Kingdee International Software : IR Newsletter 1Q 2019

Kingdee IR Newsletter

1Q 2019

Summary of Operating Activities during the Period

Kingdee announced 2018 annual results; revenue from Kingdee Cloud surged 49.5% Y-o-Y

On 13 Mar 2019, Kingdee International Software Group Company Limited announced its annual results for the twelve months ended 31 December 2018. During the Reporting Period, the Group accelerated its efforts to promote technological innovation and achieved revenue growth of 21.9% year-on-year. As the Group made steady progress in transformation towards Cloud services and the ecosystem of its Cloud business was further strengthened, the revenue from Kingdee Cloud business surged 49.5% year-on- year. During the Reporting Period, the Group recorded total revenue of RMB 2.809 billion, representing a 21.9% year-on-year increase. The performance of Cloud services continued to improve with their revenue reached approximately RMB 849 million, up 49.5% year-on-year and accounting for 30.2% of the Group's total revenue. Management software business maintained steady development, with its revenue amounted to RMB 1.959 billion, up 12.9% year-on-year. The Group recorded gross profit of RMB 2.294 billion, up approximately 22.3% from a year ago. Its gross profit margin was approximately 81.7%. The Group recorded operating profit of approximately RMB

453million, representing a 7.7% year-on-year growth; profit attributable to the shareholders of the Company grew by 32.9% from a year ago to RMB 412 million; net cash inflow generated from operating activities was approximately RMB 906 million, representing an increase of 9.9% year-on-year.

Summary of Operating Activities during the Period

Kingdee retained the largest market shares of three SaaS business segments as it accelerated transformation towards Cloud services

International Data Corporation ("IDC") has recently released the latest "China Semiannual Public Cloud Services Tracker for 1H 2018". According to a chart titled "China SaaS Sales by Vendor for 1H 2018" in the report, Kingdee International Software Group ("Kingdee") outpaced Microsoft, SAP and other domestic and foreign competitors and remained the leader in China's SaaS market.

Meanwhile, another IDC report titled "China Semiannual Enterprise-Grade SaaS ERM Application Software Market Tracker for 1H 2018" showed that Kingdee captured the largest share of domestic SaaS ERM public CFloud market with its share increasing from 14% last year to 15%. In addition, Kingdee ranked the first in SaaS financial Cloud market in the first half of 2018 and possessed 37.3% of the market share. The Company also took the top spot in overall enterprise-grade SaaS, SaaS ERM and SaaS financial Cloud service markets in 2016 and 2017.

Li Guangxue from Kingdee: Industrial Internet is a new growth engine for the Greater Bay Area

On 12-16 January, the 5th Global Shenzhen Entrepreneurs Convention was grandly held in Shenzhen. This spectacular event was co- organized by the Federation of Shenzhen Commerce and the Shenzhen General Chamber of Commerce and featured the theme of "seamless cooperation between Hong Kong and Mainland China". More than 80 business leaders, experts and scholars, including Ma Huateng, Wang Shi and Ma Weihua, gathered together to shed their insights on the development of the Greater Bay Area amid the current global economic situation.

Li Guangxue, the senior vice president of Kingdee and the president of Kingdee Golden Butterfly Cloud Computing Company, was invited to attend the forum featuring "seamless cooperation for joint development in the Greater Bay Area". He exchanged views with other participants on the future development of the Greater Bay Area. Mr. Li also had a thorough discussions with various guests such as Dai Zhikang, the chairman of Zendai Group; Wu Xian, the chairman of Wote Advanced Materials; Zhou Jinchang, the vice-chairman of Deloitte China and Lu Xianping, the president of Chipscreen Biosciences, at the "Forum on Cooperation for Greater Bay Area Development", a major event of the convention. They explored the ways to develop the Greater Bay Area into a growth engine amid the current global environment and the path to drive the economic growth of this area.

Summary of Operating Activities during the Period

Kingdee teamed up with Wen's Foodstuff Group to jointly develop a digital platform for agriculture and animal husbandry industry and helped the latter to reinforce its competence through Industrial Internet

On 16 January, the ceremony to mark the official establishment of "Guangdong Xinnong Hulian Technology Co., Ltd." ("Xinnong Hulian") was held in Guangzhou. It is a joint venture formed by Kingdee International Software Group and Wen's Foodstuff Group, with an aim to capture tremendous opportunities arising in domestic agricultural and animal husbandry market.

While providing a digital platform for agriculture and animal husbandry industry, it will also conduct in-depth researches on breeding, supply chain and other areas. Besides, it will integrate Cloud computing, Big Data, Internet of Things, Blockchain, artificial intelligence and other technologies to offer comprehensive solutions to the agriculture and animal husbandry industry. The ceremony was attended by Robert Xu, the chairman of Kingdee, and Wen Zhifen, the chairman of Wen's Foodstuff Group.

