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Operator
Thank you for standing by, and welcome to the VTO Express Fourth Quarter and Fiscal Year 2022 Financial Results Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Ms. Sophie Lee, Director of Capital Market. Thank you, Sophie. Please go ahead.
Sophie Lee
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, ir.gpo.com. On the call today from the PPO are Mr. Mason Lai, Chairman and Chief Executive Officer, Ms. Hui-Ping Yan, Chief Financial Officer. Mr. Lai will give a brief overview of the company's business operations and highlights. Then I will go through the financials and guidance. We 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, proper provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on management's current expectations and current market and operating conditions, all of which are difficult to predict and many of which are beyond a company's control. which may cause the company's actual results, performance, or achievements to differ materially from those in the forward-looking statement. Further information regarding this and other risks, uncertainties, and factors is included in the company's filing with the U.S. Securities and Exchange Commission. The company does not undertake any obligation to update any forward-looking statement as a result of new information due to 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 by translate for him in English.
Mason Lai
The market share has increased by 1.5% compared to the same period last year. Our public satisfaction ranking continues to remain at the top of the industry. Service capability is steadily improving. At the same time, we have achieved a net profit of 21.2 billion yuan after adjustment, which is 21% of the total growth. In 2022, due to the impact of the epidemic, the express delivery industry is in full swing. In the face of all kinds of challenges, the central government has been devoted to itself. The market share, service quality, and profit level are on a higher level, further expanding the advantage. In 2022, our business volume has increased to 243.9 billion pieces. The market share has risen 1.5 points to 22.1%, achieving 68.1 billion yuan of adjusted net profit. Thank you. to ensure the safety of the Internet. During the epidemic, we must ensure the safety of the Internet and provide the best security and services to the consumers. Secondly, through effective control, the quality of the whole network operation and the effective link between the transmission and transmission, our service quality and public satisfaction will be increased again. It has boosted the brand image of Zhongtong and boosted the reputation of the company. Third, it has strengthened the credibility and transparency of the network policy. It has further sorted out the rationality and customer value of the customer ratio of the marketing department. It has made it clear that the unsanitary data in the network can improve the market competitiveness at the same time as improving the economic efficiency. 4. Continuous deepening of industry-rich integration, thereby increasing the ability of digital operation. Digital engineering has been upgraded from providing the ability of this data for the headquarters to providing the management of the process for the operation level. This is a problem. In 2022, in the face of challenges, China's economy has shown strength and resilience. The Chinese Communist Party has also accelerated various examinations. to achieve a good price-to-sell balance. This fully proves the correctness of our strategy, and gives us the confidence to continue to focus on self-reliance and improve business efficiency. With the introduction of the 2.3 billion system, China's economy will steadily recover, and the general consumer will be more confident. Welfare is a fundamental, strategic, and leading industry that supports the development of the national economy. As a leader, the President will not disappoint the country's anticipation of expanding and strengthening the industry. Under the premise of focusing on the industry and the development of online software, we will expand the market share, increase the level of profit, and provide high-quality products and services to promote the following focus work. First, Ensure the safety of the whole network, the base, the production, the road, and the information. Not only to optimize the security management mechanism, but also to reduce the loss of resource and the loss of personnel. Second, to improve the infrastructure, the construction ability, the investment, and the output efficiency. Combine the long-term development needs and investment capabilities of the whole network, and more scientifically reasonable optimization of the production ability, planning, investment, and total investment, including the ability deployment within the home network. Third, by not only upgrading the digital management system, perfecting cost-efficiency analysis, flexible control of traffic flow and traffic flow, optimizing ranking, improving efficiency, monitoring and improving the usability of the equipment, and further advancing technical management. Fourth, all the negative power outages are divided by the market to set up a business volume indicator for the base, and the outage of the outage must be increased year by year. The quality of the service will be tested and evaluated, and the source will be manipulated, and the quality of the service will be increased from the fundamental point