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spk07: Good morning, ladies and gentlemen, and thank you for standing by for Baozhen's fourth quarter and fiscal year 2022 earnings conference call. At this time, all participants are in listen-only mode. After management's prepared remarks, there will be question and answer sessions. As a reminder, today's conference call is being recorded. I'll now turn the meeting over to your host for today's call, Ms. Wendy Sun. Senior Director of Corporate Development and Investor Relations of Baozhen. Please proceed, Wendy.
spk06: Thank you, operator. Hello, everyone, and thank you for joining us today. Our fourth quarter and full year 2022 earnings release was distributed earlier and is available on our IR website at ir.baozhen.com, as well as on Globe Newswire services. We have also posted a PowerPoint presentation that accompanies our comments to the same IR website, where they're available for download. On the call today from Baozhen, we have Mr. Winston Chu, Chairman and Chief Executive Officer, Mr. Arthur Yu, Chief Financial Officer, and Ms. Sandrine Zerbib, President of Baozhen Brand Management. Ms. Chu will review the business strategy and company highlights, followed by Ms. Yu, who will discuss financials and share more regarding the business development of Baozhen E-commerce. We will then pass the call to Ms. Sun Zhui to address more about Baozhen brand management. They will all be available to answer your questions during the Q&A session that follows. Before we begin, I would like to remind you that this conference call contains forward-looking statements within the meaning of the U.S. Security Exchange Act of 1934 and the US Private Securities Allegation Reform Act of 1995. These forward-looking statements can be identified by terminations such as will, expect, anticipate, future, intent, plan, believe, estimate, confident, potential, ongoing, target, looking forward, or other similar expressions. These forward-looking statements are based upon management current expectations and current market and operation conditions and relates 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 to differ materially from those in the forward-looking statements. Further information regarding these and other risks and certainties of factors is included in the company's filings with the U.S. SEC and in announcements, notices, or other documents published on the website of Hong Kong Stock Exchange. All information provided in this presentation is of the date and is based on the assumptions that the company believes to be reasonable as of today. The company does not undertake any obligation to update any forward-looking statement except as required under applicable law. Finally, please note that, unless otherwise stated, all figures mentioned during this conference call are in RMB with appropriate rounding. It is now my pleasure to introduce our Chairman and Chief Executive Officer, Mr. Vincent Chu. Vincent, please go ahead.
spk01: Thank you, Wendy. Hello, everyone, and thank you all for your time. The tough environment persisted in the fourth quarter, making the entire 2022 a challenging year, especially ending the COVID zero policy resulted in a significant outbreak of COVID cases in late 2022. That led to a nationwide disruption in supply chain and logistics, along with the worst ever consumption sentiment. We witnessed a general decline in sales across different categories, channels, and cities. Reflecting the lower consumer spending, our revenue declined approximately 20% year-over-year in the fourth quarter. However, we are glad that despite the weaker top line, we achieved a higher operating profit and recorded positive cash flow for the fourth quarter. We were able to achieve this under such a difficult and unpredictable environment by making sure operations were uninterrupted, relying on our battle-tested technology and regional service centers. In addition, our reform of employee compensation and incentive programs also generated higher productivity. As a result, we were able to improve the quality of our earnings Indeed, COVID in the past three years has had a dramatic impact on our people's daily life. Just like long COVID, it also has a long-term impact on consumer confidence. While we observed a modest rise in China's retail industry this February, we believe a full recovery in consumer sentiment will take time. In spite of this difficult environment, It is encouraging to see that many of our brand partners have remained committed to invest in China for the long term, especially with regards to technology, digitalization, and local marketing to serve Chinese consumers in local relevant ways. Looking forward, we see a rapid merging of online and offline commerce, which represents a huge opportunity. We believe it is our expertise in technology for the service of brand operations that fundamentally defines who Baozhun is. As shown on slide number three, adhering to our vision of technology empowers the future success. Our technology and operating platform serves as a unified and solid foundation that empowers or broadens the scope of service and markets. Baozhun now has three major business lines, Baldwin E-commerce, BEC, Baldwin Brand Management, BBM, and Baldwin International, BZI. Baldwin E-commerce or BEC remains our core business. In recent years, in addition to leading the way and helping brand partners accelerate their digital transformation, we continue to improve our value-added services. upgrade BEC's integrated operating platforms and the middle office systems for better accountability, efficiency, and flexibility. We also diversed our category mix, made complimentary business acquisitions, and invested in our people. I would like to highlight one person in particular, Ah-Se-Yu, who was instrumental in every aspect of these advancements to make our e-commerce business more resilient and balanced. Naturally, as we expand our scope and markets, I'm thankful to Arthur for accepting the additional role of President of BEC in addition to his role as Corp CFO. For additional BEC highlights and objectives, I will let Arthur discuss later