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NOAH HOLDINGS(NOAH) - 2022 Q1 - Quarterly Report

Financial and Operational Highlights The company achieved significant revenue growth in 2021 driven by wealth management, though operating income was impacted by strategic investments Fourth Quarter 2021 Financial Highlights Q4 2021 saw strong revenue growth of 32.2% YoY, but a 60.6% decline in operating income due to investments and provisions Q4 2021 Net Revenues by Segment (YoY) | Segment (RMB millions) | Q4 2020 | Q4 2021 | YoY Change | | :--- | :--- | :--- | :--- | | Wealth management | 643.2 | 969.3 | 50.7% | | Asset management | 306.0 | 273.8 | (10.5)% | | Other businesses | 4.0 | 17.0 | 325.5% | | Total net revenues | 953.2 | 1,260.1 | 32.2% | Q4 2021 Income from Operations by Segment (YoY) | Segment (RMB millions) | Q4 2020 | Q4 2021 | YoY Change | | :--- | :--- | :--- | :--- | | Wealth management | 206.3 | 183.6 | (11.0)% | | Asset management | 151.8 | 80.8 | (46.8)% | | Other businesses | (22.6) | (132.1) | 481.9% | | Total income from operations | 335.5 | 132.3 | (60.6)% | - Net income attributable to Noah shareholders was RMB 281.3 million, compared to a net loss of RMB 1,573.5 million in Q4 2020, with the prior-year loss mainly due to a one-off Camsing settlement expense4 - Non-GAAP net income attributable to Noah shareholders for Q4 2021 was RMB 289.6 million, a 10.3% increase from the corresponding period in 20206 Full Year 2021 Financial Highlights Full year 2021 net revenues grew 29.9%, while operating income slightly decreased by 4.7% due to higher expenses Full Year 2021 Net Revenues by Segment (YoY) | Segment (RMB millions) | FY 2020 | FY 2021 | YoY Change | | :--- | :--- | :--- | :--- | | Wealth management | 2,366.3 | 3,194.9 | 35.0% | | Asset management | 875.5 | 1,041.5 | 19.0% | | Other businesses | 64.0 | 56.7 | (11.4)% | | Total net revenues | 3,305.8 | 4,293.1 | 29.9% | Full Year 2021 Income from Operations by Segment (YoY) | Segment (RMB millions) | FY 2020 | FY 2021 | YoY Change | | :--- | :--- | :--- | :--- | | Wealth management | 817.5 | 921.5 | 12.7% | | Asset management | 459.8 | 485.2 | 5.5% | | Other businesses | (18.8) | (207.8) | 1,004.8% | | Total income from operations | 1,258.5 | 1,198.9 | (4.7)% | - Net income attributable to Noah shareholders for the full year 2021 was RMB 1,314.1 million, compared to a net loss of RMB 745.2 million in 20209 - Non-GAAP net income attributable to Noah shareholders for the full year 2021 was RMB 1,372.7 million, a 21.5% increase from 202010 Fourth Quarter and Full Year 2021 Operational Updates Operational performance in 2021 was marked by growth in registered clients, distributed product value, and total AUM Wealth Management Business The wealth management segment expanded its client base and relationship manager team in 2021 - Total registered clients increased by 14.2% YoY to 411,981 as of December 31, 202112 - For the full year 2021, the total number of active clients (including mutual fund-only clients) increased by 25.0% YoY to 42,76414 - The number of relationship managers increased by 6.9% YoY to 1,316 as of December 31, 202118 Aggregate Value of Investment Products Distributed (Full Year) | Product type | FY 2020 (RMB billions) | FY 2021 (RMB billions) | | :--- | :--- | :--- | | Mutual fund products | 38.0 | 37.1 | | Private secondary products | 35.2 | 37.8 | | Private equity products | 17.9 | 18.1 | | Other products | 3.6 | 4.2 | | All products | 94.7 | 97.2 | Asset Management Business The asset management business saw modest AUM growth, with private equity remaining the dominant investment type - Total assets under management (AUM) as of December 31, 2021, grew 2.1% YoY to RMB 156.0 billion (US$24.5 billion)20 Assets Under Management by Investment Type (as of Dec 31, 2021) | Investment type | AUM (RMB billions) | Allocation | | :--- | :--- | :--- | | Private equity | 130.9 | 83.9% | | Public securities | 11.2 | 7.2% | | Real estate | 6.6 | 4.3% | | Multi-strategies | 5.9 | 3.8% | | Others | 1.4 | 0.8% | | All Investments | 156.0 | 100.0% | Other Businesses The other businesses segment was strategically rebranded to 'Noah Digital International' to enhance client services - The other businesses segment has been transitioned to "Noah Digital International" to provide more comprehensive services and investment products to clients22 Detailed Financial Results A detailed analysis of 2021 financials reveals revenue growth offset by rising operating costs and credit loss provisions Fourth Quarter 2021 Financial Results Q4 revenue growth was driven by one-time commissions, but profitability was constrained by sharply higher operating expenses Net Revenues Q4 net revenues rose 32.2% YoY, primarily fueled by a doubling of one-time commissions in wealth management - Total net revenues for Q4 2021 were RMB 1,260.1 million, a 32.2% increase YoY24 - Wealth Management one-time commissions doubled to RMB 472.0 million (+100.2% YoY) due to an increase in insurance products distributed25 - Wealth Management recurring service fees grew 40.3% YoY to RMB 417.0 million26 - Asset Management performance-based income remained stable at RMB 125.4 million, primarily from offshore private equity funds28 Operating Costs and Expenses Operating costs surged 82.6% in Q4, largely due to a significant provision for credit