Yunji Inc.

Good morning and good evening, ladies and gentlemen. Thank you for standing by. And welcome to Yunji's fourth quarter 2022 earnings conference call. With us today are Mr. Shang-Lu Zhao, Chairman and Chief Executive Officer, Mr. Peng Zong, Vice President of Finance, and Ms. Kay Liu, Investor Relations Director of the company. As a reminder, this conference call is being recorded. Now I would like to hand the conference over to our first speaker today, Ms. Kay Liu, IRD of Yunji. Please go ahead, ma'am.

Hello, everyone. Welcome to our fourth quarter 2022 earnings call. Before we start, please note that this call will contain four looking statements within the meaning of the Private Security Litigation Reform Act of 1995 that are based on our current expectations and current marketing operating conditions and related to events that involve known or unknown risk, uncertainties, and other factors of the Indonesian industry. These forward-looking statements can be identified by terminologies such as will, expect, anticipate, continued, or other similar expressions. For a detailed discussion of these risks and uncertainties, please refer to our related document file with the US SEC. Any forward-looking statement that we make on this call are based on assumptions as of today and specifically qualified entirely by cautionary statement, risk factors, and details of the company filing with SEC. Yunji do not undertake any obligation to update this statement except as required on the equilibrium rule. With that, I will now turn over to Shang Liu Xiao, Chairman and CEO of Yunji.

Hello everyone, welcome to Yunji's fourth quarter 2022 earnings call.

This year's fourth quarter, due to the major adjustment of the epidemic policy,

The company faces some challenges. First of all, it is the loss of orders in October to November. And in December, the outbreak of the epidemic and the shortage of logistics caused the order to be delivered in time and be affected. At present, our overall environment has signs of recovery, but there are still some uncertain factors in terms of income and consumption. Our cost structure is very flexible and can deal with the low market. At the same time, when the market is recovering, we have also made full preparations. so that we can maintain a positive attitude toward future development.

During the fourth quarter, we successfully weathered the challenges posed by COVID-related restrictions and the subsequent easing of these measures. In October and November, COVID controls exerted downward pressure on our order volume. Then in December, our order fulfillment capabilities were negatively impacted as the country battled a surge in COVID cases. Although we have observed signs of a broader micro stabilization and recovery, there remain some lingering weaknesses in household income and private consumption. Nevertheless, we are confident that our optimized core structure will enable us to navigate through the market downturn with agility and flexibility. At the same time, our enhanced capabilities and business resilience leave us well-positioned to seize opportunities when the market recovers. Fortified by these solid foundations, we remain cautious to optimistic as we look to the future.

In summary, the company has made more attempts in the product and marketing sectors. We have launched a series of new products in the health sector. I like to summarize this year's Orphan Ups and Downs.

During 2022, we continue to iterate our initiatives, both the product and the marketing sites. For our healthcare brand, we introduced a wide array of fresh offerings covering weight management, skincare, and body revitalization, allowing us to better meet diverse consumer needs. The driving force behind our R&D and production processes was a focus on creating high quality, healthy and natural products. Our efforts were extremely well received by our users. With several of the new products, each generating over 10 million RMB in sales during a single sales event. Driven by these unique and innovative offerings, using the mindset of Yunji Healthcare continues to gradually form.

In terms of Hufu's brand, The company has made new attempts in the field of content marketing and free brand promotion, strengthening the brand's promotion in the public domain. We use social media and our own community to further enhance the brand's influence and user experience through interesting and useful content and user interaction.

Turning to our skincare brand, Su Yan, by refreshing and refocusing our content marketing and private label brand promotion initiatives, we further developed and strengthened The brand is for public traffic. Leveraging social media and our own user community, we boosted user interaction by generating attention-grabbing, helpful content thereby further enhancing user experience and our brand's reach.

In terms of supply chain, the company has launched the Yunji Gold Choice Quality Verification Project. Verification is mainly for food products. It is an important part of Yunji's food strategy. For our highly curated product selection, we successfully launched our upgraded NINJI selected quality certification system, an integral component.

of our gourmet ringy strategy. With its main focus on gourmet food category, the stringent certification assures consumers that products are of the highest quality. One year after the launch, our platform has accumulated a wide range of well-loved products that are regularly repurchased by our users. Powered by these flagship UNG-selected certified products, our repurchase rate reached an impressive 81.8% in 2022.

In terms of marketing, the company continues to innovate and improve its community service experience and promote positive services, such as increasing more professional health advice and nutritional advice, increasing member benefits to increase consumer loyalty and satisfaction. Let's take a closer look at our marketing efforts. We continue to innovate on and refine our vertical community service experience. At the same time, we have launched additional value-added services.

