Yunji Inc.

Good morning and good evening, ladies and gentlemen. Thank you and welcome to Yungi Fourth Quarter 2021 Earnings Conference Call. With us today are Mr. Chong Liu Xiao, Chairman and Chief Executive Officer, Mr. Cheng Ti Zhang, Vice President of Finance, and Ms. Kei Liu, Investor Relations Director of the company. Now, I would like to hand the conference over to our first speaker today, Ms. K. Lu, IRD of Yunji. Please go ahead, ma'am.

Hello, everyone. Welcome to our fourth quarter 2021 earnings call. Before we start, please note that this call will contain a forward-looking statement within the meaning of the Private Security Litigation Reform Act of 1995 that are based on our current expectations and the current market operating conditions and relate to events that involve known or unknown risks, uncertainties, and other factors of the UNC and its industry. This forward-looking statement can be identified by terminologies such as will, expect, anticipate, continue, or other similar expressions. For detailed discussion of these risks and uncertainties, please refer to our related document file with U.S. SEC. Any forward-looking statements that we make on this call are based on assumptions as of today and are especially qualified in the entirely by cautioning statements, risk factors, and details of the company filing with SEC. Vinci do not undertake any obligation to update these statements except as required under applicable law. With that, I will now turn over to Shangyue Jiao, Chairman and CEO of Yunji.

Hello everyone, welcome to Yunji's fourth quarter 2021 earnings call.

Today, I will summarize our strategy execution during the past year and discuss the outlook for its continued implementation in the coming year.

We are acutely aware that consumers need to be more precisely targeted and segmented and given greater peace of mind.

At the same time, we realized that our service managers need to increasingly focus on serving our users. As such, we have launched our highly curated product selection, Junji 99 Special Sales Portal. Junji 99 Portal displays no more than 99 cost-effective products per day, each of which is guaranteed to be in line with current trends, meet users' needs, and consistent with our high product selection standards. In addition, our product curation model allows us to more efficiently operate our platform and community group.

In 2021, we successfully created a food cloud. In the future, we hope to add a quality cloud. Through the strategy of analysis and selection, we sell products through cloud quality certification. Just like the website summary, 10 gold pieces, 10 singers, During 2021, we cultivated our user-made side of foods gathered at Yunji.

Going forward, we hope that our platform will be known for quality products gathered at UNT. By effectively executing our product curation strategy, we guarantee that only products that reach the high standards necessary to be certified UNT quality products are launched on our platform. We always put quality first, carefully selecting superior products for our customers, while saving them time and enhancing their shopping experience. By doing so, we are developing our user-side of quality products gathered at Yunji.

Our free brand strategy is the key to achieving a healthy profit model. We have made great progress in the free brand aspect, mainly reflected in the development of the food strategy and the extension and consolidation of the large healthy category of cosmetics. Food is our first category. We hope that our users can eat all kinds of delicious food all over the country in the cloud. In order to make users not only happy but also at ease, we have added many new free brands to our food category. Our private label strategy is crucial for us to achieve healthy profitability.

we have made substantial progress developing our private labels, especially for our food-focused strategy. At the same time, we have fortified and extended our cosmetics and healthcare categories. With our food category as our focus, our dream is for our members to be able to eat delicious food from all over the world without having to leave their homes. To allow our users to eat happily and safely, we have launched multiple new private labels, such as purely meat-positioned Li Ba Tian and natural and nutritious Bai Yue Shan. Our private label foods are targeted at different user cohorts, but they share the same philosophy to make users feel safe when eating food they can share with their whole family. The success of our selection of brand new products is demonstrated by their high rate purchase rate. To build on this success, this year we will accelerate and enhance our development of new branded food products.

On the cosmetics brand, we have successfully launched a number of new product lines for our Suye brand. Additionally, several Suye products are certified to be registered as a medical device.

by the National Medical Products Administration and can therefore be used in cosmetic surgery applications. Suye's new product lines will satisfy more diversified consumer needs and give them an increased feeling of assurance. Under the Suye brand, we have developed multiple new products by integrating new technologies from Switzerland and the USA. Among this, A hyaluronic acid face mask was an instant hit, generating 10 million RMB in sales revenue within 15 minutes of its launch. Furthermore, we have a variety of new skincare and cosmetic products in the pipeline that are due to be launched in the next few months.

