Q3 2019 Earnings Call
Good morning, and welcome to the Z T O two announced third quarter financial results on December 18th 2019 Conference call.
Yes, the pence will be in listen only mode.
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Today's presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one under Touchtone phone to withdraw your question. Please press Star then too. Please note. This event is being recorded.
I would now like to turn the conference over to Sofia Lee. Please go ahead.
Thank you operator.
Hello, everyone and thank you for joining us today. He companies results and thing that's true relations presentation were released earlier today in the available on myself nice IR website.
Yeah, our dog CTO dotcom.
The call today's coffee tea, all our Mr. based on my Chairman and Chief Executive Officer enemies, Sleeping yen Chief Financial Officer, Mr. line will be they brief overview of the company's business operations and highlight.
Yeah, well go through these financials and guidance.
Well always be available to answer your questions. During the two ways session that follows.
I remind you that this call may contain forward looking statements made on Dirty Safe Harbor provisions of the private Securities Litigation Reform Act of money 95.
Such statements are based on management's current expectations at current market and operating conditions.
Late two events that involve known or unknown risks uncertainties and other factors.
All of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results performance or achievements with you for a mature relief on those any forward looking statements.
Information regarding this and other risks uncertainties and factors, including the company's filing with the U.S. Securities and Exchange Commission.
Company does not undertake any obligation to update any forward looking statement at the result of new information, you're getting them or otherwise except as required under law.
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Uh-huh. Please allow me to translate what chairman.
Hello, everyone. Thank you for joining us on todays conference call.
Companies or whatever.
During the quarter [laughter].
And customer satisfaction.
Did you Bird Street.
I mean packages increased 45.
Or one four percentage points higher than the industry.
Our market share rose 2.3 percentage points year over year to 89%.
Meanwhile, we delivered one point 32 billion of adjusted net income.
24.6% Roseland this quarter it off.
I would think Auburn strategic go video pass a strong growth momentum so quarter as we achieved profit target well enjoy in high quality of surveys.
Fashion.
Sure I heard Recalibrated network policies for 2009, having taking good.
More and more local market saw these your why didn't they obviously nothing region north messages.
Second we squeeze her body call magnified economies of scale.
Oh, just beverage infrastructure resources, we have accumulated over the years as well as multi generational enhancements in automation and transportation capability.
I'm, just wondering how and why how transportation costs for Pasos declined 10.7%.
Then.
Third we increased the efforts in advocating network partners to grasp the strategic importance of waste work sending below my operation.
We encourage our network partners.
Ladies apparel.
One quick and they Appalachian cost.
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The annual singles day on November 11, lodging industry wide exercise so test the extreme for pickup so taishan transport and deliberate expressed delivery company.
On November 11.
These deals odder exceeded 200 million and possible who's a passive.
On November 12, However, total puzzled why do we see some dealing with a year of 2009.
And then sold until yields and we're extremely proud of this milestone accomplishment and we borrow to stay vigilant and show to our mission.
Hold our sense of responsibilities and urgency as we continue charge forward.
2019 is nearing an end.
In the coming days.
We will remain focused on covering our network partner to be without fear, a comprehensive capabilities, including stronger last mile Preston.
Well I in support of or frontline personnel to become self motivated and zapfel leased entrepreneurial spirit.
We will remain focused on increasing capability with every time than this and the higher coffee cost efficiency.
Data analytics and benchmarking.
We aim to establish a healthy competitive.
Let's see among regions will foster Sherri learning and improving and you raised the bar overall operational excellence.
We will remain focused attention to detail in making that her assessment of the policy.
And so achieving finer balance between south central humans region.
Take advantage of the exceeding wage not advantages they alert or market changes in the continue expanding upper body with vintage across the nation.
We believe.
The strong domestic consumption me are supportive of the healthy gross for <unk> and that's the tiny is expressed delivery that's real one well continue to maintain steady growth momentum.
Sure arduous journey in the past 17 years.
You also passed from behind and see if we worry to outperform our peers endo tens of pure advantage ending ball ultimately to worse.
We have a long road ahead.
We must be sample 40 weeks area where are.
They encores to what we want to accomplish.
Oh sure Albert partners and the carry out each tap on it.
With that I think you for your attention now that up here from me, yeah, well discuss.
Thank you, Jim a lie and Hello to everyone on the call.
Is that goes through our financial results. Please note that unless specifically noted our numbers quoted are in RMB <unk> percentage changes refer to year over year comparison.
