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Operator
Good day and welcome to the ZTO Express to Announce Second Quarter and Half Year 2024 Financial Results Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Sophie Lee, Corporate Secretary and Director of Capital Markets. Please go ahead.
Sophie Lee
Thank you, Betsy. 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.bto.com. On the call today from BTO are Mr. Maison Lai, Chairman and the Chief Executive Officer, and Ms. Hui-Ting Yan, Chief Financial Officer. Mr. Lai will give a brief overview of the company's business operations and highlights. followed by Ms. Yen, 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 Securities Litigation Reform Act of 1995. Such statements are based on management's current expectations and current market and operating conditions. and relate to the inland that involve no one or unknown risks, uncertainties, and other factors, all of which are difficult to predict, and many of which are beyond the company's control, which may cause the company's actual results, 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 filings with the U.S. Security and Exchange Commission. The company does not undertake any obligation to 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.
Mason Lai
to 11% in the same period. The second wave, due to the double effect of the economic pressure on the red line and the general sale of e-commerce, the online consumption has maintained a relatively high growth. The business volume of the courier industry has increased by 21.3% in the same period, exceeding the expected overall scale. In comparison, the proportion of low-end e-commerce businesses has increased further in the previous period, and the price of couriers has continued to increase. while focusing on quality improvement, continue to pursue service quality, business scale, and profit balance in three aspects, and thus maintain the sustainable health development of the whole network. In the second phase, we continue to control the whole chain of loss and loss. The market share of the system decreased by 2% in the same period last year. In the beginning of this year, we proposed In the second phase, The cost-effectiveness and reasonable management costs achieved continuously remain at the leading level of the industry at the level of single-voting profits and total profit. In the second half of the year, the business volume of the fast-growing industry continued to grow rapidly. Although the price of mass-produced goods and services is still strong, we believe that the cost-efficiency law has reached the bottom line. The whole of the express delivery industry is really moving from high volume to high quality, in order to achieve social values and meet the demand of capital. The Chinese Communist Party takes the lead from high volume to high quality, which comes from our continuous focus on ourselves, continuous effective balance of product quality, business scale and profit level. In the face of the current situation of the market, We will use our own strength to enhance the brand value, grasp the bottom line of scale and share, achieve reasonable profits, and do a fair and just distribution of profits between the center, the focus, and the business people. The exact implementation of the catch-up includes to consolidate the network policy, to effectively bridge the direction of the policy with various work indicators, 3. Promote cross-border work. 5. Increase the penetration of high-end product services, deepen the connection with platform customers, coordinate with central logistics ecological resources, expand the ability of comprehensive logistics supply chain, build brand awareness and customer confidence. Facing changes in the market, maintain urgency and sense of crisis. to strengthen and complete communication, unify thoughts, and build confidence, to promote the reasonable balance of the industry, and to maintain the stability of the network. Although the marketing environment is still uncertain, with the promotion of e-commerce and the new retail industry, express delivery has also shown the need for more than a week. To serve the online marketing development, to promote product element circulation, We have provided a strong support. In the face of internal competition and competition-based industry songs, we have captured the opportunity in the challenge. The Chinese Communist Party will focus on quality first, and the adjustment of the operation of the MoDAN network will create a good profit capacity for stations and businessmen, and thus create unique competitive resources and advantages. Following the two-stage division of industry songs, Let me translate for Chairman first. Hello everyone, thank you for attending today's conference call.
