Q2 2022 Dingdong (Cayman) Ltd Earnings Call
Good morning, and good evening, ladies and gentlemen, thank you for standing by and welcome to the Ding-dong Limited second quarter 2022 earnings Conference call.
At this time all participants are in a listen only mode. Please.
Please note that this event is being recorded.
I will now turn the conference over to the first speaker today, Roger Xu Senior director of Investor Relations. Please go ahead Sir.
Yeah.
Thank you Hello, everyone and welcome to <unk> second quarter 2022 earnings call with US today are Mr. Cheung now, our founder and CEO and Mr. Luke amidst familiar with CFO .
You can refer to our second quarter 2000, and turning to financial results on our website.
So 100 adult me you can also access a replay of this call on our website if it becomes available a few hours after its conclusion.
Today's call management will provide a proof house remarks, first and then well be hosting a question and answer session. Before we continue I would like to refer you to our safe Harbor statement in our earnings press release, which also applies to this call as we will be making forward looking statements.
Please note that all the numbers in the following management prepared remarks are in RMB terms and the Wade will discuss non-GAAP measures today, which are more thoroughly extend and are reconciled to our most comparable measures reptile polecats chemo earnings release and filings with SEC.
I will now turn to the cultural will first speak stay founder and CEO of being don't Miss alone.
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Yeah.
Yeah.
Hello, everyone and welcome to the Q2 earnings call of being don't fresh in 2022 on the call today are mainly.
Cover three areas first I'll briefly report our Q2 operating performance second I will discuss our product development capabilities and lastly, I'll share the Companys further development plans.
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Firstly, let me report the company's operating performance in Q2 2022.
Our Q2 revenues were $6 six 3 billion, representing 42, 8% year over year growth. We also achieved a non-GAAP net profit of over 20 million for the first time, marking an important milestone for our development.
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The younger River Delta region, or why R&D in particular achieved profitability with an operating margin of three 7% in the first half of 2022.
We started our business in Shanghai back in 2017, and gradually expand it to the whole Y R. D region, and then two other cities across China.
We have seen that the entire Y R. D has become a solid market for the company following Shanghai.
We're also confident that our product development capabilities methodology and management talent accumulated in the Y R. D region will help us grow and serve more users in other cities.
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We have prioritized product development capabilities to increase users and orders ever since the adoption of the quality growth strategy in August 2021, and we have made great progress.
Typically in Q2 of all products sold we had a total of 217 skus that were uniquely Deng don't.
Our private label accounted for 17.5% of the total G. N V with the majority being developed and processed eat house in our three asset factory.
We have to become not only a large scale fresh grocery E Commerce leader, but also a food manufacturer with R&D and innovation capabilities.
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As we all know Shanghai was hit by another pandemic wave from March to May 2022 during that period, we overcame various supply chain management difficulties to ensure the continuity of Shanghai residents livelihoods.
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No.
Actually on an evening in April what about riders with driving through our neighborhood on his way back from delivering an order when he suddenly heard a shout bingo Jal, which means chair on Ding don't in English.
Many neighbors joined in the <unk>. It was the most difficult time in the fight against the pandemic and we were exhausted everyday to fulfill the market demand, but the chairs of I'll use this gave us the strength to Babylon.
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You bet.
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As you know the usual cookie dough.
I also saw a picture of a dingo rider drawn by a primary school students the front and back of the scooter were covered with parcels and each box with painted with a carrots ding-dong logo.
The writers direct club was flying high and the young artists had named a painting carriage man.
We are proud that all writers has to come heroes in the eyes of the children because of their dedication to securing the supply of daily necessities in their fight against the pandemic.
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Second I would like to discuss the cultivation of our product development capabilities.
Lars and to promote in Denver.
For it they don't focus on the mother child community, we discovered a pinpoint through that venture.
These families were constantly worried about whether their children were eating healthy and safe food. Therefore, we started thing don't provide all users, especially children with healthy and safer food products and convenience.
Therefore product quality is not only about our growth and profitability, but also the mission of our founding team.
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We have improved our product development capabilities from the following five aspects.
First we don't compromise on product quality.
Steve jobs was taught coffee tree by his stepfather, who told him. It is just important it is just as important to make the back side of cabinet and fences right, even though they're hidden this is what we called craftsmanship to be meticulous where it has not seen it is especially true in producing fresh groceries and other food products.
