Q2 2023 ZTO Express (Cayman) Inc Earnings Call
Third, for those all who's value exceeds certain threshold, we will increase attention and managerial support to help developing infrastructure, implementing safety measures, enhancing service quality, and digitizing information and management, improving operational efficiencies and last-mile connectivity.
Forth, expanding loss-mout presence and transforming two-seat life-plus into a shared solution for every industry player to reduce loss-mout cost, enhancing person-service capability and connection with consumers.
Long-term microeconomic development will undoubtedly trend upward, and cyclical fluctuations only provide opportunities for long-term value seekers to explore potential and build endurance.
The compatitiveness, the competitive dynamics of Chinese expressed the liberal industry have entered into a critical development stage. We are fully aware of our own strengths and advantages.
Good day and welcome to the ZTL Express 2nd quarter 2023 Financial Results Conference call.
We know what we can do and understand what needs to change.
Innovation and entrepreneurial spirit are embedded in our shared success culture, propelling us to create value first for others and this society. Leveraging the power of technology, we aim to enhance operational efficiency.
All participants will be in listen only mode.
Should you need assistance, please signify for a specialist by pressing the star key followed by zero.
After today's presentation, there will be an opportunity to ask questions.
4J distinct set of competitive advantages. Formulates solutions for over 100 millions a day as a volume, and are sure in payback and the prosperity for express delivery participants and investors. With that, that's welcome. It's yen to review our financials.
To ask a question you may press star then one on your telephone keypad.
Do withdraw your question, please press star then two.
Please note, this event is being recorded.
I would now like to turn the conference over to Sophie Lee's company secretary. We still ahead.
Thank you operator. Hello everyone and thank you for joining us today. The company's 3000 investor relations presentation were released earlier today and available on the company's IR website at ir.cto.com. On the call today from CTO our Mr. Mason Lye, Chairman and Chief Executive Officer and Mrs. Whitting-Yan, Chief and National Officers. Mr. Lye will give a brief overview of the company's business operations and highlights followed by Mr. C.N. who will go through these initiatives in the guidance.
Thank you, Chairman Lai. Hello to everyone on the call. As I go through our financials, please note that unless specifically mentioned, all numbers quoted are in R&B. And percentage changes referred to year-over-year comparison.
detailed information on our financial performance, unit economics and cash flow are posted on our website, and I'll go through some of the highlights here.
In a second quarter, DTO maintained profitable growth thanks to sound execution of our consistent corporate strategies.
They will both be available to answer your questions during the Q&A session that follows.
A partial volume increased 23.8% to 7.7 billion, growing the quarterly market share by 0.5 points to 23.5%.
I remind you that this call may contain forward looking statements made under the safe harbor provisions of the private security's litigation reform act of 1995.
The adjusted net income grew 43.9% to 2.5 billion.
Such statements are based on management's current expectations and current market and operating conditions and relate to events that involve known or unknown risks, uncertainties and other factors. All of which are difficult to predict and many of which are beyond the company's control which may cause the company's actual results, performance or achievements to defer materially from those in the forward looking statements. Further information regarding this and other risks, uncertainties and factors is included in the company's filings with the US Securities and Exchange Commission. The company does not undertake any obligation to update any forward looking statement as a result of new information, future events or otherwise except as required under law.
Total revenue increased 12.5% to 9.7 billion.
ASP for the core express delivery business decreased 7.8% or 10% mainly driven by lower average weight per parcel, increases in volume incentives, and a mixed shift impact from decrease in K.A. volume whose revenues are recorded to include delivery fees.
Total cost of revenue was 6.4 billion, which decreased 0.3%.
Combined unit cost of sorting and transportation decreased 15.7% or 12 cents.
It is now my pleasure to introduce Mr. Mason Lai. Mr. Lai will raise through his prepared remarks in their entirety in Chinese before I translate for him in English. være Works at 23.8% for 23.5%.
Specifically, Lion Hall transportation costs per parcel decreased 14.7% to 42 cents, mainly attributable to better economies of scale, optimized Lion Hall route planning.
improved low rate and decreased fuel cost. Unit sorting cost decreased 17.4% to 25 cents, driven by scale leverage, increased level of automation, improved standardization in operating procedures and optimized performance evaluation systems.
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Rose Profit increased 50.0% to 3.3 billion as a result of increased revenue and cost productivity gain.
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Growth profit margin rate increased 8.5 points to 33.9%.
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S-GNA expenses excluding share-based compensation as a percentage of revenue dropped 0.1.25.3%, demonstrating a healthy corporate cost structure and leverage. Income from operations increased 45.0% to 2.9 billion and associated margin grew 6.6 points to 29.6%.
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Operating cash flow was 3.76 billion for the quarter, and EBIDA was 3.88 billion.