Sophie Lee
In the second quarter of 2024, DTO maintained industry-leading service quality rankings, and we covered household value growth at 10% year-over-year that reached $8.45 billion. We achieved adjusted net income of $2.81 billion, which increased 11% over last year, demonstrating continued strong profitability. In the second quarter, despite microeconomic softness, Driven by booming development of e-commerce promotions, online consumption maintained relatively high growth. Puzzle volume of China's express delivery industry increased 21.3%, exceeding expectations. However, the proportion of low-priced e-commerce puzzles continues to trend up, and price competition further intensified. While prioritizing service quality, ZQ continued to stick balance among service quality, profits, and the scale to drive sustainable and healthy development of the entire network. During the second quarter, upon further elimination of unprofitable volumes, our market share contracted by two percentage points compared to the same period last year. At the beginning of this year, across all three of our major matrix, We put greater emphasis on quality while maintaining a scale-advantaged volume level and appropriate level of profit. We directed attention and resources towards upgrading customer mix, refining differentiated products and services, and enhancing brand awareness and customer satisfaction. On last month's development, We implemented new initiatives to explore opportunities to reduce last-mile delivery costs and improve the profitability for outlets and couriers. In the second quarter, CTO's end-to-end delivery time racked top among Tongda peers, and the customer complaint rate continued to decrease. Meanwhile, with the improved response time and on-demand service capability, the ratio of retail parcels was further extended. As the optimization of revenue structure partially alleviated unit price pressure driven by price computation, our ASP was flat. Combined with the cost efficiency gain and the reasonable SG&A structure, both the unit profit and the total profitability remained industry-leading. Entering into the second half of the year, the industry volume kept a strong growth momentum. Meanwhile, despite the intense price competition in the production regions, we observed a limited room for further price cuts given the typical cost-plus pricing model. It's time for the entire express industry to shift from high-quantity to high-quality development, striving to fulfill social viability and serve capital objectives. CTO's leadership action to transform from high-quantity to high-quality stems from our long-lasting focus on being the best we can and achieve balance among quality, profitability, and scale. Considering the market conditions, we will put more effort on enhancing brand awareness and recognition on the premise of achieving scale advantage, the volume level, plus healthy profits. In addition, we are committed to accessibly address the interests and needs of the network partners and careers. Specific actions under implementation include the following. First, we will revamp and improve network policies to ensure performance, relevancy, transparency, and fairness with clear rewards or recommend effectiveness. Second, we will continuously improve income service quality with refined indicators closely tied to performance evaluation. Offer tailor-made support and improvements for underperforming outlets to drive high quality as well as differentiated services. Third, we will firmly advance the last mile profit allocation strategy, promote careers proactiveness to increase the retail cost of ratio and achieve more income. Fourth, we will accelerate the expansion of LASMAL footprint, encourage larger outlets to invest in suiting equipment, establish direct linkage to a LASMAL post, reducing delivery cost and the freeing of delivery personnel to concentrate on servicing LASMAL customers. Through consolidation of resources, we intend to provide solutions to alleviate delivery cost pressure for the whole industry. We will further enhance our products, increase the penetration of high-end products, strengthen collaboration with online platforms, and leverage ZTO's logistic ecological resources to expand capability of comprehensive supply chains, improving brand awareness and customer appreciation. Six. be vigilant and maintain a sense of crisis facing market uncertainties and fluctuations. We will increase effectiveness of communication with our network partners, unify thinking, and reinforce confidence and advocate a balance between long-term and short-term interests, maintaining network stability. Despite uncertainties in the microenvironment, The express delivery industry has demonstrated resilience across economic cycles by offering robust support for the advancement of digital economy and improving circulation efficiency. We will see these opportunities in front of challenges including intensified industry competition. We here will focus on service quality, further last-mile strategic objectives, and enhance profitability for all of us as well as careers by establishing unique competitive advantages so as to gradually but satisfactorily differentiate ourselves from the rest of Tongda in brand recognition and customer satisfaction. Providing more choices for consumers and customers. We're aiming to create value for the country, society, as well as employees and shareholders. Now let's hear from Ms. Yen about our financial results and targets. Ms.
