Q1 2023 111 Inc. Earnings Call
Speaker 1: I.
Speaker 2: everyone and thank you for joining 111's conference call today.
Speaker 2: On the call today from the company are Dr. Gang Yu, Co-Founder and Executive Chairman.
Speaker 2: Mr. Jiang Liu, Co-Founder, Chairman and CEO Mr. Luke Chen, CFO of 111's major subsidiary and Mr. Harvey Wang, COO
Speaker 2: As a reminder, today's conference call is being broadcast live via webcast.
Speaker 2: The company's earnings press release was distributed earlier today and together with the earnings presentation are available on the company's IR website.
Speaker 2: Before the conference call gets started, let me remind you that this call may contain forward-looking statements made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Speaker 2: Such statements are based upon management's current expectations and current market and operating conditions, and relate to events that involve known and unknown risks, uncertainties, and other factors, all of which would cause actual results to differ materially.
Speaker 2: For more information about these risks, please refer to the company's filings with the SCC.
Speaker 2: 111 does not undertake any obligation to update any forward-looking statements as a result of new information, future events, or otherwise expected as required under applicable rule.
Speaker 2: Please note that all numbers are in RMB and all comparisons refer to year-over-year comparisons, unless otherwise stated.
Speaker 2: Please also refer to the earnings press release for detailed information on the comparative financial performance on a year-over-year basis.
Speaker 2: With that I'll now turn the call over to 111 CEO Mr Junling Yu. Please go ahead.
Speaker 3: Thank you for joining us for 2020 three earnings call.
Speaker 3: The information that we'll be discussing here is also provided in the slides.
Speaker 3: Earlier today on the company's website, I encourage you to download the presentation along with the earnings report at ir.111.com.cn.
Speaker 3: I'll begin by providing an overview of the macro environment, followed by a review of our recent operational performance.
Speaker 3: Additionally, I will comment on our continued commitment.
Speaker 3: to industrial digitization, driving revenue and margin growth, fortifying upstream supply capabilities, enhancing operational efficiency, and outlining our future strategies.
Speaker 3: Subsequently, our CFO , Mr. Luq Chien, will present a detailed analysis of our financial results, ensuring a thorough understanding of our organization's financial standing.
Speaker 3: As many of you are aware, in the first quarter of 2023, China's economy achieved a solid start. It was reported that the GDP reached 28.5 trillion yuan, growing by 4.5% compared to the same period last year.
Speaker 3: The economic recovery remained positive as the effect of various policies gradually became evident.
Speaker 3: Both online and offline economic activities resume.
Speaker 3: The medicine market in both B2B and B2B segments also experienced aligned growth with China's economy in Q1 of 2023.
Speaker 3: Meanwhile.
Speaker 3: Through the COVID-19 pandemic, China has undergone a transformative phase in its healthcare industry, embracing digitization and achieving remarkable progress.
Speaker 3: The adoption of electronic medical records has streamlined data management, enhancing efficiency and accuracy.
Speaker 3: Telemedicine services have expanded enabling remote consultations and bridging the gap in healthcare access, particularly in rural areas.
Speaker 3: Online pharmacists and e-commerce platforms have revolutionized medication procurement, offering convenience and accessibility to patients.
Speaker 3: China's commitment to digitizing the healthcare sector during the pandemic has not only improved efficiency, but also paved the way for innovative healthcare solutions and improved patient outcomes.
Speaker 3: I'm pleased to report that leveraging these transformative trends in the healthcare industry, 111, as a prominent healthcare technology company in China, has experienced solid growth and improved all of our operating metrics. With a focus on digital healthcare solutions,
Speaker 3: with pharmacist, healthcare professionals, pharmaceutical companies, and other healthcare service providers.
Speaker 3: Our growth trajectory showcases the immense potential of digitization in revolutionizing healthcare delivery and improving overall patient experiences in China.
Speaker 3: During the first quarter of 2023, the company rose to the challenge and achieved 3.7 billion RMB in revenues.
Speaker 3: An increase of 23.9% EuroVIA.
Speaker 3: marking the 19th consecutive quarter of Y-O-Y growth since our IPO. I'm also pleased to report that our growth profit reached 236 million RMB.
Speaker 3: representing a margin growth rate of 22.7% year-old year.
Speaker 3: Our B2B business remains the key driver of Remedy's work.