of view. The outage of the outage of the outage of the outage of the outage of the outage of the outage of the outage of as much as possible to provide management tools for the end-of-the-year. Fifth, to promote side-by-side work, to develop the internal motivation of 1,000 employees, to create the best income level in the industry, to really go from employment to entrepreneurship, and to serve our consumers better. Sixth, to accelerate the end-of-the-year construction, to promote and enhance the chain of stores and the ability to deliver safely, and explore community commercial service wisdom, while reducing the cost of both parties, enriching the end product and service. Seventh, while strengthening the main business, gathering resources and advantages for each ecological section, focusing on core products, polishing multi-faceted operation, and building a quality and consistent ecological layout. We have always been optimistic about the stable development of the fast food industry in the long term. The development trend of the express delivery industry is becoming stronger and stronger. The attitude of the enterprise to pursue and guarantee profit is also becoming more and more bright. The amount of business and market share brought by low-cost competition is unstoppable. Only a stable network, efficient operation, good service, and the best cost are the fundamental principles of the enterprise. The increase in the level of technical management will not only optimize the design of our network policy, but also enhance the accuracy and effectiveness of operational efficiency guidelines, which will not only strengthen the control capability of the strategic goal and resource arrangement, but also strengthen it. In 2023, we will use the shared industrial culture of the same building to scale the stable network, rich production capacity and healthy cash flow, accelerate the change of high-speed to high-quality, unify thinking, clear goals, use good resources, and make good systems, and ensure safety, achieve the ecological optimization of the chain of disease, improve the supply and demand, strengthen the confidence of the network, improve the ability to complete, and ensure employee rights, and increase the income. Strengthen the main business, Hello, everyone. Thank you for participating in today's conference call. For the fourth quarter of 2022, ZTO delivered a passive volume of $6.59 billion, which increased 3.9% year-over-year.
Sophie Lee
extending our market share by 1.5 points. Our public satisfaction rate will continue to be among the top of the industry with steady improvement. Meanwhile, we achieved an adjusted net income of $2.12 billion, which increased to 21% over the fourth quarter of last year. In 2022, affected by the recurring pandemic, overall growth of the express industry decelerated, Facing by varying challenges, DPO focused internally and further solidified our industry-leading position with increased market share, including service quality and profitability. In 2022, our passive volume reached $24.39 billion, which extended our market share by 1.5 points to 22.1%. At the same time, Our adjusted net income grew 37.6% year-over-year to $6.81 billion. Our strong performances came from concerted efforts by everyone under the ZTO brand, including network partners and their careers. Start with a clear set of strategic goals for implementing specific work priorities as the following. Firstly, we strengthened and standardized operational safety controls and removed or rectified potential safety hazards. During the pandemic period, we made better efforts to ensure uninterrupted package flow of consumers' necessities without compromising prevention efforts. Second, through the effective control quality and coordination of all four stages of pickup, transportation, and delivery activities, we are able to improve our service quality and the public satisfaction, which in turn impounds the DTO's brand recognition and reputation. Third, we raise the level of fairness and the transparency of network policy, particularly with regards to K customer operations. By assessing the volume breakdown and the profitability makeup of K customers, with systematically eliminated backstage puzzles and a restored market competitiveness as well as earnings for partner outlets. Fourth, we further integrated operations, finance, and IT to improve data-driven process management. Previous reporting, which mainly presented results to headquarters, was upgraded to analytics that provide insights to help identify problems on a timely basis. and solutions can quickly follow. In 2022, China's economy demonstrated resilience against multiple headwinds. The deal also overcame various challenges and achieved both volume and price, which proved the effectiveness of our strategy and added confidence for us to continue to focus on ourselves and improve operational excellence. Entering the first quarter of 2023, we saw signs of recovery in China's economy, where consumers' confidence in investing have increased. The logistics industry has been regarded as the strategic and foundational harbinger of the national economy. As a pacesetter, BGO strives to live up to the country's expectations to grow bigger and stronger. Under the priority of stability, and sustainability, we will continue to execute our corporate strategy with the following initiatives. First, ensure the safety of pickup and delivery, sorting and transit, and data security throughout our business processes. Continuously