Yen
Thank you. Thank you, Chairman Lai and Sophie. 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 the year-over-year comparisons. Detailed financial performances, unit economics, and cash flow information are posted on our website, and I'll only go through some of the highlights here. In the second quarter, we adhered to the principle of profitable growth and achieved a 10.9% increase in adjusted net income to reach $2.8 billion, while continuing to improve the quality of services and brand values. our parcel volume grew 10.1% to 8.45 billion. We continued to fine-tune resource allocation to achieve optimal balance between volume and profit in the second quarter. ASP for our core express delivery business stayed flat at 1.24 RMB as the impact of decline in the average weight per parcel and increase in incremental volume incentives were offset By the positive impact of the volume increase in non-e-commerce parcels, our total revenue increased 10.1% to $10.7 billion. The cost of revenue was $7.1 billion, which increased 10.4%. Overall unit cost for the core express delivery business increased 0.7%, or $0.01. Specifically, line haul transportation cost per parcel decreased 6.8% to 39 cents, driven by improvements in fleet operations with better resource utilization. Unit sorting cost increased 4.6% to 26 cents due to increased DNA cost on new equipment and facilities. Unit KA cost decreased 4 cents increased $0.04 in line with KA revenue increase. Gross profit increased 9.6% to $3.6 billion and gross profit margin rate decreased 0.1 points to 33.8%. Consistent with gross profit, income from operations increased 11.7% to $3.2 billion and associated margin rate grew 0.4 points to 30%. SG&A expenses excluding SBC as a percentage of revenue grew 0.3 points to 5.5%. Corporate cost efficiencies remained intact. Operating cash flow was 3.5 billion, which decreased 7.5%, mainly due to dividend tax and increase in financing or loans to our network partners. Adjusted EBITDA was $4.3 billion, an increase of 11.7%. Capital expenditure totaled $1.3 billion for Q2, or $2.9 billion for the first half of the year. With that, we anticipate annual CapEx in 2024 to come in below $6 billion, as previously planned. The company has announced an interim cash dividend of US dollar $0.35 per ADS and ordinary share for the six month ended June 30, 2024, which is a 40% payout ratio to holders of its ordinary shares and ADS as of the close of business on September 10, 2024. Now moving on to our guidance. We stay committed to our balanced approach to sustainable and profitable growth, prioritizing improvements in quality of services and development of differentiated product and services to enhance brand recognition and value. We are reiterating our 2024 volume growth guidance of 15 to 18%. These estimates represent management's current and preliminary view, which are subject to change. This concludes our prepared remarks. Betsy, please open the line for questions. Thank you.
Operator
We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. 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 2. In the interest of time, please limit yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our roster. The first question today comes from Ronald Kim with Goldman Sachs. Please go ahead.
Ronald Kim
Thank you for waiting, Sophie. I also saw this very stable performance. I would like to ask, first of all, our 10-point package quantity in the second quarter is slower than the industry. We also mentioned in the announcement that the package quantity is still very important because it can bring a scale response. The cost of each package is relatively low. The cost of each package is relatively low. The cost of each package is relatively low. The cost of each package is relatively low. The cost of each package is relatively low. The cost of each package is relatively low. Thank you, management. First is about a possible limit of 10%. slower than the industry. So as we talked about in the announcements, our volume is not unimportant as it brings a scale of leverage. So I want to hear our guidance, the implied second half. Will we expect some fine-tuning of our strategy to maximize the scale, passive volume, and profitability? And second is, for the unit profit, we see it's mostly stable. That implies the underlying unit cost actually has been quite stable as well. Is there further room to improve on operating efficiencies, or have we maxed out all of the efficiencies that we've done in the past? What further could we do to improve the operating leverage of the business? Thank you.
Mason Lai
Thank you for your question. In the first half of this year, the share price of the industry has dropped by two points. The main reason for this is that the competition in terms of price has to be stronger than before. And the low-cost shipments in the industry have increased. to effectively control the business volume of the loss of capital. So in the first half of the year, we are still pushing according to our designated strategy. So we put the service quality in a more important position, reasonable profit, and appropriate share. Our share, actually, in the first half of the year, we are still growing. But growth in the industry is lower than growth in the industry. In terms of our production capacity, it is basically reasonable. In the second half of the year, our growth is lower than that of our capital. This means that our capital has not changed, so our growth in the second half of the year will definitely be higher than that of the first half of the year. At the end of the day, we need to have a growth of 18 to be able to do it. We are 12 in the first half of the year. We need to have a growth of 18 or more. We still have confidence. As for the balance issue, because in theory, we can get more shares in the first half of the year. But you must The second reason is the increase in the number of non-functional couriers. We believe that the capacity and capacity must be reasonable. Because the CCP still has a double-digit economy, it is still compatible with the capacity. So in the second half of the year, we will still do well. to ensure that the balance is good in terms of service quality, volume, growth, and profit. The second question is the space for cost reduction. Indeed, over the past few years, the entire express industry, through industrial construction, through the optimization of tools, the cost of the entire industry has been very good. In the first half of our year, In fact, we have also achieved our set cost-reduction goal. It is also super-complete. It is possible that some aspects of our cost-reduction are not too obvious. For example, our capacity to invest. Last year, our capacity to invest was 26% of the total. That is to say, our capacity to invest in some areas is剩余. So in the next few years, if we look at it from a long-term perspective, the cost of capital investment in single-voting will be reduced. But this year, because there are more companies or there are fewer investors, the cost of capital investment can still increase by 50%. There is a possibility that the unemployment rate will rise. According to the comprehensive ability and capacity of the CPC and the efficiency of our transportation, there is a reason to believe that our profits and the profits of single-voting will remain stable and reasonable.
