Q4 2021 RLX Technology Inc Earnings Call
Hello, ladies and gentlemen.
Thank you for standing by for <unk> technology, Inc's fourth quarter and full year 2021 earnings conference call.
At this time, all participants are in listen only mode.
After management's remarks, there will be a question answer session.
Today's conference call is being recorded.
This allows for about 15 minutes.
I'll now turn the call over here.
Samsung head of Investor Relations for the company. Please go ahead Sir.
Thanks, very much Hello, everyone and welcome to <unk> technologies fourth quarter and full year kind of 'twenty One earnings conference call.
Financial and operational results were released from PLE Slash episode yesterday have been made available online.
You can also build the earnings press release.
In the IR section of our website and our thoughts for the Manpack Dot com.
Participants on today's call will include a cofounder of <unk>.
The board of directors and Chief Executive Officer.
Page Wang Chief financial.
Oh, sorry.
Hi.
And myself.
And that's the relationship.
Before we continue please note that today's discussion will contain forward looking statements made under the safe Harbor provisions of the U S. Private Securities Litigation Reform Act of 1995.
These payments are typically contain words such as may.
Its back pocket.
Hi.
Dan.
Potential continue or similar expressions.
Forward looking statements in Boston inherent risks and uncertainties.
The accuracy of these statements may be impacted a number of the space.
Uncertainties that could cause actual results to differ materially.
Both projects are.
We anticipated.
Many of these factors.
Beyond our control.
The company is absolutely advisors okay.
And on the right.
Any application.
Forward looking information.
Except as required under applicable law.
Please note that.
<unk> earnings press release, and this conference call will include discussion.
The GAAP financial measures.
Unaudited non-GAAP financial measures.
Our press release contains a reconciliation.
non-GAAP measures.
Unaudited GAAP measures.
I'll now turn over the call.
Wow.
Yeah.
Thank you Sir.
And thanks, everyone for making time to join our conference call today.
As many of you might have become aware cause power at all.
States tobacco monopoly of the administration released in.
They did drop cause outpatient Peter regarding national electronic cigarettes product standards.
Anders.
At the same time okay.
Names forgive measure.
Electronic cigarettes have been made okay sure.
Back to starting on May 1st coupons hunting true.
Well, we didn't expect the announcements of these regulatory developments to coincide with our.
Great.
We welcome the Finalization of these regulatory measures athletes deliberate certainty regarding timeline molded transaction.
Perfect. Thanks.
Amongst others.
There's many more of these don't certainties and accelerated timeline it corroborate all where all the nation needs more concrete direction in all of our business operation and planning.
We believe the new standards and measured way.
We have significantly improved adult smoker population Hopkins reclamation of all paired up 15 in the nature of harm reduction.
We are confident that the likelihood of restriction.
Nabors will now impact the core needs of our users in many instead of traditional cigarette smokers for harm reduction.
The experience and data from other market supports the same meeting.
Against the backdrop of the morning, Luckily for me than it used to be correct.
And then recurring COVID-19 outbreak throughout 2021.
We remain committed to enhancing our ablation and executing our founding strategy our nation.
For the 17 already industry, leading position as a trusted they progressed well ahead of smokers.
We ended cause I'm tend to have one.
It's all eggs and milk.
For example, our strategy and the fundamentals right.
Although we think our share of challenges during the year.
Yeah.
Oh, sorry natural highlights include fourth quarter revenue growth.
7.7% year over year.
Thanks, Paul.
The year 123, 1% three years 2021 net to Avon.
I was careful towel and share them with details regarding our financial results and underlying drivers later.
With that I'd like to start by applying the best job with regulatory environment in the fourth quarter.
The fourth quarter actually in the meaningful regulator make the Baltimore for China, you bid for industry.
Is there in that.
The introduction of the drops.
Maintenance you have naturally.
And the draft National standards, well you better prepared.
The regulators have introduced and electronic filing system to provide a means for all value chain pattern. It depends.
And congrats again.
Manufacturing.
It should be it grain.
Great hitters in the timeframe partners to register the Cdos.
Your nation or E. Vapor brand are also required to register you can hear.