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For example to avoid excessive passage pesticide residues in the cultivation of leaks and Charlotte we visited over 10 provinces in China before finally, establishing a reliable planting base that fulfilled our D gap and order base planting requirements.
But these effort and costs are hidden from consumers, who only see that all products appear nicer and fresher than the others and sometimes at a lower price.
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Yeah.
Another example is how we have always advocated for the clean label on our products normally you will see various chemicals flavorings and preserving densely written on the ingredient list on the pocket on the product packaging.
The principal is no additives unless necessary we call. This the clean label, which we achieved through the continuous improvement of technology.
Even though by doing this our cost sometimes increase and although our clean products may not taste savory S dose with additives, we ensure the health and safety of our cup consumers first and foremost.
Yeah, no doubt about that.
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I'll walk you know Matt is that we will be back.
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Okay.
Second we keep developing more signature product unique to Ding-dong as mentioned earlier, we have private labels and we are increasing contribution from in house developed products.
We have become a food manufacturer with proprietary R&D and innovation capabilities in.
In Q2, we had a total of 217 skus of signature products.
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For example, our 1972 farm to table craft beer jointly developed by Ding-dong, and Qingdao, who brewery can be delivered to consumers within 24 hours of shipping from the brewery, thus maintaining the beers delicate teeth and ultimate freshness.
Another example is that by transforming and applying the patented technology Upjohn on University, we have exclusively developed the conquer corncob poon Ensign drink, which is the fusion and sublimation of California prone citrus fiber probiotic food and vegetable enzymes to drink achieved.
It's frigerator shelf of 45 days with zero percentages, making it a delicious choice for young users to maintain a healthy intestinal attract and it fits the sake.
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Oh bakeries self developed low testing, some which combines deliciousness and oriental aesthetics coincides with the release of the heat T V series, among Guadeloupe, which introduced a similar theme song from the phone dynasty.
The strong cultural restaurants between the two struck a chord with many young female consumers and was widely publicized in domestic and international media.
Eating dingoes noticed them some wild binge watching the TV drama series became trendy.
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Would you be able to fulfill that.
How does it all at once yes.
You can even let you decide.
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Is that how you intend to do.
Right.
Our prepared food category, which exemplifies our prowess in consumption scenario development and manufacturing efficiency continues to advance with the launch of the air Fryer Gourmet and vegetarian prepare foods cereals in response to emerging consumer trends.
This has further broadened consumer consumption scenarios in which to use experience of all prepare food set the direction for future healthy prepare food expansion and augmented ding-dong leading position in the prepared foods segment.
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Third we have significantly strengthened our research efforts on user consumption trends and improved a success rate of our new product development.
With our strong data analysis capabilities and loyal user base of a product research Department and produce 15 consumer insight report in the first half of 2022 and organized over 10 user testing sessions with nearly 1000 participants.
Consumers gave opinions on product selection and development adjustment directions, which strongly support at key products market positioning and selection and subsequent growth strategies that Leon thus significantly increasing the success rate in product development.
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Yeah.
Fourth we have developed more consumption scenarios to efficiently discover new consumer neat define new product specifications and cultivate new labels.
Executing on our mission of making healthy food for every child and family recreated a specialty casually call. It's mom's choice.
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Daniel.
Yeah.
We need to constantly be able to post.
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Oh, that's of Mom's choice must pass through a comprehensive development system of origin, and traceability scientific nutrition minimum additives and strict quality control, which eliminates parents' worries about food safety.
Ding don't also became one of the first companies to meet the low sugar content food standards.
At the same time through our recipe up to date initiatives, which offers varied recipes each day of the week and our one click at the basket App feature parents can easily planned nutritious and delicious meals for their children.
Through the grow with you session parents' concerns about their children's physical development can access diverse food options and scientific nutrition knowledge.
Three months choice, we have explored the fusion of product plus health services to increase user loyalty and operational profitability.
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In addition to mom's choice, which provides superior value by integrating products with service. We have also a similar category for young people, who love for fitness and health and a project in the pipeline for urban seniors, who want to live an elegant and healthy lifestyle.
As the agenda will consume a good changes from a family base unit to an individual or even a label based individuals stating don't keeps lunching dedicated carefully setting targeted groups of loyal users and has grown into a foods development and brand matrix operation company with unique advantages.