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Capital expenditure totaled 2.2 billion.
for the quarter and we are anticipating annual CAPX.
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to be in the range of 6.5 to 7.5 billion.
We are on track to achieve another year of free cash flow.
Now move on to guidance.
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Taking into consideration the current market condition and our operating situation, the company reiterates that its annual volume guidance to be in the range of 29.27 billion to 30.24 billion, representing a 20 to 24 percent increase year over year.
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The company remained committed to achieve at least 1.5 percentage point increase in volume market share.
to achieve at least 1.5 percentage point increase in volume market share for the year.
These above estimates represent management, current view, and preliminary assessment, which are subject to change. Now, this concludes our parakeet remarks. Operator, please open the line for questions. Thank you.
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We will now begin the question and answer session.
To ask a question, you may press star then one on your telephone keypad.
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If you are using a speaker file, please pick up your handset before pressing the key.
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Do withdraw your question, please press star then two.
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In the interest of time, we ask that you please limit yourselves to two questions. Once again, that was star then one to ask a question and at this time we will pause no materially to assemble the roster. And our first question will come from Ronald Keelman of Goldman Sachs.
ask that you please limit yourselves to two questions. Once again, that was star then one to ask a question, and at this time we will pause them materially to assemble the roster. And our first question will come from a runoff keeling of Goldman Sachs. Please go ahead.
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the industry, expressing the tree reaching a critical point. This is, well, we have delivered very strong profit growth while increasing market share, but we have seen some of the smaller players starting to cut prices and become more aggressive. So do we see this as a temporary measure, kind of act from these smaller players? Will this be done extending into the fourth quarter season this year and how do we assess this round of price cuts from smaller players? Second is about service quality and our end-to-end delivery time because you see a lot of metrics there and compare with peers and how do we plan to widen our differentiation, not just from end-to-end time, but any rather added services or anything that we're planning to maintain our service leadership thinking.
DTO is valued by 23.8% year over year with a total of 7.68 billion pesos. Further expanding of a market share to 23.5%.
Thank you for your question. The first question is about the price and the food. Generally speaking, the price of the fast-food industry is about $9. The price of the food industry is about $9. The price of the food industry is about $8.
Meanwhile, during the income to revenue structure and process management, we improved overall operational efficiency.
and achieved an adjusted net profit of $2.53 billion, representing a 43.9% year-over-year growth.
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Relative to it and then make a fact that low base of last year they express delivering the trees overall path of volume grew 20.9% in the second quarter of this year.
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DTL has consistently pursued sustainable, profitable growth, focusing on long-term goals and competitive advantages. In the second quarter, we executed the following heat tasks, initiatives, which helped the generating solid performance results.
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evaluation matrix to be more detailed and quantifiable. Our ability to correlate process data to specific behavior of a work station or individual task operator improved. They enabled us to flex anomalies properly and effectively rectify problems with precision. Third, we refined the volume, cost of the profit tools, and further the implementation across the operational network.
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You will certainly be more patient. Thank you.
Thank you very much for your question. First question is really in essence about the trend of the pricing going forward. It is some typical that during a year around September and October , the pricing will be about 10% higher than August and July . Because of the seasonality of the year, also in November , the price will further increase because the access capacities will then gradually be utilized. The pricing
For the market during the second quarter of fluctuation, we believe it's more driven by the sea's analysis. ZTO has consistently focused on the approach that is balanced across quality of services, volume and market share and profit. Our principle is eliminating loss-making transactions.
What we've done differently compared to some of our competitors is that we extended our policy from March and April into May and June instead of making changes to them. So maintained stability in our entire network.
Your second question is relating to linkage first of all. We do have
systematic plan on improving, first of all, our quality of services and timeliness, because under the same pricing, higher quality of services will attract more volume. What we've done in two aspects in our operational environment is that first,
Each of the transit linkage, we will push it to extreme improving productivity, improving correlation between different segments of our process of transportation, transportation, improving the route planning and so on and so forth. Those are the typical initiatives that we have implemented all along. And then the second area which is we have referred to in the past called trial-earned throughput.
In the past, our advantage is a better connection between the outlets and our Saltation Centers. Going forward and then really starting these past couple of years, we've been slowly but surely building the connectivity between initiation outlets.
to the destination sorting center and also amongst the outlets from origination and destination. So as to develop those three distinct model of sortation, because the ultimate goal is to reduce the number of sortation.
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First question is really about the price competition.
Yeah.
In fact, shortly we have observed that in during the second quarter.
The price fluctuation becomes extremely volatile.
From one perspective that we have from what we have done is as I described earlier, we didn't change our pricing from me.
May and June .
Well some from March and in April .
Ottaway throughout to May and June because indeed as you look at our decrease in Asps in essence, a aside from just the objective reasons, we subjectively have allocated or given profit too.