Her or his opinion, including product characteristics and classification.
We believe that these new rules and policies to cope.
The barriers to entry in China's E vapor users tree will become more difficult to.
Penetrate.
Given the substantial compliance and part of it is about the minimum requirement.
But all were given ongoing regulatory scrutiny you may prefer to call. It here in 15.
So the Congress think there'd.
There'd be spud the club.
And to your first fly there'll be better protected.
Is it from me.
We firmly believe that the new regulatory framework near supports the overall he made probably midstream and a lull in participants to move forward confidently and embrace healthy sustainable long term growth.
In response to updated reservations announced in December 2021.
In the fourth quarter, we proactively implemented in every of refinement across doses from and back end of all of our operations.
On the part of the kind of supply and demand.
Let me address to certain features you know occurred that's too.
Type one product based on the draft National standards.
Our state of the art paired up development capabilities to empower.
Our tower blocks design.
I mean, they could monitor and other technical design had them.
Although we need embraced a more agile approach to a coupon can manage them.
Prudently managing our key component and material procurement orders.
According to the draft National standards.
Which main pass covering inventory prepare ration.
On the sales and channel management.
We adopt a nimble approach to managing activity inventory for these computers and retailer.
To a wide older well under supply.
Yeah, they shouldn't we offer a certainty to our distributors and retailers is the required registration now that you've got time, finding to come and maintain active communication with them to understand their needs and track the potential impact of the new policy enforcement.
Oh, Oh, Oh their operations.
Now I'd like to provide some updates on our scientific research progress.
We've worked diligently to improve our scientific research cackleberry tea and that probably coming that scientific evidence based communication.
Paramount when addressing users and shareholders concerns about the harm reduction efficacy of E cigarettes.
One area of particular focus for Oh at.
Its trough peak trading or a fundamental research.
Ex amortization Mccandless.
Through which we explore the alarms and healthy snacks.
Yeah.
And China.
Pioneering vapor brand.
We made sure to China's first quarter, Nicole research on Vaping 15.
Bathrooms are cute exactly traditional cigarettes.
And electronic cigarette.
The human rasp.
In that spirit two already in the cardiovascular system.
Yeah.
In February 2022 leased.
We successfully registered.
Clinical research I'm, just kind of a clinical trial registry.
Primary registries in the warehouse supplement Hershey Registry network.
Well the validating the strength of.
Scientific research capability.
On the scoring our progress even though the one thing Bobby.
At China National standards, where you used to Greg.
Turning to effect.
As we continue to devote more resources to R&D in support of regulatory framework.
Recognize the harm reduction opportunity, Florida smoking population.
Uh huh accomplishments in 2021 positions as well.
As we head into the new year of 2022.
I'm pleased to be stellar achievement, so far in 2022.
Of course for ticketing nature tariffs are designed to capture any growth potential ahead of us within a clearer a regulatory regime.
As we continue to improve.
And then the.
The one scientific research.
And promote digitalization upgrades.
We are poised to further grow and increase the value the green to all of our stakeholders.
With that I will now turn the floor over to our CFO Cao knee.
He really labor rates was the demo glass corner now should pitch.
And go over our operational and financial results, we must be too.
Thank you.
Okay.
Okay.
Thank you, Ken and Hello, everyone.
I will start by sharing some major initiatives.
And then from the fourth quarter.
And then walk you through our key financial results.
As Kate mentioned earlier, despite the backdrop of regulatory impact we delivered quarterly net revenues of RMB, one 9 billion.
Up 13, 6% sequentially.
<unk> 17, 7% year over year.
Collecting the momentum behind our efforts to optimize our distribution and retail channel network.
Entry into France held a diversified product portfolio.
No.
Witness that there have been increasingly more fact based and neutral public voices, commenting on ebay for industry and E vapor products in recent months.
According to a survey in light of the relief over the proposed draft National standards.
69% of all potential users are aware of the regulatory changes.
And 87% expressed increased or unchanged willingness to purchase.
The products in.
The national standards.
I believe that the regulations will have a positive impact on product safety and quality.
