Q4 2019 Earnings Call
off off
Good morning, and good evening. Ladies and gentlemen. Thank you for standing by and welcome to best stinks fourth quarter and fiscal year 2019 earnings conference call.
At this time all participants will be in listen-only mode following Management's prepared remarks. There will be a Q&A session.
With this today or Johnny Chou best things chairman and CEO Gloria fan Chief Financial Officer for today's agenda. Johnny will give a brief overview of business and operational highlights off the Gloria one explain certain details of financial results following the prepared remarks you make comments or make your question asked questions, please note. This call is also being webcast of things. I our website at best inc.com a replay of this call will be available after the call and investor presentation is also available on the IR website before we begin I would like to read the Safe Harbor statement on behalf of stink. Today's discussion will contain certain forward-looking statements. These forward-looking statements are based on Management's current expectations. They involve risks and uncertainties and other factors of which was over always are difficult to predict and many of which are Beyond Management's control.
the company does not undertake any obligation to update any forward-looking statements as a result of
New information future events or otherwise except as required under applicable law, please also note that certain financial statements that the company uses this call all represent a represented on a certain non-gaap basis even adjusted ebitda and then and non-gaap test results back up results and the and the reconciliation of gaap to non-gaap measures can be found on best stinks operation earnings, press release.
Finally, please note that unless otherwise stated all figures mentioned in the discussion are an RMA now or the conference over to Johnny child chairman and CEO besting. Please join me, please. Go ahead.
Thanks operator. Good morning, and good evening, everyone welcome and thank you for joining our first quarter and fiscal year 2019 learning score today, and please report and wage order and a strong finish to 2019. We reached another Milestone as a company recorded is first-quarter. Net income despite intense competition in 2019 continue to execute our strategy of achieving fast growth and enhancing efficiency in our Core Business while investing in our growth initiatives.
Long cat named come with 61 million in the fourth quarter of 2019 compared to $120 billion in the same period of 2018 while wage Gap net loss for the year significantly 2124 billing from $452 in 2018.
Our poor businesses Express and free continue their much faster than industry grows more random despite Market competition in consolidation with Boston market share climb to 12.4% and free volume 31% year-over-year for the new initiatives you cargo continued its rapid growth by leveraging significant Market opportunity in front load. So this appropriate age while Global further expanded our footprint in Southeast Asia to capture the growth is there to recap on 2019. There are several things worth noting first. I'll focus on service quality and customer experience home has rewarded us for incremental market share second. Our continued effort are strengthening operating efficiency and technology advancements has led us to mod.
Expansion and allowed us to reduce net loss significantly, sir. We continue to invest in growth initiatives as they make meaningful contributions to the group home. Let me share some business highlights with you.
Express
Continue to grow much faster than the industry average in the first quarter volume increase by 30.5% year-over-year 2.4 forbidding compact to 22.8% Industry wide gross.
Oaxaca should increase by 7% of your points to 12.4% from 11.7% in the same period of 2018. Volume down by 38.5% more than one one point five times. The industry-wide grows industry AFP continue to try and lower in the fourth quarter ft off The Last Mile decreased about 11% year-over-year to I am in 2.8, but we are able to maintain the module level throughout going and have lunch off the efficiency of invest efficiency Improvement investment in technology and automation.
Well the fiscal year 2019 percent cost reduction continue to outpace percentage of the revenue decline.
Best expressed concern installation centers 288 while suspended GFA of operation to 2.3 million square feet to square meters long installed 88 automate assaulting lines and more than 100 dimensional in a waiting scanning systems to facilitate operating productivity.
Number of last mile service Outlets, exceeded 42,000 as we continue to invest in our Network that improved service quality Express is well positioned to capture the market shares in coming years best rate delivered another solid quarter in the fiscal year free volume grew by more than 30% of the year two thousand and one many times in the fourth quarter for a fiscal year 2019. We deliver nearly seven million tonnes representing a year-over-year growth of 28.5% off significantly higher than industry average gross profit margin improved upon 3.8% in 2018 to 5.5% in 2019. Volume grows investments in to our Network enhancing enhance the operating efficiency and by focusing on e-commerce products.