improve controls and measures to reduce accidents and avoid casualties. Second, improve output of infrastructure investments. Optimize capacity planning with a more scientific approach. And coordinate investment planning to include our network partners' capabilities against long-term needs. Third, increase granularity and improve the accuracy of cost analysis in order to set price accordingly by line hall rock. To reuse those digitized tools to improve effectiveness of labor resource planning with improved unit efficiency. Increased utilization of PP&E, including intensive leads. Fourth, empower our partners always in various aspects, such as setting possible volume KPIs according to achievable market share goals to alleviate concerns of added weight year after year measured by growth rate. Leading to rewards and recommend assessments with associated operational conduct so as to drive improvement. Analyze the shortcomings of all its active growth and provide support for targeted reform. Provide as many practical tools as possible to better manage their day-to-day. Fifth, firm up implementation of block model policies to fully incentivize the career in acquiring retail customers. With the high risk-to-pay level in the industry, our careers will truly achieve entrepreneurship and better serve their customers. Six, accelerate the last-mile presence, promote direct linkage, and improve on-demand delivery capacity by post-operation. Explore opportunities of community service and not only reduce delivery costs, but enrich last-mile products and services. Seven, strengthen the core express business and organized resources and competitive advantages of eco-businesses. rely on core competencies, and refine diversified capabilities to form coordinated and high-quality eco-capability matrix. We remain optimistic about the long-term growth prospects of China's express delivery industry. That the strong will become stronger is an apparent development trend, and its desire to pursue profitability has become mainstream. Volume and market share of things through low price and bottom line losses are not sustainable. Only with robust network, efficient delivery capacity, high quality of service, and excellent cost efficiency can a business develop into a bigger and stronger enterprise. Data-driven process management will help us continuously optimize precision in policy design. The effectiveness of process improvements, and efficiencies in resource utilization. We have quickly improved our ability to measure what we have and target what we want to achieve in order to accomplish and balance the set of results in accordance with our overall corporate strategy. In 2023, we will accelerate the transformation from high quantity to high quality by relying on our shared success culture, best yet stable network. high operating capacity, and strong cash flow. We will unify our thinking, clearly lay out our goals, make full use of our resources, drive synergy, maintain safety, achieve on both quantity and quality. Meanwhile, we will support our network partners and careers with fairness and protect their rights and interests, help improve our network partners' capabilities and strengthen their confidence. We will keep growing our core business and expand the comprehensive logistics products and services to meet diverse consumer needs. As a corporate citizen, we will take on more social responsibilities and create greater social value. Next, let's welcome our CFO, Ms. Yen, to introduce the financial results and the status of DTO.
Yen
Thank you, Chairman. Thank you, Sophie. And 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 performances, unit economics, and cash flow are posted on our website, and I'll go through some of the highlights here. We achieved volume targets by growing parcel volume 9.4% to 24.39 billion for the year with firm implementation of our consistent strategies. Our leading market share expanded further by 1.5 points to 22.1% while we maintained superior quality of services. The adjusted net income increased 37.6% to 6.8 billion for the year. Total revenue increased 7.1% to $9.9 billion for the fourth quarter and 16.3% to $35.4 billion for the year. Annual ASP for the core express delivery business increased 4.7% and 8.1% for Q4 and full year respectively, as industry pricing became more and more stabilized. Total cost of revenue was $7.1 billion and $26.3 billion respectively for Q4 in 2022, which increased 1.9% for Q4 and 10.6% for the year. Unit cost of revenue for the core express delivery business decreased 0.7% for Q4 and increased 2.4% for the year. Unit transportation costs declined 2.5% for Q4 and 0.7% for the year, primarily due to increased use of self-owned high-capacity trailer trucks and improved load rate, absorbing the negative impact from increase in diesel fuel price. Unit sorting cost was flat for Q4 and increased by 5.8% for the year because of higher level of automation and improved economies of scale, offsetting partially increased labor costs and higher depreciation and amortization costs for automated sorting equipment and facilities placed in service. Gross profit increased 23.2% for Q4 and 37.2% for the year as a result of increased volume and ASP. Gross profit margin increased 3.7 points to 28.1% for Q4 and 3.9 points to 25.6% for the year. SG&A, excluding SBC, increased 18.8% to $561 million for Q4 and increased 16.6% to $1.9 billion for the year. SG&A, excluding SBC, as a percentage of revenue, remained low at 5.7% for Q4 and 