2023 Annual Report: Cloud transformation enters the harvest period, KINGDEE INT'L will prioritize "AI" in the next three years

"Over the past decade, as we transformed into a cloud company, we have established a mature cloud business model. In the future, we are going to 'stand tall'; in the next three years, we aim to establish a super-intelligent AI management assistant," said Xu Shaochun, Chairman of the Board and CEO of Kingdee Group, at the 2023 annual performance conference.

Ten years ago, Xu Shaochun personally smashed servers in front of thousands of employees, leading the entire company to officially start the transformation into a cloud business model.

By 2024, after a decade of transformation, KINGDEE INT'L also celebrates its "coming-of-age" year, with the company's cloud transformation reaching a crucial point in 2023 and gradually entering a period of harvest.

In past performance meetings, Xu Shaochun often mentioned three key points: "The economy is not declining, but brewing new growth; there is not no market, but the market has changed; great companies are always nurtured in times of great change."

Following a milestone in the cloud transformation, KINGDEE INT'L has positioned 2024 as the year to embark on a journey towards becoming a world-class company, aiming to be "world-class, number one in Asia" by 2030. Under the new strategy and goals, how will KINGDEE INT'L embark on its next new journey?

Comprehensive performance steadily improving, targeting a 15%-20% compound growth rate in revenue over the next three years

Looking at the full-year performance for the year following the harvest of the cloud transformation, in the 2023 fiscal year, KINGDEE INT'L achieved operating revenue of approximately RMB 5.679 billion, a year-on-year increase of about 16.7%. Among them, revenue from cloud services grew by 21.3% year-on-year, accounting for approximately 79.3% of the group's revenue.

Furthermore, the company's Annual Recurring Revenue (ARR) from subscription services increased from RMB 2.14 billion in 2022 to RMB 2.86 billion in 2023, a 33.1% year-on-year growth. Throughout the year, the company's attributable net loss to equity holders decreased significantly by 46.1% to RMB 210 million, showing a significant improvement in overall performance.

It is worth mentioning that with the continuous improvement in product strength at Kingdee, the company has achieved high-speed revenue growth in the past few years, with revenue growth rates of 24%, 17%, and 17% in 2021, 2022, and 2023, respectively.

Correspondingly, there has been a decrease in the growth rate of the number of employees, with growth rates of 9%, 4%, and 2.6% in the same period, significantly lower than the previous average growth rate of over 15%. For software companies, personnel wages and compensation are one of the main cost components. Based on the company's data in recent years, Kingdee is gradually entering a stage of efficient development, which is one of the foundations supporting the company's entry into the harvest period

Image Source: Company Official Website

In addition to improving growth efficiency, the harvest period of Kingdee Cloud's transformation is more reflected in cash flow. In 2023, the company's operating cash flow reached RMB 653 million, a year-on-year growth of 74.5%. Furthermore, the company's cloud subscription service-related contract liabilities (unrecognized revenue) achieved a year-on-year growth of 29.6%, indicating sufficient future growth potential.

Facing the continuous changes in the external environment, Kingdee was able to achieve rapid growth in cloud service business in 2023, with revenue growing at a high speed, achieving relatively rare high-quality operations.

Looking ahead to the next three years, the company plans to continue promoting the "subscription-first, AI-first" strategy to achieve rapid revenue growth from 2024 to 2026, aiming to maintain a compound annual growth rate of 15%-20% over three years, and achieve a 30% compound growth in subscription ARR in the next three years.

Renewal rates in large and medium-sized markets remain high, advantages of localization substitution are emerging

Looking back at KINGDEE INT'L's business development in 2023, rapid growth in the large enterprise market is another major feature.

According to the Intelligent Finance and Economics APP, in the 2023 fiscal year, KINGDEE INT'L achieved significant revenue growth in the large enterprise market. The combined revenue of Kingdee Cloud · Cangqiong and Kingdee Cloud · Xinghanyun was approximately RMB 981 million, a year-on-year growth of about 40.9%; Cangqiong and Xinghanyun subscription ARR grew by about 48.7% year-on-year, with a net dollar retention rate (NDR) of 105.3%.

By the end of 2023, the company had signed contracts with 1,458 customers, including 647 new customers, such as China National Chemical Corporation, China National Building Material, Dongfeng Motor, Tongwei Group, China National Offshore Oil Corporation, Shijiazhuang Four Drugs, Fuyao Glass, Mercedes-Benz China, Hongtong Gas, and other well-known enterprises.

In the medium-sized enterprise market, Kingdee Cloud · Xingkong achieved revenue of approximately RMB 1.952 billion in the 2023 fiscal year, a year-on-year growth of about 16.2%; Xingkong Cloud subscription ARR grew by about 29.2% year-on-year, with a net dollar retention rate of 97.2%, serving approximately 39,000 customers.

Among them, Kingdee Cloud · Xingkong signed contracts with over 1,400 national, provincial, specialized, and new enterprises, with a market share of 43% in the national specialized and new "small giant" segment, further solidifying its market leadership position. New customers include Ruipu Saik, Jetai New Energy, Lexin Medical, Haigu Technology, Juwan Technology Research, Subway China, Xianhui Technology, Haini Biology, and Laifen Technology. Overall, the company's performance in capturing the large and medium-sized markets in 2023 was impressive It is worth mentioning that, with the accumulation brought by breakthroughs in benchmark top clients over the years, the company has improved its product strength, and gradually demonstrated advantages in domestic substitution. According to the information from Zhitong Finance APP, as of the end of 2023, KINGDEE INT'L has helped 221 enterprises complete domestic substitution.