Would decrease the total number of hops and rotation sensors 298 from the 111 a year ago enabling us to implement more efficient the routing Max we increase our service station by 20% to $17,700 and extend the last mile service coverage to 97% of districts and cities in China was improved a service dog would believe increasing demand for e-commerce and grows in consumption will continue trial phrase growth and margin expansion going forward.
special price
And we continue to focus on growing franchise a cloud order fulfillment centers and result in the fourth quarter franchise with cobwebs in number wage increase by $56 year-over-year to 293 a number of order fulfilled for franchise of crowd ofc double the year-over-year to 58 million as of December 28th. Nineteen total GF Ace of Base has increased by 16% year-over-year to 3.25 million square meter of which over 1.5 million square meter will bounce operated by franchisees in 2019. We switched legally through the supply to manually business by targeting projects with higher margins and clients with great Club record sales in the fourth quarter gross profit margin improved by 0.7 percentage points year-over-year to 4.8% and the for the full fiscal year of birth.
Both profit margin increased by 1.3% of points to 6.3%
That's our strategy in 2019 to expand higher-margin Brandon stores and party membership stores with high quality and the activities are very improved gross profit margin expanded in multiple a and steadily in both for 2019 and cross the entire fiscal year by over two percentage points bring down to 12.7% in Q4 and getting one point four-per-cent for the 4 year in the fourth quarter total number of a brand of the stores including franchisee dead Opera stores increased by 96.4% year-over-year 2 / 3600 of which the number of franchises are best neighbor stores Wood-n-Tap 230-268-3268 from a year ago. The total number will order is fulfilled for franchise best neighbor stores increased by $100.
2% to any 9,000 animation your last learning course. We are performing features review other businesses to lessen its impact on the company's life continually shape its business for clear path to profitability special cargo our online full truckload will be a problem continues rapid growth momentum revenue generated from external customers increase by 91% in the fourth quarter 2909 million and its corresponding transaction number increased 188% year-over-year to over 200,000.
The number of trucks increased by 25% year-over-year to nearest 327,000 as of December 2019 new car loan out for 30 provinces in China with over 5,000 agents registered on the platform. We believe that our leading technology capabilities and management expertise will suck. You have a business to capture the mess truckload brokerage Market opportunities and become a leading player in the industry best Global continue to expand it's cool.
cross-border
Logistics business and beauty is presence in Southeast Asia, as of December 2019 best Global so only countries and regions off outside of a mainland China. We continue to explore new growing Market where we can vary our operating expenses expertise. We are making strong progress in Thailand and Vietnam, even a fourth quarter puzzle volume increase by 61.9% quarter-over-quarter to 2.61 million time may increase by 155.5% to two point five million in Vietnam. We also achieve the one hundred percent and the 91 percentage of coverage those two markets respectively.
Best Capital continue providing Financial Solutions to our ecosystem participants and you contribute to improved overall operating efficiency in our Network.
Now let's talk about 20 20 companies in China. We are confronted with lower Corona virus outbreak. Listen to most foremost. We have taken every effort to protect the safety and well-being of our employees and franchisees. We are having a report that so far. We have zero infections among our all our employees. We have secured sufficient medical supplies and the more than four million masks off for our employees and franchisees and help the over 250,000 delivery persons to procure coronavirus life insurance coverage for staff serving General and administrative functions. We adopted a flexible and remote work policy.
For on-site workers. We have set up comprehensive safety and prevention procedures. We have worked diligently with local governments franchises suppliers and customers to overcome the challenges and have recovered our Network capabilities.
With the exception of provinces, we have fully recovered the service Nationwide including all our house and the warehouses for express service and supply chain and all our franchisees and partners are packaging operation. Currently. The number of direct personnel has all right, so passive debt of the same time last year and daily puzzle in the free bar room have also exceeded that of the same time last year.
Supply chain and lock your service provided is our responsibility to commit our resources to support epidemic relief efforts. We have set up a relief green Channel since the beginning of the epidemic to provide free shipping services for Charities and donations worldwide for epidemic wage controls and redeem materials across the country as of now Beth has transported nearly 170,000 items or over 1,000 times of the medical relief supplies to obey provinces. And on the rest of the China the supplies, we have shifted including medical masks gloves goggles protective gear Home Medical Equipment some food and several hours more than fifty Millions.
In addition, we have leverage our cross-border.