in the call. Baozhen Brand Management, or BBM, is our focus for growth and profitability over the next three years and beyond. Consumers now prefer brands powered by China for China products and communications, offering China tailor-made updates and iterations. Clearly, in addition to e-commerce and digital business solutions, brands need brand management powered by technology and digitalization. As you may recall, on February the 1st of this year, we completed the acquisition of Gap Shanghai. Gap's operations in mainland Hong Kong and Macau, China, are now a part of Bosun Brand Management, led by Sandrine Zerbib, president of BBM, and Wen Xiao, the newly appointed CEO of Gap Great China. With a core team of functional experts who understand both China consumers and local market dynamics, we have confidence in our China for China strategy and the digitalization initiatives for GAAP Great China. For BBM's highlights and objectives, I will let Sandrine discuss later in the call. Baozhen International or BZI is a longer-term opportunity that we will patiently invest in and explore. We have a natural opportunity to replicate our China e-commerce success. We work with brand partners to co-develop localization. Localization is a term combining global and local, and it refers to our philosophy that while we pursue global opportunities, we will rely on local expertise and resources. Where necessary, we will form local strategic alliances We are initiating some trials in Southeast Asia and Europe. As a sneak peek, in Southeast Asia, we have already established the region's headquarters in Singapore and operations in six markets in the region. With our technology, IT infrastructure, and data advantage, brands that wish to expand into Southeast Asia are excited to engage with us. This February 2023, we made an important minority interest investments along with a board seat in Branded Lifestyle Asia Limited. It is a leading premium fashion retailer with a strong brand portfolio that includes Blue Dog and Roots and a proven track record in South Korea and Taiwan. Phone Group, a global leader in the consumer goods supply chain, is a majority shareholder. We have also entered into a strategic cooperation agreement to become the preferred strategic service provider for the e-commerce operations in Asia outside of the PRC. Baozhen and the phone group are setting up a strategic technology committee to jointly develop a enterprise-wide technology strategy covering proposals for ERP technologies, systems, and platforms suitable for digital transformation. We're excited about overseas opportunities. Although we don't aim to immediately generate meaningful revenue from Baozhen International in the next three years, I'm adopting an entrepreneurial mindset for international expansion. I will personally chair the development of Baozhen International in a technology-rooted approach. As we expand our scope, we now have increased our addressable market, and the revenue sources. Clearly, BEC represents our existing China e-commerce revenue stream, while BBM and BZI are incremental opportunities providing tangible growth path over the next five years. With greater business diversification and expanded leadership, we are confident in our roadmap. Let me now pass the call over to Arthur. Thank you.
spk09: Okay, thank you Vincent, and hello everyone. It's a great pleasure to communicate with you for the first time as the Group CFO and President of Baozhen E-commerce. I will do a quick review of the financials of the fourth quarter and full year of 2022, following by a business update on Baozhen E-commerce. Now please turn to slide number four. Despite the weak consumption sentiment, our total GMV showed resilience and was nearly flat on a year-over-year basis, benefiting from a diversified category mix. FMCG outperformed with high double-digit growth, where appliance contracted the most. Overnight revenues declined by 20%, to 2.6 billion, off-wage product sales declined by 37%, and service revenue decreased by 8% compared with the same period of last year. Let's turn to slide number five for a breakdown of revenue. We continue to prioritize the service model, especially focusing on value-added service in digital marketing and IT services. while reducing low-quality product sales during the quarter. Digital marketing and IT solutions decreased by 7%, mainly due to brand partners' reduced marketing budget. Warehousing and fulfillment service revenue declined by 13%, of which 10% was due to the disposal of Baobida, the delivery business. representing a 3% reduction in an apple-to-apple comparison basis. In addition, our service revenue from apparel and accessories, despite a lower GMV in category, continued to grow during the quarter, reflecting higher take rates for deeper service penetration. In total, revenue from service declined by 8% year-over-year. Our total product sales declined by 37% during the quarter, reflecting the weak consumption sentiment towards appliance category, and our continuous effort in optimization of less profitable product sales from electronics. Please turn to slide number six. In this quarter, our cost of products decreased by 38%, to 643 million, mainly due to lower product sales. One highlight is the growth margin for product sales improved by 155 BPS to 16.7%. Our overall growth margin improved by 770 BPS to 74.8%. driven by a combination of higher service revenue mix and improving growth margin of product sales. Now turn to slide number seven. Our non-GAAP income from operations was $183 million during the quarter, more than doubled than a year ago. Non-GAAP operating profit margin was 7.2%. compared with 2.2% a year ago. During the same quarter of last year, there was a one-off GNA of $44 million related to our move into the new headquarters and a loss of $30 million from Bobita. Excluding such impact, our non-GAAP operating profits still grow 43% year over year. Non-GAAP net income was $168 million this quarter, compared with $89 million in the same period of last year. Once again, we have prepared waterfall diagrams depicting our analysis of how our top line and bottom line evolved year over