Pickup and delivery and our market share did only increased <unk> five points.
Because we do believe that in a longer term CTO with the largest scale and strongest competitive advantage. We are also.
Taking on the role of a stable agent to ensure that the entire industry is stable.
And especially in during the economic recovery.
From our our personal.
Sentiment, we are all coming from the same place will come from the villages and we all know that we are not trying to create.
Create detriments to anyone that we're just simply using up the excess capacity so.
If we take on the price actions severely it would because of our scale and influence will it really impact the entire industry, which is really not what we intend to do so we are hopeful that are typically in starting in.
September .
The volume will recover and the whole industry will enter into a higher season auto.
Its installed base and capacity will be utilized and each of the players will become more sensible and matching their capacity and resources to their pricing strategies.
One thing we've done differently now is S E T O.
Make pricing decisions based on.
The direction of a route which is more granular and we have more visibility in other way, we have much greater flexibility in precision in precision and making appropriate price.
Our decision is.
In the second.
Half of the year, we are hopeful that the whole pricing trend will stabilize and the price will return and most likely.
With regards to the one five points target.
We do believe there are still opportunities for us and we will strive to achieve our commitment.
Second question on the cost side, what we've done is aside from what we described earlier to provide them.
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Are gradually being rerouted to.
To pick up or to drop off.
To the nearest center and if infinity instead of it just geographically or.
Organized by provinces, so the whole entire into and timeliness is improving.
This will certainly.
Impact the cost we do believe there is still more room for us to.
Gain on cost productivity as I mentioned earlier currently we're about 2.09 times of sortation throughout the entire network and each sortation will cost probably about approximately about 25, so if we reduce.
The sortation by 0.1 that is 2.5 cents.
Cost productivity gain and we intend to further improve the linkage and reduce the sortation hence.
As I mentioned earlier, the China or throughput model based on our scale will allow us to gain much greater cost productivity going forward.
Thank you.
Okay.
Hi, Sheila.
The next question comes from Thomas Chong of Jefferies. Please go ahead.
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Thank you for your question.
Your question really relates to the competitive strategy.
So on that as each year has always focused on building our own competitive strength.
And remain stable and profitable we remain focused on stable and sustainable profitable growth.
The Chinese express delivery industry.
It has been apparent that when you have cost advantage you have scale and you have.
High level of quality of services, you will attract greater market share.
In essence express delivery is about.
Value, it's a value proposition.
With a level of high quality of services customers will gravitate towards those who has a high efficiency with no cost or a reasonable cost.
The market is fair in the past we have there.
Australia, Donald evident that when we focus on all three of our corporate focus.
E quality services.
Market share as well as our own <unk>.
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Our market share continually improve and increase.
We do believe the.
And more importantly for an entire network to be healthy and growing especially because in China.
Yeah.
Franchised model.
We have been in all throughout all years, focusing closely on the equitable allocation of Courier Amit.
And our.
Oh, our company as a brand operator.
Each of the players need to focus on.
Fair allocation and sustainable growth going forward.
We believe if you reference to the developed market in China that will be.
Concentrated market share in a few players and this has been the trend we've been seeing the concentration in in our market share in the past several years.
As long as you have a high quality of services you are also.
Putting up scale and efficiency.
Yeah.
Differentiated competitive advantage.
We believe the longer term market share concentration will continue to demonstrate itself.
Second question relates to the product mix, our parcel mix.
Indeed in the second quarter, we have observed.
That not only just us, including our competitive partners in the space. They also experienced lower parcel average lower parcel a wait.
This is indeed as you have observed he mentioned the consumer shopping behavior has been evolving and changing.
Towards more sporadic shopping.
For us.
Some of our main e-commerce package production regions the packages will be lighter.
Yet we believe more of the inland to the north and South we are.
Having our regions with more agriculture product coming out for example.
That will be heavier.
As we are developed.
Developing a pricing strategy based on routes.
We will match the load a low rate of our transportation resources and of our space operational space and equipment with the Sortation center as well as our network partners.
And in that sense determining what the appropriate.
He needs to be for a different set of.
Product mix going forward.
Okay.
Okay.
Okay.
This concludes our question and answer session I would like to turn the conference back over to management for any closing remarks.
Okay.
Thank you everybody again for joining us today, sometimes it takes a step.
Back to take two.
Two steps forward and we are maintaining our.
Stamina in locking into longer term and also with our financial resources and our competitive strengths, we have much greater flexibility in playing offensive or defensive going forward.
Trinity are ahead for us to look not just at the second half of the year when volume increase. We're also looking forward to many years ahead, where we will continue to take our leadership in profitable growth. Thank.
Thank you again for your continued support and we look forward speaking with you soon.
Yeah.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
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