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spk02: Welcome to the ZTO Report Second Quarter 2021 Unaudited Financial Results Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please limit yourself to two questions each. Please note this event is being recorded. I would now like to turn the conference over to Sophie Lee, Director of Capital Markets. Please go ahead.
spk09: Thank you, Operator. Hello, everyone, and thank you for joining us today. The company's results and the investor relations presentation were released earlier today and are available on the company's IR website at ir.vto.com. On the call today from VTO are Mr. Mason Lai, Chairman and Chief Executive Officer, and Ms. Hui-Ping Yan, Chief Financial Officer. Mr. Lai will give a brief overview of the company's business operations and highlights, followed by Ms. Yan, who will go through the financials and guidance. They will both be available to answer your questions 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 Security Litigation Reform Act of 1995. Such statements are based on management's current expectations in the current market and operating operations and relate to events that involve known or unknown risks, uncertainties, and other factors. 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 differ 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 U.S. Securities and Exchange Commission. The company does not undertake any obligation to upgrade 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. Mason Lai. Mr. Lai will read through his prepared remarks in their entirety in Chinese before I translate for him in English.
spk03: Our business volume has reached 57.72 billion yuan and achieved a net profit of 12.72 billion yuan after adjustment. At the same time, in terms of express delivery service, public satisfaction, and speed, the order is sharp. In terms of full-time efficiency and 72-hour accuracy, the central order performs well in the contact area. Stable network operation and cooperative partners' confidence and investment in long-term development are fundamental to maintaining vitality and not only development. This is very important in the environment of continuous competition, leading to profit growth, and the loss of intellectual property. In recent years, the stability of the industry management department and the common share concept that has been built in the Middle East for a long time have been highly consistent. We always focus on our own high-efficiency and solid operating efficiency to achieve excellent value for money and profit. At the same time, We not only support the development and supply of negative energy and network partners, but also support the development and supply of negative energy and network partners. This is the core reason why ZTE has been able to achieve 50% profit with about 25% of its business volume in the contact area in the past. This is the core reason why ZTE has been able to achieve 50% profit with about 25% of its business volume in the contact area in the past. This is the core reason why ZTE has been able to achieve 50% profit with about 25% of its business volume in the contact area in the contact area in the past. This is the core reason why ZTE has been able to achieve 50% profit with about 25% of its business volume in the contact area in the contact area in the contact area in the contact area in the contact area in the contact area in the contact area in the contact area in the contact area in the contact area in the contact area in the contact area in the contact area in the contact area in the contact area in the contact area in the contact area in the contact and our network are even more competitive and have a greater advantage than our friends. The Chinese Communist Party has always been focused on self-reliance, and has insisted on focusing on long-term development, focusing on the construction of infrastructure and other hard-working forces. We have achieved further achievements in the field of network development, expansion of modems, and promotion of brands. First, We continue to implement the strategy of helping and managing both hands, from top to bottom, deeply implementing network transformation management, strengthening transparency and credibility, improving the trust and confidence of network partners, and maintaining the stability of the network. For example, we have eliminated or integrated endpoints that no longer have competitiveness, focusing on the potential development of the network We have co-designed the production capacity expansion plan, and through financial assistance, digitalization, online policy optimization, legal and financial consultation, equipment technology transformation, and other multi-dimensional benefits, we have been able to effectively co-grow the production capacity and transfer platform. In addition, the industry support group of this regulatory institution These explorations, explorations and exercises have effectively improved the employee's sense of belonging, sense of achievement, and sense of security. to improve the asset protection and risk-resistant capabilities of our partners. Second, we accelerate the construction of end-to-end units and further increase the height of the strategic development of the association. In pursuing the concept of co-op, we hope to promote the deep integration of our partners in operations