year. As a reminder, This analysis is unaudited and should solely be used as supporting numbers to aid discussion. First on slide number eight, this waterfall diagram shows our net revenues walk from Q4 2021 to Q4 2022. In red, you can see that the biggest item impacting our revenue this quarter was product sales. as we just talked about. Revenue from DM and IT services has shown resilience. And the warehouse and logistics revenue, excluding the disposable of Baobida, declined by 3%. Excluding the impact of such disposal, the IPO to IPO revenue declined by 17%, of which service revenue declined by 4%. Now please turn to slide number nine for the indicative work of non-GAAP operating profits. In light of the weaker consumption sentiment, we have implemented several cost optimization initiatives, including centralizing of operating capabilities, rationalizing incentives, and consolidating office footprint since the beginning of 2022. More than 1,600 of our customer service staff are now located in regional service centers. By utilizing SEMI modules across regional service centers, we lowered cost, increased service flexibility and agility to better cope with COVID-induced turbulence. For full year 2022, we generated over $30 million in savings from regional service centers. Another major cost saving initiative is through the introduction of Baozun Business Ownership BBO compensation framework, which provides higher performance incentives linking to improvement in productivity. quality and sustainability. We achieved another 50 million cost savings from BBO initiative in 2022. This quarter, we are seeing profitability leverage, especially with the strong seasonality of China e-commerce in the fourth quarter. And the leverage applies to almost all categories and all service models. I believe the chart is self-explanatory and just want to highlight the disposal of Baobida which generated a profit saving of 30 million and product sales bottom line deteriorated by 12 million due to weak top line as well as higher product cost related to default and imperfect products due to higher return rate. Now turn to slide number 10 about our cash flow. As of December 31st, 2022, our cash, cash equivalent, restricted cash and short-term investment, totaled $3.1 billion. In light of the micro uncertainties, we continue to improve the working capital efficiency and our initiatives to further advance our back-end processes to improve inventory management, billing, and collection activities has proven to be effective. During the quarter, our total operating cash flow grew by 17% to $622 million. Please turn to slide number 11 for a quick full-year summary. We ended 2022 on a solid note with total GMV of $84 billion. an increase of 19% year over year. Our non-GAAP operating profit is $256 million, an increase of 14% year over year. Annual operating cash flow reached $367 million, a new record since our inception. and our balance sheet also remained solid with $3.1 billion in total cash. In summary, despite a challenging year, our business model delivered positive non-GAAP operating profits and cash flow. I want to quickly mention that given our new group structure, we will be reporting segment financials in Q1 2023. to better reflect our business activities. Along these thoughts, we will stop reporting quarterly GMV metrics, as this metric has become less indicative of our actual group performance. I'd like to take this opportunity to share some progress we made in the Belgian e-commerce during last year. Right at the beginning of 2022, We stressed that our overall goal is high-quality, sustainable business growth. To achieve this goal, we continuously made efforts for our services to be more customer-centric, diversified our business models through innovation, and continuously optimized our cost structure. Let me share some specific items on slide number 12. Our omni-channel end-to-end value-added services are highly recognized by customers. By the end of the year, we have 42% of our branded partners engaged with us on an omni-channel basis. We further enhanced our service penetration with value-added service accounting half of our revenue stream. By end of 2022, we have a total of over 400 brand partners, and some of these brands engaged with us firstly in value-added service of technology and digital marketing. Our regional service center, RIC, continues to expand, reducing cost, and increasing efficiency while improving the service quality. We launched BOKDOC to deepen the commercialization of technology and explore new market opportunities. Our logistics and warehouse division further enhanced its strategic cooperation with Chania. we published Baozun Carbon Neutrality White Paper, clarifying the dual carbon goal and releasing sustainable development responsibilities in multiple dimensions. On November the 1st, 2022, we officially become a dual primary listed company on the main board of the Hong Kong Stock Exchange and Nasdaq Global Select Markets. And lastly, in 2022, we won the best employer brand award for the seventh consecutive year. This exemplifies our business development has always been in harmony with social responsibility. Our business philosophy is to put customers first and create value for them. Throughout the year, we continue to help our brand partner with initiatives for innovative user engagement and to find home customer journeys. These innovations include fund generation campaigns, AI-based short video creation tools, game-based interactive social marketing, and business intelligence dashboards to improve decision-making effectiveness. For instance, in last year's Double 11, our efforts enabled one of our brand partners, a leading international sportswear brand, not only ranked number one brand in GMV generation, but also number one in traffic, number one in live streaming, along with number one in membership acquisition. This is a demonstration of how we empower our brand partners and of our commitment to facilitate our brand partners' success. This commitment also applies to our new journeys in both brand management. So let me now turn the call over to Sandrine to elaborate more on BBM.