losses - Total operating costs and expenses for Q4 2021 were RMB 1,127.8 million, an 82.6% increase YoY30 - A provision for credit losses of RMB 100.9 million was recorded, with RMB 85.6 million related to loan receivables in the 'Other Businesses' segment3033 Operating Margin The overall operating margin compressed significantly to 10.5% in Q4 from 35.2% in the prior year - Overall operating margin for Q4 2021 was 10.5%, down from 35.2% in Q4 202034 - Wealth management operating margin decreased to 18.9% from 32.1% due to investments in talent and systems34 - Asset management operating margin fell to 29.5% from 49.6% due to investments in client events and talent35 Net Income The company returned to profitability in Q4 with a net income of RMB 273.9 million - Net income for Q4 2021 was RMB 273.9 million, compared to a net loss of RMB 1,572.9 million in Q4 202038 - Net income attributable to Noah shareholders per diluted ADS was RMB 4.16 (US$0.65)41 - Non-GAAP net income attributable to Noah shareholders per diluted ADS was RMB 4.28 (US$0.67), up from RMB 4.13 in Q4 202042 Full Year 2021 Financial Results Full-year revenue grew 29.9%, but operating margin declined due to faster growth in operating costs Net Revenues Full-year net revenues increased by 29.9%, with strong growth in commissions and performance-based income - Total net revenues for FY 2021 were RMB 4,293.1 million, a 29.9% increase YoY43 - Wealth Management one-time commissions grew 54.1% YoY to RMB 1,174.6 million, primarily from insurance products44 - Wealth Management performance-based income surged 128.5% YoY to RMB 466.6 million from public securities products45 - Asset Management performance-based income increased 71.1% YoY to RMB 313.6 million from private equity fund products46 Operating Costs and Expenses Operating costs for the full year increased by 51.1%, outpacing revenue growth - Total operating costs and expenses for FY 2021 were RMB 3,094.2 million, a 51.1% increase YoY47 - Provision for credit losses for the full year was RMB 113.0 million47 Operating Margin The full-year operating margin declined to 27.9% due to strategic investments and a lower 2020 expense base - Overall operating margin for FY 2021 was 27.9%, down from 38.1% in FY 202050 - The decline in operating margin was attributed to budgeted investments in talent and client experiences, as well as lower expenses in 2020 due to the COVID-19 pandemic5051 Net Income The company achieved a strong net income of RMB 1,306.1 million for the full year, reversing the prior year's loss - Net income for FY 2021 was RMB 1,306.1 million, compared to a net loss of RMB 743.5 million in FY 202054 - Net income attributable to Noah shareholders per diluted ADS was RMB 19.45 (US$3.05)55 - Non-GAAP net income attributable to Noah shareholders per diluted ADS was RMB 20.32 (US$3.19), up from RMB 18.12 in FY 202056 Financial Position and Cash Flow The company maintained a solid cash position while navigating significant cash outflows for investments and share repurchases Balance Sheet and Cash Flow Operating cash flow nearly doubled in 2021, though large investment and financing outflows impacted the overall cash balance - Cash and cash equivalents stood at RMB 3,404.6 million (US$534.2 million) as of December 31, 202157 - Net cash inflow from operating activities for FY 2021 was RMB 1,521.8 million, a significant increase from RMB 796.3 million in FY 202058 - Net cash outflow from investing activities for FY 2021 was RMB 2,572.1 million, compared to an inflow of RMB 352.6 million in FY 2020, due to the cash payment for a new headquarters59 - Net cash outflow from financing activities for FY 2021 was RMB 513.1 million, mainly due to a share repurchase program60 Outlook and Other Information The company provides an optimistic 2022 forecast and reconciles GAAP to non-GAAP financial measures 2022 Forecast Management forecasts 2022 non-GAAP net income between RMB 1.45 billion and RMB 1.55 billion, expecting continued growth - The company forecasts non-GAAP net income attributable to Noah shareholders for the full year 2022 to be in the range of RMB 1.45 billion to RMB 1.55 billion63 - Management is optimistic about growth in the number of core clients, net revenues, and take rate in 2022, citing growing demand in domestic insurance and higher performance-based income63 Reconciliation of GAAP to Non-GAAP Results Non-GAAP results are presented by adjusting for share-based compensation and non-recurring settlement expenses Q4 2021 GAAP to Non-GAAP Reconciliation (RMB'000) | Description | Q4 2020 | Q4 2021 | | :--- | :--- | :--- | | Net (loss) income attributable to Noah shareholders (GAAP) | (1,573,507) | 281,312 | | Adjustment for share-based compensation | 9,041 | 12,435 | | Add: settlement expense (reversal) | 1,828,907 | (719) | | Less: tax effect of adjustments | 1,985 | 3,421 | | Adjusted net income (non-GAAP) | 262,456 | 289,607 | Full Year 2021 GAAP to Non-GAAP Reconciliation (RMB'000) | Description | FY 2020 | FY 2021 | | :--- | :--- | :--- | | Net (loss) income attributable to Noah shareholders (GAAP) | (745,225) | 1,314,131 | | Adjustment for share-based compensation | 59,789 | 51,036 | | Add: settlement expense | 1,828,907 | 19,908 | | Less: tax effect of adjustments | 13,821 | 12,374 | | Adjusted net income (non-GAAP) | 1,129,650 | 1,372,701 |