5.4% for the year as our corporate cost structure remained lean and stable. Income from operations excluding SBC increased by 19.8% for Q4 and 37.6% for the year. Associated margin increased 2.6 points for Q4 and 3.5 points for the year. Operating cash flow was 3.8 billion for Q4 and 11.5 billion for the year, increasing 24.7% and 59% respectively. CapEx totaled 7.2 billion for the year. Operating cash flow steadily increased and CapEx spending level stabilizes. We anticipate free cash flow to further increase for 2023. The company announced a 37 cents U.S. dollar dividend for the year for shareholders on record as of April 6, 2023, representing a 30% dividend payout ratio compared to 25.9% last year. Now turning to our business outlook, given considerations for the current market conditions, The company expects the parcel volume of 2023 to be in the range of $28.78 billion to $29.75 billion, equivalent to an 18% to 22% year-over-year increase. Relative to the entire industry performance, the company is confident to achieve at least 1.5 percentage point increase in its market share for the entire year. These estimates represent management's current and preliminary view and are subject to change. Now this concludes our prepared remarks. Operator, please open the lines for questions. Thank you.
Operator
Thank you. We will now begin the question and answer section. We ask you to limit yourself to two questions per person. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your questions have been addressed and you would like to cancel your request, please press Start and 2. Your first question comes from Tian Hao from CH Capital. Please go ahead.
Tian Hao
Hello, Mr. Lai, Mr. Yan, Sophie. There are two questions. One is about the guidance of our volume. I think it's quite strong. But I just want to see what the main source of the growth of the new volume is. What is the traditional transformation? What should be the distribution of the new volume plus the self? And then I want to see how The guidance for 2023 in terms of volume growth is actually pretty impressive. So I would like to know more about the drivers for such a growth. How much would come from a traditional e-commerce? And how much will come from the newer players like Baidam? And how much will come from other traditions, other merchants? That is the question, the first part. The second part will be, is that possible to share the trend for the unique pride, unique economics? So that is the first question. Thank you. Let me ask you a question first, then we'll talk about the second one.
Mason Lai
Thank you. The first question you asked is about the source of revenue for business. Yes, that's right. Yes, the source and the value.
Tian Hao
Does it always have a value? Where does that value come from? Is it from the existing one? Is it from the traditional one? Or is it from the new one? I want to see who brought this value. After the epidemic, we predicted that this year's industry
Mason Lai
There will definitely be growth. In our government meeting, this year's revenue growth rate is 7%. We predict that the industry growth rate will be around this level. The growth rate of our central government will increase. Our leadership is 18 to... Ah, I saw it. I took it. So you know when you do you do you know you know you know you know you know you know you know you know you know you know you know you know you know I can't tell you the exact figures. I can't tell you the business secrets. I'm sorry. The second issue is the cost of transportation. Because our industry-initiated integration and the energy-saving group, including the current policy group, are more specific. This year, we did have Thank you for your question. First regarding the guidance,
Yen
The post-pandemic, the entire industry we have, as we enter into the first quarter, observed a rebound. And as the indication given by the government key conferences, they expect the entire industry's revenue would grow 7%. And as we look at the numbers for the first quarter and relative to last year, we anticipate a reasonable level of growth about around 10% for the industry in terms of volume. And ZTO's goal is to continue to expand our market share steadily by at least one and a half points. We set our goals to increase our volume by 18% to 22%. And hence, relative to our prior experience in our prior track record, we believe this is achievable. And regarding the the source or the makeup of the revenue, certainly we won't be able to communicate specific numbers because it really relates to all the other platforms. They wish for us to maintain these numbers within ourselves, by ourselves. But what I wanted to add is that we, as an open platform, we do serve all the up and coming and increasing in addition to the traditional e-commerce players, for example, the , right? And so we, as the largest player with the biggest capacity and the level of quality of services, we typically command the highest portion of all their volume So going into 2023, we believe the growth is still there and we want to achieve the largest portion of that increment. The second part relates to the cost of our transportation operations. We have implemented digitization project initiatives so that we have greater visibility in how our operations is being conducted and how we can improve the efficiency, specifically load rates, utilization of our vehicles, as well as the route planning. So with all these, we believe that the transportation cost trend will continue to be trending down.