spk03: Thank you, Vincent and Arthur, and thank you all for joining us today. It is my great pleasure to speak with you. As we have previously stated, Baozong Brand Management is a strategic addition that naturally flows from existing core e-commerce service business. BBM, Baozong Brand Management, is a holistic, all-rounded partner for global brands to further unlock their business potential in China. Our technologies and insights enable us to forge a sustainable, symbiotic relationship between physical retail and online commerce. We aim to deliver the best-in-class, seamless, omnichannel experience by integrating the digital and the physical at scale and succeed where few have done so in retail. Please turn to slide number 13, Baldwin Brand Management. Today's digital transformation impacts every aspect of business in general and of brand business in particular. From integration of online and offline stores, increasing share of marketing budgets to digital marketing, and the accelerating use of big data and AI in brand product creation cycle and customer relationships. Baozun is exceptionally positioned to leverage its leading technology portfolio and insights, accumulated in the past 15 years, serving top leading global brands. BBM approaches brand management holistically from online to offline, from supply chain to marketing, go-to-market and distribution. We aim to grow a portfolio of brands under BBM. We are positioning in the mid-end and premium consumer lifestyle brand segments. and we target brands with strong potential in China and Asia and strong digital presence. Now, let me provide you with a high level summary of our first 50 days post acquisition of Gap, the first brand that has entered the BBM portfolio. Gap is an advantageous starting point for us in this line of business. In our business arrangements with Gap, with secured complete control of the supply chain, which with GAP scale will enable us to accelerate the establishment of a modern, technology-driven, flexible and responsive supply chain that will be leveraged for the entire brand management portfolio. Likewise, we have started already to work on our technologies to turn them into state-of-the-art systems to manage retail across all channels. And last but not least, Gap is a formidable chance for us to rapidly strengthen the talent pool for brand management's new line of business. Our first 50 days have confirmed the diagnosis we had made before the acquisition. And the focus on product and margin, gross margin, we were planning for is fully confirmed by our first observation. Eventually, execution is everything. In addition to mobilizing the best experts at Balzone to fully leverage Balzone's resources, we have started to identify key resources to contribute to the execution of our plans and we are building the necessary ecosystem to rapidly increase our competencies in the management of Gap China. As you know, apparel retailing is a seasonal and cyclical business and therefore the changes we are making will take at least several quarters to bring measurable results. Product commitments and purchases for the first half of 2023 were made before our acquisition of Gap-rated China, and we are only able to meaningfully impact products from winter 23. Having said that, we've been very active. With Wing at the helm, we've been able to quickly identify and hire excellent top-level experts including local designers, supply chain specialists, and a proven financial officer for GAAP. These are the experts, along with HR and production specialists, that will propel forward our focus on China-for-China products and communications and optimize GAAP Greater China's supply chain to be closer to market needs, improve on costs, expand gross profit, and ultimately achieve net profits. We also quickly tested a limited higher price product capsule in collaboration with one of China's rising stars in street fashion. In this release, we started at a significantly higher price point, which is four times GAP's typical price point. And yet, we were able to sell half of the inventory in a couple of weeks at zero discounts. On the first day of release, the highest price item had sold out within one hour, and our Timo men's ranking climbed from rank lower than 30 to number eight. This test offered an excellent opportunity to practice our integrated marketing, and we're glad to have won the attention of a younger audience. This is something that we were able to ideate and execute at blazing speed, and that proves the validity of our strategy and plan. We have also been able to fully leverage China post-zero COVID recovery and to enjoy 22% growth in retail traffic, over 500 basis points retail gross margin improvement in the last 10 weeks. While we're still very early in the gap transformation, we believe our ability to quickly establish a strong local team and successfully test new launches validate that our analysis for the GAP acquisition was right. We are confident that GAP is now on the right track. Since our closing of the GAP Shanghai acquisition, many other brands have come to us to discuss about China to China strategies and our technology-driven approach. These other brands genuinely wish to explore possible cooperation with BBM, which further strengthens our confidence that BBM will meaningfully expand Baozong's total addressable market. It has become obvious that our brand management offering can add more to our value proposition and differentiates us from traditional service providers. With all this being said, I shall now hand over the call back to Arthur. Thank you.