Yen
Thank you, Roland, for your question. So let me translate for the chairman. First question. Indeed, the parcel volume for the total industry has grown, and it exceeded our expectations. In the second half of the year, we do have the following plan. Our market share decreased 2%. The main reason being that, first, there are a lot more price competition or price competition intensifies. There are a lot more ineffective, or we call it ineffective. Indeed, it is just below the cost. It's priced below the cost. So the overall proportion of non-profitable volume has increased. So what we do is we very effectively controlled such volume coming into our network because we adhered to our strategy that set out in the beginning of the year to focus more on quality of services and with that to achieve appropriate level of profit and in turn market share. If we look at in the overall perspective our capacity and the volume are in tune. There are reasonably matched. In the first half of the year, the results that we achieved is out of the range of our 15 to 18 percent guidance for the whole year, which means that in the second half of the year, we should at least to achieve 18 percent of growth in order to come into the range of our previous guidance. And based on the current and current view of our businesses, we have a high confidence of achieving such a target. So more from a theoretical perspective, if we want more volume, we can simply reduce the price. But we didn't choose to do that, again, because we wanted to focus on profitable growth while achieving reasonable match between the capacity and our market share volume gain, we should be able to achieve healthy growth on both. Second half of the year, again, we will continue to focus on improving quality of services, developing differentiated product to achieve reasonable level of profit and volume balance. Second part of the question, indeed for the entire industry through all these years of fine-tuning of operations and investment of automation and so on and so forth, the unit cost productivity gain has been declining. For us, however, in the first half of the year we exceeded our goal for cost productivity gain for the year. We have invested for over 26 supersorting centers. There are reserves, ample reserves for capacity release in the future. We do believe that the capacity installed as well as its flexibility in meeting as up to 50 percent of volume demand, we are still well on track to consistently and gradually release meaningful cost efficiency going forward. Then for the unit profitability, based on the overall capacity as well as the reserve, we think that The strategy being consistently carried out, there will be stability in our profit growth on a total level as well as unit level.
Operator
The next question comes from Chi-Anne Le-San with Morgan Stanley. Please go ahead.
Chi - Anne Le - San
Thank you, Britain. Remind us about the volume of retail parcels, the total volume ratio, and the target for this year. If there is a target for the next few years, please share it with us. The second question is about the discount. We also see that the competition between fast-trade companies in the future is not only in terms of the line-of-sale discount, but also in terms of the network-level discount, which is the discount between the joint venture and the end-end. So I would like to ask the company Let me translate for myself. Congratulations on the very resilient profit growth in the same quarter. I have two questions. The first question is about the retail profit. In the announcement, the company mentioned that we are on track to double our retail parcel volume. And would you please remind us our current daily retail parcel volume, the percentage of retail volume in our total volume, our target for this year, and probably the target to achieve for the next few years. The second question is about cost reduction. We understand that the competition of express delivery business is not only about cost reduction at the line call, but also about cost reduction at the whole network, especially at network partners and last mile. So would you help us to better understand our initiatives to help the network and last mile to reduce cost and potential cost room, cost saving room in the next few years. Thank you.