Just the capability to support overseas donations. We have provided a customer clearance and the transportation services for Medical Aid suppliers from United States. Japan Malaysia, Korea, France Thailand Vietnam and Brazil looking here in 2020. We'll focus our strategy on May 1st. We will continue our Healthy Growth for our Core Business to achieve market share gains and enhance the profitability for the Express office will continue to invest in network and automation improving operating efficiency to reduce costs and enhance service quality.
We close to connect to be much faster than the industry average to acquire incremental market share for Freight. We aim to strengthen our leading position by continuing to focus on growing e-commerce transactions investing in our Network Services and enhancing customer satisfactions off and grossing microchip. Second will continue the path growth trajectory in Korean and Vietnam investing networks expanding last mile service announcements extending coverage and improving operating efficiency. We plan to enter into Cambodia Malaysia Indonesia this year to capture enormous Market opportunity from the browse any Commerce
Good Will International collaboration among business units by leveraging customers sharing technology enhancement and share the services to gain more business opportunities and operating efficiency more specifically Express and Afraid will continue to extract the Synergy from combined Dynamic routing planning to enhance trucker PATH station increase the truck loading rates and reduced costs surprise. You management will continue its integration with other units supporting store. Plus. I thought you meant or read management and logic efficiency improvements providing clients with end-to-end the total Solution Services to incorporate warehouse management frame express delivery and cross the services.
20/20 is a critical year for past despite a challenge in stock used to the coronavirus. We are optimistic and confident the market will probably pick up a demand for our services will remain strong. We are focused on the instruction execution of our strategy and our goal of becoming the leading. It's just a logistics and supply-chain Company in China and Southeast Asia with that. I will turn it over to Gloria our Chief Financial Officer. Very go ahead and keep telling me good morning and good evening everyone for the fourth quarter of 2019 back again delivered excellent Financial results with strong Revenue growth and margin Improvement. The wage many generators net income under u.s. Gas for the
weather condition in December that significantly increased Transportation costs
come here to the fourth quarter revenue of 2018 Supply Chain management Revenue decreased by 12% to 670 MB as we continue to optimize customer profile and the focus our franchise fulfillment in the e-commerce business gross profit margin improved by a 0.9 percentage points to 4.8% compared to June of 2018 and the gross profit increased by 9% to 29.1 million RMB store plus the revenue decreased by 0.7% to 611 million RMB primarily due to the decrease the number of orders for fuel for membership stores resulting from ongoing efforts to improve or the quality of life.
Who's copying improved by 2.2 percentage points to 12.7% Why was profit increased by 20% to seventy eight million other service lines of birth best capital and the past back Global continue their strong growth momentum in the fourth quarter of 2019 new car has almost doubled its revenue from the same 2018 2999 R&B while Global has almost tripled its Revenue to 136 MB gross profit for other service lines decrease 35% to 35 million RMB mainly due to the increased investment in our southeast Asia business.
Major operating expense items all including share-based compensation expense compared to the same quarter of 2018 selling General and administrative expenses as a percentage of Revenue decreased to 4.9% into for 2019 compared to 5.4% of the same. In 2018 research and development expenses increased by 11% to four 2019 as we continue to invest in technology development to drive operating efficiencies research and development expenses as percentage of Revenue off remain blessed for the full-year sg&a expenses as a percentage of Revenue decreased to 5.5% in 2019 compared to 6.5 of last year's. Why are the expense of potential Revenue increase from?
0.6% in 2018 to 07 % 2019 tax in the fourth quarter was 300 million MB or 3.6% of total come here to the 284 million R&B or 3.1% of total revenue in the same. 2018-2019 was one point five billion or 4.3% percentage of Revenue compared to 1.1 billion RMB or 3.1% are potential revenue for 2018.
December
31st 2019 on cash and cash equivalents restricted cash and short-term Investments were 5 billion RMB compared to 4 billion RMB at the end of a 2018.
As we continue to navigate it the impact of Kobe's 19 Public Health crisis. We are not able to quantify the overall Financial impact 2020 operations at this time. We have closely monitoring the situation and the plan to provide more information during our first quarter earnings call based on the information we have available at that time with them. We will not open the call for Q&A. Thank you. Yes. Thank you. We will now begin the question-and-answer session to ask a question. You may press * then 1 sneaked touch-tone phone. If you're using speakerphone, please pick up your handset before pressing the keys to enjoy your question, please press * then two.