It is understood that in the aspect of building domestic substitution capabilities, the Kingdee Cloud·Cangqiong PaaS platform has reached the level of ranking first in China and top ten globally among high productivity aPaaS platforms, and does not rely on any foreign commercial software, achieving full technology stack autonomy and controllability.

In addition, Kingdee Cloud·Xinghan has built a relatively comprehensive global platform and business capabilities, and has been validated by applications from many international large enterprises such as China Merchants Group, Hisense, Huawei, Cathay Pacific Airlines, and others. Leading in high-end finance, further enriching the application scenarios for Fortune 500 companies in the supply chain and manufacturing fields, filling the gap in intelligent and controllable manufacturing in the large equipment manufacturing industry.

Xinghan Human Resources Cloud continues to build world-class HR products, and has helped large enterprises such as Huawei, Shanxi Guoyun, Construction Bank, Geely Auto, Dongfeng Company, Xiangyu Group, and Belle Group achieve autonomous and controllable digital transformation of human resources.

Taking Shanxi Guoyun as an example, due to the large number of subsidiaries, diverse industries, large scale, and complex management needs of state-owned capital operation companies, Kingdee has cooperated with Shanxi Guoyun and Shanxi Yundai Digital Production Company to create a state-owned capital operation digital management platform consisting of "one cabin, eight verticals, and three horizontals", including eight systems such as "capital monitoring, financial management, human resources, investment management, sunshine procurement, capital financing, supply chain finance, asset management", realizing the transformation of Shanxi Guoyun from asset management to capital management.

It is reported that this platform achieves full coverage of investment entities, full process connectivity; quantified management of risk indicators, automated control of compliance; iterative optimization of models to improve investment quality and efficiency. This standardizes the investment behavior of invested enterprises, prevents investment risks, improves investment returns, promotes the optimization of state-owned capital layout, ensures the preservation and appreciation of state-owned assets, and becomes a benchmark case for the digital transformation of million-employee scale state-owned enterprises.

The acceleration of domestic substitution in the information creation industry, "AI first" in the next three years

In September 2022, the State-owned Assets Supervision and Administration Commission issued the important State-owned Assets Development Document No. 79, comprehensively guiding and requiring central SOEs to implement the domestic substitution transformation of information systems. Among them, all central enterprises are required to report the progress of information creation system replacement to the State-owned Assets Supervision and Administration Commission at the end of each quarter starting from January 2023.

By 2024, the domestic substitution process of information creation in central SOEs will accelerate, and central SOEs will enter a critical period of "choice", launching the second phase of "domestic substitution of information creation". With the gradual deepening of domestic substitution of information creation, central SOEs will comprehensively deepen and solidify the domestic substitution of information creation, and some central SOEs have begun the domestic upgrading of business applications such as ERP, CRM, finance, human resources, and treasury.

According to the requirements of Document No. 79, by the end of 2027, all central enterprises are required to achieve information system security and domestic substitution of information creation. This also means that the information creation industry will transition from "key links, partial markets" to "full industry chain, entire industry" information technology upgrade, comprehensively constructing independent domestic IT standards and service ecology At the same time, as the pace of large-scale model applications accelerates, the integration of artificial intelligence and information creation is gradually deepening. In particular, the integration with application software will bring rich application scenarios, bringing rich market opportunities for information creation manufacturers and prompting enterprises to achieve independent controllability while completing intelligent upgrades.

In other words, choosing a secure, reliable, independent controllable, and intelligent digital platform is becoming the core demand of large enterprises and digital intelligence manufacturers at present, and it is also an inevitable choice in the future enterprise transformation process.

In response to this trend, the domestic substitution of KINGDEE INT'L not only includes software function replacement, but also combines the digital upgrade of enterprise software with the domestic substitution of information creation through new generation AI technology, platforms, and products, to create solutions more suitable for Chinese enterprises.

According to the Zhitong Finance APP, during the reporting period, Kingdee released an enterprise-level large-scale model capability platform - Kingdee Cloud·Cangqiong GPT, which extensively integrates general large-scale model capabilities such as Baidu, helping enterprises build rich intelligent applications in complex management scenarios.

Based on Kingdee Cloud·Cangqiong GPT, Kingdee launched China's first financial large-scale model, encapsulating 30 years of financial knowledge from Kingdee and practical services for over 7.4 million customers, providing enterprises with comprehensive analysis and forecasting, expert support, report generation, and interpretation services. The related products have been applied in benchmark customers such as Hisense Group and Jianfa Real Estate.

At the 2023 fiscal year performance conference, Xu Shaochun stated that currently, the reasoning ability of AI is already two to three times that of the human brain, and in the future, it may be ten times, twenty times, one hundred times, or even greater. This is a very exciting thing that can help humanity reduce costs, increase efficiency, and create greater value. In the next three years, Kingdee will prioritize "AI".

Looking ahead to 2024, the management of KINGDEE INT'L stated that the company will continue to build "world-class products", empower all products with AI, innovate with AI native technology in a disruptive manner, thereby leading the industry in the era of artificial intelligence, on par with world-class standards, and truly enabling AI to be implemented in more enterprise management scenarios