the 1st question and the 2nd question i wanted to understand how your pricing strategy is evolving at the moment given the inflation rates and whether you can push mobile r 2 growth at higher rates than what you have seen at the moment or whether that that is hoping for too much into the new year okay jonathan thank you very much for the 1st question regarding total payment volume is around 500000000 turkish lira it is it is 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 is why . 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 2 options in your hand one of them is growing subscriber base and the other one is growing the r 2 so we would like to push both of them this is our strategy since 2 year 2.5 years back so we would like to push r 2 . and on the other hand the inflation was increasing more than expected by the by the market so our initial plan was in terms of inflation it is not going to grow that much but we are 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 are going to 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 want to 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 r 2 level in near term so that is why we would like to continue in this strong so what . regarding growth rate it is around 85% for payment in paycell 84% range yeah sorry i the 1st questions yeah the next question is from the line of kim evan with excel capital please go ahead yes i 3 questions from my side actually if i may firstly on 5 g auction when to expect the 5 g auction and what is that . do you expect to be sold is it c band and 700 megahertz that is 12 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 is take rates it is pretty high 3% in 2020 and like 3.5% and if you look at the 3rd quarter of 21 where do you expect that the take rate to evolve when it is . when the business scales thank you yeah thank you very much evan kim 1st of all regarding 5 g 5 g roadmap auction obviously there is no official timeline for 5 g 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 5 g 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 1st 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 5 g secondly we believe we have not reached a desired localization rate in the development of 5 g 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 5 g network regarding the license cost or capex side 1st of all auction structure is not clear yet and we do not have an official timeline which limits us in making an estimate regarding a possible capex or frequency payment the difference between 4 5 g and 5 g is that 4 5 g was a great leap over 3 g in terms of speed particularly for the individual user therefore we need some time to see how it is going to 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 do not 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 are 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 are going to we would like to keep similar level on the capex side sorry for the for the 3rd question could you repeat the 3rd question it was regarding paycell but i could not catch the 3rd question yes of course on paycell just a quick question on its decrease so basically we should take paycell is revenue and divide it by total payment volume so it is pretty high by international standards 3% in 2020 and if you look at the 3rd quarter 21 it is 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 actually paycell started its business with . as a business unit within the group and then it became a standalone company and now we are 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 revenue revenues over total turnover is partly on the back of the 2 factors 1st factor is group group revenues and the 2nd 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 high volume . 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 1st 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 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 is 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 3 questions if i may add the followup pertains to the fiber connectivity on towers that you mentioned as a kind of prerequisite to using running the 5 g option properly so can you expand on that does that mean perhaps that you are you know kind of . or you would be kind of pushing for a 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 5 g to really be successful is this what you mean and then the 3 questions i believe you mentioned 400000 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 2nd question if i may understand in terms of your capex guidance you are now guiding for the lower and i know that it is not a huge difference but with the lira having depreciated again in the 4th quarter what has changed in your plans and the 3rd question a quick one on ukraine please you know some . or one of your peers is looking at doing something with their towers in ukraine is this also an area . i know you are doing that in turkey but is it also something that you are looking at in ukraine thank you thank you very much andriy for the fiber connectivity in turkey overall for . i am 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 5 g solutions on the other hand for existing base station numbers like around 100000 for all operators probably when we go the 5 g it is going to be maybe 10 times higher the base station so it the fiber connectivity and fiber . reach reaching fiber with the proper connection this is mandatory fiber regarding 400 k home pass usage so it is . we are we are going to see the increasing demand on the fiber so our take up rate for this segment is around more than 20% for the 1st 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 2 things about capex with 2 important actions for this year 1st 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 2nd one is we decided to invest earlier than expected which means the 1st half of this year so which is front loaded investment so this is going to help us to address the capex guidance level so for the capex guidance even though we see a dramatic increase on the fx side we do not want to change our our guidance for the ukraine . actually i have no idea what the what that the peers are doing on the on the travel side so we . i do not i do not want to 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% but what what is your proposal then what do you think needs to be sorted for the 5 g auction to make sense at this stage obviously we publicly announced our proposal turkey needs common infrastructure companies common investment portfolio because if everybody invests on expensive fiber side it does not help countries economy it does not 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 digital services i mean so that is the . the you know this one proposal on the table let us have common investment on fiber let us 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 be a reality in turkey what do you think needs to happen thank you i think the wise way and intelligent way to establish this thing i think the ministry has the vision to implement such a common infrastructure company and there are you know the intention to do so so we will see what is going to happen but i think the vision is there the vision of the prime minister . 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 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 you know reasonable people understand that turkey needs common fiber infrastructure that is clear thank you very much the next question is from the line of nagy nora with 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 valuation out of the new legislation so that to use that as the 1st taxing company as we have seen in the case of turk telecom thank you okay let us let osman to take this question actually we disclosed the same application in q in our q 2 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 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 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 1st of all regarding the the monetization or strategic partnership 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 this is a good good opportunity that . and we are planning to offer minority stake and the partner we are looking for should ideally be able to contribute to paycell is 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 paycell side do you have some kind of evaluation range for this paycell and the 2nd question is related to the 1st remark about the inflationary pricing and the if i understand right you expect the at least to converge to somewhere close to the inflation and the 3rd 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 1st of all regarding paycell obviously one of our . 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 is 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 r 2 growth and so on i think i tried to explain that we we would like to keep our r 2 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 are going to catch the inflation i hope the inflation is not going to go same same speed as we see today so we can catch this in a while but on the other hand we should not forget that you are gaining customer 2500000 customer from year . 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 r 2 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 are 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 are probably going to 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 r 2 growth is 9% it is above the inflation of ukraine plus we are doing better than the competition and we are gaining market share in terms of revenue in terms of customer as well and we are growing almost double percentage points versus the competition so we we are going to keep grabbing market share and our expectation is that as well thank you and as a followup on the subscribers additional gain do you think they can encourage additional development like 1000000 per year or another more realistic number for the next years to be honest we are in telecom business we are in the technology business we are in services business and we are in tech fin business and 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 1000000 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 . you spend subscriber acquisition cost this year but you get the real revenue for next year so i think the strategy is in line we are executing well on the operations side and and we hope to continue this level okay thank you and congratulations on the with the results 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 1st of all i would like to thanks everyone to join the conference call i hope to see you in our capital market days and . at the end of actually the next 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 . have a nice day or evening thank you",
      "prediction": "ladies and gentlemen thank you for standing by i am christantinos your course call operator welcome and thank you for joining the turxial conference call and live webcast to present and discuss the turxial 3rd quarter 2021 financial results conference call at this time i would like to turn the conference over to mister alistair daljati investor relations and corporate finance director mister yati you may now proceed thank you konstantinos hello everyone welcome to tuxel is 3rd quarter financial and operational results call today is speakers are our ceo mister muratakan and our cfo mister rosmanio mas they will be delivering a brief presentation and afterwards taking your questions before we start i would like to kindly remind you to read the last page of this presentation for our safe harbor statement now i hand over to mister akan thank you sir good morning and good afternoon to all welcome to our presentation and thank you for joining us in the 3rd quarter we recorded 22.3% revenue growth and our abta reached 4000000000 total dollars for the 1st time implying abta margin of 43 one growing 18% year on year we recorded a net income of 1400000000 turkish data an all time high quarter figures net income settled above 1000000000 turkish around 8 per quarter our customer centric strategy diversified business model and focused on mobile and fixed network quality are the key factors of the sustainable performance which was further supported by increased mobility in this quarter this strategy has enabled us to continue our standing growth in total subscribers by 1200000 which marks the record of the past 14 years in the 1st 9 months of the year we gained a total of 2500000 subscribers further strengthening the subscriber base for the upcoming comes the arpa 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% this point year on year we have also distributed the last installment of the 2021 dividend on october 27 in consideration of this solid result we further increase our full year guidance which i will celebrate on my last slide next slide here we see the operational performance of the 12 quarter in all 3 front mobile fixed broadband and iptv we deliver a strong net at performance on the mobile front we gain a net 464000 post paid and 643000 prepaid subscribers this outstanding performance was achieved through our customer focus offer innovative service portfolio and also support by increased mobility thanks to vaccination high net performance in prepaid subscribers is due to the visit of turks leaving abroad after lifting of restrictions in international travel the average month in mobile chorale was at one.9% well below that of the last year and we believe around 2% month in the chart is a healthy level in this market planet mobile rpros to 58% 58 turkish data on 12% increase thanks to a higher post based subscriber base upside to higher targets price adjustments and increased data and digital service users also our ai based analytical capabilities the observed strong upside levels and the incremental that an upside post based customer pays in 2 times the same quarter last year in the fixed growth and segment emmett the prevailing demand for high speed connections with the back to school period we gained net 60000 fiber subscribers with our high speed fiber internal offers our roll up plans are on track as we exceeded 400000 new home passes in the 1st 9 months this quarter we also welcome our 25th city in our fiber network we are pleased to register a further 51000 net edition to our iptv subscriber exceeding 1000000 customers this quarter iptv is penetration within the residential fiber subscriber reached 