and capital levels through new cooperation models. The goal is to cultivate an image standard that covers the city and town, The last 1 km of our resources, in the number of Modan stores, has exceeded 10 million. The distance between the store and the same shop has been stretched. Customized services can meet the demand of consumers. While the demand for online shopping is flattening and falling, Modan will have more and more imagination in the future. At the same time as accelerating the expansion of Modan Door Store, we also further standardize the Door Store service standard, open-source search for public services, public services, and other platform cooperation wisdom to enhance the abundance and quality of Door Store operations, pay attention to user experience, and through full value, win the competitive space for market customers. Third, We are actively expanding new products and business channels, integrating eco-systems, form and diversify, upgrade brand awareness, and continue to enhance brand value. Surrounding the year-end designated strong brand construction, expansion and upgrade of products and services, and the goals of the eco-system, we will speed up the access to new e-commerce platforms, expand fresh, wine-based, three-storey and other special markets, Open a comprehensive logistics market for the development of ecological integrated services to form more industry solutions. At present, the service has been established in nearly 100 cities, and the route has been reached, and the pre-sale power supply and other reservation functions have been deeply recognized by users. The cold chain business under the Central Ecological System is operating online in the second quarter of the national scale, and the cold chain operation team of each region is also in the main line of support. We are continuously advancing the deployment of ecological resources to build a comprehensive network of service capabilities to provide a comprehensive, integrated multi-layer market in the future. We believe that in the next two to three years, the fast food industry will continue to maintain a high-speed development. Today, the fast food industry has formed a bright division. This division is not only reflected in quantity, but also in quality. For example, the overall operational efficiency and profit level The fundamental and mainstream model of express delivery decides that it needs to accumulate in the long term, not only to improve the capacity of the delivery and shipping of various areas, but also to form efficient connections in various areas. It needs to continue to grow with the increase in business volume, through reasonable optimization and evolution of the network structure, to achieve the highest cost-effectiveness. In the face of the arrival of the Japanese military in the era of 4 billion to 5 billion, the Chinese Communist Party will maintain a consistent and effective establishment. On the basis of existing scale advantages, it continues to expand the reasonable construction of transport platform capacity, reduce the spread of frequency, and rely on technological innovation, digital operation, and information management, to make the whole chain of networks more efficient. At the same time, we will continue to pay attention to and support the practicality and compatibility of the production and construction of cooperative partners, strengthen the development of end-to-end network and the business expansion of courier houses, and grasp the risks of stable development of both end-to-end. We will accelerate ecological deployment and joint development, and use diversified products and services to meet the needs of users in all levels of individualization. Thank you, Lai Zong.
spk09: Now please allow me to translate first. Hello everyone and thank you for joining us today. In the first half of 2021, the express delivery industry demonstrated steady growth momentum. ZHU maintains consistent strategy to balance among competing priorities of service quality, value, and earnings. By focusing on effective pricing and avoiding unnecessary loss-making values, ZHU achieved 5.8 billion puzzles and delivered an adjusted net income of $1.2 billion. Meanwhile, our customer satisfaction scores rest on top of the peer group. and our performance in total process time limits and the sense to our time definitiveness stood out among the Tongda operators. Network stability and network partners' confidence and willingness to invest in long-term growth are vital to growth and the longevity for a franchise model. It is even more critical at times of diminishing profits or even losses given prolonged and deep price competition. CTO's shared success culture and long-term practice are highly aligned with the recent regulatory interventions aimed to ensure social stability. We have always relied on our operational efficiencies to deliver best-in-class quality of services and profitability while consistently empowering our partners to achieve win-win. This is precisely the reason why consecutively for the past several years, ZTO was able to deliver increasing proportion of aggregate Tongda net profit ranging from 45% to as high as 80% with approximately 25% to 27% volume share, all while maintaining a stable partner network. Policy supportive of health competition. Sensible pricing. and fair games will undoubtedly help solidify ZTO's competitive