For example, we enhanced the members' perks by providing them with professional health information and nutritional advice, boosting their loyalty and satisfaction. Based on this, we upgraded our consumer marketing tool from graphical marketing content to a short video format, generating exponential growth in high quality content. By integrating these two with our innovative features that make sharing more convenient, we create highlighted heighten the brand expulsion, and allow our service managers to promote the product more efficiently and accurately.

After the end of 2023, our product section and sales section have also made detailed plans. First of all, in the product section, we believe that the current consumption is a trend of two-level division. More and more consumers are starting to calculate. More e-commerce investors are entering the stock market to cultivate the consumer's low-cost mind. On the other hand, calculating means that everyone is still pursuing gold. And we insist on the free brand strategy in order to provide consumers with exclusive consumer experience other than low prices. The change in the four-level prevention measures has increased the cost of health of consumers. The development of food and medicine and the deep discovery of large healthy products, the connection of large healthy products, has become the focus of the free brand development this year. In fact, from the sales ratio of the fourth-level end, the proportion of goods in large healthy products has also increased. Both new and old products have been recognized by consumers. This means that we have maintained a good trade rate.

Looking further into 2023, we have already engaged in extensive strategic planning on both the product and the marketing side. On the product side, we are witnessing an evolving consumption trend, where increasing numbers of e-commerce companies are competing in a subsidy war, cultivating consumers' mindset. of purchasing low-priced products. On the other hand, consumers are generally becoming more price-sensitive and spending more cautiously, even as they demand higher-quality products and save value for many experiences. Against this backdrop, we are confident that our private label strategy delivers a unique consumption experience that goes beyond low prices. Following the easing of COVID-related restrictions in the fourth quarter, consumers became more health conscious and increased their spending in the health category accordingly. In line with these trends, this year we are focusing on exploring the healthcare and the nutritional therapy categories to further enhance the statements of our private label products. Our efforts to date have yielded positive results with the proportion of our total sales accounted for by healthcare products increasing. Importantly, both our legacy and newly launched products proved popular with users, helping us maintain a healthy growth margin.

As mentioned before, the recovery of consumer power is periodic. Currently, it is mainly reflected in the early recovery. Today, our goal in the marketing channel is to increase the penetration rate of the channel and establish more people-to-people connections. In the past three years, due to objective factors, we have been unable to hold offline salons regularly, and many service managers have also been unable to come to the site. As previously mentioned,

The recovery of consumption is a silico process and we have seen the travel sector rebound most rapidly. On the marketing channel side, our goal for this year is to expand channel penetration and build more people-to-people connections. Over the past three years, external constraints prevented us from regularly holding offline promotional events. This coupled with the limited number of sales managers able to attend these events impacted our consumer mindset and brand exposure. As the external situation has recovered, we have resumed our program of offline marketing events. For example, in February, we successfully held a million sales legend plan offline kick-off meeting in Changsha. During the meeting, we teased and launched items from our new range of products. I also took this opportunity to have a number of fruitful one-to-one discussions with some of the service managers and marketers in attendance. At present, we are further energizing our offline marketing by running a 30 city in 100 days offline promotion campaign At the same time, we will attract public traffic and boost awareness of our prep-reliable brands by rolling out more offline experience stores where consumers can explore and enjoy our products. The number of our service managers has now grown to 110,000. We continuously strive to improve the management of our service managers and provide them with more convenient and timely services. As such, we are developing more handy tools and features, implementing efficiency-boosting technology and increasing the level of support they receive internally.

2023 is a year of transition, but also a year full of opportunity. We will be with our customers every step of the way,

to help them smoothly navigate the post-pandemic era. At the same time, we will support and help our service managers to see fresh opportunities in the specialty retail industry. With that, I will turn the call to Mr. Wu Cheng, our Vice President of Finance, to go through the financial results.