Ito analysis of our financial performance unit economics in cash flow summaries are posted on our website.
Here and I will only highlight some of the key points.
Sito delivered a strong volume growth.
This quarter and exceeded our earnings expectations without compromising quality of services.
Oh volume grow nearly 1 billion parcels the speed that is 18.4 percentage points faster and industry average.
Consequently, our market share rose 2.3, 0.2, 18.9% for the quarter.
Total revenues for our core expressed delivery business, where approximately 5 billion, which grew 26.6% as a result mixed effect, a 45.9 present volume increase and 13.2% price decrease due to incentive given.
As an assistant is the necessary competitive measures during the quarter.
Revenues for key accounts were approximately 619 million an increase of 31.7% on a 50% volume growth.
Hey accounts represent less than 10% of our total Bonnie.
Total cost of goods, so increased 26.1%.
Volume correlated sorting and transportation costs grew 27.8% and 31.7% respectively. As a result of scale leverage and very effective cost control.
The net effect is that gross margin rate decreased one percentage point from last year to 30.3%.
Income from operations grew 28.3 person and SGN eight excluding SBC as a percentage of revenues decreased to 5.3% compared to 5.6% last year.
We continue to demonstrate sawn corporate cost advantage.
Hi, or amount for tax rebate and government subsidies. This quarter helped the 0.8 point op margin rate increase.
Adjusted net income grew 24.6% to reach 1.32 billion and adjusted net income rate was 24.6% compared to 25% last year.
Relatively stable.
Now turning to unit economics her parcel.
He is p. decline was 25 cents.
Out of which 23 cents was associated with volume incentives.
Competition remained relatively intense.
Partially in sales region.
Particularly in South region zoning during the third quarter.
Cost of goods sold went down by 14 cents per parcel of which 11 cents came from long haul transportation in sorting hop cost savings.
The increased use of self owned vehicles with increasing proportion of higher capacity trailer trucks helped drive down unit transportation costs by six cents.
The increase in the number the automated sorting equipment helped to keep heads pound, though and starting up cost per parcel also went down and by five cents.
With better SGN a leverage.
Adding back another two cents adjusted operating income for par so declined by six cents.
Operating cash flow was 1.42 billion and Capex spending was 1.71 billion, which brings year to date total capex spending to 3.44 billion.
Oh annual Capex commitment remains to be 6.8 billion as we expect cash outlay to be around four to 5 billion for the year.
In summary, we delivered a strong third quarter on both market share gain in earnings expansion.
Oh strategy is sound and our resource advantage and execution capabilities continue to support accelerated volume increase and operation of the ability for thousands of on network partners.
We left how annual guidance unchanged at this time.
Oh track record has well demonstrated ability our ability to consistently achieve outfit Oh.
Even the most recent market condition Trust October performance to date, we're very confident that we are well on our way to deliver on our said target.
This concludes our prepared remarks operator, please open the line for questions. Thank you.
We will now begin the question answer session to ask a question you May Press Star then one under Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then too as a reminder, management would asks that you would limit your questions to only two questions.
At this time, we will pause momentarily to assemble a roster.
Our first question comes from Melissa Chen with China Renaissance. Please go ahead.
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Thank goodness for the quarter, we're talking already the in place. So I'm just wondering for the Fourq you liking and also for the 2020 I. We're gonna saw always gonna see more like calls compensating.
Himself affording call. Thank you.
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Okay, Oh for the first question. The died and we have been demonstrating our ability to deliver on I'll say bowls and down we are all always.
Prudent and communicating with our performing targets and that this always set for the year.
It is now habit to change them and the fact that we're looking at our performance for the first three quarter and also looking at the fourth quarter. We are confident and we are well underway to achieve a though.
The second part of our question we.
At the end of 2018.
We have installed.
No we installed.
129, small parcel automation aligned in our sorting happen this quarter and compared to 78 equipment lines in the third quarter 2018. This is a large increase we also installed 79 cents of large sorting equipment in around 42 sorting hub.
We added on so couple of hundred dynamic weighing machines to better process and replace some of the manual works that was done before.
Parcel sorted through automation equipment accelerated.
To about 66% of total parcel and automated sorting equipment line partially.
Yes, it will be partially used to offset increased in the labor cost as you understand labor costs is about 70% of our sorting hop costs, which indicates that we still have.
Room to improve and the fact that in the fourth quarter and so far what we've seen especially during the double 11 period, our cost performance is much better than last year as well.
So we are confident that there are I still lots of room to grow in terms of attaining cost effectiveness.