spk09: Thank you, Sandrine. Overall, our effectiveness in maintaining operations and supporting our partners' success during this period of micro uncertainty once again proved the durability and strength of Bulgin's business model. Throughout 2022, we prioritized high-quality business development, penetrated value-added service, and continued to improve cost optimization and working capital efficiency. Our efforts started to bear fruit in terms of higher growth margins, lower operating expense, and better cash flow. We are confident that our technology-driven capabilities will help us to pursue incremental growth opportunities in BBM and BOTO International. Meanwhile, for BOTO e-commerce, we will put customers first. and increased value-added service penetration to drive quality revenue and earning growth. In light of our consumption recovery in China, for BEC, we are confident that our top line in 2023 will return to growth, and our non-GAAP operating profits will expand by double digits year over year. For BBM, Our top priority is to stabilize that China's top line while narrowing its loss in 2023. For Bolzano International, we do not yet expect significant contributions to revenue and operating profits in 2023, but it is a strategic initiative for longer-term growth. In 2023, we project the Bulgin Inc's total revenue will grow above 25% year-over-year, and BEC's operating profits and cash flow should be able to cover investments required in BBM and Bulgin International. We focus Bulgin Group will achieve positive operating profits and cash flow in 2023. That concludes our prepared remarks Thank you. Operator, we are now ready to begin the Q&A session.
spk07: Thank you. We will now begin the question and answer session. To ask a question, please press star 1 1 on your telephone and write your name to be announced. To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A roster. Once again, that's star 11 for questions. Our first question comes from the line of Alicia Yup from CT. Please ask your question, Alicia.
spk05: Hi, thank you. Good evening, management. Thanks for taking my questions. I have two questions. First, can management elaborate a little bit the latest consumption sentiment over the past few months, especially on the discretionary category? I'm also more interested in regarding to the domestic brands versus the international brands, specifically on the international sports brands. Have you seen a decent rebound from the international brands? And then second question is related to the overall e-commerce space, given this numbers of e-commerce platform continue to further diversify their sales promotion to smaller or more frequent kind of, you know, the billion dollar type of subsidy rather than concentrating the sales effort in the two promotional period, like the June 18 and Singles Day. So how will that affect Baozhun's sales seasonality for your domestic business this year? Do you think the brand's partners are ready for some of this shift? Thank you.
spk09: Okay. Thank you, Alicia. This is Arthur. Let me address your three questions in turn. So the first one. So basically, we have seen a recovery of the consumer confidence level. But this is slower than our expectation. And particularly, we have seen some categories which related to travel doing pretty well. So for example, the outdoor and also the apparel, we have seen that starts to recover. We also seen the consumers become more conservative and sensitive on price. So for example, the affordable luxury and also the mass market fashion has grown pretty well. We also seen a mix of performance which the execution of the brand themselves become really important. And so it's critical for a brand to know their own strategy on product, on channel strategy, and also how they implement the strategy. So that's the first one. So second one related to the international brands and local brands. So it's actually a mixed picture. We have seen some international brands doing very well. We've also seen some domestic brands doing really well. I think the key is not about whether it's an international brand or a domestic brand. It's about whether a brand can adapt a suitable strategy, i.e. a China for China strategy, which includes the product selection how they utilize the omni-channel e-commerce we have in China today, and also whether a brand can utilize the IT and also data they accumulate to give them the insight to really drive the top-line sales. So that actually represents an opportunity for Baozhen, where our value-added service now has accounted for more than 50% of total revenue we generate. So that's where we can add value to the brand. And in terms of the focus and also how it impacts Baozhun, I think it actually represents a good opportunity for Baozhun. So for example, we have seen the international brands, their senior management haven't been in China for a long time. They really would like to know in this post-COVID situation, how are they going to deploy a suitable strategy for China? That's where Bojun can come in to give them a lot of advice. So, for example, if they need a tailor-made solution to better improve efficiency, we can give them the advice how to do it, and also we can introduce our modern technology tools and systems to them. If they are interested in how to drive up the return of investment, our digital marketing offer will help them to achieve that. And if they would like to adapt the online-merge-offline type of operation, Boldrin Logistics will be able to help them to achieve that. So overall, I think the current situation actually offers a good chance for Boldrin to grow our service, especially the value-added service.