63% accordingly residential fiber arpel rose to 79th turcishira on 10% growth 13% annual fiber subscribe growth should be taken into consideration where we aim to manage a delicate balance between arpogross and net additions next an update on the data usage and 4.5 g subscription trends eriosh mobile data usage draws 12% year on year to 13.7 gb per user the rising data consumption must do mainly to higher content consumption boost by seasonality and lifted restrictions out of the 34000000 subscribers sign up for 4005 g services around 70% have 4005 g compatible smartphones still indicating growth potential for the upcoming quarters and implying further room for growth in data consumption overall smart home penetration is at 84% with 92% of these units being 4.5 g competitors moving on to phase 6 we ripped the benefit of our careful plan efforts to provide best in class services which is evident by the outstanding net at 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 assets and well planned modern infrastructure tursel is able to provide speed of up to one.6 gigabit per 2nd which even exceeded the 5 gsps provided by certain operators with this capability which had ranks among the top 3 operators and its fastest foreign policy network infrastructure in europe our long time invested customer centric approach which enables tuxel to provide service to other customer executives has made us a winner at the european customer center or evors at tuxel team we have realized over 100 projects that touch to the heart of our customer additionally our key strength including data driven personalized offer and extensive distribution channels both physical and digital stand out as core factors influencing customer decision making with all of abo customers have continued to recommend 2 cell over the competition disk quarter even extended the wide gap with the 2nd best next now our strategic focus areas let us zoom into digital services and solutions the standard revenue from digital services and solutions continue in strong growth at 31% year on year reaching 435000000 turkish data the paid user base reached 3600000 up 900000 from last year we are delighted to have reached another remarkable milestone for our digital services as the iptv user base exceeded 1000000 in september tv has continued to increase its share in the tv market reaching just above 13% in q 2 and it is the only tv has steadily increased its share for the past 12 quarters content and product quality enable 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 27000003 month active user discordor tripled 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 service are improving the user experience of the application and we achieve this by responding to our customer needs for instance me and future mbb this quarter include the status posting and video group call with up to 15 people on thursday our digital music services we have added over 120 podcast series next slide next is the digital business services we continue to lead and plan digital journey of corporate in turkey this has resulted in a revenue $499000000 in turkish data from digital business services this quarter off the total revenues 75% are service revenues which rose by 28% year on year from the service revenues we have seen continuous strong demand particularly in data center and cloud business cyber security services and iit we signed 575 new contracts with a total contract value of 221000000 overall back loss from the system integration project signed to date is at 832000000 turkish era which will be contributing to the top line in the upcoming quarters this quarter we continued our product launch in cybersecurity and cloud services watchguard is an economic and flexible fiber solution that works in physical and virtual systems and as the 1st in the country object storage is a cloud based solution for the further support the vision of keeping corporate data in choices next slide last but not least in our tech team focus tech team services revenue rose to $281000000000 in tertiary on 37% year on year growth pay says so another remarkable quarter topping 6000000 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 start to monetize post solution which includes virtual and physical android post services we have installed one.7000 devices at the local smes and also launched our virtual post solution with 900 e commerce merchants including to success channels this quarter financials revenue rose 28% year on year due to higher interest rate and support for emerging insurance business financial continues to finance technological needs of broad range of customers including individual residential sme and corporis today we have scored 11000000 customers and we have 24% market share in consumer loans below 5000 participants one of finance key strikes is the assigning right limit to the right customer based on 2 cell wast data we have recently launched an new credit model based on machine learning initial results indicate higher approval rates and higher limits without negatively impacting the historical low cost of risk levels next slide let us look at our performance in the international segment which now generates 10% of good revenues in this quarter integration revenue grew by 39% year on year thanks to the expanding subscribers in all 3 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 operational performance in this quarter by reaching 8900000 mobile subscribers on a 14% rise year on year revenue growth in local currency term was 24% yearly exceeding 12% for the last 4 quarters this business has seen a 4.6% risk point abt tamargin improvement year on year on the back of limited interconnection costs and well controlled operational expenses in local currency terms belarus revenue decline 2% due mainly to lower hand success which on the other hand affected the abt aargin positively in belarus we focus on digital subscription in the 3rd quarter one out of 5 new customers opted for a live through digital services our subsidiary in turkish republic of north and subpress recorded strong 24% growth with rising voice revenues and data usage due to increased mobility after the recovery of education services and tourism in ireland i would like to end my presentation by sharing our new guidance for the full year taking into consideration our outstanding 9 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 revised our nominal a b t expectation to iran 14500000000 to our history lab and expect to register and operational topics over sales ratio around 21% lastly as you remember we held our last capsule market day back in november 2019 since then covid 19 pandemics has significantly impacted our industry and the way we do business these necessities have to revisit our plan and target 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 3 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 or swam for the financial discussion thank you matt now let us take a closer look into our q 3 financials in q 3 we recorded a 9400000000 tl top line on 22% year on year growth thanks to subscriber base expansion higher data and digital service revenues coupled with contributions from international patients taking an equipment sale the 1st 9 months growth exceeded to 21% our abk reached 4000000000 tl level on a 19% increase net income was solid at 1400000000 tl marking 18% yield growth mainly driven by solid top line growth the bottom line has settled consistently above 1000000000 tl with the contribution of discipline financial risk management we are pleased with our solid performance which exceeded our expectations next slide now some details on revenue and abta developments this quarter with contribution of all segments we generated 1700000000 tl incremental revenue 1000000000 tl derives from truexel turkey this is possible with a larger subscriber base arpa growth and upside efforts with price adjustments 258000000 tl from international subsidies supported the top line mainly due to robust sub sky brands and performance of ukrainian operations as well as the positive impact of currency movements our tech segment had a 7 to 6000000 tl positive impact pay sale and financial has supported this with an annual growth of 53 and 28% respectively the other segment contribution of 334000000 cl was mainly driven by increased equipment sales this quarter our abt image margin was 843% percent the main factors behind the one.3 percentage points margin a construction year on year were as follows 1st -0.6 percentage points from gross margin impacted by our energy businesses increased cost of goods sold and rising radio costs due to higher energy prices and secondly -0.7 percentage points from s m expenses mainly due to increased selling expenses on back off record high net ads during the quarter next slide now a few words on our balance sheet and leverage our total debt increased by 700000000 in this quarter mainly due to the currency movements a cash position of around $1400000000 equivalent which is mainly in fx covers our debt service until 2025 we maintained our leverage below one time in this quarter despite the 2nd installment of the last year is dividend amounting to 862000000 tia excluding the financing business this was at 0.8 times the same level as the previous quarter we generated just over 1000000000 tia low free cash flow thanks to strong operational performance as well as relatively lower cup x in this quarter next slide now i will go into the management of foreign currency risk 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 are cash flow of hedge and covering the full maturity of related fx liabilities we were in a long net fx position of $102000000 as at the end of q 3 and we called it a new tool to long fx position going forward next slide now let us take a closer look at our fintech companies performance and start with our financing business finance set as we communicated before in line with our expectations the negative trending finance finance financial portfolio ended in q 2 and the growth has gradually started the revenue 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 2000000000 tl by the year end a bta rose by 24% or around 120000000 tal with a margin of 73% the 2.3 percentage points margin contraction is due to the base effect as we saw some of our receivables in q 3 2020 as a result of strong collection performance and improvements in the customer portfolio cost of risk has been declining since the start of this year cost of risk has remained mere unchanged at 0.3% for this quarter next slide lastly our payments business paysat in line with the global trends paysat users continue their payment habits in the post pandemic period which is reflected in paysat is solid operational and financial performance paysat continues to see increased recognition with the contribution of rising active customers and merchant numbers in q 3 in fact pace has 3 month active users reach 6000000 and the number of merchants hit 14000 the most popular product on our platform pace later delivered another strong performance in q 3 pace later volume rose by 84% to 455000000 tia the year on year transaction volume of pace acad has increased to 6 fold of the same period last year and reached 657000000 tia as you may remember at the beginning of the year we launched android pos for our corporate customers focusing on virtual pos as well we shifted to sell payment channels to paysas virtual pos providing a revenue channel for paysas and saving for tucson thanks to our increased focus on this business pos transaction volume reached 475000000 tl in this quarter overall in q 3 paid salary revenues increased by 53% to 190000000 tl 55% of which are 9 group revenues a vta margin was at 46% impacted by increased human capital investments and sell snm expenditures with its unique product range and disruptive nature paysell has already taken its place among regional fintech leaders as this goes earlier we are seeking growth capital to scale this business further in turkey and thank globally this concludes our presentation we are now ready to take your questions thank you very much the 1st 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 1st question on pay cell 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 just wanted to understand why build payments have declined during the quarter that is 1st question and 2nd question i wanted to understand how your pricing strategy is evolving at the moment given inflation rates and whether you can push mobile arpoo growth at higher rates than what you have seen at the moment or whether that is hoping for too much into the new year okay jonathan thank you very much for the 1st question regarding total payments it is around 500000000 turkish liter up up and down around 500000000 and the bill payment is you know because it moves from physical channel to the digital channel so that is why as you might see the grammar 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 2 options in your hand one of them is growing subscriber base and the other one is growing the arp so we would like to push both of them this is our strategy since 2 years to an hour how do you expect so we would like to push arp and on the other hand the inflation was increasing more than expected by the market our initial plan was in terms of inflation it is not going to grow that much but we are adopting 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 are going to push to reach on inflationary pricing as i mentioned it was quite fast in terms of our expectation but we will catch it up on the other hand i would like to emphasize our customer growth because if you want to pick one i would prefer on the customer growth side because it then does to today we can create more value from one customer especially we have other business like paysad and financel and digital services and so on if we catch customer we can easily increase the arpa level in near term so that is why we would like to continue on this on p so what regarding growth rate it is around 85% for payment in pay sale 84% range sorry i came back to the 1st question yeah the next question is from a line of kim yvonne with excellus capital please go ahead yes 3 questions from my side actually if i may firstly on 5 g auction went to expect with 5 g auction and what spectrum do you expect to be sold this is c band and 700 megahertz that is 12 