Mason Lai
Thank you. Thank you for your question. The two things you mentioned are actually what the president is doing or what he will do in the future. The first is that our strategy this year is to put the service capacity in a more important position. The goal is to increase the number of retail stores, to provide business owners with the ability to receive and deliver. Our goal is to increase the number of retail stores in the first half of the year. From the online perspective, it's a step-by-step process, allowing business owners to reach a certain price, develop their internal motivation, and improve their sense of responsibility. There are several methods. The first is to use marketing methods to promote tools, to improve the willingness of consumers to come to Moshan. The second is to train and strengthen the awareness of small-scale service consumers, and to increase customer contact. The third is to reduce the number of customers after business management from day-to-day service management to day-to-day service management. The fourth is to increase the cooperation strength of the platform and strengthen the overall coordination. At present, we have achieved a responsible settlement with Zhijie, The World, and Pinduoduo. Through these measures, we can increase the proportion of retail stores. The goal is to increase the income of our business owners. The income of business owners is more problematic. The second is the discount. The discount is actually divided into two parts. Most of what we see is the transfer discount, which is the discount of the headquarters. From last year, we have been continuously improving the ability of our players. So far, we have about 2,000 players who have already installed the equipment. They can be directly assigned to the sales staff and the MOTAN store. This is the basis. Through the MOTAN blockchain, we have added some smart tools for their use and application. For example, I'll give you an example. Let's say we send a fee of $0.08 to the salesperson. The salesperson takes it back and puts $0.04 in the bank. He has 60% of the money, and $0.04 is the answer. So now it's directly to Modan, to Modan's $0.04. So $0.08, $0.04, increased the stop to Modan's, through unmanned vehicles, through our free vehicles, probably less than $0.02. Basically, if it's unmanned vehicles, it's around $0.01. We use electric vehicles, use drivers, it's probably less than $0.02. It can reduce the cost by more than $0.02. The goal is to increase the efficiency of the power station, to make it more stable and more competitive. These two measures, in fact, are one thing. It is to help the number of employees increase, to help the efficiency of the power station increase. To achieve two goals, that is, Thank you very much for your question.
Yen
Currently, our daily volume of non-e-commerce parcels exceeded 5.4 million, and our year-end goal is to achieve daily volume average 6 million packages. You know that in last year, we started off with daily volume about 4 million packages. And we are on track to achieve our goal to double that volume, because the peak volume would most likely exceed 7 million parcels per day. And this is our goal, and we are confident to achieve that. How do we achieve that? Chairman went into the details, so give me some time. I'll go through the specifics with you. First of all, it's related to increasing the ratio is what we refer to in our remarks of non-e-commerce packages as a ratio to our delivery total. So in other words, if I deliver 100 packages and there needs to be at least six packages, pick up as non-e-commerce packages. So one of the things, there are four specific strategies that we implemented to improve the portion of non-e-commerce or what we call it individual parcels or retail parcels. One is to enhance consumers' willingness to send parcels at our post through deliberate marketing effort and the promotions in using of digital tools So the handheld, building your own focused group or targeted group is something that are being implemented. Number two, training our couriers to improve their awareness of serving customers, increase customer loyalty. So more personalized, more higher quality standards issued to our couriers so that they are able to be recognized having the capability of serving two-door as well as pickup from the consumers, from the customers. Number three, shifting quality management of the delivery services focus from post-event to pre-event so thereby reducing the customer complaints or anticipate any potential problems that could arise, so hence improve the overall experience. Number four, strengthening the cooperation with e-commerce platforms, enhancing direct coordination between the headquarters and those platforms. Currently, while we have achieved direct settlement, process with ByteDance, Pinduoduo, as well as Douwu. Then improving the second part is reducing the cost of the last mile. The initiatives, there are two folds. The first one is relating to the couriers. what we call it the policy or initiatives which started last year. The goal is to increase the income of our couriers. So early on in our remarks, we talked about allowing the couriers to achieve market pricing or gaining the majority share of the market pricing is to incentivize them so that they are motivated to make a special trip to go pick up. The second part of the initiatives relates to improving the outlet's profitability. Last year, we have about close to 2,000 outlets installed machinery and equipment that enabled them to provide packages that are sorted or directed or destined directly to post. Chairman gave an example. In the past, the couriers have to go to the outlets, help sorting, or they have to ride to the outlets to pick up the packages that are bound for their delivery service area. So with the installation of those machines, the outlets no longer rely on manual sortation. So the riders or the couriers do not need to travel to the outlets anymore. And instead, they will receive packages directly from the outlet, either through autonomous driving vehicles or electrical vehicles that are utilized by the outlet to send those packages directly to the couriers so that the couriers can work within a much smaller and more concentrated service area radius and hence allowing them more time and more focus on serving to door and also pick up from