Speaker 3: In Q1, it will be revenue.
Speaker 3: really in R&B.
Speaker 3: representing a year-over-year increase of 24.9% and a gross profit increased to 211 million RMB, an increase of 25.5% a year-over-year.
Speaker 3: The heart of margin growth is the result of our consistent adherence to 111's customer-centric philosophy and our strong determination to create value for our customers.
Speaker 3: Meanwhile, we are thrilled to share this exciting news with our stakeholders that our non-GAAP operating profit has finally turned positive.
Speaker 3: compared to a loss from operations as a percentage of net revenues of 2.4% in 2022, reaching our goal of quarterly breakeven at the non-GAAP operating income level.
Speaker 3: With hard work and dedication, we are now seeing the fruits of our labor and progress about achieving our financial goals.
Speaker 3: This milestone not only reflects our company's focus on efficiency and cost management, but also our commitment to delivering value to our customers.
Speaker 3: We believe there will be plenty of challenges lying ahead and there will be ups and downs in our business, but we will work tirelessly to create more value for our customers and shareholders.
Speaker 3: Now allow me to take a moment to discuss the progress we have made on our operation.
Speaker 3: Let me start from our supply side.
Speaker 3: We have successfully enhanced our partnership with upstream pharmaceutical partners by promoting mutual understanding, upgrading cooperation level, enhancing supply chain efficiency, and bolstering our comprehensive digital capabilities.
Speaker 3: As our business continues to expand and as we position ourselves as an effective commercialization partner, we will continue to offer value-add services to pharmaceutical enterprises.
Speaker 3: At present, we assist hundreds of pharmaceutical companies in drug commercialization, digital marketing and market insight.
Speaker 3: For example, on our P2C platform, in addition to the successful launch of the foreign medicine stores at Learton, Sanofi's Aligra made its debut on 1-1-1, marking its first online nationwide release on the platform.
Speaker 3: This medication is indicated for the treatment of seasonal allergic rhinitis and a chronic idiopathic urticaria in individuals aged 12 and above.
Speaker 3: The introduction of Alibra in China and its availability on one-on-one not only improves accessibility for patients, but also provides a better medication experience through professional guidance from healthcare professionals and pharmacists.
Speaker 3: I personally experienced severe allergic symptoms during the spring season.
Speaker 3: and taking traditional antihistamine drugs often leaves me feeling excessively drowsy.
Speaker 3: hampering my ability to work effectively.
Speaker 3: However, with the introduction of this medication on our platform, we have a very short video
Speaker 3: With the introduction of this medication on our platform, I as a patient...
Speaker 3: have been able to enjoy the convenience of accessing online doctor consultations and Having the medication delivered right to my doorstep
Speaker 3: This experience has been nothing short of wonderful, especially when compared to the hassle of visiting a physical hospital, enduring the registration process, and enduring long queues before finally seeing a doctor and obtaining a prescription.
Speaker 3: To exacerbate matters, there is also no guarantee that the hospital stocks the specific drug I require.
Speaker 3: Knowing that there are countless individuals across the country facing similar issues, I'm thrilled that they too can now benefit from 111's digital healthcare platform.
Speaker 3: Meanwhile, on our B2B platform,
Speaker 3: Through our partnerships with downstream pharmacists, we can deliver digital value to upstream pharmaceutical companies with our newly developed digital tool, telescope.
Speaker 3: Telescopes served as a lens for pharmaceutical companies, allowing them to gain a more direct and comprehensive view of their drug sales and pricing dynamics real-time.
Speaker 3: By leveraging advanced data analytics and market insights, Telescope enables these companies to analyze sales patterns, identify pricing opportunities, and make data-driven decisions to optimize their strategies.
Speaker 3: With telescope, pharmaceutical companies can assess the performance of their products in real time.
Speaker 3: identify market trends, and adjust their marketing campaigns accordingly.
Speaker 3: This invaluable tool not only provides a clearer understanding of the market landscape, but also assists in forecasting demand, refining pricing strategies, and ultimately maximizing sales and profitability.
Speaker 3: On the other end, we are deeply committed to empowering downstream pharmacies in a digital way, offering comprehensive support across all aspects of pharmacy operations.
Speaker 3: Our solutions not only provide cost effective medical product options with satisfactory services but help them streamline processes and enhance operational efficiency.