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 a view is and then thirdly on base self decreate it is pretty high 3% in 2020 and like 3.5% if you at the 3rd quarter of 2021 we do expect that they create to evolve when the business scales thank you thank you very much yvonne kim 1st of all regarding 5 g roadmap and auction obviously there is no official timeline for 5 g there are numbers of explanation or number of announcements coming from ministry but obviously we have to wait for official announcements 5 g is vital technology we would like to facilitate this on the visualization of industry and contribute to the economic development of our country however we believe there are some issues that i need to be addressed for the healthy launch 1st is the fiber connection of base station current is similar to the low household penetration fiber connectivity of base station is not enough for the full flash travel region to 5 g secondly we believe we have not reached a desired localization rate in the development of 5 g network equipment we think localization rate can only be reached around 20% in 2020 this could be even lower for the corners program base station level we believe there are some risk for the full fledged transition to the local 5 g network regarding the license costs or capex side 1st of all auction structure is not clear yet and we do not have an official timeline which limits us in making an estimate regarding possible cutbacks or frequency payment the difference between foreign house xi had 5 sheets that poor as she was a great leap over 3 g in terms of speed particularly for the individual user therefore we need some time to see how it is going to end up for the end of this year for the capex plan 2022 and allocation we have not finalized our budget planning for the next year and we will give 2020 guidance when we announce our fully result but i do not expect a major increase on the topics even a little bit decrease because we spent topics earlier than expected this year and we get a positive result due to the effects fluctuation so next year probably we are going to spend a little more complex on the fixed line on the fiber side a little less on the mobile so more or less we would like to keep similar level on the compact side sorry for the 3rd question could you repeat the 3rd question it was regarding pay sale but i could not catch the 3rd question yeah of course on paysell just a quick question on its take rate so basically if you take paysell is revenue and divide it by total payment volume so it is pretty high by international standards 3% in 2020 and if you look at the 3rd quarter 21 is 3.5% so i was just wondering where to expect that to settle when the business scales thank you okay let me give the word to us manhil answer your question yes actually the pasas started its business with business unit within the group and then it became a standalone company and now we are expanding pasas revenues outside of the group and now more than half of the revenues are coming out of the group actually the intensity of revenues over total turnover is partly on back of the 2 factors 1st factor is group revenues and the 2nd but more important factor is our landing 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 higher profitability and higher growth scale we are a combination of both we either have a high volume turnover or high turnover on the other hand we have a higher profitability thanks to our strong penetration in prepaid fan network what we are aiming going forward is to 1st penetrate in overall turkish market we are expanding our footprint also out of turkzah group we are aiming to double our customer base in a couple of years and then we want to expand regionally 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 abts and negative profitability we will keep the healthy balance sheet while doing this growth that is great it is very helpful thank you the next question is from a line of cabatec andre with ubs please go ahead hello and thank you for the presentation i have one follow up and 3 questions if i may the follow up pertains to the fiber connectivity on towers that you mentioned is a kind of prerequisite to you think running the 5 g auction properly so can you expand on that does that mean perhaps that you would be pushing for a large scale of regulated fiber access needed across the market to connect base stations across the operators for 5 g to really be successful is this what you mean and then the 3 questions i believe you mentioned 400000 homes passed in terms of 5 or a year to date can you give us an idea in terms of the take up on that footprint so far and where this take up is coming from whether these are green field customers or whether you are perhaps taking market share in some areas 2nd question if i may understand in terms of your topics guidance you are now guiding for the low end i know it is not a huge difference but with the lira having appreciated again in the 4th quarter what has changed in your plans and 3rd question quick one on ukraine please you know some or one of your appearances is looking at doing something with their towers in ukraine is this also an area i know you are doing that in turkey but is it also something that you are looking at in ukraine thank you thank you very much josef for the fiber connectivity in turkey overall i am talking about all operators the reaching to the base station with the fiber is around less than 40% and even incumbent operator has less than 60% so in this case without fiber reaching to the base station it is difficult to give proper 5 g services on the other hand for existing base station numbers like around 100000 for all operator probably the family goes to the 5 g it is going to be maybe 10 times higher the base station so the fiber connectivity and fiber reaching fiber with the proper connection this is mandatory regarding 400 k home pass years break we are going to see the increase in demand on the fiber so our take up rate for this segment is around more than 20% for the 1st year but to reach the real take up rate is around 45% so we are faster than our business case so there are existing greenfield customers as well as the customer from the competition so in terms of market share i believe we have more than 50% in the area at the value reach for the guidance of lower topics there are 2 things about topics we did 2 important actions for this year 1st of all we did advanced payment to the supplier by lowering the cost of equipment which helps us our copex management the 2nd one is we decided to invest earlier than expected which means 1st half of this year which is from loaded investment this is going to help us to address the copex guidance level for the copex guidance even though we see so the dramatic increase on the fx side we do not want to change our guidance for the ukraine actually i have no idea what the peers are doing on the tower side so i do not want to comment on things that i have no clue about it thank you very much for your time just a quick follow up in terms of the connectivity you mentioned you know some 50% of towers even for the incumbent for the market about 40% but what is your proposal then what do you think needs to be sorted for the 5 g auction to make sense at this stage obviously the public the unknowns are proportional turkey is common infrastructure company common investment portfolio because if everybody invests on expensive fiber side it does not help countries economy does not help for services side of it if we invest in the public is underground we will probably run out of money to give services to the customer digital services i mean so that is you know this one proposal on the table let us have common investment on fiber let us compete on the services side not the infrastructure side because infrastructure competition is all worth competition i am just a student if i may sir you want to find one what do you think needs to happen for a common infrastructure company to be a reality in turkey what do you think needs to happen thank you i think the wide way and intelligent way to establish this thing i think the ministry has the vision to implement such a common infrastructure company and there are the intention to do so so we will see what is going to happen but i think the vision is there the vision of the prime minister sorry president is there the vision of ministry of transportation and communications is there so i think this is the wise way and all of me thank you the conversation has answered the question the minister of communication also told that this answer is sometimes blocked some of the things but i think reasonable people understand that turkey is a common private infrastructure that is clear thank you very much the next question is from a land of nagin or with earth the group please go ahead thank you for the presentation i only want question from my side please do you plan to take the 6 assets re evaluation out by a new legislation so that it is that as the threat tax in companies as we have seen in case of turklekom thank you okay let us want to take this question actually we disclose the same application in rq 2 financials 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 financials thank you the next question is a follow up question from the land of cabaretek andre with ubs please go ahead thank you just one follow up please in terms of the other headlines that we saw today with you you know looking for monetizing the fintech business and it is still the case that you prefer a strategic partner who would help you develop this business from a minority perspective or are you in a different place compared to the past couple of quarters where you were kind of suggesting this would be the preferred option thank you okay thank you 1st of all regarding the monetization or strategic partnership things it was a secret it was you know we were talking about super online we were talking about artower business we were talking about paysell and fintech side so i think this is a good opportunity and we are planning to offered minor mistake and the partner we are looking for should ideally be able to contribute to pasis growth story not only provide growth capital we should be able to share more how make expansion plans and make sure that the business further evolves and potentially get ready for an ipo in the next couple of years thank you the next question is from the land of timirakka yahan with aka investment please go ahead hi thank you very much for the presentation on the pay sale site do you have some kind of the valuation range for the stake sale and the 2nd question related to the 1st remark about the inflationary pricing and the return inflationary environment if i understand right can you expect the blender darking road at least to converge to somewhere close to the inflation and the 3rd question is about the ukrainian operations i think for the past couple of quarters the operations are performing quite well i mean you give us some color on that i think by future the only subscriber edition are strong because of market share game or market is wrong thank you thank you very much 1st of all regarding pacea obviously one of our most important and very good assets not just pacea but also we have other assets as well we disclose the company is financial and operational metric every quarter in our presentation and quite open to the market as well and we all know that 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 abits which makes their relation to be based on their revenues but our pay cell has a positive abta margin with strong growth profile next to is diverse by business model involving group and non group revenue as well as individual user and merchants both in terms of revenue growth and abta margin pay cell is a unique business so everybody can do the math for the variation by using the global revenue and abt and multiples that is the variation on pace per global average regarding about inflation and pricing arpa growth and so on i think i have tried to explain that we would like to keep our arpa 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 the inflation increase sometimes we need time so i believe that we are going to catch i hope the inflation is not going to go same speed as we see today so we can catch this in a while but on the other hand we should not forget that we are gaining customers 2500000 customers from year at the beginning of the year so this customer when we get the customer we put them into the system and provide upsell opportunities for this customer and sell other products like paysell digital services tv and so on so it all takes some time to get acceptable arp level for the customer who come recently so we have quite an important system in terms of using ai and other technology customer center and so on we will get to the acceptable level regarding the trade operation this is not the result of last quarter we have focused on ukraine last couple of years we invested in the area where we have weak and capture the customer so we are probably going to continue on the customer side in a similar level but i would like to remind that our subscriber growth is 14% year over year are to grow the 9% is above the inflation of ukraine plus we are being better than the competition and we are gaining market share in terms of revenue in terms of customer as well and we are growing almost double percentage point versus the competition so we are going to keep grabbing market share and our expectation is there as well thank you and as a follow up on the subscribers edition of ganesta we can see the current pace of edition developing to that 1000000 very rarely had a more realistic number for the next year to be honest we are in telephone business we are in technology business we are in services business and we are in tech field business and so on so to be able to successful on this area you need to get more customers so our gaining customers strategy will continue we hope to see another 1000000 next year as i mentioned this year is our funding year and having such a customer is very important for next year revenues as well because you gain this year you spend subscribe requisition cost this year but you get the real revenue for next year so i think the strategy is in line we are executing dual on the operational side and we hope to continue this level okay thank you and congratulations on the result side 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 turkzal management for any closing comments thank you 1st of all i would like to thank everyone to join our conference call i hope to see you in our capital market days at the end of actually 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 nice day or evening thank you",