advantage and allow us to pull further away from the competition. ZTO always focuses on being our best self, setting our sights on the future, and strengthening our core competencies, including infrastructure. We have made further progress on network upgrades, last-minute extensions, and brand building during this second quarter. First, we continue to implement initiatives to support or reform our partner operations. Through a top-down and grade-by-grade approach, we enhanced the transparency and fairness, boosted trust and confidence to improve network stability. Specifically, for example, we closed or absorbed those outlets that were no longer competitive. We identified all this with growth potential or importance for strategic placement and established the goals for capacity expansion. With added financing support, digital diagnosis, pricing optimization, legal and financial advisory services, and equipment and technology upgrades, We ensure the capacity and capabilities for pickup and delivery operations are kept at pace with transit and sorting expansion. In addition, consistent with the regulatory attention to the rights and interests of those in the front line, we increased participation of direct payment of last mile delivery fees to the couriers. Expanded coverage for couriers through accidental and employer liability insurance. We set up a 100 million fund for career care and we improved the star level measurement matrix that promotes career growth. These proactive measures have not only tangibly improved sense of belonging, in-state and achievement across grassroots community, but also provided added protection against loss of wealth by our network partners. Secondly, we raised the development of LASMAL to a strategic level for DTO's growth. Adhering to the shared success philosophy, we designed a partnership structure to promote the deeper integration of operational and ownership level with our network partners. Aiming at building a LASMAL network with wide and deep coverage of urban and rural areas where services, standards, and consistent images are maintained. At the end of second quarter, we have over 70,000 last-mile posts with an increasing lead over our peers. This location can cater towards diverse needs of our customers. As express delivery network becomes less layered and more streamlined, last-mile network carries great authority that are beyond our imagination. We improved store standardization and explored varied commerce opportunities, value-added and neighborhood services to enrich content and improve quality for better experiences and a higher competitive and value proposition for the store owners or operators. Third, we actively extended new product experimentation by collaboration and integration with our logistics ecosystem. Drive to establish differentiation in brand awareness and values recognition. According to the objectives we set in the beginning of the year, we improved connectivity with emerging performance platforms, particularly in areas of reverse logistics. We extended distinctive service category to cover fresh produce, wine and spirits, and specialty goods. we explored one-stop logistics service offerings to deliver comprehensive industrial solutions. At present, the time-definite service has been made available in nearly 100 cities with determinable routes, advanced phone alerts, and other customized fulfillment guarantees. These new initiatives are generally well-received by our customers and test groups. The coaching business under our ecosystem has launched time-definite services across its newly formed nationwide network where regional operation teams are being quickly assembled. We are further advancing and deploying resources to lay the foundation for a future capable of universal, inclusive, and well-integrated multi-products and services. We believe Express Delivery Industrial will maintain a medium to high speed of growth in the next two to three years. The industry landscape has clearly been dividing not only in volume or quantity, but also in quality, such as overall operational strength and the profitability. The very nature of Express Delivery, plus the partner network model, requires long-term accumulation of capabilities, including hard assets, deep know-how, and network coherence in which the capabilities in all four segments of pickup, rotation, transportation, and delivery must continuously improve and stay in sync. Moreover, as volume continues to grow, the structure of the network must also evolve and become more agile so as to continue to generate cost productivity while maximizing scale advantage. With the approaching daily volume of 400 million or even 500 million parcels, DTO will maintain its consistent and effective strategy by suitable expansion of its transit and sorting platform, reduce overall frequency of transit, and rely on digitization and data-driven decision making to enhance connectivity and efficiency. Meanwhile, we pay close attention to the appropriate and in-time expansion of our network partners' capacity. Last month, network development and safe Express Plus commerce opportunities. We will steadily develop our ecosphere and build competitive advantages with comprehensive product and services that are differentiated for grant value and the recognition. Now, let's ask the Commission to take us through results of our financial performance.