Tian Hao
Thank you. Thank you.
Operator
Thank you. Your next question comes from from Morgan Stanley. Please go ahead.
spk05
Thank you for accepting my question. Good morning, Mr. Lai, Ms. Yan, and Ms. Sophie. I am very happy to see the very strong performance of the company and the very strong dividend growth. I have two small questions. The first question is, actually, we saw that the company achieved nearly 40% of the profit growth in the industry last year. um um Thank you. So let me translate my first question. So this is about the outlook of unit profitability of this year. So last year, we have... seen a very slow growth for the industry, but the company still achieved a remarkable earnings growth and strong dividend payout. Just want to understand with a better growth outlook for the industry this year, with the unit cost down thanks to higher utilization and lower fuel, And also considering the digitalization tours will continue to help the company to manage its pricing and cost. Is it fair to say we can continue to expect that the unit profit can still increase from last year's level?
Mason Lai
Thank you for your question. Zhongtong is actually a very stable company. We have always paid great attention to the balance of the market and profit in the group. So, since we started, these three lines have been very healthy. We believe that with the improvement of digitalization, our results will be even better this year. Secondly, we pay great attention to Thank you.
Yen
So let me translate and hopefully supplement to Chairman's response. ZTO is a company that has been consistently setting its strategy and also performing with sound execution. You are aware that we focus on quality, we focus on market share growth, as well as profitability. And all three, by our track record, have been improving throughout the years. Digitization in last year has presented us with favorable results and we anticipate these benefits will even further being demonstrated in 2023. One of the key things in addition to what you just mentioned and what we communicated in the comments that we expressed earlier, the initiative relating to how we are better connecting between our sorting hubs, our outlets, as well as to the last mile delivery personnel. The allocation of responsibility and also share of the benefit has become one of our key focus. especially coming into 2003. This will impact not only on the top line in terms of gaining more market share, bringing more volume, as well as the efficiency all across as the integrated process would generate greater cost efficiency. And so these are what we anticipate going into 2023 and the goal we set for our business to achieve unit profit increases.
spk05
Thank you very much. My second question is about the company's, I would like to ask about the company's guidance on capital spending in 2023, and considering that now, as Mr. Yan mentioned at the meeting, it is expected that the free cash flow will continue to grow. Is the company considering any direction in terms of the share price ratio? So I'll translate. So the second question is about the CapEx guidance for 2023. And considering that Ms. Yen just mentioned free cash flow will continue to increase this year, is there any consideration of increasing your dividend payout ratio going forward?
Yen
Thank you. Thank you for your question regarding the CapEx. For 2022, it was $7.2 billion. And if you look at our prior years, it's around $9.3, $9.2 billion. As we indicated before, we have gone into the tail end of our investment cycle. Now, going into the next investment cycle is more placement for our comprehensive logistics services. capabilities, including larger tracts of land for the comprehensive logistic park construction and development. But that will take time as we first observe what the development of the market and the economy is. And at a second time, the development of our eco businesses would also be a very steady and stable and systematic approach, not a one-time spending splurge. So this will This sets our goal for capex spending is at the level of current or if not lower. So with the continued strong cash performances, we believe our free cash flow will increase. And after taking into consideration what the business needs in terms of a reinvestment, any excess we believe it's rightfully so to give back to our shareholders. So we do anticipate a high probability of us increasing our dividend payout in the future. And secondly, if I might add, as we communicate to most of our investors that we are in the process of obtaining the 5% favorable dividend tax rate so that RMB could have a much efficient tax structure coming out of China as a way of dividend. And with that in place, hopefully in a year or two, we are then able to further increase the payback in return to our shareholders.
spk05
Thank you very much. Thank you.