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      "reference": "ladies and gentlemen it is now time to start sony group corporations fy 21 33rd quarter earning announcement i am okada corporate communications i will 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 1st we have with us mister totoki executive deputy president and cfo to explain 3rd quarter fy 21 consolidated results and the forecast for consolidated fiscal 2021 results that duration is about 70 minutes mister totoki the flow is yours thank you i will cover the topics written here today fy 21 q 3 consolidated sales increased 13% compared to the same quarter of the previous fiscal year to 3000000000000 31300000000 yen and consolidated operating income increased the significant 100 13300000000 yen year on year to 465200000000 yen both were equal heights for the 3rd quarter income before income taxes increased 77800000000 yen year on year to 461600000000 yen and net income attributable to sony group corporation shareholders increased 35 4000000000 yen to 346200000000 yen please see pages 3 to 6 of the presentation materials for a depiction of each profit metric adjusted to exclude one time items this slide shows the results by segment fy 21 q 3 next i will show the consolidated results forecast for fy 21 consolidated sales are expected to remain unchanged from our previous forecast of 9000000000000 900000000000 yen while operating income is expected the increase 160000000000 yen to 1000000000000 200000000000 yen we have also upwardly revised our forecast for income before income tax to 1000000000000 155000000000 yen and a forecast for net income attributable to sony group corporations shareholders to 860000000000 yen a forecast for consolidated operating cash flow excluding the financial services segment has increased 50000000000 yen to 940000000000 yen this slide shows are focused by segment for fy 21 i will now explain the situation in each of a business segment 1st is game and network service segment fy 21 q 3 sales decreased to 813300000000 yen 8% lower than the same quarter of the previous fiscal year in which we launched the playstation 5 and sold the major titles in conjunction with the launch operating income increased 12100000000 yen year on year to 92900000000 yen primarily due to a decrease in selling general and administrative expenses and an improvement in ps 5 hardware profitability partially offset set by a decrease in software sales fy 21 sales are expected to decrease 170000000000 yen compared to our previous focus 2000000000000s 730000000000 yen and operating income is expected to increase 20000000000 yen compared to the previous forecast to 345000000000 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 ps 5 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 4th quarter and in march 31st 2022 we expect user engagement to increase further because the meta 1st 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 fy 21 unit sales forecast for ps 5 hardware to 11500000 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 ps 5 on january 31st in the us sony interactive entertainment entered into definitive agreement to acquire bungie inc one of the world is 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 3600000000 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 1st 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 1st party games software revenue aiming to more than double the current amount by a fly 25 now i will use this conceptual 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 13rd of the 3600000000 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 2 thirds of these deferred payments and other retention incentives to be expensed in the 1st 2 years after the acquisition closes next is the music segment or those sales of visual media and platform decreased if fy 21 q 3 sales increased 12% year on year to 295900000000 yen primarily due to an increase in streaming revenue despite the impact of the increase in sales recorded music operating income decreased 4 0 yen year on year to 55500000000 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 fy 21 sales are expected to increase 20000000000 yen compared to our previous forecast to 1000000000000 90000000000 yen and operating income is expected to increase 5000000000 yen compared to our previous forecast to 205000000000 yen streaming revenue in q 3 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 is global top a 100 songs during the quarter global superstar singer songwriter adele is album 30 became a historic hit remaining number one on the billboard chart who were consecutive 8 weeks after its release in november next is the picture segment fy 21 q 3 sales increased significant 141% year on year to 461200000000 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 increased a significant 121100000000 yen year and year to 149400000000 yen primarily due to the impact of the increase in sales and the recording of a 70200000000 yen gain from the transfer of gsn games which closed on december the 6th 2021 fy 21 sales are expected to increase 40000000000 yen compared to our previous forecast to i 1000000000000 222000000000 yen and operating income is expected to increase 97000000000 yen compared to our previous forecast to 205000000000 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 2nd highest ever opening box office revenue nationwide according to the most recent data it is cumulative worldwide box office revenue is the 6th highest ever at approximately 1700000000 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 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 q 3 sales decrease 2% year on year to 286900000000 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 23300000000 yen year on year to 80000000000 yen primarily due to the impact of decrease in sales the fy 21 sales are expected to increase 80000000000 yen compared to a previous forecast to 2000000000000 360000000000 yen and operating income is expected to increase 20000000000 yen compared to our previous forecast to 210000000000 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 3 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 2nd quarter ended september 30th 2021 nevertheless we continue to be unable to fully meet the market demand in multiple categories due to severe limitations on the supply of components we expect the situation to continue to impact us in the 4th 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 fy 21 q 3 sales increase a significant 22% year on year to 324800000000 yen primarily due to an increase in sales of highend in image sensors while mobile products operating income increase 13300000000 yen year on year to 64700000000 yen primarily due to the impact of the increase in sales our fy 21 sales is expected to decrease decrease 30000000000 yen compared to our previous forecast of 1000000000000 70000000000 yen the fy 21 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 the high of 4 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 due to the con contraction of our business with a certain chinese customers we expect the chinese smartphone market to normalize in the 2nd 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 . 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 begin mass production during calendar year 2024 lastly the financial service segment fiscal year 21 q 3 financial services revenue increased 11% year on year to 471300000000 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 4700000000 yen year on year to 35200000000 yen primarily due to deterioration in valuation on securities at our venture capital business and at sony bank new policy amount enforce at sony life during q 3 grew at a higher rate than our competitions driven primarily by our priority focus area of selling insurance to corporations fy 21 financial service revenue is expected to increase 120000000000 yen compared to our previous forecast to 1000000000000 only 20000000000 yen compared to our previous forecast to 13 and 610000000000 yen our fy 21 our overall income forecast remains unchanged from the previous forecast now i would 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 850000000000 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 100000000000 yen we have invested in music category catalogs because the amount is included in operating cash flow under ifrs we are making steady progress in accordance with our current mid range plan of making 2000000000000 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 is various technology and content and by adding new entertainment elements to a safe and secure moving space going forward we will proceed our 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 mister 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 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 we will begin q and a session for media shortly would you kindly wait until the q and a session begins thank you very much for waiting now we are going to entertain questions from the media respondents are mister hiroki tataki executive deputy president and chief financial officer 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 will call your name so please identify yourself and your affiliation before you ask your questions i would like to ask you to kindly limit your questions to 2 also in order to prevent 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 2 now we will have to begin q and a session if you have any question please press asterisk followed by one the 1st 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 2 questions 1st question is you are thinking about strategic investment the other day you have made an acquisition and i i think that you made an estimate going forth av and 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 will be you think that it is necessary to make large investment and investment deals you have the seeding made of 2000000000000 but is that going to be exceeding 2000000000000 or the acquisition in the orders of 100s of 1000000000s of yen thank you for your question our thinking behind the strategic investment was the question that you have raised currently as you know 3 year mid range plan strategic investment we will be allocating 2000000000000 for strategic investment and as i mentioned in my speech earlier 850000000000 yen and we made the decisions up until 850000000000 yen and this framework work we do not think that we need to change in a major way this framework and within this we will be making forward looking positive investments so areas of investment priority area is ipdtc and technology and this list priority areas remain unchanged that is all from me so we would like to entertain the next question from masahe suzuki san please thank you for giving me the floor i am suzuki obasaki i hope you can hear me yes go ahead please thank you i have 2 parts of questions 1st is image sensor that the as to this pigment chip that the taiwan tsmc is the company that you expect it to interest you the the the the supply according to some reports i see this peaking in in the the distribute like for iphone and other applications that are in for the high level of the sophisticated cameras do you intend to further ask them to manufacture on behalf of sony because it is a couple couple connection is different but 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 tsmc and so on to produce on behalf of you in conjunction the tsmc will have a new plant in kumamoto logical wave of circuitry 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 is expected that this new the 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 you might have a higher the details they have like the scale of this new company as well as the exact timing to establish new company because mister taktaki as to the new mobility company together the car emission 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 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 would 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 1st the the question about this the the image sensor that you are likely to entrust the production to this tsmc but the the actually it is not announced by us but it i do not have a direct answer to that but anyway as to the external production by like possible like tsmc that the logic the is mostly to be produced outside but it is called this the master of the process as to the master process to be instructed outside it is quite limited because as of now that we do not intend to increase the image sensor chip that is a a master process we did not intend to ask the outside company to produce much of that as to your 2nd part of the question for new mobility when will that be built in the spring of 2022 that has been mentioned by president ceo 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 did not exactly decide on the exact entry into that sector as to the automobile industry there are lots of things we have the study about more the automobile industry so as to this establishment of sony mobility inc which is the 1st step in that it will enable us to further deepen our study in consideration that is 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 it is too premature to mention the details of this new company thank you next question we have nishida san a freelance reporter this is nishida speaking can you hear me yes we can please go ahead i have 2 questions the 1st question is that the semiconductor devices shortage is the topic playstation 5 and epns products have impact from the shortage and are there any change in the product mix as a result or any change in the product line 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 your rival microsoft has announced a large scale purchase is there any plan to have a purchase of a large publisher type supplier and also is there any impact on your game business who because of that kind of a publisher type acquisition by your competitor thank you 1st 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 ps 5 in terms of a short term profit promotion cost was saved or high logistics cost has been saved because of the decline in the units that leads to the decline in expenses but 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 shipping capability i think that is the short term impact we think we can catch up and from ps 4 the when we moved from one console generation to the next there was a large change drop in engagement and also sales and profit changes drastically so there was a very sharp cyclical phenomena that has soft softened recently and and obviously we hope to see a quicker 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 are not in a position to make any comments so it is difficult for us to say anything but 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 do not have a clear picture yet so for the competitors large scale m and a we do not want to speculate and rather we want to pursue and execute our strategy at the right timing and we want to focus on that that is it we will 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 letting me ask questions i have 2 questions 1st is about vr at ces the other day new device vr 2 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 promoting vr how i how what is your view about promoting vr business going forward and 2nd mobile games currently sony music is is the is the main player but sie itself will be considering a mobile ga mobile games business so what is the direction that yo you have in mind thank you your 1st question regarding vr psvr 2 at least we have already explained you user to have that sense of imag imagined so the setup itself will be simplified and headset we will be evolving and we will be evolving the headsets and already this is announced evolution of head the headset 4 khr dis display with a wider viewing of angle and movement of the eye of the player is detected looking at certain direction then it is possible to mani manipulate the . 