spk07: Thank you, Sophie. Thank you, Chairman. Hello to everyone on the call. As I go through our financials, please note that unless specifically mentioned, all numbers quoted are in RMB, and percentage changes refer to year-over-year comparisons. Detailed analysis of our financial performance unit economics, and cash flow are posted on our website. And I will go through some of the key points here. In the second quarter, by executing our consistent strategies, we achieved profitable volume growth and grew parcel volume by 25.6% to 5.8 billion, while attaining 1.3 billion adjusted net income. Our leading market share was 21% for the quarter. Total revenue increased 14.4% to $7.3 billion. ASP for the core express delivery business declined 5.9%, or $0.08, with approximately $0.04 related to volume incentives and another $0.04 from parcel weight drop. Average weight per parcel declined 8% to approximately 0.92 kilo. The cost of revenue increased 22% to 5.7 billion. Overall unit cost of revenue for the core express delivery business increased 1.7% or 1 cent. More specifically, line haul transportation cost per parcel increased 10.2% to RMB 48 cents. Unit sorting cost increased 2.4% or 1 cent. Normalized for one-time benefits such as ETC toll road fee waivers, lower oil prices, and social welfare exemption we benefited last year during the COVID outbreak. Combined transportation and sorting costs per parcel generated positive productivity gain over last year still. Gross profit decreased 5.4% to 1.7 billion. Gross profit margin rate decreased 4.8 points to 22.8% as a combined result of price decline, increased cost against the lower base due to one-time benefit during last year's COVID-19 outbreak. SG&A increased 26.1% to 394 million from increases of compensation and benefits, office expenditures depreciation, and write-offs of obsolete assets. Income from operations decreased 11.6% to 1.5 billion. Associated margin rate declined 5.8 points to 19.9%, mainly driven by that 4.8 points decrease in gross margin. Adjusted net income decreased 12.5% to 1.3 billion, Adjusted net income margin declined 5.3 points to 17.4%. Operating cash flow increased 54.3% to 1.9 billion. CapEx outlay totaled 2.2 billion. As we further strengthen our infrastructure in preparation of increasing demand for the Core Express business, as well as resource planning for development of our ecosystem, Our annual cash flow for CapEx is expected to be around 9 to 10 billion. Turning to business outlook, based on the current market and operating conditions, the company maintains its previously stated annual guidance of 35% to 40% increase year-over-year for the volume. Our annual parcel volume is estimated to be in the range of 22.95 billion to 23.8 billion. These estimates represent our current and preliminary view and is subject to change. This concludes our prepared remarks. Operator, please open the lines for questions. Thank you.
spk02: We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. Again, please limit yourself to two questions each. At this time, we will pause momentarily to assemble our roster. The first question. comes from Ronald Kung with Goldman Sachs. Please go ahead.
spk05: Thank you, President Lai, President Yan, and Sophie. I will ask in Chinese first, then translate to English. uh In the second quarter, will there be any strategic changes in the third and fourth quarters after the balance of profits increases? Secondly, I would like to hear about the cost side. President Yan just said that there is positive productivity, that is, it should be removed. The cost of each package for each unit is still fluctuating and transportation is also declining. We think that in the second half of the year, how much can our unit cost decrease? We will continue to target a unit cost improvement of unit high single digit units. Let me translate it first. Thank you, management. I have two questions. First is on the competitive landscape and how we think about the second half, particularly as our full-year parcel volume guidance would imply at least 27% to 35% implied parcel growth for the second half. So that will be faster than the second quarter. So I just want to hear as we balance profitability and growth, which we did very well in the second quarter, as we currently expect, based on the guidance, some faster growth in the second half. Would that be overall industry acceleration that we're expecting, or would that be any fine-tuning of our strategies in pricing and market share gains in the second half? And then my second question will be on our cost productivity. As Yanzhong talked about, the positive productivity once we take out the one-off factors. So on a unit cost perspective, particularly as we head into the second half, how do we see the room to further cut on our unit cost, particularly on sorting and trucking? Thank you.
spk03: Hello. We think that the trend of the industry in the second half of the year, I myself think it's stable. It will probably maintain or be lower than the market growth of the second quarter. The central government is still the same. In general, last year, the market share of the fourth quarter compared to the second and third quarters I'll translate the answer to the first question first and then I'll answer the second question.
spk07: Our strategy maintains and the expectation for the second quarter second half of the year's growth is stable and maintaining, or perhaps there's a chance of below second quarter growth. And as we continue to seize opportunities and rely on our own capability to gain market share, we want to point out to you that fourth quarter, typically in the past, the market share of us is below the second and the third quarter, This is largely driven by seasonality. And the second question, after excluding the one-time effect for the COVID-19 benefits, second quarters per parcel cost is positively better than the productivity gain is still there. Well, we expect the second half, as we rise as we achieve a higher level of volume because of the seasonality, and reaching closer to our optimal production level, the cost productivity will still be there, and our current estimate is around 5 to 6% gain per parcel year-over-year. Thank you, Ronald.
spk05: Great. Thank you, Aizong and Yanzhong.