Speaker 3: Through our network and partnerships, we negotiate competitive pricing and favorable terms with suppliers, allowing pharmacists to access products at lower costs.
Speaker 3: Additionally, leveraging technology such as automated ordering systems and efficient logistics will ensure family delivery and reduce operational expenses for pharmacies.
Speaker 3: By offering cost-effective products and efficient services, we enable pharmacists to deliver value to their customers.
Speaker 3: and maintain their competitiveness in the market. Particularly by the end of the first quarter, our One Health virtual franchise model enables around 20,000 pharmacies to provide superior products and services to their customers. All participating pharmacies can use our platform to provide a safe and secure solution to the pandemic.
Speaker 3: to better manage their product selection, procurement, and inventory management.
Speaker 3: as well as accessing our distribution tools through our digital SaaS services, including Smart Sourcing, Digital Marketing, O2O and CRM.
Speaker 4: Certainly.
Speaker 3: Operating efficiency remains a continuous focus in our strategic imperatives.
Speaker 3: With growing scale of business and enhanced technological capabilities, 111's operational efficiency continues to improve.
Speaker 3: We're glad to see that revenue and the gross profit have both increased, whereas as a percentage of net revenue, the sales and marketing expenses in Q1 was down to 2.41% from 3.85%. We wanted to maintain a marginal And administrative expenses.
Speaker 3: was down to 1.12% from 1.61%. And technology expenses was down to 0.68% from 1.31% in the same quarter last year.
Speaker 3: The total amount of sales and marketing expenses, general and administrative expenses, and technology expenses year over year has been reduced by 22.3%, 13.9%, and 35.1% respectively.
Speaker 3: have made significant efforts to enhance management efficiency.
Speaker 3: through various measures. Firstly, we have implemented a strategic reduction of redundant staff, carefully optimizing workforce allocation while leveraging technology to automate certain tasks.
Speaker 3: Secondly, we have upgraded our standard operating procedures and streamlined management processes to eliminate redundancies and enhance productivity.
Speaker 3: Additionally, we have prioritized better corporate governance practices.
Speaker 3: fostering a culture of accountability and transparency across the organization.
Speaker 3: lossfully
Speaker 3: We have made substantial investments in technology solutions that improve operational efficiency.
Speaker 3: such as advanced analytics, robotic process automation, and digital platforms.
Speaker 3: These contrary efforts aim to drive efficiency, reduce costs, and ultimately deliver enhanced value to our stakeholders.
Speaker 3: To further improve operational efficiency, we will keep on focusing on implementing our strategy, flattening our organizational structure, and improving the work efficiency of our employees through multiple operational tools. Thank you and goodbye from Logistics.
Speaker 3: Our fulfillment costs have decreased significantly thanks to our upgraded self-owned warehouse operation and joint venture warehouses. By investing in our infrastructure and technology, we have been able to optimize our supply chain processes and achieve greater efficiency.
Speaker 3: These assets have allowed us to deliver our products to customers faster and more accurately.
Speaker 3: These efforts have allowed us to deliver our products to customers faster and more accurately, while also lowering our fulfillment costs.
Speaker 3: to 2.78% from 3.1% as a percentage of net revenue.
Speaker 3: We will continue to prioritize these initiatives as we seek to provide the best possible customer experience and remain competitive in the market. It is also worth noting that we have further sharpened our focuses to operate on the principles of value creation.
Speaker 3: driving strategic improvements across multiple disciplines. This department plays a pivotal role in analyzing customers' needs, enabling us to refine our product assortment to better align with market demand.
Speaker 3: By closely monitoring market trends and leveraging customer insights, we can intelligently adjust pricing to ensure competitiveness while maximizing profitability.
Speaker 3: Additionally, the advisory department works towards optimizing internal resource allocation, streamlining processes, and enhancing operational efficiency.
Speaker 3: Through those efforts, we aim to continually improve our ability to meet customer expectations, achieve optimal pricing strategies, and drive efficient allocation of resources across the organization.
Speaker 3: Stages hiring the healthcare industry has been our goal since our inception.
Speaker 3: on the China's 14th five-year plan for national economic and social development.
Speaker 3: The digital economy has been elevated to a vital position and expected to enter a period of rapid expansion through 2025.
Speaker 3: transforming China's healthcare industry. We have built an industry-leading smart supply chain platform that is uniquely tailored to optimize our digitization model and unraveled national sales network providing comprehensive coverage and a sophisticated multi-channel digital platform that serves new...