Since December 2021 orders from our distributors and retailers have remained solid.
End user demand has remained strong.
We have been closely monitoring the trade inventory level of our distributor and retailer.
And cautiously fulfilling that order to mitigate risks related to any excess inventory.
Trade channels.
In addition, we've continued investing in our go Golden Shield program to combat sales of counterfeit products.
And made meaningful progress during the fourth quarter.
The December in December 2021.
We successfully accessed at Shenzhen belief in Boston, a counterfeit factory sites located in the watch handbags electronics market.
Excuse me over 20000 contracted product.
Since launching the Bowland shale programs in 2019, we have assisted the police and probably more than 100 and certain administrative and criminal cases intellectual property rights infringements.
And hope to see more than $1 5 million contraceptive product.
Persimmon travel commitment to protecting the right.
In checks of consumers.
It's possible corporate citizen.
Yeah.
We also drove to optimize our supply chain and extreme streamlining our operations.
Oh effort of cost control and active supply chain management have played a factor.
Further reducing the unit cost of our products.
[noise].
Meanwhile.
We have to become more agile managing our supply chain. For example, we have significantly increased the utilization rate of our.
Logistics and warehousing facilities.
A month.
Clothing unused or low usage warehouses.
Moreover, our distribute our survey shows that in the second half of 2021, our distributor satisfaction level with our supply chain management improved immensely compared with the first half of 2021.
Validating our relentless efforts to improve our supply chain capabilities.
Strengthening our relationship with our Robyn <unk> partner.
As we mentioned last quarter, we continue to strategically introduce new products tailored to various.
Segments.
With the goal of engaging new user to support our sustainable and quality growth.
To that end, we launched several new targeted products during the fourth quarter.
Recently, we've seen an upward trend in our new user retention rate.
Which we believe is partially attributable to our successful product strategy.
Our star Ginger products targeting adult smokers with a long history of smoking.
Complement our culling.
Our product portfolio with a unique compelling product to saga.
Meanwhile, We also released August .
Premium device, along with a classy and trendy design.
Aimed at fashion conscious to users who are willing to pay a premium for next Christmas design.
We will continue to expand and enhance our product offering to cater to China distinct user groups differentiated preferences and price sensitivity.
Yeah.
Yeah.
Okay.
To further increase user engagement and build our brand equity.
We also introduced accessory.
<unk> cartridge cases.
Dubai fans and directly many of which can be purchased with cash or use their loyalty program.
As a user centric company.
<unk> always puts how would you set foot.
They are the core of our business.
During the transitional retina to repair it we will continue to prioritize our use this need by crazy new innovative products that comply with the national standards and can be launched upon regulatory approvals.
Okay.
Last but not least I'd like to share with you some updates on our corporate social responsibility.
Initiate it.
Technology has always been committed to CFO .
We believe that prioritizing and fulfilling our social responsibility, it's essential to corporate growth.
That's very clear and its popularity growth disposal of news cartridges has become a major concern for.
For both E vapor companies and do this.
To solve the problem and create additional economic value, we launched China's first cockpit recycling program in September of 2021.
Covering more than 60, Kansas City in the program first grade.
Users can pick up a special effects in bags and selected our branded store in China to collect used cartridges and return them to install the effects anything.
The program has enjoyed great initial success with over 200000 cartridges recycled to date.
By enhancing ties between IL and Al you said.
We believe that this environmentally friendly program wasn't covered small users to choose our products as we fulfill our corporate social responsibility.
They inspire eco consciousness through our industry.
Yeah.
In recognition of these efforts our 2021.
<unk> recently received a great a rating from the ministry of industry and information technology and my I T.
This rating is a powerful endorsement of our work and commitment to advancing CSR initiatives nationwide.
And my I T effect, Oh access strong performance across a broad range of metrics and commended our reports clear guidance on the company strategic planning and governance with.
With respect to sustainable development concepts.
Moving forward, we will continue to increase our positive.
Positive social impact.
Fantastic work and engaging product to address industry community and the environmental issues.
I will now provide a summary overview of our financial results for the fourth quarter and for the full year of 2021.