Operator
Thank you. Once again, to ask a question, please press Start N1 on your telephone keypad and wait for a name to be announced. And if questions come from , from HSBC, please go ahead.
spk00
Thank you for taking my question. If I may ask two questions, please. First of all, can you help us understand your kind of balance sheet that you want to pursue? You have a very steady cash flow over the years, and now with the capex rolling over, free cash flow rising, you have been running a net cash balance sheet in the past few years. Is that the new normal, or you think that with the cash flow predictability, you want to leverage moderately, if not aggressively, your balance sheet and return the excess cash to the shareholder in the form of dividend or buyback? And secondly, on business going into 2023, I appreciate that you've given a guidance. But any color you can share on how has been the start of the year, both in terms of getting into Chinese New Year and coming out of Chinese New Year, and on price competition? Thank you so much.
Yen
Let me answer. Thank you. Thank you for your question. It's all in English, so I obtained permission from the chairman to answer you directly. For the balance sheet, yes, we look into our past. The business has been very conservative in terms of borrowing and lending, borrowing in terms of borrowing. So our balance sheet is very conservative. We don't have much leverage. And now going into the next few years when our cash flow, free cash flow becomes even greater, then as I answered to the previous question, we intend to buy back or return a dividend to our shareholders. So indeed, that is our intention, and we do have a high level of confidence that will be achieved. So with your second question, the 2023, any color, when we went into the year, especially after the Chinese New Year, including the open up of the pandemic restrictions, we did see a rebound in the Chinese economy, albeit slow but very steady, especially during the recent shopping gala as related to one of the national holidays or national celebrated holidays of March 8th. We saw a surge in the e-commerce packages. Typically, we have a business level of 75 to 80 million. We saw that went up to 85 to 90 million packages a day for our business. So we do think there is a strong buildup. Now, either it being one time or consistent and continue, we're still observing and wait to see. But given the signal, given the policy that's coming from the central government, we believe the economy will be on a steady recovery. And as the logistic business, as we said, it leads all the other industry in terms of benefiting or being the benefactor of the economic development. So we do believe the outcome for this year for our goal to set as 18 to 22% way above what the current industry anticipated average growth demonstrates our confidence in addition to our assessment of our own capabilities. As far as pricing, I mentioned that the pricing we have observed in 2022 starting actually in the second half very apparently that the corporates are going for bottom line or paying more attention to profit as opposed to using price to obtain market share. And this has been the case as we're going into 2023. We have made some adjustments specifically for smaller parcels. For that, we have not seen any market reactions that would go towards price competition. So we do believe we have got to a turning point where the long-term market price was steadily being stable and then rising. I hope that answers your questions.
spk00
That indeed, and if I can squeeze this one very quick question, if I may, can you remind us the rationale of raising the convertible bond despite the strong balance sheet that you already alluded to, and is there any defined plan of how do you want to utilize that?
Yen
Yes, certainly. Of course, foremost is the way we operate our business. U.S. dollar is something that we don't generate. We only generate RMB on short because most of our business is RMB. And to buy back, pay dividend, and most importantly, to inject cash into our project companies that acquire land and land use rights and investing facilities. It provides us a greater advantage in terms of pricing if we are able to inject with U.S. dollar. The local government has an attitude of welcoming foreign investment into China. So with the U.S. dollar, we have that advantage in terms of pricing and cost.
spk00
Absolutely. That's very, very clear. Thank you so much, and have a lovely day. Thank you very much.
Operator
Thank you. Your next question comes from Ronald Kang from Goldman Sachs. Please go ahead.