Speaker 3: in this massive market. This has made us an attractive commercialization partner as evidenced by our growing number of partnerships with pharmaceutical companies.
Speaker 3: are designed to serve many players in the healthcare industry. Pharmaceutical companies, pharmacists, doctors and...
Speaker 3: We have created the largest virtual pharmacy network in China with about 440,000 pharmacies and have strategic partnerships with over more than 200,000 people.
Speaker 3: with more than 500 globally renowned and domestic pharmaceutical companies.
Speaker 3: We feel very proud of the ecosystem we have built to date and it will enable us to scale our business to the next level.
Speaker 3: Now let me spend a moment to talk about our future initiatives.
Speaker 3: 1. Align our product assortment and structure with customers' needs.
Speaker 3: We're committed to enhancing the customer experience by optimizing our product assortment in accordance with customers' needs.
Speaker 3: Through diligent efforts and the utilization of information collected from various channels, including customer feedback, market research, and data analytics, we continuously optimize our product offerings.
Speaker 3: By leveraging insights obtained from these sources, the company ensures that the right products are regularly available to meet the diverse demands of customers.
Speaker 3: This approach not only enables us to deliver tailored solutions, but also allows for an exceptional and a customized procurement experience.
Speaker 3: which not only enables us to deliver tailored solutions but also allows for an exceptional and a customized procurement experience. mhm. Hey,
Speaker 3: Reduce procurement costs.
Speaker 3: Direct sourcing from pharmaceutical companies has been highly effective in lowering the cost of products.
We now source from over 500 global renowned and domestic pharmaceutical companies, and we will continue to deepen our strategic relationship with our existing partners, as well as securing new partnerships.
In the meantime, many new metrics have been set to drive our procurement team to perform better in the Costome campaign.
This will provide us with a wide range of drug selection at lower cost.
Three, be competitive with intelligent pricing.
At the Digital Medicine Platform, especially in B2B area, we are dedicated to continuously improve our market position by optimizing our pricing strategy through an intelligent pricing system.
leveraging advanced algorithms and data analysis.
We meticulously evaluate market dynamics, competitor pricing, customer demand, and other relevant factors to determine the most competitive and profitable pricing for our products.
This approach allows us to strike a balance between affordability for our customers and profitability for our business.
By adopting this intelligent pricing system, we aim to gain a larger market share by attracting new customers, retaining existing ones, and establishing ourselves as a trusted and cost-effective partner in the pharmaceutical industry.
4. Invest in Smart Supply Chain
We're committed to optimizing our supply chain to ensure efficient procurement, storage and delivery processes.
By establishing strong partnerships with pharmaceutical companies, we can source high quality products directly from them, enabling us to streamline the supply chain, and to provide a more efficient solution for the future.
and minimize delays.
Furthermore, we're implementing a mixed model approach combining direct sales and consignment business.
to optimize warehouse operations by strategically managing inventory levels and help sell large quantities and partners of consignment stock. To ensure continuity of supply, our dedicated continuity of supply department focuses on optimizing procurement practices.
reallocating resources when necessary, and maintaining optimal storage levels to meet the demand and ensure the availability of products in a healthy condition.
By implementing these measures, we aim to reduce costs and deliver exceptional service to our customers.
Five, relentlessly driving operation efficiency.
Our commitment to driving operational efficiency is steadfast.
and a way of implementing strategic measures to achieve this goal.
by productively reducing labor costs with technological supplements, we aim to optimize our workforce while maintaining productivity levels.
Additionally, we're actively engaging in negotiations with third-party vendors like logistics suppliers to secure competitive rates, optimising logistics networks, enabling us to streamline our supply chain and minimize costs.
We'll have Grant's sales team across the country to cover over 440,000 pharmacies.
productivity from each sales rep will be vitally important to our business.
Detailed measures and the metrics are reviewed each month and ensure continuous improvement.
Furthermore, we recognize the critical importance of improving management skills and decision-making qualities.
as these factors directly impact our operational effectiveness.
Through focused efforts in these areas, we are confident that we can reduce overall operational expenses to a minimum level, inferring sustainable growth and success.
We founded the company without too much resources and connections. Therefore, our survival depends on making ourselves efficient and also making our partners more efficient.