Wyckoff hospital to 701 R&B of which Transportation costs decreased by 8% to 346 R&D labor costs wage increase by 6% 91 R&B these costs increased by 2% to 50 R&B and other costs increased by 1% 41 RMB.
At this time, we will pause momentarily to assemble the roster.
And the first question comes from our account with Goldman Sachs.
Thank you. Thank you Tony in and Gloria. I have two two questions on mostly on the express side of the business if I can firstly on your Sorting Hat, I see that's down to 58. So we have kind of really close to where industry peers are by the end of 2019. So so compared with 11% unit cost reduction in 2019. Just want to see how how do we see a 2020 unit cost May Trend. I know there's some some one of the impacts of those quarters. So maybe you could take that first quarter impact away or or kind of what's the rest of the unit cost targets home for the rest of the year given all the the big initiatives that you've done. My second question would be on just could you share some of the average delivery times of your Parcels? Typically, I think it's back to the three days sent around the Nationwide, but do we have any set of targets for 2020 with now the Streamline sorting hubs on how at least on a delivery time.
If what what are the targets as we talk as we target the service improvements and better user experience for for the year ahead. Thank you.
Hey, hi, Ronald. Thank you for the for the questions on that the first question on the unit cost. So you you notice that we have 11% reduction on 2019. But actually, you know, we were supposed to live in war on the transportation side. So this year we transmit the inside we working with the partners. Uh, also getting more of you know, wrong dealership. So we expecting the Union costs just continue to go down for about proximity about 15% with you know, transportation and all the other costs and off. So the leasing and the labor cost open to go down somewhere. So 15% is our Target. But then again, you know that when every time she goes down and you said you were actually all your bases more right so you can send it yet. So 15% of targeting but the time right now we are looking at the average about right now the average birth.
40 to 3 days
As exactly what you said correctly on Nationwide. So it depends on right now. Our average Transportation lens is about 1000 kilometers long for the delivery. So just yeah, we don't do show the net about you know, a little bit left and the last year's about forty fifty four. So I'll tell you is about 650 hours or so for entry and from the pickup from the customer giving the orders to pick up to transport and delivery.
That's very interesting. Thank you Johnny.
Thank you.
And the next question comes from valuing with City.
Hi Johnny, and the glory I congratulate congratulations on the solid to finish after since nineteen actually have three small questions. The first one is regarding the coronavirus Thursday. We actually see, you know, the end of January and February mostly impacted by the virus. So I know we are currently in an uncertain about the few year. But Tom said more color on the impacts this past one month on demand and the cost side if possible and my second question is like look beyond the coronavirus impacts. Do we able to see how to you know to judge the normalized amounts posts especially dealing with no we are entering into March and we are seeing the international roaming holiday sales and a boost on the demand. We are seeing some days and we actually from
I'll on the contact. We see the password is becoming even more intense these days and what is our strategy now to compete with peers know. Maybe we cannot provide the full year guidance, but even is already the maid of March Time very shortly to be more color on the first quarter volume up two questions are both surprised and free two segments, and my question is regarding the stock class business, and I noticed way especially, you know split to the store plus business from the results to show how the stories of look like. So it seems to me that we are doing more work on the potential spin-off of business it there a timeline an update on the store plus being off. So those are my secret question. Thank you.
Okay, thank you buddy. Your first question is is for the the virus impacts on the on the in the cost. Yeah. So so long as I was stating my opening remark, you know, January has a has a less has less impact because basically, you know, the the virus outbreak is really towards the back almost to that to the beginning of the uh, Chinese New Year holiday festival. So January, it's it's it's less impacted but February is dead is is a an impact as a pretty severe and to the extent as we speaking now in the March covered all operation China with exception of who they promises or our staffs a back at work and so is uh is all the the franchise
To go back to the to the to the work.