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We are strengthening our infrastructure as we have explained in previous earnings calls Ding don't has the largest high standard semi automated warehouse and over 10 food factories, and we were building three additional large scale three F factories.
We have also invested generously in food R&D and quality control, which are slowly which are slowly paying us ensuring that we launched more unique or industry, leading products, while enhancing our product development capabilities.
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That you don't want to go do that.
How did you get anything above you Donald.
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So that Sydney Sydney's off either.
Yeah, Hey, Joe So nobody's.
Nobody's sure.
So as you know Matt is that he's done for this year.
Finally, I would like to touch on Dingoes future development plans.
Firstly I want to emphasize that Ding-dong, we'll stay focused on the fresh grocery and food business.
By comparison, our Pea.
I have attempted various business models in the past few years, while we upheld our commitment to the frontline fulfilling grit model for the past five years. Despite all the struggles and challenges we call. It the clumsy spirit, which is also reflected in the fact that we have been persistent in doing fresh groceries and food, whereas our peers.
Have branched out to other categories.
It is a lifelong passion.
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So what did you see you around.
Two lines, even got Hollywood do what you got.
How do you change.
Chasing Chile surely your food.
Forget who moved out.
Why because food is a necessity fresh food is not ordinary consumer goods, we aim to ensure not only food availability, but also food quality.
We strive to bring happiness and passion for life to the public through food and to infuse inspiration and soulfulness into food only a team with unwavering wholehearted commitment and dedication can achieve this goal.
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That is why we choose to go deep while our peers choose to go abroad, we will stay grounded focused and dedicated.
We will continue strengthening our product development capabilities reinforcing the supply chain, increasing investment in infrastructure and working tirelessly for the course a suit.
And as food market alone is worth over 10 trillion RMB not to mentioned the international space.
The food market is large enough to give rise to many successful and great enterprises.
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Well the way you work with.
Thank you Susie.
Well good morning.
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Talking about too simple quality woods yet.
Our second development plan is to improve the user experience or user experience was affected during the lockdown because of the difficulties in managing the supply chain warehouses and frontline fulfillment centers.
After the Lockdown, we quickly mobilized resources to improve user experiences.
Going forward, well can reconfigure it all logistics and warehousing systems to establish precise warehouse location and accurate inventory.
Well optimize our service process to improve the efficiency of our stuff and warehouses to serve a broader user base and expedite deliveries.
At the same time will strengthen the recruitment and training of frontline personnel and provide them with industry, leading the motivations and Korea investment options to enhance their sense of Joy and achievement as we firmly believe that happy writers lead to superior customer experiences.
Yeah.
Oh, I'm sorry, yeah.
So it's all about it.
You don't go out and kill that woman Colo.
It sounds as if you're all well, but you do hold but you cannot hold you to.
And Doug Pritchard, he said that sushi.
Okay.
So you'll have a freedom what do you think that you know in Cmos and nobody that he used to get attendance.
Finally, I would like to conclude that the milestone profit. We achieved in Q2 was partially a result of the lockdown looking ahead to Q3, we may expect a slight loss however, comparing our post lockdown and pre locked down numbers, we expect a net loss margin to narrow continuously.
While we sustain our revenue growth.
And we're confident that thing done that can be fully profitable by the end of this year.
Oh, I am sorry to see that something that you're going to hear about.
How would you want to do it.
Thank you everyone with that I'll hand, the call over to misuse, our CFO to go over the financials. Thank you.
Thank you Michelle Hello, everyone before I walk you through our detailed financial results. Please note that all numbers stated in the following remarks.
I'm, Peter and all comparisons on a percentage changes our year over year basis, unless otherwise noted.
In Q2, 2022, we maintain quality growth with revenues, increasing 42, 8% year over year to 6.63 billion, our product development capabilities and operational efficiency have significantly and steadily into the things that we began in premium.
The strategy of efficiency first with due consideration to scare at the end of August 2021.
Our non-GAAP net loss margin has narrowed a consistently too. So it is seven 2%. So the one 9% 18, 9% and seven 8% over the past four quarters respectively.
This call till we also reached a positive non-GAAP net margin of 0.3% for the first time.
37.5 percentage points from Q2, 2021.
Now, let's look at the Q2 results in detail.