This will be our most important competitive advantage.
With the scale of our business continues to grow, our leverage will grow as well.
We aspire to be the most efficient operator in the industry. 6. Keep building one health project for spiral growth.
We will continue to actively engage pharmaceutical companies and the pharmacies within the digital framework of the One Health project.
utilizing an ecosystematic approach to beneficial outcomes.
By cultivating strong partnerships and collaboration, we strive to attract more pharmaceutical companies and pharmacists to join our program.
expanding the network and generating additional opportunities for growth.
Through comprehensive market analysis, tailored marketing strategies and data-driven insights, we work closely with our partners to optimize their product offerings, enhance sales performance and drive profitability.
One Health Network has reached 20,000 stores and we expect more to join this digital franchise.
Seven, committing to digitization. We're committed to consistently investing in digitization as we firmly believe that it will yield long-term benefits.
By embracing digital advancements, we can optimize our processes, enhance efficiency, and unlock new opportunities for innovation.
Through strategic allocation of resources to R&D.
We can stay at the forefront of technological advancements and drive groundbreaking solutions that meet the evolving needs of our customers. By prioritizing digitalization and nurturing a culture of innovation, we ensure that our organization remains agile, competitive, and well positioned for sustained growth.
in the ever evolving landscape of the healthcare industry.
landscape of the healthcare industry. To sum up.
In the face of post-COVID opportunities, 111 aims to position itself at the forefront of the healthcare industry, driving positive change and delivering superior services in the evolving post-pandemic landscape.
We wish to thank all investors who have supported us. Now we'll hand the call to Mr. Luke Chen to walk through our financial results.
Thank you.
Thank you, Trilin. And good morning, even everyone.
Moving to the financials, my prepared remarks will focus on a few key business and financial highlights. We can refer to the details of the first quarter 2023 results from slides 15 to 18 in section 2 of our presentation. Again, all comparisons are year over year,
and all numbers are in IMB and that's otherwise stated.
Let's start with the first quarter results. For the quarter, we partially benefit from the listing of COVID-related restrictions since December last year.
Our top line and ground second project continued to grow.
total net revenues for the quarter grew 24% to 3.7 billion and the graph segment profit for the quarter grew 23% to 236.2 million.
Top line growth for the quarter was mainly attributed to our B2B segment revenue growth at 25% to $3.6 billion.
The growth segment profit for B2B segment has increased by 26%, with growth segment margin kept stable at 5.9%.
which reflected our ability to steadily expand our business scale and our margin. Our B2C segment revenue increased 0.1% to $112.9 million, with growth segment margin improved from 21.6% to 22.3%.
Total operating expenses for the quarter decreased 12% to $257.9 million.
As a percentage of net revenue, total operating expenses for the quarter was down to 7% from 9.9% as we continue to enhance our operating leverage and optimize our operational efficiency. Total human expenses as a percentage of net revenue.
General and administrative expenses as a percentage of net revenue accounted for 1.1%, down from 1.6% in the same quarter of last year.
Technology expenses accounted for 0.7% of net revenue, down from 1.3% in the same quarter of last year.
College expenses accounted for 0.7% of net revenue, down from 1.3% in the same quarter of last year. The results.
Income from operations was IMB 2.5 million compared to the gap loss from operations.
was 72.4 million in the same quarter of last year. Then gap net loss attributable to ordinary shareholders was IMB 7.6 million compared to the loss of...
IMB 80.6 million in the same quarter of last year. As a percentage of net revenues, the gap net loss attributable to ordinary shareholders decreased to 0.2% in a quarter of last year.
As you can see, we are improving our financial performance quarter by quarter, and for the first time we have achieved the gap operation income on a quarterly basis.
Please refer to slide 19 to 23 of the appendix section for selected financial statements.
A quick note on our cash position as of March 31st, 2023, we had cash and cash equipment, with suited cash and short term investments of INB 878.8 million.
As previously disclosed, if our key subsidiary, when pharmacy technology proposed listing on the star market was not competed before June 30, 2023, certain PRC investors will be entitled to require us to redeem all or part of their equity for an amount up to RMB 1 billion and a 71.
remaining investors, but in case all of such investors choose to exercise their redemption rights, we do not believe such redemption would affect our business and prospectors as we expect to have sufficient capital resources to fulfill such redemption obligations.
This concludes our prepared remarks.