Ronald Kang
Thank you, Mr. Lai and Mr. Yan, Sophie. I have two questions. First, you mentioned that the price of small packages has dropped in recent years, and it has a better effect. Have we seen other peers doing the same thing? Will it go back to a good amount, but everyone will go back to a price point, or maybe not a price point, but everyone will have a year of pressure to drop prices? Second, I would like to listen to what we just talked about. Our CAPEC is to build a logistics park. I would like to hear about our logistics park, the future of China, whether it is the expressway and what other things we have in China. And then this yard, this logistics park, and the whole logistics area. thank you management uh i want to ask two questions one is about the pricing that you mentioned some price cuts this year and had pretty good um effects on on achieving your volume growth so do we see any other players following on and what could there be a risk of pricing deterioration through this year while volumes recover and the impact of that um the second is about mentioned about the comprehensive logistics parks and part of your Thank you for your question.
Mason Lai
The first question is about the company policy, and the second is about the price. Our policy focuses on the three main indicators of profit and service value. We aim to maintain the service value and achieve a certain profit target. to accelerate the acquisition of market share. The CCP has always been like this. So in the past, when we look at these three indicators, they all went up in a very uniform way. Then our network policy is to surround these three indicators. So our policy is to be stable, to be consistent, and to be sustainable. In 2023, we will make some adjustments to the cost. We will mainly pay according to the trend policy. So in terms of network points, the account is more clear. We won't do it because of the loss of money. The designated policy is to improve network confidence, improve network points' profitability, and stabilize network resources. You just mentioned that every section of the war is calculated very clearly. Through the flow and flow policy, the war is calculated clearly. According to the flow fee, the fact is that the cost price is all the way to the end. Enhance the efficiency of the end point. The third is to further strengthen the coordination of the two sides, balance the interests of the two sides, and focus on one goal, which is to increase the overall business volume and profit level. As for the question of price, in fact, ZTE has always been a firm protector of industry stability, because we have obtained a pre-priced price through better service quality and network stability. Currently, our price is definitely the highest in Tonda City. Secondly, we are not losing our basic infrastructure. We are more focused on enhancing our own capabilities, providing more cost-effective services, allowing customers to choose between the two. In the future, we will also use policies to sort out the use of intelligent tools, and promote high-end products. our sales will continue to increase. Third, with the changes in the competition of the courier industry, the market price is actually stabilizing. The demand for profits for enterprises is also becoming more and more certain. The industry is moving towards high-quality development. This is inevitable. This is the first question. The second question is about the logistics. In fact, we think that the development of couriers from high-capacity to high-quality It's like the change of China's nuclear power supply. In the past few years, China has also acquired some land resources. We have built a lot of distribution centers. In the past, we used distribution centers mainly for express delivery. Now, we are more like a power source. There are express delivery, express transport, cold chain, and warehouse. We maximize the efficiency of resources. We think that the main purpose of expanding the ecosystem is to do two things. The first is the system, and the second is to use the resources well. Let me give you an example. We used to build a two-storeyed distribution site. The first floor is divided into two floors, and the second floor is equipped with smart equipment. Now there are many six-storey centers. Three, four, five, and six are used for cloud storage. So what are the benefits? The cost of zero-distance shipping is lower. In fact, all of our employees are working people. They all want to make more money. Some of them can do double work. Most of our workers are self-employed or small-time workers. One hour is 30 yuan, 25 yuan. Other workers are long-term workers. They can work every day. then we can increase our employees' income. If we have this warehouse outside, we will have a lot of workers. For example, if you have 20,000 tickets, you will have one or two hundred workers. Even if he works for two or three hours, he has to pay a day's salary, which is the cost. For example, in our district, there is express delivery and express delivery, because they are in the same direction. If it is a semi-truck, he can park the car, which will save some money. Thank you.