The company's revenue reached 6.63 billion representing year over year growth of 42.8%. The G. N V to revenue conversion rate was 93.2% up six nine percentage points from the same period last year.
The gross margin in Q2 was 31, 6% up 17 percentage points year over year, and two nine percentage points quarter over quarter. This is because we kept the developing and the diversifying the source of our supply for example, our newly developed the food production.
<unk> and the processing initiatives include our product R&D capabilities expanded our processing skids and boosted our products there.
Thus, increasing our production positive contribution to gross margin.
Data analytics also empowered our order pace the production and then reduce the production efficiency and wastage.
In addition, a high percentage of direct sourcing has penetrated not only the fresh produce but also the non fresh produce category.
The final step of our supply chain is doorstep delivery, providing convenient reliable and a reputable and value added service to the consumers.
In summary, the long mutually and deep supply chain has not only brought us differentiate good products that dominated the mindshare of juices, but also generated higher gross margins.
The fulfillment expenses ratio in Q2 was 23.2% down 13.2 percentage points year over year, mainly driven by the improvement of average order value and enhance the frontline labor efficiency.
Q2 sales and a muscle expenses ratio was two 2% down six six percentage points year over year, our product development capabilities have become a new source of user traffic, reducing both online traffic acquisition expenses and offline marketing expenses significantly.
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While optimizing average customer acquisition cost.
Thanks to the scary effect, our G&A expenses ratio. It was optimized the two to three cents for all 626% in the same period of last year down 4.3 percentage points, our R&D expenses ratio declined to three 8% from four 4%.
Last year, despite its absolute value will increase.
Increasing 23, 7% year over year going forward things don't work in basket in food and agriculture technology technical data algorithms and other infrastructure.
This investment will strengthen our competitive advantage and create a long term return for investors.
We saw that improve our efficiency in Q2 with a net loss margin of 0.5% down 41, two percentage points from last year. We also achieved positive non-GAAP net profit margin of 0.3% for the first time.
We achieved a net profit in Shanghai in December 2021 today.
Today, we are pleased to report that our P and L has turned positive for the entire Yangtze River Delta region in both Q1 and Q2. This year. Meanwhile, in the first half this year the Yangtze River Delta region achieved a 47, 9% year over year revenue growth.
It's quality growth and the rapid optimization of our unit economics is a strong testament to the profitability of Ingalls business model and the responsiveness of our organization.
In Q2, we had 200 and its 20 million cash inflow from operating activities.
By incorporating supply chain finance into our cash management, we have 10 818 million extra operating cash inflow.
As of the end of Q2, we had a $6 1 billion in cash cash equivalents restricted cash and short term investments.
The pandemic has led to many uncertainties that increased our personal difficult us greatly.
However, we ought to cause this challenges and enhance our organizational capabilities supply chain, a definite tests and the responsiveness of.
This improvement will remain our most valuable asset.
Driven by the growing product development capabilities, we also realize the quality growth and non-GAAP positive merch margin in Q2.
As we establish a word of mouth on our product.
Development capabilities, among consumers comparing our pre locked down and opposed to lock down performance. This year. We also saw a significant increase in the L. D post the lockdown and an improvement in our operational efficiency, which validated our efficiency first.
With due consideration to scale strategy.
Looking ahead to Q3, we expect the quality of revenue growth with narrowing losses compared to the pre Lockdown Q1. This year. We also expect to achieve a single mouth now get breakeven in December this year.
This concludes our prepared remarks for today operator, we are now ready to take questions.
Okay.
We will now begin the question and answer session.
To ask a question you May Press Star then one on your Touchtone phone.
If you're using a speaker phone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
When asking a question. Please state your question in Chinese first didn't repeat your question in English for the convenience of everyone in the call.
At this time, we will pause momentarily to assemble the roster.
And our first question will come from Joyce Ju of Bank of America. Please go ahead.
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I will translate my questions by myself.
Recently, we noted a duran Duran.
As a a close competitor off the company was reportedly I'm, having some difficulties in terms of our cash flows and and also a shrinkage in and operations are we wonder like you know could management share some colors in terms of your viewing them into.
The market competitive landscape how this companies.
Or like you in those situations well actually effective ding-dong in terms off like you know competitive landscape in terms of capabilities in terms of the relationship with the customer and you know the also their suppliers many.
Many thanks.
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Yep.
Do you Wanna.
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Does that sound.