In terms of health, we have absorbed the successful experience in health management and health food, and extended the concept of health cloud. We have also upgraded the health brand of Lianxiao 11, which is made up of three series of products such as light, body management, juice, oral beauty, nourishment, and physical therapy. The whole area serves women's health and has developed many new products. Now, let's turn to our healthcare category.

Based on our previous successful experience in weight management products, we have extended the concept of health products gathered at Yunqi and upgraded our healthcare brand, Xin Ziyang, which generates billions in sales per year. We further augmented our product offering matrix. to better satisfy the health care needs of our female customers in three dimensions, weight management, skin care, and body revitalization. Multiple products have achieved tens of millions in sales within only a few months of their launch.

We hope that our free brand can step out of the cloud. In 2021, we prepared and cooperated with new and old free brands to go to the outside world. This year, we will accelerate the production of cloud to the outside world. The output of the supply chain is good, including the live broadcast and live broadcast of the online live broadcast platform.

We have always hoped that our private label products would also be available to purchase through external retail channels. During 2021, we prepared for and explored how our new and traditional private labels could be retailed on other platforms. This year, we will accelerate our pace and take the necessary steps to integrate our supply chain with many platforms, including but not limited to streaming platforms and e-commerce platforms. We hope that the external platform traffic can be directed to our private community groups, further enhancing our brand's awareness and competitiveness, and in turn generating ever greater profits for us.

The promotion of our free brand is inseparable from the professionalization of our service manager and the professionalization of our service manager in the vertical field. Since then, Yunji has seen female energy to help female self-improvement. Over the past few years, we have been very happy to see Yunji's women's lives become more beautiful. We regard these service managers as entrepreneurs, and we hope that by cultivating the ability of entrepreneurs in the field, from the cloud to more outstanding entrepreneurs. We strive to provide professional knowledge training to the majority of mothers and mothers, to promote a healthy and beautiful way of life, to meet the double needs of the material and spiritual level. The vertical field will further divide our community, especially food, makeup, and health, the three vertical fields, to cooperate with our quality cloud, the premium model,

The promotion of our private label brands is dependent on our service managers and the vertical specialization that they bring to retail. For a long time, we have been empowering women and helping them improve their lives. Over the past few years, we have been delighted to see that the lives of those of our service managers who are mothers have become better and better. We see our service managers as entrepreneurs, and we hope to develop even more excellent entrepreneurs by cultivating their capabilities in their specialized fields. While we are dedicated to generating income for our service managers, we also provide professional training for those who are mothers. In addition, we promote a healthy and beautiful lifestyle which satisfies our service managers' material and psychological needs. The development of our verticals, especially food, cosmetics, and healthcare, enables us to further segment our community groups. Importantly, our increasingly segmented user groups and our emphasis on all the quality products gathered at Renji will improve the promotional efficiency of our service managers. 我的分享就到这里,下面欢迎我们的财务副总裁张成起为大家分享财务的情况。 With that, I will turn the call over to Mr. Cheng Qijiang, our Vice President of Finance, to go through the financial results.

谢谢大家。 Thank you.