Robert Xu: The underlying essence of accounting is "truth"

On 20 January, the annual meeting cum spring festival gala of Shenzhen Accounting Association was held in Wuzhou Hotel in Shenzhen. The event highlighted the theme of "embracing the new era, sharing the achievements of the association". Liu Yuting, former director of Accounting Department of the Ministry of Finance; Robert Xu, the president of Shenzhen Accounting Association and the chairman of Kingdee; Wang Jizhong, the executive president of Shenzhen Accounting Association; Cheng Fangqing, the invited president of Shenzhen Accounting Association; together with multitudinous members from the association attended it. They congratulated the association for achievements it made over the past year. Robert Xu, the president of Shenzhen Accounting Association and the chairman of Kingdee, was briefed on the work summary of the association for 2018 and its work plan for 2019. Then, he expressed gratitude to every members for their efforts made in the past year. Moreover, Mr. Xu delivered a speech on the "New World for Financial Management", depicting the blueprint of a new world of future financial management.

Summary of Operating Activities during the Period

Kingdee's 2019 Partnership Conference: Accelerate transformation towards Cloud services and focus on Industrial Internet

"If we said that Consumer Internet had reshaped the operating models of retail, telecommunications and travel industries and created new value chains for them over the past decade, then Industrial Internet will usher in a new era for traditional industries," said Robert Xu, the founder and chairman of Kingdee, at t h e C o m p a n y ' s 2 0 1 9 N a t i o n a l Partnership Conference on 21 January.

This event featured the theme of "accelerating transformation towards Cloud services, getting direct access to customers and helping them to succeed". Kingdee will formulate detailed plan for the Industrial Internet and create a win-win for its partners. "The essence of Industrial Internet is not Internet, but the traditional industries." Robert Xu said at the conference that the past decade saw a boom of Consumer Internet and the formation of new industrial value chains, while the next 10 years will witness the industrial value chains to be reshaped by Industrial Internet. During this process, we need to work together with partners so as to clearly understand the nature of their businesses and solve the real problems of customers.

Kingdee and Alibaba are included in the first batch of accredited Cloud service providers which passed the service capability assessment

The Information Technology Service Standards Branch of China Electronic Industry Standardization Technology Association (hereinafter referred to as ITSS Branch) announced the findings of its first Cloud service capability assessment. Kingdee Software (China) Co., Ltd. was included in the first batch of accredited enterprises which passed the SaaS service capability conformity assessment. Information Technology Service Standard ("ITSS") is a set of standards and methodologies for the provision of IT services, which are developed by ITSS' working group under the leadership and support of the Ministry of Industry and Information Technology as well as t he S t a n d a r d i z a t i o n Administration of China. The evaluation was based on the GB/T 36326-2018 ("General Requirements for Information Technology, Cloud Computing and Cloud Services Operation") and ITSS "PPTR" model (people, process, technology and resources used in the provision of IT services). It took into account the unique features of SaaS Cloud services and assessed the service providers' capability in five areas: people, operational process, technology, safety and operation management.

Summary of Operating Activities during the Period

Kingdee K/3, which was unveiled at the Conference for Thousands of China Internet of Things CEOs, reshapes the manufacturing sector with digital technology

The 2019 Conference for Thousands of China Internet of Things CEOs was grandly held in Suzhou International Jinji Lake C o n v e n t i o n C e n t e r r e c e n t l y . T h e conference was hosted by Yang Weiqi, the secretary-general of China Internet of Things Industry Application Alliance. Jin Xiaohu, the deputy director of Suzhou B u r e a u o f I n d u s t r y a n d I n f o r m a t i o n Technology; and Lu Yuqing, the general manager of Suzhou Branch of China Telecom, delivered brilliant speeches to the audience.

As a major partner of the event, Suzhou Branch of Kingdee Software (China) Co., Ltd. was invited to the event and delivered an inspirational speech at the "Suzhou International Industrial Internet of Things Application Seminar".

The Shenzhen Enterprises Cloud Adoption Alliance was officially established to help enterprises to solve real problems and create new growth drivers

On 19 March, the ceremony to mark the official establishment of the "Shenzhen Enterprises Cloud Adoption Alliance" j o i n t l y f o r m e d b y t h e F e d e r a t i o n o f Shenzhen Commerce and Kingdee was held. Both parties said that they would cooperate with each other to provide integrated Cloud adoption solutions to the enterprises in Shenzhen and China and to h e l p t h e m s a v e c o s t s a n d e n h a n c e operating efficiency through the adoption of Cloud services.

In the past few years, many companies were puzzled by the usefulness of Cloud adoption. Therefore, the representatives from the Ministry of Industry and Information Technology, the Federation of Shenzhen Commerce, Tencent Cloud, Huawei Cloud, Han's Laser, Bliss Cake and Kingdee were invited to the event for sharing their views with nearly 1,000 business operators how Cloud technology could really help them to solve problems and to create new growth drivers. Moreover, they offered the audience the practical guides to Cloud adoption. Qiu Mei, the permanent honorary president of the Federation of Shenzhen Commerce, said, "The Shenzhen Enterprises Cloud Adoption Alliance will adhere to its mission, persist in innovation, continue to create values to Shenzhen enterprises and help them to accelerate digital transformation."