So I don't see how you could easily turn on Covid.
You know, Matt that go with the higher deliveries.
Yeah, well, maybe the struggles that you answered yourself you can dial one do you want to see Georgia. So we do we will provide those movies because ideally suited for that.
One of the woods, yet, but you're always going to do if we do that already with Templeton.
Okay. Thank you for your question. Indeed are the news has trigger heated discussions recently first of all we are very we rarely comment on our peers. It's more important to focus on what we do that to point fingers also some people think that the whole industry is doomed when they see one company in trouble.
We strongly disagree with such a simple linear way of thinking even in the same industry are the differences between companies can be drastic thing Don is very unique in our industry. We have always been focused on one thing I always paid more attention to the needs of all users and then pushed ourselves to progress we don't cut corners.
We don't compromise we are committed to developing product development capabilities, which has gained us love and trust from our users.
Any company loved by its users is a promising company.
Well, maybe a few on so we'd be telling you that you can do the policy.
Could you know Toyota engines without you.
Well I mean, that's a cool.
We also hope that the society can be more tolerance towards entrepreneurialism, and we wish entrepreneurs, who encountered difficulties will persevere in the moment of darkness, and usher in a bright future.
Uh huh.
Without them.
Alright, that's all for my answer thank you.
The next question comes from accident Ashley Xu of Credit Suisse. Please go ahead.
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Sean Quinn, Yeah shop Uh Huh.
And I actually answered I think that would be five Oh Chinese yeah.
Management for taking my question I, just want to check during the lockdown period other than our revenue growth any either improvement or development, especially in terms of our operation or supply chain that is worth sharing thank you.
Yeah.
Oh, it's just any single geography at all.
And all you're doing what you're doing to call yet if you don't mind.
Some of them you know what other people do you now see on your good value will go find it.
Oh, yes, well then.
Good Counterparties.
Right, Yeah, Yeah, and you can go into more units.
I'll be glad.
Why did you Couldnt I Didnt know when do you when do you what are you talking of Hadoop only or was it you.
So I'm not too long lead times on that.
He began to you Paul Dano boom.
Without your Mauriello Laguna, Yes, you know that.
252 possible this whole minerals Uhuh ballroom, that's you're going to go up.
Okay. Thank you for this particularly good question. In addition to our revenue growth Dingo has grown in three areas after the lockdown.
First we have established a more flexible and adaptive supply chain and built a responsive organization during the lockdown, we faced various problems, including a supply disruption logistic blockages original warehouses in frontline centers are being lockdowns and personnel management difficulties.
We adopted and created new supply models for example, using direct delivery by merchants and neighborhoods goodbyes not only ensure supply during the lockdown, but also at Comed prices and shopping all supplying a system to hold the basic duty of securing supply in case of unexpected incidents.
Thiago no women shoes and apparel.
Yeah and it.
It goes without a box of one Jim that I couldn't see the people go.
Most of them are below $10.
Sometimes I beg your pardon.
You've done a whole lot.
She just should be backed out.
With that let's turn yoga, Jim why don't you do that you need or want to go to how do we could not find yellow.
Second we have improved the cohesiveness of the team during the Lockdown. The workload was heavy life was tough and there was a the risk of being quarantined at anytime we were under unprecedented pressure and we all but we all took it upon ourselves to maintain supplies for local residents creating.
Plenty of heroic stories.
But everyone here at they don't could also feel the sense of accomplishment from setting all users after the lockdown and we as a team became more United.
But he's done in Georgia.
Did you know about that zone.
Ballroom V P without yeah, you got it.
Good volume good.
There's no debate that continues.
Who knows.
Nobody will decide who should be there.
So those two did the home robot.
Third thing Don has been with our customers throughout the lockdown, keeping supplies and prices stable and as a result, we are loved by more customers than ever before whether its routine consumption or locked down purchases. They know is always a destination that you can trust without a doubt.
It's always going to.
Well that means it was a simple one you'll be Jojo do you. How are you going to use them problems here that you're going to go you're going to see solid years.
Yeah.
Once you get through all the way back.
Finally, I would like to highlight that we have been complying with the governments pandemic control requirements and fulfilling all basic duties as a daily supply company for the general public. We also wish that dependent make we hope that the pandemic will end soon and that everyone that can enjoy a healthy and stable life. Thank you. That's all for my answer.