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 the motor vibration and head head set and haptic headset feedback this will be introduced as a technology as we already made decision in relation to vr already a further technological evolution there is room for evolution hardware and software then 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 are the 1st party title is no is already announced simultaneously so in this way we have our technology and contents that we have an ecosystem movie leveraged and we are going to enhance our presence in this market and then the 2nd question mobile games mobile game market itself is a growth area and playstation ip can be u used by more users and this is a great opportunity for us as for the timing it is very hard to say exactly when but playstation ip will be deployed for the 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 2 parts of the questions the 1st 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 2 countries difficult environment what kind of good measures will be implemented to to achieve such a good results that is one question the 2nd question is about ev so in near future investment in terms of the 2000000000000 that that for this this strategic investment you did not refer to ev by this spring new company will be established and then maybe the different consideration will be made so in that strategic investment framework of 2000000000000 that would that include ev you intend to spend the money for ev or you rather than tapping into that 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 3rd 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 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 are will happen next and by based upon that good forecast they take 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 in this 3rd quarter bu but not everything was rosy and good because ps 5 there was a big demand we could not 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 would like to consider that for the future the sec 2nd question that is so investment idea towards ev well about the ev as has been mentioned earlier the we assume that we would 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 is how we are considering this the business so what is 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 4 20 now we will be starting the q a session for the investors and analyst please wait for a few more seconds thank you thank you for waiting now we would like to start the q a session for investors and analysts my name is hayakawa in charge of financial services in ir i will be serving as the moderator as responders we have mister 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 if you have questions please press the asterisk and number one at on your phone and i will name you and we ask you to limit your questions up to 2 questions and to prevent the holding and please make sure to turn off the volume of the devices around you and if the line gets chopped and because of the time concern we will move on to the next person with a question and if you want to cancel your request for question please press the asterisk and 2 now i will 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 thank you and regarding the games i have 2 questions the 1st question is that the playstation 5 what is your forecast for the future from the 2nd quarter inaudible speaking tone from the 4 14000000 14800000 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 mister jim lion was saying that the he hopes to to shoot for the record high and 22 to 23000000 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 2nd 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 the remaining budget you have about 110000000000 or so to invest and what is your criteria for investment decisions for them for example for game 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 you will intend to retain the subscription or you want to improve your 1st party development capability or what is your criteria for investment decision thank you for your questions the 1st question was that the ps 5 expectation for the next fiscal year and in the past the record was the 22600000 the 1st presentation i believe it was a single year units and that is what we were saying that that will will try to copy again but in terms of the next year the the market demand is very high 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 we can make that happen but in terms of ps there was a . we believe that the next year i think it is safe to say that they will continue to have a supply disruption in terms of the components globally because of the distribution problem and so on so we can not say for sure what is exactly the demand for next year and but having a high target we have and if we bring it down we may ease ourselves to go for the lower target and so i i think it is good to maintain the high target so in the consolidated performance report we will have a more exact forecast for the fiscal year 22 and so that is the 1st answer to the 1st question the 2nd question was about our concept of strategic investment and we in the past we were investing we in ip and that is what we have been saying and we will and obviously ips have market prices as fair values so we tend to look for the future upside potential 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 do not have a clear criteria in terms of the size of the investment but looking at our barns sheet and also financial capabilities so . capabilities and risk will be studied very closely to decide any investment and also you used an example partial purchase or total purchase you mentioned and . and we need to work with our partner we cannot decide single handedly ourselves if it is a good company we would wish to purchase 100% but if we are adamant about 100% purchase we may have difficulty having a good alliance so we will . give considerations for long term partnership and alliance that is all i would like to move on katiya sun from asmb sinico thank you i have 2 questions 1st about impact of the shortage of components next is vision s the 1st one impact of the shortage of components in supplement of materials number . 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 2nd quarter it turned out . 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 1st question 2nd 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 situation is 1st and going forward to the extent that you can share with us please enlighten me thank you thank you very much 1st the shortage of component and the impact of the cost increase including inventory level and you asked me to explain 1st of all this fiscal year as in the 3rd quarter inventory level i think it is good to talk about the inventory level by category if i may explain game network service with the holiday season there is a decrease in inventory level and ps 5 shortage of components which resulted in decreasing the inventory so there is no sufficient level of inventory epns . with the holiday season the decrease of the completed products e . with the increase in tv panel and this is the key and in . readying . in preparing for the shortage of materials strategic stock buying is being done next fiscal year also to a certain extent we are at expecting shortage especially in the 1st half and we can then expect that for some of the products so gradually we are building up our inventory therefore . although there was a decrease of the inventory of the completed products because of the holiday season but stock pile being of . strategically stockpiling and the confusion of the this . supply chain there is a delay of the delivery period so these 2 factors are affecting one another the level perenal inventory is perfect level inss . as you all know in china smartphone market the recovery is slower and this increase in the level of 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 . it is very difficult to say in a summary fashion but next fiscal year . 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 . risk return and investment of manager resources we are not the stage where we can give you a clear cut answer yet and as had repeated and mentioned asset light is what we have in mind so . silence we are not thinking of making big investment into this area more specifically development of battery or development . 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 we tap upon partnerships or similar relationships and we are going to as asset light as possible and with the evolution with vehicles without technological element we are going to contribute and as a long term vision 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 23 year strategic 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 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 . 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 . you cover everything hardware software and contents very comprehensive so the venue summarized the old clivities of that fiscal year and then this taking into account information as well as changed of the interest rate and so on . da . what is s . your view of the summary as well as the 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 it is outlook in north america and you say that the . the interest rates policy is the turning point to be changed due politic risks now increase and the mid term election is scheduled to be held through all these stable da . elements are likely to be influential and depending upon inaudible maybe demand might be affected and i am getting the latest information and updating that understanding from different business segments but for the time being there is no clear trend of this deceleration in the north american market that is my frank perspective right now however especially in terms of inaudible during a lot of half . inaudible the europe and japan campared to the previous year there is 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 the 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 is a flexible implementation policy your deck is likely to have up and down . but the . 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 . steady it seems steady is it really true that it will never go through variation cha . cause i am personally always concerned about anyway potentional i am always keeping an eye on who . if something some negative designs observed 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 . next person to be the last and we . inaudible of jp securities jp morgan i have a son brother i have 2 questions regarding bungee 1st question is that the inaudible slide you explained that how you will be treated in terms of accounting the 3.2 a 1000000000 yen 13rd is about for retention purpose expenditure about $1200000000 and of the 1200000000 and tow thirds will be used up in the 1st 2 years so that about .4 $1000000000 or $400000000 annually and also intangible assets about 20% about 700 to $800000000 how do you plan to depreciate that in terms of a term period over which period as long as the best ethmet you have will be fine and i know it is only still pending on the regularity authorities approval and so if we have any have in prospect that would be appreciated and also 2nd question is about mister inaudible mentioned about in the future that be . you can get outside that will be . that will be the decision criteria and 0 what is the case for bungee and also for bungee what is the offsite for them to work with . to become a part of sony and also up sight for sony to acquire is that simply increasing the users or . what kind of kpis are you expecting to get gained from this investment okay the 1st question . silence it is we explained that the one third . will be for . will be be 3rd payment for retention purpose for specific numbers we still need to squid guys and this time we are 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 is be including in the 4 ps for the next year so we will updating that number now in terms of inaudible assets we are actually studying examining that right now so generally speaking we look at 10 years or so for depreciation and . but that depends on the contents of such inconjuable assets so . corinunva sun do you have comment on that let me . add some comments the . what will be treated as expenditures . expenses will be . treated 2 years and that will 13rd and there are a lot of conditions and how will you relocate for the 1st year and the 2nd year that would not be 50 50 and necessarily q and also in terms of the depreciation the intangible we will . will be allocation the purchase to a variety of . assets and we will identify the price tag for each one of them and then decide the depreciation period down the road okay and the 2nd question was that the in case of bungee what . in as i . commented in my speech they are . platforms capabilities rather and ability to distribute to a variety of platforms and also 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 . a strong wish we have and . but this side also is ruling to work closely with us and in the 1st year inaudible we will put together a a good plan and drive that and i believe it will generate upside fromt hat kind of work now the . from the other side . the bungee the personnel retention and recruiting and support them and and we hope to give . do so and also not just all gaming area but the multi using of ip and marginalizing of ips like 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 is 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 is all the time has come to close sony group corporations earnings announcement i thank you very much for joining us today",