Thank you, Shangyue. Hello, everyone. Before I go through our financial results, Please note that all numbers stated in the following remarks are in RMB terms, and all comparisons and percentage changes are on a year-over-year basis, unless otherwise noted. We faced a volatile microenvironment during the fourth quarter, with pandemic-related restrictions in October and November, and COVID spread following the relaxation in December. Navigating through the pandemic, we gained valuable experience as we continued to refine our product selections. develop our private labels, optimize our product mix, and explore new business opportunities. Importantly, our repeat purchase rate increased to 81.8% and our gross margin increased to 40.9% during the quarter. At the same time, we adapted to the microenvironment by further optimizing our cost structures and adhering to our prudent cost control strategy. Thanks to these efforts, we delivered significant efficiency improvements with our operating expenses decreasing by 22% year over year. Our strong cash position and healthy financial condition provide the foundations for the further development of our business. Now let's take a closer look at our financials. Total revenues were $289 million compared to $471 million a year ago. Revenues from sales and merchandise was $241 million. and revenues from our marketplace business were 43 million. This decrease was primarily due to our continuous strategy of refining our product selections across all categories and optimizing our selection of suppliers and merchants, causing near-term decrease in sales. Changes in consumers' consumption confidence and habits during the COVID-19 pandemic also contributed to the decrease. Despite these challenges, we maintained a stable gross margin at 49 40.9% compared to 39.6% a year ago. This was a result of sustained customer loyalty to our private labels and effective product curation strategy. Now let's take a look at our operating expenses. Fulfillment expenses were $32 million compared to $47 million a year ago. This was primarily due to reduced warehousing and logistics expenses due to lower merchandise sales. Sales and marketing expenses were $59 million compared to 78 million a year ago. This was mainly due to the reduction in personnel costs as a result of staffing structure refinements, a decrease in member management fees, and a decrease in marketplace business platform promotion expenses. Technology and content expenses were 17 million compared to 26 million a year ago. The decrease was mainly due to the reduction in personnel costs as a result of staffing structure refinements and the reduced cloud service costs. General and administrative expenses were $45 million compared to $44 million a year ago. Total operating expenses in the fourth quarter decreased to $153 million from $196 million in the same period of 2021. We recorded a loss from operations of $33 million compared to an income from operations of $4 million a year ago. Net loss was $38 million compared with net income $58 million a year ago, while adjusted net loss was $31 million compared with adjusted net income of $71 million a year ago. Basic and diluted net loss per share attributable to ordinary shareholders were both $0.02, compared with basic and diluted net earnings per share attributable to ordinary shareholders of $0.03 in the same period of 2021. Moving on to liquidity, as of December 31, 2022, we had a total of $669 million in cash and cash equivalents restricted cash and short-term investments on our balance sheet compared to $571 million as of September 30, 2022. During the fourth quarter, we refined our operations and optimized our working capital cash flow. 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. Looking ahead, we will continue to cultivate our range of private label products and introduce more novel offerings offerings with strong repurchase potential and customer peers. As we navigate through the current macro challenges, we will further refine our cost structure while exploring new opportunities driven by consumption recovery in 2023. We are confident that our resilient business model and innovative strategies will deliver long-term value to our shareholders. This concludes our prepared remarks for today. Operator, we are now ready to take questions.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch tone phone. If you are using a speaker phone, we ask that you please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. When asking a question, please state your question in Chinese first, then repeat your question in English for the convenience of everyone on the call. And our first question today comes from Ethan Yee at First Trust China. Please go ahead.

Thank you for taking my question. We see that there are several competitors in the market starting to engage in subsidy work. I'm just curious about what is your view on this, and would you consider entering the billion-dollar specific campaign like Jindong and Pinduoduo in the future? Thank you.

Sorry, let me quickly translate this question. There are many e-commerce companies that have participated in the Baiyi stock market, such as Jindong and Pinduoduo. What do you think about this? Have you considered entering the market later? First of all, the mass consumption is still in the slow recovery process.

100 billion subsidies bring great benefits to consumers. We recognize the value of 100 billion subsidies to users, especially in mobile phone, digital and other standard products and general consumer products.

Firstly, the consumer purchasing power is still slowly recovering, and the 10 billion subsidy program can indeed bring tangible benefits to consumers. We acknowledge the value of the subsidies to consumer market, especially in some standard product categories, such as mobile phones and electronics, and some impulsive consumptions in others.

用户对于消费品的追求中,价格当然是很重要的一个点,但是对于商品的品质,服务,商品独特性的需求,依然非常的旺盛。 And the price is, of course,

very important element in consumption decisions, but the demand for product quality, customer service and production features still is quite important and it's wrong.

Yunji will not do blind price supplementation. We hope to build user-centered, not because Yunji's products are cheap, but because Yunji's products are very unique and cost-effective. What we want to do is not price supplementation,

We don't believe in blindly somebody's pricing prices. Our goal is to establish a mindset among our consumers that our products are not only affordable, but also unique with high quality, rather than offering price subsidies. We focus on providing value-added services and maintaining the quality of our products so that our customers feel that their purchases are worth it. And actually, we believe the initiative of the government is more important. That is to have the transition from high speed development to high quality development.

We have a lot of free brands in the health, makeup, and food industry. With a professional vertical community, we carry out a one-stop shopping and marketing. This allows us to have a very strong cost control and operation ability for product quality, price, and service, and provide users with the best experience. We have a variety of private labels

healthy food, beauty, and gourmet food categories complemented by professional vertical communities for one-stop shopping and marketing. This gives us a strong cost control and operational capabilities over product quality, pricing, and services. We provide users with a high-value experience without relying on $10 billion subsidy.

Thank you for your question.

Thank you for your answer. And ladies and gentlemen, this concludes our question and answer session. I'd like to turn the conference back over to management for any closing remarks.

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

Thank you. This concludes today's conference call. You may now disconnect your lines and have a wonderful day.