The next question comes from Thomas Chong of Jefferies. Please go ahead.
Why is that now sits at one eight times a day so what if he would.
Sure no problem, but he does he was he saying that he does.
So you're going to say Oh, we did them in kind of in Tucson.
Uh huh.
So even if we stopped for the well wishes.
I'll begin with a high level.
So most of the whole what do you say, let's find mainly to either right.
Joining me today.
Well my language.
Thank you Jim.
Claims management about taking my questions.
I've seen.
A really great job in achieving our profitability in Q2.
Should we think about the situation in Q3, and two and then should we expect full year profitability and also.
Before we reach our full year profitability, how should we think about our cash flow.
Any issues.
Oh tumors, that's all you lovely back as one team.
Alright, I'll CFO Miss you will take your question.
Oh this is telling us they want.
Sure.
For Q2, it's just to show you go to accomplish on Canada should see numbers that are finding the ensuing shop in shops are you going to do that then they shouldn't mean that Felicia fish Hunt you down.
There are no golf, there's a whole bundle ships essentially the jiggling our shop number I wouldn't say John that should the energy go culturally the junior tranche Olesen number with me at $100 Shiga eating at home eating <expletive> rush. It sounds shockingly I don't go bad you see a woman to Guangzhou Sanya actually sounds <unk> shouldn't.
Totally done that just yet fish off, forcing the Fujitsu del stood up without that Youll class. So we know what maybe I'll wait a Q3 to be each since the end of Q1, our non-GAAP net loss margin.
You sound good funding that Youll now my whole she does California.
You should imagine.
Q3, the Shanxi, Ohio.
Okay. Thank you Thomas for your question first of all Q2 was a very difficult period for the company and the operational headwinds were tremendous under the influence of macro factors. However, the good thing is that the company stuff, where United to Battle the challenges and we finally achieved quarterly positive.
<unk> in Q2, we also observed a very positive progress post lockdown to compare to pre locked out periods. Both in terms of product development capabilities and user satisfaction, which are the aspects that we care about most and also about our core performance indicators such as D. A L V and penetration rate. We also achieved a very positive.
Progress as well therefore, we believe that our non-GAAP net loss will be down at least three percentage points in Q3 compared to the pre locked down Q1, and Q4 will be further optimized on the basis of Q3.
Uh huh.
As a woman that should continue and how should you want to make it.
Oh sure that you can eat seen Oh, my gosh, you know plenty to enjoy drinking silo thing and see more shall be upset them are considering she she's in theory, a breakeven genre you could fathom won't be all that much of a move beyond know what my tour you would've heard of.
Wow.
Dancing, Pete I should clean sheets agenda.
Second in January this year, when we will all still completely in the dark about the subsequent locked down the management had already set the goal of achieving a single month breakeven by the end of the year a goal that we have never change and we are still convinced that we will achieve this goal.
Okay.
So I don't see.
Yeah, well, let's just say 10 million leadership tenure mail deal why that should Q2, the Yates Jewell Coke washout Youll call a woman a dual chamber and the question reads and he says he also that you know my opinion they'll kill three of her California women don't you go question real quick and you know the beaching Anton she's downhill since it off what are the your number I mean.
And you know well maybe you can see I wish you a good tenure she doesn't sound it sounds helio Nonetheless digitally till two more now woman did you go to St. James viewer ship, a little should be a little easier I mean Pete.
Hong Kong synergy go horizontal congrats Neil I mean, how long do I don't think at all about the Angel you didn't mean peak number that cute on the pushout you How's that thought she she really hone our K toggles that Paolo do you sugar powder.
Yeah, Jim that you shouldn't you shouldn't that might show the why the change and put all of that should not Josh I know you have how should a pushout into nowhere and they're gonna Waco Fisher Wenchang mail since you know the phone and.
Uh huh.
That went up with agile job just yet.
Finally, although there is no change in the timing of us achieving full profitability. The Q2 result, objectively optimize our loss ratio and cash outflow for the year. So for Q3 and Q4 this year, our loss and cash outflow will be significantly optimized compared to the same periods last year next.
Next year, we forecast that the company will still be cash flow positive and as of the end of Q2, our cash balance was 6.06 billion RMB.
<unk> have been working more closely with the company with short term bank borrowings are increasing to 890 million RMB.