The last mile delivery we already is the Personnel now is more than last year March, you know this time March and so is our trade and and an apostle volumes is also as we speaking now is more than last year sometime in March. So so so that's that's a recurring the cost side. Yes. There is some impacting short time, especially in transportation costs and the labor cost Transportation costs. Meaning that when you have a level unbalanced, so we require a lot of money one way and trucks and that's a very expensive during that period of time because we can't find them, um the February time and cannot find the right, you know drivers wage or if I willing to go across is very high. So I think on the second quarter on a February and the cost on the transportation is going to be higher pretty much the same thing. So but as we recover them,
That the order Transportation routes graduate, they're setting password being gradually reduced. So that that is the the first question you had on the the demanding boss asked for the cut off for the recovery on the March. They said that we we already recovered the the current volume is is more over a month or so past the last year same time March. So so if if those, you know, today's volumes higher than last March's the volume, I think they were already but the demand is still down recover glad you're recovering and I think it's people still coming out from the from the the the staying home to a workplace and and still has some transition Goldberg and it's pricing War you you're saying that it's being you know, you check this is going to continues to persist which were knowledge. Yep.
Our strategy is, you know continue to play. What do we have done before by you know, improving our deficiencies on Transportation costs this year. We're going to have a significant reduction as planned since last year. We have been doing several things one is sharing. The resources was great. So free has a lot of long lines to a to a month less popular cities before was basically doing the transit, but now can go straight with the combine the two Food Network on the others is we running more everybody grows. So we will do a more efficient routing schemes use the technology to automated routing. So hopefully the the loading factors and and and and it'll be better. So that's that's how are we going to suck improve the idea of the cost structure a second is that as long as I mentioned? I think the the the quality of service are continue to improve by by the delivery time off.
Always a customer satisfaction a continue to to to improve which will also give us a upside on the market.
Market Market gang and the next thing is that we will continue to stress for a signature across the business unit with the the the supply chain business office in Commerce. What we going to be to be with the other um, share the similar shift the franchisee stations on The Last Mile, especially the wrong area was afraid etcetera. So more sending his claws business units and we'll go through that. The next questions you had was the the the the the the the store spin-off. Yeah. So we have been discussing there since last year. And in fact that we already hired a professional help. Um, um, and we should have a a very clean on strategy and an operation done by end of second-quarter. So next quarter, we should definitely have some definitive dead.
definitive taken to do that
Oh, yeah. I don't know if I missed your questions. Thank you.
Do you have any other questions you may I have a small phone upon the yes, I think you also most of the question. Thank you so much. I just have a snowfall on the pricing strategy package from the first quarter. I can see you are becoming more conservative on the pricing strategy because the SP decline is actually better than expected excluding delivery only 11% year-on-year down much better than the previous two quarters that this means and twenty are we will be also more balanced on the pricing strategy even wage appears could be very intensive on the pricing competition will be more conservative than the will be more profit-driven.
Of course, you know we're running businesses a world combined optimization of between market share gains as well as the the financial, you know possibilities. So, our goal is that on the growth side of want to maintain, you know, still much faster than the industry grows. So last year 2019, which is a 1.5 times like 38% off just 27% So this year we still going to uh, our tires still going to be faster grows much faster than the industry grows and meanwhile, we want to you know, the cost and and and improve the profitability and efficiency.
So, you know what? Yeah, we we we we we go balance this out on not just for only for profit only for the market share, but but you can Post Falls.
Okay understood. Thank you so much.
Yes, thank you. Once again, please press * then 1 if you would like to ask you a question, and the next question comes from both pay with open timer.
Hi Joanie, I'm sorry. Thanks for taking my question. I have to follow up on code and wires. So can you provide more observations around coronavirus the ramp up the recovery wage? Curve after Chinese New Year and do you expect and my second question is do you expect any competitive landscape change after this coronavirus wage? Because obviously something about peers they control more control over there, uh their Network, so any color around that in the long-term will be helpful. Thank you.
Okay, so so we are the government has you know has has pushed out the the the work of returning work for the holiday to Thursday February so immediately we working with government from the stay Bureau to the local government too. So we are the first, you know as your company needs to recover from the the work. So the wrap up is it's it's a gradual. We actually spend a lot of our efforts automatically has been a lot of efforts on one side won't make sure the safety of our money you send the other things you want to recover our our our process very quickly. So so so so Graham Parker from you know, complete shutdown to up to like now with um, you know, 100 more than 100, you know percent strengths compared with last year's same time last year. So that that is the compared to landscape I think for the month.