      "prediction": "ladies and gentlemen it is now time to start sony group corporation is fy 21 3 3rd quarter earning announcement i am okada corporate communications i will be serving as master of ceremonies today the session is being held for journalists analysts and institutional investors to whom we have sent out invitations in advance this session will be live webcast through our investors relations website 1st we have with us mister totoki executive deputy president and cfo to explain 3rd quarter fy 21 consolidated results and the forecast for consolidated fiscal 2021 results that duration is about 70 minutes mister totoki the floor is yours thank you i will cover the topics written here today fi 21 q 3 consolidated sales increased 13% compared to the same quarter of the previous fiscal year to 31300000000 yen and consolidated operating income increased a significant 113300000000 yen yield on yield to 465200000000 yen both were record highs for the 3rd quarter income before income taxes increased 77800000000 yen year on year to 461600000000 yen and net income attributable to sony group corporation shareholders increased 35400000000 yen to 346200000000 yen please see pages 3 to 6 of the presentation materials for a depiction of each profit metric adjusted to exclude one time items this slide shows the results by segment for fy 21 23 next i will show the consolidated results forecast for fy 21 consolidated sales are expected to remain unchanged from our previous forecast of 900000009000 yen while operating income is expected to increase 160000000000 yen to 1000000000000 200000000000 yen we have also upwardly revised a forecast for income before income tax to $155000001000 yen and a forecast for net income attributes will to sony group corporation shareholders to $860000000000 yen a forecast for consolidated operating cash flow excluding the financial services segment has increased $50000000000 yen to $940000000000 yen this slide shows a forecast by segment for fy 21 i will now explain the situation in each of a business segment 1st is game and network service segment fy 21 q 3 cells decrease to 813300000000 yen 8% lower than the same quarter of the previous fiscal year in which we launched the playstation 5 and sold major titles in conjunction with the launch operating income increased 12100000000 yen year on year to 92900000000 yen primarily due to a decrease in selling general and administrative expenses and an improvement in ps 5 hardware profitability partially offset by a decrease in software sales if i 21 sales are expected to decrease 170000000000 yen compared to our previous forecast to 2000000000000 730000000000 yen and operating income is expected to increase 20000000000 yen compared to the previous forecast to 345000000000 yen total gameplay time of playstation users in december 21 was 20% lower than the same month of the previous year which was immediately after the release of ps 5 but gameplay time increased approximately 7% from december 2019 for a quarter in which there were only a few major titles released we think this was solid performance in the 4th quarter in the march 31 2022 we expect use engagement to increase further because the major 1st party titles horizon for bin and west and grand tourist mosemone 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 is 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 fi 21 unit sales forecast for ps 5 hardware to 11500000 units limitations on the supply of components are expected to continue going forward but we are continuing to exert every effort to meet the strong demand for ps 5 on january 31st in the us sony interactive entertainment entered into definitive agreement to acquire bungie inc one of the world is 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 creative 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 $3600000000 and the completion 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 add on content 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 a 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 banshee is currently developing but also in incorporating into the sony group the expertise and technologies that banshee has developed in the live game services space we intend to utilize these 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 live service games by the fiscal year ending march 31 2026 in addition the review that deployment of a game ip on multiple platforms as a major growth opportunity for sony has been the evidence by the successor pc version of the god of war and other 1st party games through this acquisition 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 1st party game software revenue aiming to more than double the current amount by fy 25 now i will use this conceptual diagram to explain at a higher level how this acquisition will be treated from an accounting perspective bungie is a private company a majority of whose shares are owned by its employees so the payment of the consideration is structured to incentivize the shareholders and other creative talent to continue working at bungie after the acquisition closes approximately 13rd of the 3600000000 us dollar consideration for the acquisition consists primarily of deferred payments to 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 2 thirds of these deferred payments and other retention incentives to be expensed in the 1st 2 years after the acquisition closes next is the music segment all those sales of visual media and platform decreased fy 21 q 3 sales increased 12% year on year to 295900000000 yen primarily due to an increase in streaming revenue despite the impact of the increase in sales of recorded music operating income decreased 4000000000 yen year on year to 55500000000 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 maintained percentage of the operating income of the segment if we are 21 sales expect to increase 20000000000 yen compared to our previous forecast to 1000000000000 90000000000 yen and operating income is expected to increase 5000000000 yen compared to our previous forecast to 2 or 5000000000 yen streaming revenue in q 3 continue to grow at high rate 29% year on year in recorded music and 27% year on year in music publishing the recorded music business continued to generate major hits with an average of 36 songs ranking in spotify is global top 100 songs during the quarter global superstar singer songwriter adele is album 30 became a historic hit remaining number one on the billboard chart who were consecutive 8 weeks after its release in november next is the pictures segment fy 21 q 3 sales increased significantly 141% year on year to 461200000000 yen primarily due to the blockbuster hit spider man norway home emotion pictures and the licensing of the popular us television series cywells in television productions operating in income increased a significant 121100000000 yen year to 149400000000 yen primarily due to the impact of the increase in sales and the recording of a 70200000000 yen gain from the transfer of gsn games which closed on december 6 2021 fy 21 sales are expected to increase 40000000000 yen compared to our previous forecast to 222000001000 yen and operating income is expected to increase 97000000000 yen compared to our previous forecast to 205000000000 yen even when one time items are excluded operating income this fiscal year is expected to be the highest ever for the pictures segment spider man no way home was released across the us on december 17 2021 and went on to record the 2nd highest ever opening box office revenue nationwide according to the most recent data its cumulative worldwide box office revenue is the 6th highest ever at approximately 1700000000 us dollars and it holds the record for highest grossing film in the history of sony pictures entertainment other franchises such as vignon let their big carnage contribute 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 postponing the us release of mobius a new film from the sony pictures university of marvel characters from january april of this calendar year on december 22 2021 sony pictures networks india a subsidiary of spe signed a definitive agreement on merge to merge spni with z entertainment enterprise the merger represents an opportunity to further accelerate expansion and digitalization of our business by using the strength of both companies to strengthen our digital distribution service in rapidly growing india media entertainment market we expect that the transaction will close in the latter house of this fiscal year ending march 31 2023 after obtaining approval of the z is shareholders and regulatory authorities after the transaction closes is built we own the majority of the shares of the merged entity then the next is the electronic products and solutions segment despite the favorable impact on sales from foreign exchange rate to 3 sales degrees 2% eonier to 286900000000 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 rates and an improvement in product mix operating income decreased 23300000000 yen to 80000000000 yen primarily due to the impact of decrease in sales therefore 21 sales are expected to increase 80000000000 yen compared to a previous forecast to 360002300000 yen and operating incomes expected to increase 20000000000 yen compared to a previous forecast to 210000000000 yen for an income margin for this fiscal year it is expected to exceed 8% the efforts we have been making to improve our poverty are steadily bearing fruit during quarter 3 the impact of the rapid decline in tv panel prices on consumer market prices for tv was more limited than we originally anticipated and the shift to large sized tvs increased primarily in the us europe and china as a result we are able to maintain the average selling price above tvs as is essentially the same level at the 2nd quarter ended september 30 2021 nevertheless we can continue to be unable to fully meet market demand in multiple categories due to severe limitations on the supply of components we expect this situation to continue to impact us in the 4th quarter ending march 31 2022 we will continue to exert every effort to procure components as that will be one of the highest properties for this segment next fiscal year next is the imaging and sensing solution segment fy 21 q 3 cells increase a significant 22% year on year to 324800000000 yen primarily due to an increase in cells of high end image sensors for mobile products operating income increased 13300000000 yen year to year to 64700000000 yen primarily due to the impact of the increase in sales our fy 21 sales expected to decrease 30000000000 yen compared to our previous the fy 21 operating account forecast remains unchanged from the previous forecast despite severe conditions in this smartphone market such as witnessing the chinese market and storage of components especially subconductors the effort we have made here to to expand and diversify a more of a sensor is customer base as well as to cover our markets share on a volume basis or having some success however it is taking longer than expected to introduce the high performance high resolution custom sensors that we have been working on with chinese smartphone makers so the speed of photovoltaic improvement resulting from an increase in added value products going into next fiscal year will be slightly lower than the originally planned listenally the trend toward the chinese smartphone market purchasing larger size segments for the high end product is improving after having segment due to the construction of a business with a certain chinese customers who expect a chinese smartphone market to normalize in the 2nd half of the 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 strive to improve profitability on january 25 2022 sony is semiconduct solutions corporation completed its initial investment in japan advanced and conducting manufacturing company limited as a minority shareholder sony will support jasm by assisting with the startup of this new logic way for factory which aims to begin mass production during calendar year 2024 last is the financial services segment fiscal year 21.3 financial services revenue increased 11% year on year to 471300000000 yen primarily due to an increase in the net gains on investments in the separate account at sony life insurance company limited open income decreased 4700000000 yen year to 35200000000 yen primarily due to deterioration in valuation on securities at our venture capital business and at sony bank new policy amount enforced at sony life during q 3 grew at a higher rate than our competitions driven primarily by our priority focus area of selling insurance to corporations fy 21 financial service revenue is expected to increase 120000000000 yen compared to our previous forecast to 610000001000 yen our fy 21 opening account forecast remains unchanged from the previous forecast now i would like to update you on our strategic investments the amount of capital allocated to strategic investments including the acquisition of the bunch which i explained earlier and the repurchase is of sony stock from the beginning of the fiscal year until today and increasing acquisition and asset purchase that have closed as well as those that have