the door. Another aspect of this second initiative relates to the outlet. With the direct sending the packages directly to the couriers as well as sending the packages directly to last mile posts, the outlet owners are able to reduce their delivery cost. For example, in the past, each packages on average would cost the outlet about 80 cents for the couriers to deliver. Now, couriers would then put part of their packages into the post, which will share their 80 cents, 40 cents out of that 80 cents will go to the post. With that initiative that we implemented, the direct a linkage between outlet and the post would allow a greater portion of close to 60% or 40% of the packages going to the post directly. So then the outlet does not need to pay the whole 80 cents. So we estimated and we calculated of that 40 cents, because it still need to be sent to the post. The outlet owners would pay on average between 10 to 20 cents to achieve that direct delivery to the post. So with, first of all, the 40 cents reduction in payment to the courier and then a cost of about 10 to 20 cents to send those packages to the post, the outlets could net about a $0.20 or so saving on the delivery cost. Going forward, we are going to focus on these initiatives in fully implementation. Then we will achieve a goal of not only improving the outlet's profitability, as well as the courier's earnings. So hence, The long-term effect would be for the overall network stability to be established because the profit level will be increased. And it will provide support for our overall delivery fee reduction, not only for us, but also potentially as a solution to the whole industry. is not an overnight goal. We are working towards this change in shift from volume to quality to focus on more differentiated product and services so that ZTO could break away from homogenized price competition and establish unique competitive advantage.
Chi - Anne Le - San
Thank you very much, Mr. Lai and Mr. Yan.
Operator
The next question comes from Lo Yu-Jeng with HITOM. Please go ahead.
Chi - Anne Le - San
Mr. Lai, Mr. Yan, Sophie, hello. I'm Luo Yuejiang, an analyst at HITOM. First of all, congratulations to the company for achieving a good performance in the second quarter. I would like to ask two small questions. First, I would like to ask you about the future of our future stable economy. Mr. Lai just mentioned that the company has a lot of production capacity. I would like to ask how much production capacity does the company usually use to develop its capital development plans? The second question is that our business volume has reached a general daily scale. I would like to ask about the company's overall capital reduction space. Mr. Lai and Mr. Yan have just explained in detail the expectation of a final capital reduction, including our core cost, including transportation costs, and division. How should we look forward to the future? Thank you. First of all, congratulations to the company for achieving good performance in the second quarter. My question is about the capital expenditure plan for the years 2024 and 2025 and the longer period. I'd like to know which areas the investments are located to and how we make the capital expenditure plan. Our second question is about the cost reduction place about the whole process in the future. Thank you.
Mason Lai
Thank you for your question. In fact, capital investment is mainly in the field of industrial construction. In the past, China has continued to expand industrial construction. At present, most of our distribution centers are free. It is difficult to plan. According to the actual situation and the requirements of the government, There are some places where the economy is not very developed, but the land we take, for example, two or three hundred mu, thirty hundred mu, its production capacity is enough. For example, if you turn it one more time, or even two times, these places are still left. Secondly, in terms of investment, we still consider our second growth line, which is comprehensive logistics. We have to calculate the production capacity of the ecosystem. We also have to calculate the energy consumption of the fast-growing plants. So, in general, we have to slow down. Because the main focus is on the distribution of land. Basically, in many places, if the yield is 50% or even 100%, it will be enough. In the future, capital investment will be reduced. Secondly, we still have a lot of capacity, for example, your car. Because the car has a period of five or six years. There is a period in which the project will invest very, very much. It's not the same when it grows by 5%, 6%, or 7% from the beginning. In the future, it is not possible for China to grow by 5% or 6% in a year. So we can predict the production development in Japan, including our return to the stock market. This is related to your revenue and production. In terms of supply and demand, in addition to the transfer of supply and demand, because the transfer of supply and demand is talked about a lot in the past, We can be sure that the CCP will remain ahead of the industry in this regard. Secondly, we will be on the road trip plan. For example, I used to introduce Sanwan Di Jia. In the past, we used to make good connections between the death center and the destination center in the industry. We built a ferry and bought a free car. In this regard, everyone is now If the second page forms, it will form the third page, which is the connection from the starting point to the destination. That is to say, in the Middle East, our internal assessment is that you can divide and divide. We have dropped from 2.5 times, 2.6 times in the past, to almost 2.09 times. Then we, if you want to reduce it, reduce it once, it will be two cents and five cents. Because you have to pay one cent, one more operation, it will be one cent and five cents. Then if it is divided into points and points, it is divided into zero times. Then its cost will be lower. Then we, The second method is to connect the starting point to the center of the destination or the starting point to the starting point of the destination. It is divided into two parts. So in this way, in the future, with the size and the optimization of the road, there will be a lot of space. The cost will definitely continue to decrease. Thank you very much for your question. The first question is about the CapEx.