This concludes our prepared remarks. Thank you.
Operator, we are now ready to begin the Q&A session. Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced.
If you wish to cancel your request, please press star 2.
If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Zpeng Feng from CICC. Please go ahead.
Thank you for taking my questions and congratulations on the webinar.
Well, I have three questions. My first question is, what are the profit drivers for the year 2023 after achieving a profit in the first quarter? And my second question is, what will be the company's operational focus going forward?
Last but not least, what we see that the company has just established a strategic cooperation with domestic Internet providers.
Can you please share some more colors on this project? Thank you.
Yeah, thank you, Sibang. I think I'll take the first two questions.
And then I think, Gao, you participated in the signing ceremony with Tencent. Maybe you can...
Take that question. So the first question with regards to the
Margin drivers or profit drivers for the remainder year of the 2023. I think there are numerous drivers here. Just to name a few, you know, first of all we're going to continue to grow revenue and margin and with margin growth, you know, that is going to contribute to our bottom line.
And secondly, with scale, we aggressively pursue a cost down initiative from the upstream suppliers and all our people on the ground, having metrics reviewed almost weekly to ensure that they execute the target set.
And another driver would be really improve productivity. We have a number of hundreds and hundreds of salespeople on the ground. And we also have many people who are working with suppliers.
And of course, detailed plans have laid out for them to improve their productivity. And that's going to be happening on a continuous basis.
I spoke in my script briefly about we're going to improve operational efficiency because this, to be more efficient, is going to help us to deliver better bottom line. There are also many innovative initiatives and projects in our technological or digitization efforts.
First of all, we started from ourselves to digitize some of the work we do, and we can also leverage our internal capabilities and extend the same capability to our upstream pharmaceutical partners and also the downstream
pharmacists.
And of course, when we talk about to build a stronger supplier base, for instance, we have much better product assortment now, and in particular, our private label is really creating great momentum.
and we expect that momentum to continue. So there are many, many drivers for us to continue to really drive the bottom line improvements.
And with regards to the operational focus going forward, internally we use three sentences. If I may say that in Chinese, that is, sorry, sounds like the Dolphins slowly
So, essentially, that is how we really design our operational framework. And if I could translate that, our focus will be value creation, building a customer-centric management system.
and to build a much stronger supply base. So, first of all, when it comes to value creation, we have a lot of decisions to make on a daily basis. Really, every decision will have to be made on the basis of the value it creates for our customers or partners.
If the value is not that obvious or it's all internal driven, that decision will have to be really based on the priority is going to be much, much lower. Being customer centric, all we wanted to do is to really build the superior experience for our customers.
For our downstream customers, we essentially have two words. One is to have, the other one is better.
to have lost. So essentially whatever the customers need, we're going to have it. So in other words we're going to have a vast selection of medications available on our platform, so customers can always find whatever they need and this is going to be the final destination. If they cannot find the same drug elsewhere, they cannot find the same drug elsewhere.
customer experience.
In order to really create that experience, we have a lot of sub-projects or mini-projects that are going on. For instance, we use our digital tools to really create competitive advantages. We're investing in our smart supply chain, we're doing cost down, we're doing the assortment of...
with the supply base. Obviously we have built a very strong supply base with more than 500 globally renowned or locally and domestically renowned pharmaceutical companies and that is a great base for us to date.
But as we speak, each day we are making progress and we believe in our...
That supply base is going to be critical. That is why we are really investing heavily in making sure that our supply base will be stronger and stronger with each quarter. So I'll hand over the last question from Xiteng to Gao about the Tencent partnership.
Okay, let me share the partnership with Tencent. The 111 and the Tencent Health BU formed a strategic partnership in jointly providing technology-based services to our customers, including pharmaceutical companies as well as pharmacies. So we will join to explore new digital solutions.
especially in the sales field, as well as integration of smart pharmaceutical sales software services solutions, aiming to improve efficiency of pharmaceutical sales and facilitate the digital transformation of the entire industry. So we definitely leverage Tencent technology advantage.
of our partnership and that we are already in the process of defining joint projects.
Thank you, Sitan. I hope that answered your questions.
Thanks for the sharing and congratulations again on the company. Thank you. Your next question comes from Lauren Cai from HSBC. Please go ahead. Thank you, Benjamin, for taking my question. I have two questions.