Net revenues increased by 17, 7% to RMB, one 9 billion in the fourth quarter of 2021 from RMB 162 billion.
Yeah, I'd have to have in the country.
The increase was primarily due to an increase in the net revenues from cell to offline distributor, which was mainly attributable to the expansion of the company's distribution and retail network.
Gross profit increased by 10, 3% to RMB 600, $765 five minutes in the fourth quarter of 2021.
RMB $694 1 million in the same period of 2020.
Gross margin was 42% in the fourth quarter of 2021.
Compared with.
42, 9% in S&P is up to 2020.
The decrease was.
I'm not really due to one an increase in direct costs related to promotional activity.
And to an increase in the inventory provision.
Operating expenses were RMB 231, 5 million in the fourth quarter of 2021, representing a decrease of 72, 8% from RMB $852 six minute M. S N period up to 2020.
The decrease in operating expenses was primarily due to the change in share based compensation expenses.
Which decreased by 93, 6% to RMB $42 1 million in the fourth quarter of 2021.
From RMB, $656 1 million or a sense here of 2020.
The decrease in share based compensation expenses was primarily due to the changes in the fair.
The value of a share incentive award.
We granted to employees as affected by the fluctuation of the share price of the company.
Okay.
Selling expenses decreased by 76, 3% to RMB $46 6 million in the fourth quartile keep up in 'twenty one.
From RMB, one $196 seven minutes in the same.
Period of 2020.
The decrease was manager then by first an increase in share based compensation expenses.
Second a decrease in salary and welfare benefit partially offset by an increase in blending material expenses.
General and administrative expenses decreased by 52, 6% to RMB $167 1 million in the fourth quarter of 2021.
From RMB 447 minutes.
Thank you at periods of 2020.
The decrease was mainly driven by one a decrease in share based compensation expenses and to a decrease in salary and welfare benefits.
Partially offset by an increase in software and Tech technical service expenses.
Okay.
Research and development expenses decreased by 91, 5% to RMB 17, eight minutes in the fourth quarter of 2021.
RMB 208, nine minutes and defend period of 2020.
The decrease was mainly driven by first a decrease in share based compensation expenses.
A decrease in salary and welfare benefits, partially offset by an increase in consulting expenses.
Income from operations was RMB 534 minutes in the fourth quarter of 2021.
Compared with a loss from operations of RMB 158, five minutes in the same period of 2020.
Okay.
Income tax expense was RMB $129 five minutes in the fourth quarter of 2021.
Compared with RMB.
And $10 six minutes and give it to pop up in 'twenty.
U S GAAP net income well.
RMB $494 four minutes in the fourth quarter of 2021.
<unk> with U S GAAP net loss of RMB 236.
Seven minutes in a sense here of 2020.
non-GAAP net income was RMB $536 five minutes in the fourth quarter of 2021.
Paired with RMB $419 3 million in the same period of 2020.
U S GAAP basic.
And diluted net income per a D. S were RMB one three.
Seven.
Colon to U S dollar to a point.
There were five eight.
And RMB Brooklyn.
363.
Equivalent to U S dollar as Joe pointed 057.
Respectively in the fourth quarter of 2021, compared with U S GAAP basic and diluted.
Net loss of.
RMB one.
165 M S N period of 2020.
non-GAAP basic and diluted net income for Adi was RMB <unk> 30.
49, eight equivalent to U S dollar with your point of view it was 62 and RMB.
394 equivalent U S. Dollar of your appointment go fix two respectively in the fourth.
Fourth quarter of 2021.
Compared with RMB.
1292 in the same period of 2020.
Moving to the full year of 2021 net revenues increased by 123, 1% to RMB 852 billion.
In 2021 from RMB three two.
<unk> been in the prior year.
The increase was primarily due to an increase in net revenue from south to offline distribute it which was mainly attributable to the expansion of the company distribution and retail network.
Gross profit increased by 104, 44% to RMB.
367 billion.
In 2021 from RMB 153 billion in the prior year.
Gross margin increased to 43, 1% in 2021.
Compared with 40% in the prior year.
Operating expenses were RMB 137 billion in 2021.