Yen
Thank you for your question regarding the price. So before we get there, we wanted to give you a comprehensive view of our approach to pricing policy. The goal of our corporate has always been maintaining a high level of quality of services and at the same time achieving greater market share and after obtaining the targeted profit goal. With this, our policy certainly would be consistently in accordance with this three-prong approach, so it is stable, it is consistent, and it's sustainable. In 2023, we have made some modifications, but it is all to the benefit of a stabilized network as well as increase confidence to our network partners. For example, Chairman mentioned that we have changed the way we set goals for our network partners and also how we allocate those market share gain targets for them. Instead of using year-over-year growth rates, we used their relative market share as of current, and then the goal we set for them to achieve in terms of market share for the year, which to a great extent helped network partners to alleviate any of their concerns. So their initiatives or their own, they are driving volume increases out of their own initiatives because they do believe that the next year the volume setting goals continuously will be reasonable for them and achievable at the same time. We have also implemented new what we call it, the reward and reprimand mechanism, instead of fining them for not achieving certain volume goals, we focus more on positive reinforcement for them to grow on their own initiatives, but keeping their sort of pocket tight without being punished. So these are some of the examples we think that all driving towards a stable network sound policy. Now, the pricing war that you have expressed concern with in the remarks we have talked about earlier that the corporates are now focusing more on the quality as opposed to the quantity. Not at all cost, right? Volume is is supposed to be profitable for the corporate and for the shareholders instead of just simply the top line. So we do observe, we have observed the changes in the sentiment and changes in the behavior of corporates in terms of their pricing practices. Let me see if I missed anything. So the 2023, we would reasonably anticipate price fluctuations here and there depending on the season. But ZTO's price will remain to be the highest amongst all the players because we have gained price premium in the past with our quality of services and stability of our services. as well as our scale and reach. These are abilities that we have experienced and are anticipating going into 2023. So, price war, price competition, healthy ones, yes, but certainly not those what we had experienced in the past. The second question relating to our comprehensive logistics. The growth of our logistic business, eventually we believe it is going to be a comprehensive. It's not just limited to express delivery. We had in the past developed businesses such as what you mentioned, the LTL businesses. Then going into 2023 and onward, Our goal remains to be eventually become a comprehensive logistic service provider. In the past, we build our facilities, including the larger operational parks, exclusively for express delivery. But as we grow, as we've seen that there are more logistic services needs being developed in the marketplace and our scale and reach allowed us to access greater and greater logistic service markets. Our ability to obtain resources as well as prudently operating them has shown that in some of the examples that we have as pilot programs that we implemented, has shown that we are able to utilize our resources and maximize the use of our resources for comprehensive capabilities development. Its advantages, for example, one, as we gather all the logistics services in addition to the core express delivery, for example, cloud warehouse, right, we have the in-warehouse process. one-stop product for our small B or large B customers, the LTL business that serves the larger packages. Those businesses together in the same place, a one-stop, not only can drive synergy, but also on a utilization, on a cost front, allow us to gain advantage. Chairman gave an example of previous construction design is only two floors, but now we have six floors being developed and two or three floors are used by our other logistic businesses, which we have a 20% or so investment. One example, if you have a cloud warehouse on the third and fourth floor, their customer's order placement can be later and given better experience for their consumers because we don't need to go and fetch goods from other warehouse locations. We can just, we call it zero distance order. packaging, zero distance order fulfilling. It improves our timeliness in the delivery as well, let alone the fact that we are able to reduce cost. In terms of labor, when you have labor being paid on by the number of processes they do, the number of packages they do, they are nearby, they are in the park, and they can serve for express delivery, they can serve for logistics The LTL business, for example. So these utilization of facilities, of labors, all provide us greater advantage in terms of cost, in terms of synergy, and ultimately provides better experience for the consumers and better efficiency for our customers. And so, to summarize, the comprehensive logistics part itself, we are preparing to meet greater and increasing demand for comprehensive logistics services, not just express delivery. And at the same time, we are able to drive synergy, not only on the service front, but also on the cost front as well.
Mason Lai
Thank you.
Yen
Thank you. Thank you. And I think, operator, we are at the close of our time.
Operator
If there are no further questions at this time, I will now pass back to the management team for closing remarks.
Yen
Yeah, thank you all very much for participating in today's call. And thank you for all very good quality questions. And I look forward to discussing and talking with you more as now we don't have much travel restrictions. So look forward to speak to you and perhaps seeing you in person. Thank you again.
Operator
Thank you for attending today's presentation. You may now disconnect.
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