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Our next question comes from Ronald called <unk> with Goldman Sachs. Please go ahead.
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Oh, you comment or to go live events from call for somebody else well. Thanks.
Hello.
Gotcha Gotcha.
Thank you I don't want go and Sophie My two questions. Firstly, just wondering here management's view on the 2020 outlook, let's break even.
How is the 29 team growth has been really strong for the industry.
Yes piece have fallen as a result, but also the unit costs have been quite quite successful in unit cost cuts and result, the EBIT Apostle has all it but you still delivered a very strong profit growth. So into the 2020, how are we seeing in outs unit cost cuts how much room do we have and that power that really yeah.
Impact youre sort of pricing.
Got it Gi and leading to the outlook for profits also.
Second question is on just the franchisee if you could share how your network partners have been doing based on maybe something a survey.
In the strong year volume growth, while at the off its been if it gets any color on the on the health of network partners. Thank you.
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Okay for the first question.
Oh outlook for 2020 , So very positive we believe the expressed delivery industry in China will continue to grow steadily and it's very likely another 10 billion parcel growth for 2020 .
That is very possible and at this is based on the track record and also an analysis of the domestic consumption need which is still very style.
For our cost.
Effect. This next game, we still believe there are plenty of room, especially next year. We are looking to install more large sorting equipment also with Digitization and also technology involvement some of our operational excellence will continue to evolve and though with volume increase in Uh huh.
Scaled leverage we have better opportunity to realize.
Cost efficiency going forward.
On the second part with the impact potentially on our on our partner network partners.
Two points that we want to make that with of course first about the volume growth as a backdrop of our overall industry, but because of its volume advantage CTO was able to provide a more volume to our network partners, which enhanced help which has helped.
In decreasing the cost on pick up an end the deliberate and roughly we estimated about 10 cents a advantage in that area and then secondly, our brand the brand brings about recognition of our stable services in quality.
Services. So on average our a price is 10 cents higher than our peers.
This translates into a confidence as well as real room for growth for our network partners.
Yeah, our assessment, especially throughout this year in relative terms compared to our peers. Our network partners are more stable I'm more confident and as we adjust forward too. Okay. We look forward into 2020 , we as we continue to focus on volume growth and market share gain.
Oh network partners well again.
The hour.
Effective allies and also a partners in achieving our overall golf.
Thank you I buy their handle.
As a reminder, if you have a question you can press Star then one to enter the Q.
Our next question comes from.
Bowel Yang Ming Tsai from Citi. Please go ahead.
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Eagle Oh, sorry, My first question is pricing.
Actually seem a little bit weaker than expected up price. They self said to quote her although wondering how the prices would or would it look like in the fourth quarter, especially during the peak season, if that decline on a we'll be back out.
Besides I also want them a lot so.
To give us an all to do about Oh computation strategy of next year I believe the pure is waiting for I will move for a second is older last mile delivery. All construction all kinds of we have been seeing it's very important default or is this year.
That's how we get more innovative that herself the post stations, a number and as a percentage off the parcels Oh. It is put in the east there's a lot of course, all the post and how do we think the future target off the percentage off the possible.
In dialogue are said to post station. Thank you.
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On the first question.
As we look at the long term trend of the price it is.
Stabilizing or if we look at.
The near term, though we do expect the price competition continues to be Uh huh.
Fierce.
And for specifically fourth quarter.
We did increase or price, especially during the peak season, we typically increase our price each year and looking at the fourth quarter we.
We are experiencing.
Lesser price Uh huh.
Incentives, if you will for the fourth quarter.
On the second question on the last mile.
Chairman.
Indicated there are two aspects for us to pay attention to.
The first is the physical location for the post operations or last mile.
Outlets.
We.
Have coordinated effort with tango.
And so far a 40 year there about 5000 new post.
Added entered a tiny all post brand.
In addition, as he chose I'm also.
Hi expanded its own footprint.
And last mile Post operations all together you are nearly.
30000, Oh, so patients that we have established.
The second aspect is regarding people.
We've mentioned before that it is important.
For us to even though Oh, yes, there are not our employees the last mile careers have great touch points with all consumers with our customers. So help them managing the existing volume and the incremental volume it's important to us we store.
Life to it.
Empower them to go from being an employee to exercise more of their proactive NIS as well as becoming more and more so entrepreneurs.
As a result of course, our effort will continue to expand a as a result.
The third quarter, we've seen.
D to C pick ups volume has increased and that is a good sign.