Presenting a decrease of nine 3% from RMB 151 billion in the prior year.
The decrease in operating expenses was primarily due to the change of share based compensation expenses, which decreased by 76% to RMB $223 3 million in fiscal year 2021.
From RMB 900, $929 one minute in the prior year.
The decrease in share based compensation expenses was primarily due to the changes in the fair value of the share incentive award.
The company granted to employees.
If by the fluctuation of the share price at the company.
Selling expenses increased by 17, 5% to RMB $520 7 million in 2021 from RMB $443 two minute in the prior year.
The increase was mainly driven by first an increase in blending material expenses second.
An increase in shipping expenses and third an increase.
And salaries and welfare, partially offset by the decrease in share based compensation expenses.
General and administrative expenses decreased by 12, 9% to RMB $672 7 million in 2021 from RMB 772 million in the prior year.
The decrease was primarily attributable to the decrease in share based compensation expenses.
Partially offset by an increase in salaries and welfare benefit.
And.
Two an increase in legal and other consulting fees.
Research and development expenses decreased by 39, 9% to RMB $179 90 minutes in 2021.
RMB $299 three minute in the prior year.
The decrease was primarily due to the decrease in share based compensation expenses, partially offset by first.
An increase in salaries and welfare benefits.
Second an increase in software and technical expenses.
So I.
An increase in consulting expenses.
Yeah.
Income from operations was RMB, two 3 billion in 2021.
Compared with RMB.
At $10 1 million.
The prior year.
Income tax expense was RMB $631 4 million in 2021.
Presenting a increase of 173, 9% from RMB 235 minute in the prior year.
The increase was primarily due to an increase in taxable income.
Yes.
U S. GAAP net income was RMB 2.03 billion in 2021, compared with U S. GAAP net loss of RMB $128 1 million in the prior year.
non-GAAP net income was RMB 225 billion in 2021, compared with RMB 801 minute in the prior year.
U S GAAP basic and diluted net income per avs were RMB 145 equivalent to U S dollar you'll point to two seven and.
And RMB 1436 equivalent to U S.
You saw those airports 225, respectively in the fiscal year 2021.
Compared with U S GAAP basic and diluted net loss sorry, yes.
Their point of view, a nine and.
In the prior year.
non-GAAP basic and diluted diluted net income per ads were <unk>.
M B one six therefore.
Equivalent to U S dollar jump on 252, and RMB, one 595 equivalent to U S Auto 0.25, respectively.
Fiscal year 2021, compared with RMB 557 in the prior year.
Moving to the balance sheet as of December 31st 2021, the company had cash and cash equivalents restricted cash and short term bank deposits.
Short term investments and.
And long term bank deposits net of RMB 14 6 billion.
Compared with RMB three points.
Four 2 billion as of December 31, 2020.
As of December 31, 2021, approximately U S. Dollar 162 billion with the Dol talk denominated in U S dollars.
Yeah.
Lastly, turning to our share repurchase program on December eight 2021, the company announced that exposed to its board of directors authorized a share repurchase program under which the company may repurchase up to.
The 500 million U S dollar of its share over a period until December 31st 2023, the program, which is integral to our commitment to providing shareholder value.
<unk> smoothly.
It demonstrates our continued confidence in our core capabilities business growth long term market potential and the further development of E vapor industries.
This concludes our prepared remarks today, we will now open the call to questions.
Operator, Please go ahead.
Thank you.
I ask a question.
At this time.
Please forgive me.
So I'm sorry. Your question. Please press Star then two.
And from the benefit of our profession.
On today's call if you wish to ask a question to management in Chinese.
A question in English.
Today's first question comes from Louise.
Please go ahead.
Hi, Thank you management. Thank you for your presentation and thank you for taking my question. So my question is kudos shirtwaist, ladies that year to date shipment and sounds good.
Expected is there any significant changes from now to first Amit and get after I finish up my Oh, they're supposed to.
Just another quick question on the newly released a regulation so according.
According to the China National I spend that fall short, we see not only tobacco flavor that can be sold. So if this is the case why do you still put a nice job Apache table lifestyle ingredients. So if at any time.