Thank you, Shang Liu. Hello, everyone. Before I go through our financial results, please note that all numbers stated in the following remarks are in Renminbi terms. and all comparisons and percentage changes are on a year-over-year basis unless otherwise noted. During the first quarter, we sustained our strategy of optimizing our product range and carefully curating our products as we continued executing our market product pool program, which focused on expanding our offering of exclusive products and private labels. It's worth mentioning that as we accelerate the development of our new products and the improvement productivity, our private label have made a substantial progress. allowing us to realize substantial profitability. In addition, our private labels received an excellent reception from the market and proved to be a great success. This success was reflected by our high repeat repurchase rate, which reached 80% in the 12 months ended December 31, 2021. As a result, we record operating income of $4 million and net income of $58 million during the first quarter, compared with operating loss of $20 million and net loss of $77 million a year ago. This is our first consecutive quarter of non-GAAP measure profit, and the first year turning loss to profit. Now, let's take a closer look at our financials. Total revenue was $471 million compared to $1,327 million a year ago. Revenue from sales of merchandise was $389 million and revenues from our marketplace business was $74 million. Adhering to our long-term growth strategy with a focus on profitability, we refined our selection of merchants and suppliers. resulting in near-term decrease in both our marketplace business and merchandise sales. Importantly, our gross margin improved significantly to 40% compared to 26% a year ago. This increase was due to our continued successful execution of our long-term growth strategy and introduction of more private label products with higher gross margin on the platform and enhanced operating efficiency. Turning to our operating expenses, for fuel expenses were $47 million compared to $93 million in the same period of the last year. The decrease was mainly attributable to reduced warehousing and logistic expenses resulting from lower merchandise sales, reduced personal costs due to staff restructure refinement, and the decreased service fee charged by third-party payment settlement platform. Sales and marketing expense decreased to $78 million from $167 million in the same period of last year. The decrease was due to reduced business promotion expense and member management fees. Technology and content expense were $26 million compared to $44 million in the same period of last year. The decrease was mainly due to a reduction in server costs and personal costs as we refined our staffing structure. General and administrative expenses. were $44 million compared to $64 million a year ago. The decrease was primarily due to reduced personal costs as a result of headcount optimization. Total operating expenses in the first quarter decreased by 47% to $196 million from $368 million in the same period of last year. We recorded our income from operating of $4 million as compared to a loss of $20 million a year ago. Net income was $58 million compared with a net loss of $77 million a year ago. Adjusted net income was $71 million compared with adjusted net loss of $63 million a year ago. Basic and diluted net income per share attributed to ordinary shares were both $0.03. compared with basic and diluted net loss per share attributable to an ordinary share of $0.04 in the same period of 2020. Moving on the liquidity, as of December 31, 2021, we had a total of $1 billion in cash and cash equivalents, restricted cash, and short-term investments on our balance sheet. Our accounts payable reduced to $255 million as of December 31, 2021, compared with $402 million as of December 31, 2020. Our liquid assets were sufficient to cover our payable obligations, and we did not hold any long-term bank loans or debts on our balance sheet. As you have probably noticed, the capital market has underperformed recently. However, we remain confident in the company's further growth perspectives. have received a proposal from the board. We today announced the share repurchase program under which the company may repurchase up to $20 million of its shares over the next six months. Looking ahead, we will continue to execute our strategy upgrade of carefully curation of products through our product pool initiative. Introduction of more products with strong repurchase potential and qualitative of private label and exclusive products. We remain confident that our strategy to focus on profitability will drive and sustain our business growth over the long term. This concludes our prepared remarks for today. Operator, we are now ready to take questions.

Thank you. If you wish to ask a question, you will need to press star 1 on your telephone. To withdraw your question, please press the hash key. When asking the question, please state your question in Chinese first, then repeat your question in English for the convenience of everyone on the call. Please stand by while we compile the Q&A roster. Once again, if you wish to ask a question, please press star 1 on your telephone. Your first question comes from the line of Journey Zhang, who is an individual investor. Please ask your question.

Let me quickly translate myself. Thank you for taking my questions. We have observed a downturn in the consumer market and fierce competition in the second half of the year and would like to ask whether Yunxi is also affected by the economic downturn. Could you share some news and future strategies?

Thank you for your question. In 2021, we started more advanced manufacturing with China. to jointly develop high-quality products. In the field of food, health products, and cosmetics, we have developed a lot of products with high market demand and with good cost-effectiveness. These products have helped us to open up the consumer demand in a relatively tight economic environment.

Thank you for your question. In 2021, we have started to work with many advanced manufacturing companies in China to explore more new quality products. Our products are mainly in such areas as food, healthcare, and cosmetics. And we have explored more quality products that have a large market. in China and that are also cost-effective. With all these products, we have further tackled the influence of the downturn of the economy.

We are very confident that in the next 10 years, China's consumer goods sector will still have a very large power of demand for consumer upgrade. The principle of Yunji's product supply chain is to develop more high-quality, medium-price products. These products are suitable for China's nearly one-third family needs. We will consider the quality of our products in the 10-year cycle, and make greater contributions and values for our customers on the selection and development of high-quality, medium-priced, high-quality products.

We believe that in the next 10 years, the Chinese consumers will have a greater demand to further upgrade their consumption. For Yunji, on our supply chain, we will continue to explore more quality products that are also cost-effective. And we believe that this will meet the demands of nearly one-third of Chinese families. At the same time, we will also make 10 years as a cycle to further explore more quality and cost-effective products and to make greater contribution to meet the customer's needs. Thank you.

Thank you. As there are no further questions at this time, I'd like to hand the conference back to the management for closing remarks.

Thank you for joining us today. Please do not hesitate to contact us if you have any further questions, and we are looking forward to talking with you next quarter. Bye. This concludes today's conference call.

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