Yen
In the past, we've been consistently investing in CapEx mainly to build sortation centers and establish transit capabilities. To today, most of our supersorting centers were self-owned and above 90% to be specific, that may supplement. So going forward, we won't be in need of expanding our CapEx spending. Based on the economic development, some areas, or weaker areas, we have also reserved space, 200 to 300 hectare acres, for example. If our volume demand increases one-fold or even two-fold, we have sufficient reserve already there, so we don't need to spend capital to acquire further, more significant land use rights. We just need to either develop them or upgrade them. The consideration, however, do need to be given to our initiatives in the longer term, developing comprehensive logistic capabilities. For example, warehousing or in-warehouse processing, LTL businesses, all those ecosystem businesses do rent spaces from us so that they are able to form a comprehensive and higher efficient, efficiently co-located product and services by utilizing our capacity. Going forward, it is very clear that acquisition for land use rights, building super centers are going to be very minimal. The growth of our putting in line of services, putting services, the capacity is very much directed or matched with our anticipated demand of capacity in the sortation, transportation, and all the segments of our operations. We are able to foresee with very clear visibility that going forward we will be able to generate increasing free cash flow. We talked about giving back return to our shareholders. It's based on the fact that the cash generation will continue to be healthy and the capex spending will be stable or reducing going into 2004, 2025, so that our overall return to the shareholders will increase. The second part relates to the question on how we are able to continue to reduce the operating cost. Indeed, as you look into the past, even though ZTO have been leading this effort, but for the whole industry, It has been continuously achieving high cost efficiencies. In the past, what we've been doing and what we've been able to achieve greater results or ahead of everybody is that our connection between the outlets and the sortation center has been more advanced or more ahead of everybody. Now, going forward, as we continue to rely on lean operations, looking into greater visibilities of each of the segments of our operations, we are still able to, as volume increases, as our productivity gains continue to release, we still believe there are plenty of opportunities for us to achieve scale leverage as well as on a unit level continued cost efficiency. And then the second consideration, which is more of a long-term but steady visibility to us, is that because of the route planning, we talked about in the past the tri-layer throughput concept. As, again, we said earlier, we were able to improve the connectivity between the outlets and sortation center. Going forward, as volume increases, we are able to establish greater connectivity between origination outlets to destination sorting center, or the third layer being the origination center to the destination outlets, or the origination outlets to destination outlets. All these is simply put, an effort to reduce the number of sortations. In the past, we were at the level of 2.5 per parcel. We are reducing it now to 2.09 and continue to decrease because of better route planning and volume increases. We estimated for each one-time reduction of the sortation, we are able to reduce about 25 cents, being 10 cents in sortation and 15 cents for transportation. With that, we have clear room for the future to further reduce our unit level cost because of this tri-layer throughput concept. share, as we looked at the first half of the year, declined two points. This is still matched relatively well with our capacity or capacity in services. Anywhere outside of that range will not generate as effective economy of scale and will cause us to have increased marginal cost with diminished marginal benefit. So we are, as you asked the question, how we plan our capital investment and deployment. It's very much a science related to what we are able to serve, what are the capacity buildups, what we anticipate to come. with the most optimal volume and optimum cost. Thank you for your question.
Operator
This concludes our question and answer session. I would like to turn the conference back over for any closing remarks.
Yen
Thanks again for your continued attention and support. Our strategy shift in the beginning of the year has been very effective for us. specifically in improving the non-e-commerce packages. It's reflected in our bottom line. Balanced approach will continue to be our future focus, including the last mile initiatives. We believe we are building long-term competitive advantages so that we are differentiated from the rest of the tone-down. We look forward to speaking with you in the future. And thanks again for joining today's call.
Operator
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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