I mean a conflict.
Yeah. Thanks, Louise So I'll talk about more on the year to date shipment trends.
And finally, the responsible question on buying the latest regulations.
In December we have to see a continuous improvements in multiple operating metrics.
We are confident in all commercial demands, including the number of potential users.
Being driven by the increasing willingness to consider E vapor products by asthma course as mentioned by Chow.
Tension of new users and the number of Corkage our user base.
We think it's reflecting a higher number of potential users. So Canada would be higher in time, you'll sort of lifetime value.
We believe the primary reason these tests to increase in users have high confidence in E vapor products and our products. After the release of the first drop off nationals tenders being released in December .
The benefits of harm reduction for backhaul contests.
So due to the above trend, we have gradually optimize all human level to responsible operations.
That's the environments.
Regarding the latest a regulations.
Come back to us with each article he will require more time for US. Please valley's internally and wait to see how it evolves we bogging the commercial results I can find question.
Thank you ladies and gentlemen, our next question today comes from.
Yes.
Please go ahead.
Yeah.
Hi management.
Thanks for taking my question I have two questions here.
Why is that.
And so regarding today's graduates update including an administrative measures and also does that then drops on that national standard.
Okay.
The potential impact on your business and how do we deal with involving all regulation and increase the penetration of amount of adult smokers in particular on a light a restriction on the flavor part so could you give us more color on that and then my second question is on the product side and also any in light of the new national all cannot produce yet.
Progress on the new product. Thank you.
Sure. Thank you very much Livia. So two questions one is on the recollection.
And I don't want Islam D, how would be the Oh.
<unk> two new product launches so far today. These states tobacco monopoly administration announced the administrative measures.
To further strengthen the supervision of next generation tobacco products.
At E cigarettes.
Correctly, the MX order to ensure the health and safety of adult smokers and pro most daily utilization and standardization of the industry.
This will be effective on the first half me so.
So we'd have to see the key changes when do you concur with the public consultation paper being released in December .
The sample it in close touch and a greater emphasis on prevention.
Waiting in line have to use E vapor products.
Can you tell us obtain E cigarettes, which a license so called killer products from local items E cigarette wholesalers and shall not exclusively distributors at least the E cigarette products and.
And finally purpose.
And events and you didn't products.
And also directly through a mouse too steep for people that opinion.
Regarding the second drop off National standards.
With that line of March 17.
So key changes include such products should not be looked at the miners and shutting off flavors army and items of that pool.
But in contrast, we do see that's key components.
In the existing power portfolio have been included.
For example, W is a turnkey equal agents, which were that's left to publish a scientific study.
Or.
Applied technology.
So we believe such a widespread east will be continuously defaulting is strong.
Strong scientific research.
So you've got to back based on location.
So it's like Okay. We are delighted to see the formalized regulations.
Which has been similar to Nancy improvement personal course positive proclamation of E vapor products Cross safety, if the nature of harm reduction compared.
So what type of products.
And he believes that these measures have progressed the development of our industry.
These higher standards.
Paragon and higher clarity with a promising aspects of prospects so each bottle chain participants.
And regarding E product launches gives them that is still a draft national standards. So we have to wait to see on national standards being formalized and.
The large loss across being approved.
But throughout the process.
Diligently to modify our products.
Together with some potential new product launches.
So firstly on firstly on safety. So it includes the change of requirements for raw materials.
Building ingested and released lots of news and safety was apartments com at a time.
I'm sorry.
Nympho athletes.
Roofing application protection child lost a suspension of accidental device type of patients.
And indeed, our product safety centers has been always in line with much higher global standards.
Including a broad national standards.
For example, our standards for Jetblue and released substances are much higher and such requirements.
Regarding Chile loss prevention accidental device application.
Technically fully prepare to comply with the new standards and a parcel of pipes are full.
All right.
And next is on these solutions.
So we do see that he has provided greater clarity with respect to the allow ingredients.
At least one other piece that permitted for use in new England.
Wow.
Other fees will be subject to a power outage assessments.