spk02: The next question comes from Eric Zhong with Macquarie. Please go ahead.
spk08: Hello, this is Ellie calling from Macquarie. So I have a question in regards to the The management comments in the opening remark regards the potential to opening up more channels towards the emerging e-commerce channels. So I would assume that includes a lot of the short-form video channels. So could you provide some color in terms of the channel mix for the parcel volume? And for these emerging channels, Would it be more negative impact or positive towards the overall ASP trend since they might have lower weight overall? So that's one question. And the second is quickly on the recent regulatory overhead. So we've seen, you know, governments issuing guidelines saying some price control in the kind of last mile. Do we think we are now kind of in a inflection point where, the overall price war should be reaching more of a stabilizing stage. So from now on, or second half, we should be seeing, you know, at least on the competition side, this should be continuing to ease from now on. 我简单的那个翻译一下我的问题。 Thank you, Manager Chen, for answering my question. The first question I would like to ask is about whether we can update the current distribution of the package volume for the expansion of the new e-commerce channel. And then on these new e-commerce platforms, from the weight of the package, will it have a positive or negative impact on the overall ASP? Can you introduce it to us? Thanks for your question. The first question
spk07: We have been expanding our penetration into all these new e-commerce channels and typically what happens is as we take on these new parcel activities, we are usually represented as the largest share, some as high as 25% and above. Now this entirety is still our attempt to enrich our product mix or to improve our product mix because we are typically traditionally rely more on the traditional e-commerce. With the new development and innovation taking place in the marketplace, we are keen in making these connections with new up and coming channels. And the results have been very positive. Now, still, I would say the total volume with respect to our core express business catered more towards e-commerce is still not large, but the trend is very promising. The second part of the question, regulatory intervention is indeed helping the stabilization of the entire express delivery operations. Price bottom is set because the sufferings typically is more felt at the last totem pole of the chain, i.e., the grassroot level of operators, and particularly so including couriers. So what we believe the price stabilization is a continued trend. Again, as we mentioned, this is very consistent with ZTOs, long-term practice in supporting our network partners. And in some cases, we may even provide more support because we set our sights on the longer term. The ups and downs in the marketplace shakes the confidence and also the hope for the future. But yet at the same time, we believe it is critical for us to maintain confidence across the network where our network partners would be willing to invest So with our strong corporate earnings, we are willing to provide more support than the market practice. At the same time, maintaining the profitability, quality of services, as well as market share gain.
spk02: And was there a follow-up, Ellie? Or did that answer your question?
spk08: No, thank you. Thank you very much for the answer.
spk02: Thank you, Ellie. Thank you. The next question comes from Lin Chen with J.P. Morgan. Please go ahead.
spk01: Hello, Mr. Lai and Mr. Yan. I have two questions. The first question is about our strategy. In the second quarter, our market share fell slightly. But at the same time, our price decline should be the most gentle in this trend. Then we also see that President Lai also mentioned in today's news article that it is impossible to change the market share with this profit. Then I would like to ask, is this strategy a short-term strategy in this quarter, or is it a change in our long-term strategy? Then our goal for the 25% market share in 2022 Is it still to maintain this goal? This is the first question. Then the second question is about this one. I understand that some of our employees are signed with this third-party labor intermediary. I have two questions. The first question is that we noticed that the company's market share declined a little bit. in second quarter, but the price decline is actually the modest amount on that place. So my question is whether it is a short-term change of a strategy or more like a longer-term change of strategy. And is the company still committed to the 25% market share target in year 2022? And then my second question is about the social security payment. I understand that some employees have signed the contract with a third-party agent. So I would like to know how many employees have signed this kind of contract. And since the government encouraged the direct employment of employees, so has the company has any plan to transfer these employees into permanent accounts? And what would be the impact on the cost? Thank you.