been decided by not closed photos approximately $850000000000 this slide shows the breakdown of the segments and areas in which we have allocated investment the music cement portion of the chart does not include approximately 100000000000 yen we have invested in music category catalogs because the amount is included in operating cash flow under ifrs we are making serious progress in accordance with our current mid range plan of making 2000000000000 yen on or more of strategic investment as we believe that we we believe that the evolution of our business portfolio aimed at realizing long term growth is progressing well as i mentioned at the previous earnings announcement we aim to accelerate the cycle whereby it returns generated from previous investment used to invest in growth thereby realizing long term growth at cess 2022 last month president yoshida announced that we will establish sony mobility in the spring of this year and we will explore the possibility of introducing our vision s the market the vision s initiative aims to create a new value and contribute to the evolution of the mobility by leveraging some of these various technology and content and by adding new entertainment elements to a safe and secure moving space going forward we will proceed with our exploration under the assumption that we will collaborate and lie ourselves with multiple partners that is the conclusion of my remarks thank you very much it was mister toto kee exactly deputy president and the ceo financial officer from 355 we have q a session for a media and from 420 q a by investors and analysts we set aside 20 minutes each for q a those journalists investors analysts we 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 a registration in advance you can continue to listen to the q a session through internet webcast please wait until the session is resumed we will begin q a session for a media shortly which you can invite until q a session begins thank you very much for waiting now we are going to entertain questions from the media respondents are mister hiroki toktoki executive deputy president and chief financial officer now miyimatsuoka senior vice president in charge of corporate planning control finance and ir if you have questions please press a strict followed by number one when your turn comes call your name so please identify yourself and your affiliation before you ask your questions i would like to ask you to kindly limit your questions to 2 also in order to prevent 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 question next person and if you would like to cancel your question please press asterisk followed by number 2 now we would like to begin q a session if you have any questions please press asterisk followed by one the 1st question is masuda san from nikkei shimbun newspaper masuda san please master sank can you hear me can you hear us yes i can hear you i have 2 questions 1st question is you are thinking about strategic investment the other day you have made acquisition and i think that you have made an announcement going forward av and semiconductors you will be coming up with new strategies and for each side of investment to become larger going forward so as management you think that it is necessary to make large investment and investment deals you have the seeding or the meat of 2000000000000 but is that going to be exceeding 2000000000000 or the acquisition in the orders of 100s of 1000000000s of yen thank you for your question our thinking behind strategic investment was a question that you have raised currently as you know 3 year need to range plan strategic investment we will be allocating 2000000000000 for strategic investment and as i mentioned in my speech earlier 850000000000 yen and we made decisions up until 850000000000 yen and this framework we do not think that we need to change in a major way this framework and within this we will be making forward looking positive investment so areas of investment priority area is ipdtc and technology and these priority areas remain unchanged that is all from me so we would like to entertain the next question from masahih susu suki san please thank you for giving me the floor i am susu suki obasa i hope you can hear me yes go ahead please thank you i have 2 parts of question 1st is image sensor that the ask to this pigment chip that the taiwan tsmc is the company that you expected to interest your supply according to some reports also this pigment and the chip like for iphone and other applications for the high level of the sophisticated cameras do you intend to further ask them to manufacture on bihabu sony because a couple of couple of connections are different but as to some of the fundamental technologies maintained by your company sony but i think the chips are likely to be interested to the tsmc and so on to produce on bihabu in conjunction the tsmc will have a new plant in kumamoto the logic wave of the country has been the missing piece so that the japanese government is likely to give subsidy to that new plant in komamoto but it is expected that this new the chip for the pigment and so forth is likely to be produced in komamoto as well not turning to electric vehicle that president yoshida announced about the mobility new area and you have a new sony mobility company is likely to establish in the spring but you might have higher the details they have like the scale of this new company as well the exact timing to establish new company because mister totoki asked the new mobility company together with the car nishsan i understand that you have some chat with him about the future trigger you are the founder of sony bank and other new businesses in the past so for the new company to be established are you going to nurture this sony mobility to be a big company as one of the pillars i would like to hear your view on the mid to long term in terms of how to nurture sony mobility and so on to turn to the 1st question about the image sensor that you are likely to interest the production to the tsmc but actually it is not announced by us but i do not have a direct answer to that but anyway as to the external production by the possible like tears that the logic is mostly to be produced outside but it is called the master process as to the master process to get started outside it is quite limited because as of now we do not intend to increase that image sensor chip that is a master process we do not intend to ask the outside company to produce much of that as to your 2nd part of the question sony mobility when would that be built it is a screen of 2022 that has been mentioned by a prison ceo or yoshida actually 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 that was at the cess we announced so we did not exactly decide on the exact entry into that sector as to the automobile industry there are lots of things we have to study about the automobile industry so as to this establishment of sony mobility ink which is the 1st step and that for enable us to further deepen and study and consideration that is 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 it is too premature to mention the details of this new company thank you next question we have nishida san who you are the reporter this is nishia speaking can you hear me yes we can please go ahead i have 2 questions the 1st question is that the semiconductor devices shortage is the topic playstation 5 and epn and s products have impact from the shortage and are there any change in the product mix as a result or any change in the product line for to ensure the performance and also that may have an impact on platform so if you could expand more on the impact of the supply shortage on your performances and next on the game business your rival microsoft has announced the large scale purchase is there any plan to have a purchase of a large publisher type supplier and also is there any impact on your game business because of that kind of publisher type acquisition by your competitor thank you 1st about the semi contra shortage and 2 that we do have a variety of impacts on our businesses and largely we have shortage of components so we need to put high priority on the high value add products that is not something new to us though that when the semi quantular shortage started we made a lot of adjustments to change the product mix and allocate to different product lines and we got an ps 5 in terms of a short term profit promotion cost was saved or high logistics cost has been saved because of the decline in the units that leads to the decline in expenses but 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 shipping capability i think that is a short term impact we think we can catch up and from ps 4 when we move from one console generation to the next there was a large change a drop in engagement and also sales and profit changes drastically so there was a very sharp cyclical phenomena that has softened recently and obviously we hope to see a quicker recovery but we also see that situation is rather limited in terms of the impact now in terms of acquisition by our competitor we are not in the position to make any comments so it is difficult for us to say anything but 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 do not have a clear picture yet so for the competitors large scale m a we do not want to speculate and rather we want to pursue and execute our strategy at the right timing and we want to focus on that that is it we will have to move on to the next question can you hear me yes we can please thank you for letting me ask questions i have 2 questions 1st about vr at cess the other day new device vr 2 was announced on the other hand environmentally competitors are increasing their units and invest in large amount of money and the momentum is there currently vr business what is your view about promoting vr business going forward 2nd mobile games currently sony music is a main player but sie itself will be considering a mobile games business so what is the direction that you have in mind thank you your 1st question regarding vr psvr 2 at cess we have already explained users have the sense of imagine so setup itself will be simplified and headset will be evolving and will be evolving the headsets and already this is announced evolution of head set 4 k h are displayed with a wider viewing angle and the movement of the eye of the player is detected looking at certain direction then it is possible to manipulate the so for the re rendering the high resolution for center of the view and external then lower resolution by that high quality image experience can be given to the users such technology is introduced also the motor vibration head set and haptic head set feedback this will be introduced as a technology as we already made decision in relation to vr already further technological evolution there is room for evolution hardware and software and with this evolution of technology it is expected that the market is also going to expand we are using the 1st party title which is already announced simultaneously so in this way we have our technology and content that we have and ecosystem movie and we are going to enhance the presence in this market and then the 2nd question mobile games mobile game market itself is a growth area and playstation ip can be used by more users and this is a great opportunity for us as for the timing it is very hard to say exactly when but playstation ip will be deployed for the ips so i believe that we can grow this study so these attempts and the specifics when appropriate time incomes then we are going to explain to you more clearly thank you my time is running short so we would like to entertain the last question for this session shimayi san from nhk please thank you very much i am shimayi of nhk i have 2 parts of questions the 1st is about your performance and achievement because the results are very good frankly i like to ask you frank interpretations of the results despite the covid 19 you would achieve it well so taking into account this difficult environment what kind of good measures you have implemented to achieve such a good results that is one question the 2nd question is about ev so in the future investment in terms of the 2000000000000 yen for this strategic investment you did not refer to ev but this spring new company will be established and then maybe the different considerations will be made so in that strategic investment framework of 2000000000000 yen that would include ev you intend to spend the money for ev or you rather than tapping onto that budget that maybe the more 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 is the 3rd quarter the results what is my impression my comments as you mentioned despite the covid 19 difficulty the logistics were adversely impacted and semiconductor and other device components supply was limited for a long time in many areas this problem lasted for a long time to cope with that situation for each business segment they would like to focus what will happen next and by base upon that good forecast they take proactive measures to prepare for the difficulty so that is why i think that we achieved the record high results that the sales and the profit in this 3rd quarter but not everything was rosy good because ps 5 was a big demand we could not supply enough to the increasing demand as to the image sensor the profitability that recovery did not progress as soon as we had expected those are the challenges we identified and we would like to consider that for the future the 2nd question that is our investment idea toward ev well about that ev as has been mentioned earlier we assume that we like to start with the asset right condition with possible partners to align with as to our concept for example standalone we might not have that big production facility or the developer 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 achieve the vision we have advocated so that is how we are considering the ev business so what is our vision toward ev let me repeat that the mobility environment space should be evolved into a more entertainment space so the new kind of 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 we will be changing our responders so the q a session for analysts will start at 4.20 now we will be starting the q a session for the investors and analysts please wait for a few more seconds thank you thank