And my second question is, can you conventionally share more details on your digital marketing tool, the telescope? And can you share your current strategies and goals towards digital marketing business? Thank you.
Okay, Lauren, this is Harvey. Let me take your questions. And for the first question regarding the growth, firstly, we will continue to upgrade our supply chain.
And we will establish the direct and strategic partnership with more pharmacists and also international pharmaceutical conduct.
bringing more and more selection with lower and lower cost to our downstream customers. And secondly, we will enhance our digital marketing platform, I will talk about that in your second question, to help pharmaceutical companies to commercialize their new product.
to pharmacies, clinics, and eventually to patients and customers.
The volume of China pharmacy retail
has exceeded 600 billion NINB. It is a big, big market.
We believe and we have enough room to further expand our business volume, of course with a healthy margin.
And on our second question regarding our digital mapping tool, the telescope.
A telescope actually serves as a lens for pharmaceutical companies. Actually, when they sit in their office in Shanghai or Beijing, they are able to gain a more direct and comprehensive view.
of their product sales and also their pricing dynamics real-time. By leveraging advanced data...
analytics and also market insights. This tool enables pharmaceutical companies to analyze sales patterns and also to identify pricing opportunities.
also to make adjustments and make data-driven decisions to optimize their strategy.
With this tool pharmaceutical companies can access
the performance of their products in real time. Currently it's T plus two, T plus two days. And identify market trends and adjust their marketing campaign accordingly. These two not only provide a clear...
Thank you, Lauren. Hope I answered your question.
Yeah, that's very clear. Thank you and congratulations for turning profitable this cover. Thank you.
Thank you. Your next question comes from Zoe Beard from Citi. Please go ahead.
Hi, thank you for taking my question. May I check how much of the growth of your top line growth in the 1st quarter came from COVID-19 related products?
And, yeah, and we also know you have taken many measures to reduce cost. What's your latest guidance on pre-even? Thank you.
I will take the first question. Definitely the COVID-19 related products especially in December last year and also this January this year.
has become so popular in this country. Definitely it brings some of the upside in our business and but from percentage wise it's not that big.
So overall, I think in these from March this year, those COVID-19 related, we call it a layoff, has becoming much, much more, the trend has been decreased, so.
everything has gone back to normal from March. With regards to driving costs down and reducing operational expenditure, if you look at our cost base, we have three buckets of expenses. First of all is our fulfillment.
Secondly is our sales and thirdly it's the GNA. Given that we founded the company on the basis of being efficient because we don't have that much resources or connections and obviously we must be a very efficient operator. If you look at the last few quarters.
our cost to fulfill has steadily coming down and I believe there is still so much we can do to bring down, to further bring down the fulfillment cost. And with regards to the sales, if you look at our detailed financial report.
Of course, in the meantime, we also use technology to make our head office more efficient to really automate a lot of those works, especially with AI's availability. And our tech team is aggressively looking into it. Many projects actually are on trial right now.
at our current scale, which is 13.5 billion last year and with the 3.7 billion in the first quarter.
I would believe, you know, if we, you know, like we, you know, our total OPEX is 6.3% in Q1, considering, you know, during the Chinese New Year, you know, we are really paying our people, we're paying rental, we're paying all those expenses.
You know, you've got to shut down the operation for, you know, probably three weeks or so. You know, that's 6.3%. In some of the months, we can actually bring it down to, you know, the 5% range. We believe, you know, even without the COVID, even without...
and we're very confident we'll be operating at sub-five level. We're talking about 4% something.
And imagine if we continue to grow our margin, let's say our margin grows to, ideally, to 9%. That means our bottom line is going to be around 5%. And we're no different to really some of the retail businesses.
Although people misread us as just a pure distributor, but we are far from a distributor, we're a technology company. And we believe that a 5% net margin is actually, on that profit, is actually quite achievable given time. And as I said before, we want to be an operator that is going to be very efficient, but that's not enough.
We aspire to be the most efficient operator in the whole industry. Thank you. Thanks very much, Mr. Yu and Mr. Liu. Thank you. Your next question comes from Kevin Wang, Private Investor. Please go ahead. Thanks for sharing.
and towards a fantastic season and you make a great program. My question is regarding COVID-19.
Oh, sorry, there's some echo. OK, we can hear you. Question as regarding ongoing consolidation mergers and franchise in downstream sound of the retail industry, along with competitors going for IPO, how does the company perceive a B2B competition?
