ZTO Express Cayman [ZTO] Conference call transcript for 2022 q2
2022-08-18 02:10:49
Fiscal: 2022 q2
Operator: Good day. And welcome to the ZTO Express Second Quarter Financial Results 2022 Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Sophie Li. Please go ahead.
Sophie Li: Thank you, operator. Hello, everyone and thank you for joining us today. The company's results and an investor relations presentation were released earlier today and are available on the company's IR website at ir.zto.com. On the call today from ZTO are Mr. Meisong Lai, Chairman and Chief Executive Officer and Ms. Huiping Yan, Chief Financial Officer. Mr. Lai will give a brief overview of the company's business operations and then followed Huiping Yan who will go through the financials and guidance. They both will be available to answer your question during the Q&A session that follows. I 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. Such statements are based on management's current view and expectations of the market and operating conditions that 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, performances or achievements to differ materially from those in the forward-looking statements. Further information regarding these and other risks, uncertainties and factors are included in the company's filings with the U.S. Securities and Exchange Commission. The company does not undertake any obligations to update any forward-looking statements as a result of new information, future events or otherwise, except as required under law. It is now my pleasure to introduce Mr. Meisong Lai. Mr. Lai will go through his prepared remarks in its entirety in Chinese before I translate for him into English. Mr. Lai, please go ahead.
Meisong Lai: [Foreign Language] Hello everyone and thank you for joining us today in the second quarter of 2022, ZTO delivered a parcel volume of 6.2 billion, which increased by 7.5% expanding our market share by two percentage point to 23%. The adjusted net income grew 38.2% to 1.76 billion despite pandemic impact and weaker economic outcomes, ZTO delivered a strong performances in both market share and profit. While, we strictly implemented [Technical Difficulty] measures, we actively responded to the nation's call of stabilizing and growing the economy without compromising safety. Being among the first to resume operations, we proactively adapted our strategies to seize market opportunities. Through balanced approach to parcel volume growth and the stock expansion, we're actively advancing our long-term strategy. Firstly, we continued to focus on expanding our market shares through a comprehensive means. We are taking advantage of early resumption of operation, we restored uninterrupted parcel volume in COVID affected regions and enhanced our brand recognition and reputation with improved customer stickiness. Second, we leverage insights from in depth analysis provided by our digital platform to discover execution flaws that underpin the low or negative growth problems. We reexamined the cost of compensation against the effectiveness of pricing structure to stimulate incremental volume. Third, we aligned the resources towards various demands from submarkets to establish new business. For example, we increased our built out of [indiscernible] stores to serve customers with our time-definite product offerings and enhanced our fulfillment capabilities in specialized products and services. At the same time, we improved profitability by implementing process management measures. First, we conducted thorough reviews of KA customer accounts and eliminated unjustifiable loss-making contracts in accordance with the principles of granting fair and transparent policies for network partners and outlets. Second, we further enhanced our real-time data monitoring and analytics of costs enterprising for sorting centers and line haul routes which allowed us to optimize route and shift planning in a timely manner, which improved resource allocation around automation and transportation equipment, as well as human resources. Third, we furthered implementation of standardization in operating procedures across all sorting centers. Through clearer definition of job responsibilities and the standardized operating protocols, we were able to better align compensation and incentives to drive labor productivity. Fourth, we continued our effort through the layer of our network by reducing the number of stops a parcel makes as it flows from end-to-end. Helping others to process parcel aggregation enabling destination segregation at earlier stages of sortation are examples to achieve improved capacity utilization and cost efficiency across our entire network. Stepping into the second half of the year, while we insist on production testing, we will continue to focus on high-quality growth, to widen competitive lead, suspense and differentiated capabilities and implement the following work priorities. First, continue to improve the efficiency of our transit platform. We will standardize every step with digitalization that allows tracking, measuring and evaluation in order to improve the utilization of resources. Second, further implement partner network management. We must ensure that couriers have access to full market pricing associated with incremental volume so that they are incentivized to acquire new customers. We can assist our network partners to install capacity that meets onsite demand. We can lend our capacity to help network partners and share their workload and enhance the ability to sort, to find out [indiscernible] instead of interim destination. Third, accelerate the development of last mile presence and the consolidated last mile resources to further reduce pickup and delivery costs. We will continue to improve our service quality that meets diversified and the personalized to customer demand and improve customer loyalty. Fourth, further refined KPIs and improved rewards and the recommend mechanisms for quality of services. We will tackle root causes of service quality issues throughout the stages of pick-up, sortation, transportation and delivery aiming to improve timeliness and minimizing problems including parcel damages. Fifth, strengthen human capital development by talent attracting, retaining and faster check promotion for a board range of functions or positions. We will ensure our talent reserve as sufficient to support our business development. We will further emphasize performance evaluation of our potential general managers and the sorting center managers on very lower risk to ranking elimination footwork. Sixth, continue to expand the businesses in five key logistics segments within our ecosystem. Namely LTL, cloud warehousing, international coaching and [indiscernible] supported by financing and commerce. We aim to develop cross-selling information and technology integration and the sharing of managerial know-how. We aim to establish standalone competitive advantage by each of these segments, while cultivating energetics eco-advantage that are built around comprehensive logistics service. Even though the short-term outlook is filled with uncertainties due to pandemic and other externals factors, we believe that in the mid to long-term, the logistic industry is resilient and have great market potential. We believe that longer-term positive prospects and room for upside are still in place. ZTO's consistent strategy is to achieve continuous market share expansion and profit targets while maintaining high quality of service and customer satisfaction. Our track record has proven our company [Technical Difficulty]. For example, fairly and apparently aligning interests among our network partners and continuously attending growth in parcel volume and the profit, continuous iteration of technology and the information system and its application and strengthening our diversified logistic ecosystem in an orderly manner. Looking ahead, we focus on our remission with a strong sense of urgency. We will be left behind if we don't progress. We will be the best we can. This momentous opportunities support and cover our network partners and accelerate the widening of our competitive strength. Now let's have Huiping Yan to take us through the financial.