So we will continue to make modifications in response to the seconds off National standards released today. Thank you for the question.
Thank you.
Our next question today comes from Charlie Chen of China Renaissance.
Please go ahead.
Yeah.
Thank you a lot of events for taking my questions I have one question.
So during this transition period, where you cannot extend yourself matter, which you cannot launching you Oh, that's so what is the.
The focus of your day to day work during this period and can you share with us some of your.
Major chipmunks or progress in your.
Our work for the past quarter. Thank you.
Sure. Thank you very much Charlie so I can't share all progress for last quarter.
Unfortunately, Mark is on the South and distribution, we have been closely monitor our partners operating and financial performance. So they have been putting great Packers into driving single sloshed out by introducing operation will disappear and trainings.
And asked her directly and.
Stop measures being released.
We do see that distributors and retailers have high confidence in the ebay quite honesty in Rx.
We should try a robust order book.
We have also launched internal trainings totally equipped with all south exports, if the right skill sets some feeling of the potential change of heart in the street.
And on the product development front part and modifying our portfolio as mentioned in previous Q&A, we have invested resources and developing new technology and products and there has to be coupled with.
New product lines.
So far the process will continue with a mess and developing new products and technology and expect to obtain approvals after national standards economy package.
And lastly on optimization of upgrade.
We have a massive happily and fleet utilization and optimizing labor efficiency.
We have been building and all in one digitalization system that monitors and tracks, our operating and financial performance from France and from the supply chain, all south and distribution channels.
This new initiative is better our day to day decision, making and increase our operating with agencies.
Thank you for your question.
Thank you.
And my last question today comes from.
Yes.
Please go ahead.
Hi management.
At the conference.
Two questions here one is safety.
Our digital assortment largest flavored floors and could you provide some color on board.
Channel.
And the second question is that how what was the second nature.
Assembling.
Okay.
Uh Huh, so what alliance.
I think the first question is mainly on you'll have to see that somehow playfirst I'll stop and I'll start in our second monies on paper again, and we'll see how the national standards affecting our craft portfolio.
So on the first one so after the.
Administrative matters being released back in December we have spoken I put out approach in lowering our freight and inventory.
We consider multiple factors, including restriction on product launches and new store openings during the transitional period.
Time required to.
Distributors and retailers Argo sentiments.
So that was.
The fact that production capacity is more than enough to increase again in the timely manner.
Since December and till now we have seen continuous improvements in operating metrics as mentioned.
And you'll some recent matrix and install it heats up nitrogen pricing poll singles ourselves.
As a result, our books from digital business has been robust and we have been cautiously fulfilling those orders.
And therefore, our current channel inventory has to at a low level since the first quarter of last year to date.
In light of the potential regulations together with the cross national centers for Mani.
Monitor and adjust our shipment level.
To fulfill our distributors and user needs.
And the second one is about our flavors.
So to the Apple case, the primary reason for adult smokers, So youth E vapor products.
Meaning if the hanmi question effects compared with powerful crop tobacco products mainly sequence.
And together with other secondary factors for example, more hygienic with noble and flame <unk>.
Mark convenience.
Half lap these fibers to cables around it based on our internal is that sort of thing.
Flavors campaign in Congress are not the main reason for asthma course switching from cigarettes to E vapor products.
And also if reference to overseas market experiences when there is a restriction on platelets. It will only cost Shanghai covenants, plus trade channel, especially on existing inventory management and in preparation for that.
Limited impacts on the long term trends for adult smoker switching from cigarettes to E vapor products.
We are a strong confidence that China E vapor users continue to use relax after the drop national standards to become infected.
Those effects are likely to switch from Deb best pre book ciphers to pullback will favor. Thank you for your question.
Thank you very much.
Hi.
Okay.
And the answer session I'd like to turn the conference back over to management for closing remarks.
Yeah.
Thank you again for joining us today, if you have further questions. Please feel free to contact our technologies Investor Relations team for the contact information provided on our website or TPG Investor Relations.
Yes.
Gentlemen, This concludes today's conference call. Thank you for attending today's presentation you may now this.
Disconnect your lines and have a wonderful day.