spk07: Thank you for your question. Okay. All right. We'll take the next question from Violet E. from China Renaissance. Please ask your question, Violet.
spk08: Good evening, and thanks, management, for taking my question. So I got a question on the development of Nantimo channel. So do you see any changes in the competitive landscape in the non-TML channel and any breakthroughs or strategies that you could share and maybe a quick update on the take rate trend? Thanks.
spk09: Yeah, this is Arthur again. Thank you for the question. I think non-TML channel has become more competitive given the different platform has started to fight for the traffic. And what we have seen is many brand partners have chosen an omni-channel strategy, which means outside of the T-Mall, how they choose the channel becomes very important. And from Bulgin's perspective, we think each channel has their own character. The most important thing is to deploy the right products to the channel by understanding the customer base of each channel. So that's how we currently helped a lot of the brands we partner with to design and to implement a suitable strategy for this Omni channel on the e-commerce. In terms of the take rate, I think it will depend on the different category. I think the take rate trend has become more competitive. But at the same time, if we can focus the right level of resource on the right channel, we will be able to optimize that end result.
spk07: All right. Thank you. Next question comes from Andre Chang from JP Morgan. Please ask your question, Andre.
spk02: Thank you for taking my question. I have two questions actually related to the BBM business. So firstly, as Shenzhen mentioned, we will do a lot of the consolidation and introducing the best talent and resources from Baozun. Can you elaborate more about what are the areas that we think the most improvement can be done? And also for us to understand the pace, right? Will the changes happen very front-loaded in the first half this year, i.e. leading to more financial pressure for the group in the first half, or it will take time to show this kind of consolidation and the financial impact maybe throughout this year into later part of this year? And secondly, is that I think beyond a gap, we are going to introduce more brands, right, and started to have a portfolio. Can we talk more about this approach? What are the potential, say, synergy and how we are going to manage the portfolio and what kind of scale we expect this to grow in the longer term? Thank you.
spk03: Okay, so let me go one by one. I start with your first question, which is about, if I understand it correctly, is about how we plan to leverage the resources at Baodun. And on this, very clearly, and it's already in action with GAP, we see primarily technology, logistics, and e-commerce operations as resources where Baodun is expert and can speed up and accelerate the recovery of GAP in Greater China. To take a very concrete example, I think I mentioned earlier that we are working at full speed to bring actually the portfolio of technologies of Baozun and to develop them to also be usable for a physical retail operation. and for certain aspects of the supply chain. So this is really where we focus the integration. It's not integration. It's the wrong word. Sorry. The leveraging of Baozong resources. I mean, obviously, when it comes to back office resources, Gap has its own back office that is also fortunate to have a big company backing their operations, for instance, for legal or finance. That's for your first question. Then your second question is about the time. I think from the very beginning, and I restate it again today, that obviously in this kind of business, purchases are made well in advance, particularly before we took over, because we now plan to really put in place a faster supply chain, but it was not the case before. which means that most of 2023 is already purchased and that the impact we can have on products is fairly limited for 2023 and will be much more measurable at the very end of 2023 and from 2024. That's for the impact on products, but obviously the impact on products has a direct impact on growth and gross margin. Having said this, there are still some low-hanging fruit that we are working on as early as now. And as we had announced when we made the acquisition, we plan to reduce the loss very significantly this year, to continue to further reduce the loss next year, and to reach a break-even point in 2025. This is the tempo we had planned for, and that is confirmed today. So this is to address your first lot of questions, which were more about GAAP. Then about the other brands, right now we are in discussion with a number of other brands, which are potentially a bit different in terms of positioning from Gap in the sense that a lot of the brands we are in discussion with are more premium without being luxury, but just a little bit higher positioning than Gap. However, these are brands where we see a lot of synergies. That's also why, for the time being, we focus more on apparel, footwear, accessory brands, because, again, everything we're doing in terms of logistics, e-commerce operation, and technology, particularly with regards to supply chain, as well as leveraging the resources we have recruited for the recovery of gap-graded China, are going to be usable for other brands when we remain in this area, in this segment of business. This is my answer to your question, Andrea. Thank you.