spk03: Hello, welcome to your question. The CCP's strategy, we have been maintaining it for a long time. The strategy is to increase the growth of business volume and expand the market share under the premise of global quality and designated profits. This has always been our strategy. But the loss of market share is because we are This new policy environment focuses more on effective accounting, which is to reduce losses and losses. At the same time, it also allows our business partners to reduce losses, maintain confidence in the industry and the central government, and continue to maintain stable operations and investment in the future. This is our consistent strategy. As for the market share of 2022-25, We believe that a business must have its scale and efficiency as the basis. Our focus is still on the development and upgrade of network infrastructure capabilities. By increasing the ability of the transfer platform and increasing the investment of infrastructure, we can combine the cooperation of joint partners. Thank you. Thank you. Allow me to transfer. Our consistent strategy is to achieve targeted profit goal, maintain high quality of services while growing volume and market share.
spk07: The temporarily decline in market share for the quarter resulted from our emphasis on profitability without taking unnecessary losses. And also, it's under the positive influence of the regulatory intervention so that we can allow our network partners to be less burdened by price competition, maintaining stable operations, and restore confidence for their future. Prolonged and intensified price competition in recent years has threatened the very survival of outlet operators and couriers. Their legitimate rights and interests are under siege because they often suffer the most. Raising attention to social stability, the relevant regulatory agencies have issued several policies and procedures this year intended to promote fairness and healthy growth of this industry. And we have said earlier that this has been consistent with our long-term shared success philosophy as well as practice. ZTO is regarded as the industry leader to uphold government policy and help maintaining overall stability. So not only because our shared success philosophy and long-term practice is to achieve win-win with our network partner, but also because we strive to achieve optimal balance among quality of services, volume growth, and profitability, we were being more prudent pricing practice and choose to let go loss-making volume during the quarter. So our market share retreated slightly. Again, as Chairman mentioned earlier, it takes real competitive edge to win, and the express delivery business relies largely on scale and efficiency. So we believe with a stable market operation and competition returning to sensibility, our competitive advantage will become even more apparent. We all have noticed the clear division in the market dynamics. So looking forward into a environment where growth is stable and also the market dynamic shifts could very well take place in any time, we are still hopeful. And we will continue to strive to achieve our goal in volume growth and market share gain. The second question relating to the social welfare, indeed our 100% compliance is being closely monitored as well as uphold, including the outsourced employees, outsourced labor force, their social welfare are well established and we welcome practical solutions or planning on even better support the grassroots communities to protect their rights and interests going forward.
spk02: Did that answer your question or was there a follow-up? Mr. Chen.
spk01: I'm good. Thank you very much.
spk02: Thank you. Thank you. The next question, sure, comes from James Tail with Bloomberg. Please go ahead.
spk04: Hi, everyone. I have a small question here. Regarding the drop in unit prices, four cents came from the package. Maybe I'll translate my question. My question is regarding the ASP drop. There was an $0.08 mention of which $0.04 was due to the lower parcel weight per parcel. I would like to know what is the reason and whether this trend would continue. Thank you.
spk07: Great. Thank you for your question. The $0.04 decline relating to the parcel weight, we have actually observed that trend. And the reason being that the e-commerce itself is also evolving, where particularly also because of the COVID, people learn to shop online and they learn to shop more sporadically. Whenever there is a demand or need for a goods purchase, they would go online and they would do the shopping. So on one hand, we believe the efficiency and also the timeliness of express delivery business provided and supported that shopping behavior. So we believe that decline is a trend and it's a natural trend. Now, I think the concern might be, this is where I'm offering more explanation to your question, concern may be that as the weight continue to decline, the price will continue to drop. Actually, we do have a minimum weight requirements And so anything below that would be a flat rate. And as we continue to observe how the weight changes, I believe the industry, in order to cover its fundamental cost, which is there, either heavier or lighter, will make necessary changes to the pricing structure. Hope that answers your question.
spk04: Yes, thank you.
spk02: Thank you. Thank you. The next question comes from Parash Jain with HSBC. Please go ahead.
spk06: Thank you so much for taking my question. And I was just wondering if you can talk about your CAPEX guidance. Where would we expect the second half CAPEX to be deployed? And also, if we can talk about the prospects of non-express businesses, where do you see the most opportunity, whether it's cross-border, whether it's freight forwarding, and would you approach organic growth strategy or the focus would be to grow through acquisitions? Thank you.