In Q2, many banks have given us higher credit limits on lungs. After with you all at the end of the term in short we don't have many capital spending needs at the moment and.
And the balance on the books is still quite significant and quite sufficient. So we think that the company is not at any cash flow risk. Thank you that's all Samantha.
The next question comes from Robin Leung of Taiwan. Please go ahead.
So Sarah Jones, there's almost a few unconscious so much ambiguity.
One theory ocean the cleansing should that's how you're going to eat chicken.
And did you tell them the most attention Augie you why you should teach and social thoughts there you tend to have more should shield faulting, there tied to new.
The Tianjin, China wash its under them Paul Thomas.
What's your sense on your Oh, Thanks management for taking my question and congratulations on the strong set of results. Some investors have concerned entrepreneur warehouse models, given what happened to be refreshed also some competitors in the local retail industry explicitly set up on him warehouses not gone to work could manage.
And share your thoughts on that thanks.
Uh huh.
Yeah, I think Oh, so you're always going to need to do is Gee I don't know exactly yet.
That's how you Yankees yes.
Okay.
Well what can be done, but do you think that you know two more junior.
It was really no woman three changes all voices are too much into the junior, though but most of them, they're not you'll do since it's not a big deal.
Yeah.
That's been a long time that you go more to the Juliet.
Do you draw the blood unions for Soma.
Linda will you would've Segal.
Shelby.
Do you want to choose the hagerty its all your most of this impact.
Well. Thank you for your question first of all I would like to draw your attention to the fact that excluding the three months during the pandemic when the Lockdown hit hard thing Don has to been able to continue improving as loss ratio for 10 consecutive months.
And we are very confident that we will achieve full and sustained profitability by the end of this year. Therefore, we have a strong belief in the frontline fulfillment grit model. There are many analysis of this model on the market and they are up for you to judge, but we often forget that but the most important criteria to assess the pros and cons of the model.
Or whether it really meets the needs of the users and whether it is in lined with the changing trend of user consumption behavior only the user's choice can determine the success or failure of a business model.
Sure.
So you got to show quite a privilege.
And then moved to call the Covid using jumping to little more of a mountain dew.
It would be awesome, but as usual by doing the engine is that well yeah. It's obviously, what you would come up with video obituary thing because you'll be hungry.
I Hope woman sorry, it's all you do.
So I don't know, we don't bother to do well, but don't go to that guy but.
Absolutely yeah hold on what went on with.
The other thing that need to talk to you in July .
So you know Joe will you put on.
You talked about so you get that saga Duffy you look she goes on that well pretty brand new to Java.
Ooh sitting over there.
So it doesn't yet.
Good.
The frontline fulfillment model enjoys the highest efficiency the fastest delivery and can better control the quality of fresh food.
To meet the needs of consumers for a better life and caters to the younger generation of new consumption habits.
We firmly believe that this is a business model with the bright future and we in turn push ourselves to strike a progress when people think that the gross margin a fresh groceries is low we improve it by market by making the supply chain deeper and stronger when people criticize the losses are in the high loss rate.
In fresh groceries, we improve it by enhancing our order density and improving our prediction and product recommendation technologies. As a result, our recommendation is excellent today and our loss rate is far lower than the traditional fresh approaches peers when.
When people think that the quality control of non standardized or non standard product. It's difficult we standardized the process and we increase our human resources and technology investments as a result, our quality control nowadays is industry, leading in the entire fresh grocery industry.
Hum.
I saw you bought at all that Youre doing kind of a looming I think tells you didn't go to transfer all usually you do that you don't you Joe could you just talk to what you're doing here at Goldman Sachs.
John do you have you would you open it up.
Okay.
Yeah.
Our way of thinking is identifying to users' needs and then pushing ourselves to improve accordingly, some people see problems and immediately they try to be smart and announced at the world that they know everything others on the other hand keep their heads down in solving problems in fact intrapreneur ship is the paas.
This off problem solving a why do we need entrepreneur is if there is this a perfect industry with a huge highly lucrative market with no problems or difficulties. Thank.
Thank you.
This concludes our question and answer session I'd like to hand, the conference back to management for closing remarks.
Yeah.
Thank you again for joining our call today. If you have any further questions. Please feel free to contact us Oh requests of ore.
Our website, we look forward to speaking with everyone next earnings call have a good day.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
Okay.
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Uh huh.
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