I viewed just as a true thing one is that after this? Uh ongoing coronavirus is he's in control but a lot of people probably would change it the patterns and more online. So online of activity both, you know work and and also our shopping and consumption will increase so which is is really sucking our Express Freight and and the Supply Chain management business because that most of the is eCommerce related, especially the free last couple of years. We are busy putting them more and more to the e-commerce rather than just to be business so that that's helpful and and second is that the smaller players and continue to age probably he's out from the from the competition because the the recovery is a little slower and also, you know, the the competition intensify the internet in the marketplace so over wage
seeing that uh, even though the first quarter is pretty ugly impacted, but we are confident and and we are optimistic the second third fourth quarter off actually being a recover, you know who proposed strengths and even even, you know ahead of someone who would Hobbies
got it.
That's helpful. Thank you.
Thank you. And the next question comes from Eric Jones with a Ferrari?
Hi joining. Thanks for taking my question. I have two questions. So the first one is regarding the last mail delivery fee for the express sector. So yeah, so basically we have seen industry cutting the last little faces 2019, right? So so if we look at lumbra so last material say in the queue for was 1001.048. So that was seventeen cents lower the Q4 in like a 20 2018. So so so do you have any kind of days and what like what kind of lumber are we may see at the end of this year? Like I say 4:20 unless my first question and the second question is unafraid site, right? So for a free. I've seen the volume growth continues to be very strong and I think this is achieving the target for the whole year twenty 80% growth and and and unicorns declined by 2% a year. So so I just was dead.
What's notification for unit cost reduction in 2020? And well, you may see the biggest cost-saving. Thank you.
Thank you. Okay. The last name the roof is the the the volume increase and you know, the people I used to you know, pick up the apostles wage, you know, the last Model, uh, you know, uh, sort of stations and lock box et cetera. So more and more accurate delivery is being done to to the lockbox and and the and and uh last mile service station picking up a by the customer themselves rather than you know, personally delivered door-to-door so that percentage of the in Chrome English your wise for us will see this trend continued. So he knows what this on this person is going to be delivered to a pickup site and pick up a bike consumer myself especially was that that the outbreak of the coronavirus and the people are actually used to it to go pick up the the apostles, you know, nearby community center all the outlets off.
Convenience stores rather than go to figure the home. So so so we'll see a industry-wide not just fast, but everybody else is is actually lowering the delivery package last mile delivery cost. So we spent in 2020 will continue to coming down at the at the similar rate as the SP. So maybe about ten to fifteen percent will will will be that will be it would be to have through because of our team goes up and you actually you're in class mail delivery for for the lock box and pick up all the lower-cost second page put a Fray maybe see the the fourth quarter. We actually had about thirty, you know, Thirty point five or 31% of the volume grows. Yeah. The ASP was a little bit lower. There's two reasons why is compact, you know competitive market and you know, our few players are also I'll be reducing their car is your pricing and and so that that's part of the reason dead.
how to reason is that power
Every shipment or our total for wage is being reduced or somewhere to so so the so I think this year the the the the ASP will continue to decline but not as severe as what we see on the on the on the express side. Our our our planning is anywhere from about 2 to 5% off. That means a we if one of the included lodging then we will have to improve the the the the cost structure with a cost-saving come from obviously. Number one is come from the largest who constructs one is the the the the transportation so transportation. That means we would have to just like we facing with Express. We will have had more directorship of my lines a lot of Em by, you know by hopping through the transit and as well goes up. It will allow us to have a more directly Shipping Lines and it certainly is the combined with the express dead.
With some of the was a smaller more remote remote area delivery can be sure that share the resources last year. We had saved a significant amount and they said we single we can suck even more combined sharing of resources sharing. So I I still optimistic we're still optimistic and you're planning their our margins continue to grow and so cost reduction efficiency Improvement is going to outpace the ASP decrease.
Okay. Thank you. Thank you, and this concludes our question-and-answer session. I would like to turn the conference back over to Johnny's our closing comments. Okay. Thank you for joining our call and we appreciate your support of past. Please reach out to our investigation if you have further questions. We look forward to speaking to you soon. Thank you very much. And thank you. The conference has now concluded. Thank you for attending today's presentation may not a centralized.