How will the company strengthen its relationship with downstream customers and establish its own competitive advantage? Thank you. That's a very good question. So our major customers are pharmacy chains.
You know, for example in China, the top one pharmacy kids were already serving 95 of them. So we believe that the consolidation were playing out in favor. So our established reputation...
very strict quality control and transparent supply chain will help us gain the trust.
from our B customers and from two companies. And at the same time, as you mentioned that the ongoing consolidation merger franchising, you know, certainly will change the whole competitive landscape.
So in this case, we have to continue to strive for differentiation and innovation. This is what we have mentioned in the training speech on our new development. For example, we built this project telescope.
This illustrates what value can provide to responsible companies to help them in gain market insight and market their products through our video channels.
Also, Guney also mentioned the One Health program we provide to our existing B customers We are tailored solutions and services This industry is how we can empower them in efficiency and the customer's effectiveness
Hope that answers your question. Thank you. That's clear. Congrats again. Thank you. Your next question comes from Stephanie Lee from Civic Investment. Please go ahead. Please go ahead.
Hi, this is Stephanie from Civic Investment. Congratulations on the growing revenues. I have two questions. The first one is how was the cash flow situation in the first quarter for the company and what's the current cash position? And the second question is what are the company's plans for its OEM product in the future? Thank you. Thank you, Stephanie, for the question. Thank you.
inventory days is about 30 plus days so it could give us a lot of free cash.
We are improving our efficiency and continue to build our escape, which means we are able to negotiate a better trading term with our suppliers. So if you look at the cash flow statement, you will see the negative cash flow for the first quarter, but that may be because...
We received a lot of advance from customers in December when the corporate restrictions were lifted. So a lot of customers pay advance to us in order to get medicines.
But in terms of operation, in first quarter, we've been cash positive. At the end of quarter N, the cash that's cash equivalents, we see cash in the short term investment, amounted to INB of $878 million. So we believe that we have sufficient cash.
but reserved to support openness extension. I will leave the second question on OEM to Harvey. Yeah, regarding the question of OEM, yes, we are working with some of the leading pharmaceutical companies in China to OEM our...
private label product and there are a couple of private labels registered in one-on-one. Guangzhou is for our train store customers and also Huangjia Longyao is for individual store customers and also some more for example like Lanai Beer is for
and by Q1 this year, we already launched more than 70 prime label FPUs. More and more FPUs are already in our pipeline. Most of these products have...
have been well affected by our downstream customers. And as you may know, private label products have been a very, very important margin contributor of one of the top chain stores.
in China. But for our customers which are most small and medium stores and small and medium chain stores or individual stores they don't have the luxury and ability to establish their own brand.
So, Guangzhou and Huanzhou-Lingyao become a very attractive solution for them. Thank you.
Thank you. Yes, yes, thank you and congratulations again. Good Internet.
Thank you. Your next question comes from Adam Frank from Grace Capital. Please go ahead.
Thank you for picking up my question. Here's Adam from Great capsule. Congratulate your performance in last quarter and I have two questions. The first, what's the current progress of company's privatization? Well, second is, may I ask if the company has any new technological developments and the pi-chain and some of the pi-chain progress in recent.
So we shall make all the necessary disclosures in due course as required by the FCC requirement.
That's our answer on the growing private questions.
Dr. Yu, you talk about technology. Let me take the question on technology and supply chain new development. Let me just use a few examples. In fact, that you had mentioned, you know,
the telescope, project telescope, right, that uses data intelligence.
Smart sourcing now used by thousands of pharmaceutical companies and pharmacies, chain pharmacies.
That uses a lot of AI tools to help all the public stores source effectively and optimally.
We also have an internal tool called the BOGUAN system, used big data to help us in assortment management. A very important part of our growth came from our improved selection and auto-stock inventory management.
Regarding supply chain management, let me also give two examples. One is the transshipment. Right now we already have 11 warehouses and across the country, we transship products amongst the warehouses to reduce fulfillment costs. And also we have to mention the joint venture.
Thank you. Thank you.
Thank you. There are no further questions at this time.
In closing, on behalf of the entire 111 Management team, we'd like to thank you for your interest and participation in today's call. If you require any further information or have any interest in visiting 111 in Shanghai, China, please let the company know. Thank you for joining us today. This concludes the call.
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