spk07: Great. Thank you. Our next question comes from the line of Sophia Tan from Credit Suisse. Please ask your question, Sophia.
spk04: Hi, Mike. Thanks for taking my question. I have one question on behalf of Ashley in terms of the GAAP business outlook for 2023. Can management please share some color on the financial and operational metrics that is better to look at if we'd like to track performance of GAAP? And how do we think about the financial impact of both top line and bottom line for us for this year?
spk03: Thank you. And so this is... Okay, go ahead, Arthur. That's perfect. Okay, that's fine.
spk09: So for the financial, I will make some comments, and then maybe Sanjay can add some colors from the operation perspective. As we mentioned earlier, so basically turning around Skype Greater China is a medium to long-term effort. So basically, we are looking at a five-year journey to turn this around. So basically, for the five years, we expect our top line TAGR to grow more than double digits. And we expect to break even from a both profit and also cash flow perspective by 2025. And in 2023, as we just mentioned, a lot of the decision in terms of the product and the China strategy has already been made. Therefore, our aim for 2023 is to stabilize from a financial perspective and also to narrow down the losses of China in 2023. But the good thing is from the profits and cash flow of the e-commerce business, we are more than enough to cover the investments we need for GAAP Greater China. So overall, at a group level, our profits for this year will be positive, and our cash flow for the group level will also be positive. Sandrine, would you like to add anything?
spk03: Well, I think you said pretty much everything, but indeed, today is mainly a stabilization. However, we still are going to grow the supply this year to a certain extent. And already we see some positive signs on the gross margin. The gross margin from the very first day we told you is a key aspect of recovery. And we already start seeing some positive signs. But overall, talking about the metrics, obviously, it's about the top line, the growth of the top line. It's about the gross margin. It's about the profit, the positive cash flow, and the efficiency of our operation. So this is the metrics by where we actually assess the progress we're making on this business. And for the time being, we are on track. But as Arthur stressed, it's a mid to long-term journey.
spk07: Right. Thank you. Next is a follow-up question from the line of Violet E. from China Renaissance. Please ask your question, Violet.
spk08: Yeah, thanks, management, for taking my question again. So my question is, since you're upgrading your business line, BEC, now also BBM and BDI, how should we view your business profile both in the short-term scope and also in a longer-term view, say, three to five years?
spk09: Thanks for the question. So from a business perspective, we have positioned the overall group into the three business lines. So basically, for each of the business lines, we will focus on a different thing. For BEC, our goal is to put the customer first and to provide the value-added service, which is the core business we will remain focused on. And we believe, given our expertise and experience in this area, and given the e-commerce overall dynamics in China, we still have a huge potential to keep growing in the top line and bottom line for these business units. For BBM, our goal, as we mentioned earlier, is to utilize the experience on technology and digital we accumulated over the last 15 years in China to transform the GAC Greater China, to make that business a growing business unit overall for the group. So that's kind of the second wave of growth opportunity. And also, the turnaround of Gap Greater China will give us the foundation to build a successful brand management business unit by having the capability in terms of the IT system, the structure, the processes, and also the talent. And thirdly, for Bulging International, it's a long-term investment. So our view is to make sure we can utilize the capability and the experience we accumulated in China, but to adapt that locally for the international market we selected, i.e., the Southeast Asia and Europe. But that's a long-term investment, and for 2023, we are not expecting that it will give us a strong contribution to either top-line or bottom-line. So that's the overall profile for the three units.
spk07: Right. Thank you very much. I'm sharing no further questions. I'll turn the conference back to management team for closing remarks.
spk06: Thank you, operator. In closing, on behalf of the Balsam management team, we would like to thank you for your participation in today's call. If you require any further information, feel free to reach out to us. Thank you for joining today. This concludes the call.
spk07: Thank you. That concludes today's conference call. Thank you for participating. You may now disconnect.
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