you for waiting now we would like to start the q a session for investors and analysts my name is hayakawa in charge of financial services and ir i will be serving as the moderator as responders we have ms hiroki tautoki executive deputy president in cfo and ms naomi matsoka svp for corporate planning and control and finances nir and also svp accounting ms iboto sikrenaga if you have questions please press the asterisk n number one on your phone and we will name you and we ask you to limit your questions up to 2 questions to prevent the housing and please make sure to turn off the volume of the devices around you and if the line gets chopped and because of the time concern we will move on to the next person with a question and if you want to cancel your request for question please press the asterisk n 2 now we will start the echuan decision once again if you have a question please press the asterisk n one at your phone we have from morgan serenay 0 mister 0 no thank you and regarding the games i have 2 questions the 1st question is that the playstation 5 what is your forecast for the future from the 2nd quarter todoki san is speaking tone from the 14800000 original target that has been set back and especially this time reduced substantially and what is your forecast for the next quarter in may last year mister jim lyon was saying that he hopes to shoot for the record high and $22000000 i believe was the target what is your feel for the demand and also what is your prospect for your supply capability and the 2nd question is that regarding a strategic investment this time you have invested in one of the for the investment in the bunch as a games segment investment now the remaining budget you have about 110000000000 yen or so to invest and what is your criteria for investment decisions for them for example when you invested in a big game there was a small game house and there was an investment for content ip that was your priority back then but this time you have a total ownership and you will intend to retain the subscription or you want to improve your 1st party development capability or what is your criteria for investment decision thank you for your questions the 1st question was that the ps 5 expectation for the next fiscal year and in the past the record was the 22600000 yen the 1st price station i believe it was a single year unit and that is what we were saying that the world will try to copy again but in terms of the next year the market demand is very high that could allow us to make a record high sales now our partner company is supplying us components we are working closely with them collaborating negotiating and working with them closely and we hope we can make that happen but in terms of ps there was a we believe that the next year i think it is safe to say that we will continue to have supply disruption in terms of the components globally because of the distribution problem and so on so we can not say for sure what is exactly the demand for next year but having a high target we have and if we bring it down we may ease ourselves to go for the lower target and so i think it is good to maintain the high target so in the consolidated performance report we will have a more exact forecast for the physicorpsia 22 and so that is the 1st answer to the 1st question the 2nd question was about our concept of strategic investment and in the past we were investing in ip and that is what we have been saying and we will and obviously ips have market prices as fair values so we tend to look for the future upside potential 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 we can rationalize that premium and in terms of the scale of the investment we do not have a clear criteria in terms of the size of the investment but looking at our balance sheet and also financial capabilities so capabilities and risk will be studied very closely to decide any investment and also you use an example partial purchase or total purchase you mentioned and we need to work with our partner we cannot decide single handedly ourselves if it is a good company we would wish to purchase 100% but if we are adamant about 100% purchase we may have difficulty having a good alliance so we will give considerations for long term partnership and alliance that is all we would like to move on katarassan from smb cineco thank you i have 2 questions 1st about the impact of the shortage of components next is vision s the 1st one impact of the shortage of components in the supplementary materials number 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 e pns and gns as well can you please enlighten me and quantitatively explain qq ep s 60 to 70000000000 of buffer or risk was incorporated and this time an up wide revision of 20000000000 for profit so compared to 2nd quarter it turned out 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 1st question 2nd question earlier the question by the media people talked about sony in mobility and as a light is your posture in the equity market former tv business there is a concern as this case of tv business you will be suffering from long term losses so sony mobility inc what kind of risk will return are you thinking about and also investment of the managerial resources the situation in the past and going forward to the extent that you can share with us please enlighten me thank you thank you very much 1st the shortage of components and impact of the cost increase including inventory level and you asked me to explain 1st of all this fiscal year at the end of 3rd quarter inventory level i think it is good to talk about inventory level by category if i may explain game network service with the holiday season there is decrease in inventory level and ps 5 a shortage of components which resulted in decrease in inventory so there is not sufficient level of inventory e p and s with the holiday season the decrease of the completed products with the increase in tv panel and this is a key and in preparing for the shortage of materials strategic stockpiling is being done next fiscal year also to a certain extent we are anticipating shortage especially in the 1st half we can expect that for some of the products so gradually we are building up an inventory therefore although there was a decrease in the inventory of the completed products because of the holiday season but with stock piling strategic stock piling and the confusion of the display chain there is a delay of the delivery period so these 2 factors are of setting one another the level of final inventory is a profit level ianss as you all know in china smart for market recovery is slower and there is an increase in the level of inventory in the market which resulted in increase in the level of inventory but demand forecast for next fiscal year and production capacity considering that and building up the strategic inventory toward the end of the fiscal year and this policy remains unchanged therefore it is very difficult to say in a summary fashion but next fiscal year 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 vision as risk return and investment of managerial resources we are not at a stage where we can give you a clear cut answer yet and as has been repeated innovation asset light is what we have in mind so we are not thinking of making big investment into this area more specifically development of battery or development and having the manufacturing facility for the vehicles itself or sales infrastructure or maintenance infrastructure to be held by us we are not thinking of doing this basically we tap upon partnerships or similar relationships and we are going to be as light as possible and with evolution of vehicles with our technological element we are going to contribute as a long term vision the space of vehicles are to be turned into new entertainment space that is our long term vision therefore in the mid range plan period to 1000000000000 strategic investment is that included in that we are not thinking about investment at that scale and this is not realistic please understand in that way thank you we would like to entertain the next question afghanistan please can you hear me 0 mister hall security i have one question atotokisa as i see you who i mentioned but i would like to hear your personal view but in terms of north america what is the 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 you cover everything hardware software and contents very comprehensive so they then you summarize the whole activities of that fiscal year and then this taking into account inflation as well as the change of the interest rates and so on what is your view of the summary as well as the tour the 1st half of the next weeks ago what is the overall perspective according to each segment if not please tell us some of the highlights of the situation thank you about the question is about north american demand and the business outlook i am quite concerned about its outlook in north america as you say the interest rates policy is the turning point to be changed and geopolitical risks are now increasing and the mid term election is scheduled to be held so all these are stable elements likely to be inferential and depending upon the station maybe demand might be affected and i am getting the latest information not updating that understanding from different business segments but for the time being there is no clear trend of this deceleration in the north american market that is my frank perspective right now however especially in terms of if you look at tv during the latter half of course the europe and japan compared to the previous year there is a sort of a sign of deceleration or slowdown a little bit but has been expected but into the north america better than we had expected adding the strength seems to be maintained and the momentum is kept in the north america what about entertainment generally speaking entertainment is doing well in general however the covid 19 impact that the theatrical release would be subject to impact if the number of infected patients increases that they have to revise this theatrical release that is flexible implementation of policy so there is likely to have an up and down but the general demand of entertainment per se is not likely to go through major change according to my interpretation so in terms of north america things are going on steady it seems steady is it really true that it will never go through variation of course i am personally always concerned about that any potential i am always keeping an eye so if something and some negative signs observed and detected we would like to take quick countermeasures and take action accordingly thank you we are running short of time so we will make the next question next person to be the last and we have my son of jp securities jp morgan ayada son rather i have 2 questions regarding banji 1st question is that in the earlier slide you explained how it will be treated in terms of accounting the 3200000000 yen 13rd is about for retention purpose expenditure about $1200000000 of the 1200000000 and the 2 thirds will be used up in the 1st 2 years so that is about $400000000 or $400000000 annually and also intangible assets about 20% about 700 to $800000000 how do you plan to depreciate that in terms of the term period over which period as long as the best estimate you have will be fine and i know it is still pending on the regulatory authorities approval and so if you have any prospect that will be appreciated and also 2nd question is about mister todoki mentioned about in the future that you can get the upside that will be the decision criteria and what is the case for bungie and also for bungie what is the upside for them to work with to become a part of sony and also upside for sony to acquire is that simply increasing the users or what kind of kpis you are expecting to get gains from this investment the 1st question as we explained that the 13rd will be referred payment for retention purpose for specific numbers we still need to scrutinize and this time we are just giving you the rough image so that is the extent we hope you will understand we will examine more closely and if we have update we will be sharing with you and for the it will be included in the forecast for the next year so we will be updating that number now in terms of intangible asset we are actually studying examining that right now so generally speaking we look at about 10 years or so for depreciation and that depends on the contents of such intangible assets so kurelya nangassan do you have any comment on that let me add some comments what will be treated as expenditures expenses will be treated in 2 years and that will be 13rd of the investment and there are a lot of conditions for that though and how it will be allocated for the 1st year and 2nd year that may not be 50 50 necessarily and also in terms of the depreciation of the intangible assets we will will be allocating the purchase price to a variety of assets and we will identify the price tags for each one of them and then decide the depreciation period down the road okay and the 2nd question was that in case of bungee what as i commented in my speech there are platforms capabilities rather ability to distribute to a variety of platforms and also live service they have a capability to develop and those are something we have lots to learn from them and therefore our studios will learn from bungie and that is a very strong wish we have and the bungie side also is willing to work closely with us and in the 1st year we believe we will put together a good plan and drive that and i believe it will generate upside from that kind of work now from the other side the bange the personnel retention and recruiting i think we could we can help them and support them and we hope to be able to do so and also not just for gaming area but the multi using of ip and magnetizing of ips like good title maybe game title maybe put into the pictures movies and bungie wants to nurture the ip they have in the multi dimensional manners and that is their hope and for that we believe we can help that we have pictures and music and banshee can use leverage our platform so that their ip can flourish and grow big and that is all the time has come to close sony group corporation is earnings announcement i thank you very much for joining us today",
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