When you have people that are.
Profitable they if they find this way of doing business is supportive of their efforts.
Then quality of services will increase again he.
Establish a positive cycle, so that our last mile presence will be with.
Greater mass and also rader quality. Thank you.
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Area in the future. Thank you.
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Subsequent to June and also the now I mean to lunch.
Okay. The current.
Packages going through the last my post is around 40% and going forward because of the volume a expected volume increase we believe it's inevitable that the percentage will continue to increase.
The and in addition to that it's not only in a choice that we have to make but also it is a very good strategy or a in the area for a further reduction of the cost throughout the whole I pick up every change.
Jim and supplemented on on part of a price.
Our strategy has consistently in on the basis of quality of services as well as a volume as well as targeted profit those we will continue to expand market share.
Look at East three said factors, Oh said goes for us consistently in the past Weve and seeing increased Oh, all three fun with well balanced approach going forward, we will still focusing on these three but according to them.
Market conditions, we would style up and down in in terms of which is more priority.
As you see in 2019, we've set our go to grow faster to accelerate our growth to pull a further away from our peers and going into 2020 is the same we believe with our.
Advantage in terms of for our infrastructure and also our technology and execution capabilities to achieve greater market share gain.
Two coal further away from the group to go from what using Chairman's Prime.
Relative advantage to superior advantage to eventually evolved into a eco advantage.
Is in our playbook and we are having our sights set on another a fast growing 20 points.
How does your decision allegedly she until.
As a reminder, you can enter the question Q by pressing Star then one.
Our next question comes from Jing Yang with China International. Please go ahead.
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How big that pub, absolutely that if I'm hitting some area I just wonder a which area you are bringing two and Oh. The second question is about to the guidance as much here I wouldn't see O'neill guidance for next year and Oh, So far the made him Mackie show guidance that for example for like a 20 auto industry.
Or maybe longer term.
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That's it and I thought the first.
The first question our on strategy remains that we will maintain quality services in attain our profit go and accelerate our market share gain.
During the no quarter, we mentioned that some of our regions us, particularly those are non sales regions.
Including mid West and also north west regions their growth are faster than our Ziggos total average growth. So we've seen that regional advantage being established.
The going forward for our market share.
Go twins like 2022 to achieve 25% that is still are on track and we are confident to a cheap so.
Our next question comes from Nicky Klee with Trivest. Please go ahead.
Well I don't learn going problem Uh huh.
Oh, yes, there's really.
Well there are no longer Schottlandt does I suppose.
Could jump to the coolest I.
Alan So nice to court as you got a Canadian mills yeah.
Yeah. This LNG should salaries, so that's how could that you'll her husband.
And then how does your whole should have sat down which I'm happy holidays.
Oh, Okay, Yeah, I think two classes, what's possible Oh, Lucky I count Oh, I, just wonder a wet weather have turned up our strategy led a flat that that yes how.
And a second class writes about Oh, the <unk> is likely the word dollar capex budgets for the whole yet or what's the reason behind that thank you.
And can you give me your questions.
With regards to RK, we we haven't changed strategy and the strategy still intact. The key accounts does require nationwide service and also a higher quality of standards well we've gone in the third quarter is we in going through Recalibration of the pricing strategy and also.
Looking at various regions said the performance and demand that is necessary for serve our t. accounts and again the growth is healthy in terms. Our total volume, it's still stands around less than 10%. So nothing has changed.
On Capex ending it there's one element we are continued to out we continue to focus on building our infrastructure, including acquiring land use rights. Now this is something that's not within our own control the supply and also the timing of when the government offer a century.
Horses for acquiring and that impacted our overall pace in a cash spending now. The overall goal is still six to 8 billion capex commitment and so far we've spent 3.44 billion and it's still a within our four to 5 billion a range of Capex.
Spending.
That answers your question Nick.
Yes, it's been billions, though.
Thank you.
This concludes our question and answer session I would like to turn the conference back over to sleeping in for any closing remarks.
Oh.
Thank you everybody for joining us for the call and Oh once again the company has left its guidance unchanged and we're confident to deliver on the full year goal that we've said so far the business performance has been very promising and the fourth quarter, including the double 11.
Achieved we've delivered.
Great results in.
The past Uh huh with Great New records.
Separately on another thing the.
In November 25th is our inaugural.
Investors day, and we look forward to seeing you are and sharing with you what's happening here and I think you and also outlook to whats to come for us.
Going forward. Thank you very much.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.