spk07: Thank you, Paresh, for your question. The first part, of the year we deployed 2.2 billion and our plan for the whole year on a cash outlay basis is 9 to 10 billion. About 70% of these are towards acquisition of land use rights and development of our infrastructure, some of which are designed for comprehensive logistics service capabilities. And that shall be the similar proportion going forward for the second half of the year. As you know, the land use rights and development of facilities take cycles, and there are pipelines that are visible to us, so the 9.9 to 10 billion is what we are currently estimating. The second part of question relates to our development of the ecosystem. You mentioned cross-border as well as coaching that we have talked about in our prepared remarks, as well as those already operation for several years, including the cloud warehouse business, the freight forwarding, the freight LTL business. All these are in its totality coordinating and also addressing up-and-coming and evolving demand in the marketplace. Now, if you compare to the Western countries where large scale and also professional logistics service providers, they are very geared towards specialty services. And for ZTO, because our express scale unprecedented and also in China market only, it has a better chance of evolving into specialized logistics services. And that is why we have planned our entire ecosystem's development to be that. The special requirements for, for example, temperature control needed rates, cross-border as they continue to develop, are all a part of our overall strategy. The timing is most important. For example, international activities, while we do have growth developing in, we have delivery network developing in the Southeast Asia Pacific countries, their structure are also limited because of their size and because of their local e-commerce conditions. Across the board, going into Africa, going into Europe, we are currently in a stage of planning resources. So it is a very staged approach, not necessarily immediately spending an investment across the board because, again, our philosophy and our practice in the past is prudent and profit-seeking. So it's inevitable. The planning is there. all the ecosystems will need to be working together. The cloud warehouse business provides one solution where in-house processing and also delivery pickup are connected with our LTL business, with our express business. And now we are connecting coaching business to it as well. So it is from one focal point in adjacency, a combined holistic solution to be provided to our customers.
spk06: That's very, very clear, Ms. Yan. And if I can squeeze one more question. And you have addressed that in parts in earlier questions. When we talked about competition and consolidation, and there are moving parts where some of the provinces are trying to create a floor to ensure that the system is not stressed out. but does it mean that some of the rather sub-scale player, the contradiction may delay as a result of it because the stress on their cash flow may not be immense as a result. Another way to think about it is that it will give an opportunity to a better service provider like yourself to gain market share as a result because competition will shift from price to the service quality. And in that respect, how do you see the competition evolving outside Tonga players? Thank you.
spk07: Sure. Very good question. Again, as we mentioned, the growth of express delivery business relies largely on its infrastructure, and it takes years to accumulate. And not an immediate quick fuel by the capital or a a largely concentrated customer base would mean that much in our scenario where we are indeed servicing the entire country and e-commerce platforms are also evolving with multi-channels. With all that, I believe the smaller players have been exiting the scene or are not able to sustain because they are lacking the operating efficiency and lacking the scale advantage or a leverage. The M&A considerations in that regards, we believe the quality of service, the value of the brand, the customer base, all these taking into consideration on top of whether they are profitable or not has always been our gauge in whether to consider M&A or other types of merge. In the past, I believe Chairman has described a very interesting analogy where we don't need to acquire the brand or acquire the entire business, but because of the operations on the ground, naturally gravitates to those that are with higher brand awareness, stability, as well as long-term prospects. So we believe in the current market dynamics, we are not willing to pay for a brand, even though at the operational level, there has been consolidation taking place. The smaller players, they need to grow. I think specifically with a company perhaps starting with the letter J, its growth is very unique and its capital structure, the cash utilization and the pricing strategy approach is an anomaly in our understanding. And certainly, we will continue to simply focus on what we can do in growing our business with a long-term objective. been maintained. And I hope that answers your question. If not, we can certainly have .
spk06: Thank you so much. Have a lovely day. Yeah, sure. Thank you. Thank you so much.
spk02: This concludes our question and answer session. I would like to turn the conference back over to Sophie Lee for any closing remarks.
spk09: Thank you, Operator. In closing, on behalf of the entire ZTO management team, we'd like to thank you for your interest and participation in today's call. If you require any further information or have any interest in visiting us in China, please feel free to reach out to Capital Markets Department. Thank you for joining us today. This concludes the call.
spk02: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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