Huiping Yan: Hello to everyone on the call. If I go through our financials, please note that unless specifically mentioned, all numbers quoted are RMB including changes referred to year-over-year comparisons. Detailed analysis of our financial performance unit economics and cash flow are posted on our website. And I'll go through some of the highlights here. In the second quarter despite the headwind caused by COVID outbreak, ZTO delivered solid growth results, parcel volume increased 7.5% to 6.2 billion, advancing the quarterly market share by 2 points to 23%. The adjusted net income grew 38.2% to 1.76 billion. Total revenue increased 18.2% to 8.7 billion. ASP for the core express delivery business increased 10.5% or 0.13. Normalized competitive environment supported and helped to maintain second half 2021 price increases. In addition, our internal efforts to optimize customer base – [Technical Difficulty] Hello. Operator, can you check if everybody's sound is okay.
Operator: Yes, you may proceed.
Huiping Yan: Thank you. I'll just repeat the last sentence. In addition, our internal effort to optimize customer base is also generating meaningful results. Total cost of revenue was 6.5 billion which increased 14.2%. Overall unit cost of revenue for the core express delivery business increased 6.2% or 0.06. More specifically, line haul transportation costs per parcel increased 2% to 0.49 as a combined result of surging fuel costs and lower than expected volume offset by cost productivity gains through usage of higher capacity trailer trucks, improved low rate and better route planning. We estimated the negative impact from fuel costs hike was 0.04 per parcel for the quarter. Unit sorting costs increased 9.1% to 0.30 driven by increased labor salary and higher depreciation and amortization costs associated with a higher installed base of automation equipment. Gross profit increased 31.6% to 2.2 billion given increased volume in ASP against still relatively stable cost structure. Gross profit margin rate increased 2.6 points to 25.4%. SG&A expense as a percentage of revenue dropped 0.1 point to 5.3% demonstrating a lean corporate cost structure. Income from operations increased 36.4% to 2 billion and associated margin grew 3.1 point to 22.9%. Our operating cash flow grew 95.7% to 3.8 billion capital expenditure totaled 1.5 billion. Being an increasingly integral part of the economic revitalization and daily livelihood, the express delivery industry has shown strong resilience throughout lock downs and facing economic uncertainty. We believe that the industry's long-term growth potential and value prospects remain strong, by enhancing core capabilities, calibrating revenue mix and refining cost management, ZTO continues its consistent strategies to achieve sustainable high-quality growth. Furthermore, with continued efforts on developing integrated logistic ecosystem, we aim at providing comprehensive logistics services to meet diversified and tailored demands forging synergy and enhancing our leading position. Based on current market and operating conditions, the company maintains its previously stated annual volume guidance, which is in the range of 24.96 billion to 25.86 billion, representing a 12% to 16% increase year-over-year. These percentage increase estimate meaningfully above anticipated industry average reflects company's commitment to further our growth strategy and confidence in our ability to deliver despite macro uncertainties that still exist in the marketplace. These estimates represent management's current and preliminary view, which are subject to change. This concludes our prepared remarks. Operator, please open the call for questions. Thank you.
Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Liu Su with Citi. Please go ahead.
Operator: Our next question comes from Tian Hou with TH Capital. Please go ahead.
Operator: Our next question comes from Qianlei Fan with Morgan Stanley. Please go ahead
Operator: The next question comes from Thomas Chong with Jefferies. Please go ahead.
Operator: Our next question comes from Frank Yip with Daiwa Capital. Please go ahead.
Operator: [Operator Instructions] Our next question comes from Yiling Chen with JP Morgan. Please go ahead.
Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Mrs. Huiping Yan for any closing remarks.
Huiping Yan: Thank you again for joining us for the call and we look forward to speaking with you further if you have any more questions.
Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
