ZTO Express (Cayman) Inc.

Good day and welcome to the ZTO Express fourth quarter and full year 2024 financial results conference call. All participants will be in listen early 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 telephone keypad. To withdraw your question, please press star then two. We do ask that you please limit yourself to two questions. Please also note today's event is being recorded. I would now like to turn the conference over to Sophie Lee, Head of Capital Markets. Please go ahead.

Thank you, Rocco. Hello, everyone, and thank you for joining us today. The company's results in the investor relations presentation were released earlier today and available on the company's IR website at ir.cto.com. On the call today from CTOR, Mr. Mason Lai, Chairman and the Chief Executive Officer, and Mrs. Hui-Ping Yan, Chief Financial Officer. Mr. Lai will give a brief overview of the company's business operations and highlights, followed by Mrs. 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, 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 and relate to events that involve known 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 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 update any forward-looking statement 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.

Hello, everyone. Thank you all In 2024, The express delivery industry has seen a rapid growth, and the overall scale has exceeded expectations. At the same time, with the decline in sales activities on the e-commerce platform, consumers are increasingly pursuing cost-efficiency. The ratio of low-cost home appliances to e-commerce continues to expand, and the volume of logistics prices is increasing. In the face of challenges, the Chinese Communist Party insists on developing high-quality products. On the one hand, to build a differentiated product and service capability. Through deepening cooperation with e-commerce platforms, while increasing brand recognition and customer knowledge, we have optimized the product structure and profit. On the other hand, we have strengthened the standardized operation and connectivity of our own transportation and transportation. We have further increased the full network efficiency, reduced loss and loss, reduced cost, At the same time, we continue to improve the ability to build, reduce the cost pressure of the leftist party, and improve the quality of the end-of-life services. In 2024, the total annual business volume reached 3.4 billion units, with a growth of 12.6%. Of which, the annual business volume of the fourth generation is nearly 50%, far exceeding the overall growth of the third generation. After a full year of adjustment, China's net profit and profit margin to 101.5 billion yuan, which is 12.7% of the total growth. By 2025, the express delivery industry will maintain a fast-growing growth trend. However, the trend of consumption decline has not been reversed. Price competition is still strong. In the face of the current market environment, our core technology is to improve service quality through market status, to achieve an average business volume of higher than the industry. With reasonable cost and profit allocation mechanism, we work together with our joint partners to co-operate with the network to increase the spread and penetration, to strengthen the main business, to strengthen the end-to-end advantage, to increase the profit level of the end-to-end and the business people, to increase the confidence and stability of the network. Our own work includes One. High-efficiency achievement, volume target, full authorization, audit management, and market change, adjustment of policy resources, unified policy standards, recommend fair and transparent at the same time, divide and divide, deep-dive customer resources, match specific needs, carefully measure, hand-in-hand collection of two ends, clarify, increase the amount, fully capture, and increase the amount of revenue. 3. Continuous optimization of products and services, deepening the strategic cooperation between customers and platforms, integrating China-China interoperability and ecological resources, strengthening China-China interoperability supply chain capabilities, refining the product and service capabilities, strengthening brand awareness and customer intelligence. 4. Deepening the network construction work, clearly expanding the network and increasing the execution power, implementing the ability to build from the beginning to the end, 5. Promote all-round road, reduce cost-effectiveness, balance, reduce transportation efficiency, and invest in operation costs. 5. Promote all-round road, reduce cost-effectiveness, balance, and invest in operation costs. As a result of the increase in business volume, optimization of travel, professionalism, and scientific planning, the production can be heated and the consumption can be eaten. China's private express has experienced a change in scale, concentration, and profitability over the past 30 years. China can make a breakthrough and continue to lead, but no one. No matter how the industry and science change, China's core competitiveness comes from us and We believe that the Chinese currency industry and the overall development of the micro-ecotourism ecosystem is very broad. As long as we insist on the choice of the express industry, focus on doing our own work, and expand the advantage of leading the scale, we will be able to reduce the change in the market at the same time. We will continue to support our partners and express customers, and thus provide diverse products and services to consumers and customers. 我们有信心,更有实力去达成我们的职业使命, 也就是用我们的产品造就更多人的幸福。 接下来我们请严总给大家介绍财务支付和预期规划,谢谢。 Thank you, Chairman Lai.

Now let me translate first. Hello everyone, thank you for joining today's conference call. In the fourth quarter of 2024, ZTO maintained its high service quality, and with a total parcel volume of $9.67 billion, up 11 year-over-year, we achieved an adjusted net income of $2.73 billion, which grew 23.4% year-over-year, further solidifying our industry-leading profitability. In 2024, the express delivery industry maintained relatively high growth, and the overall scale exceeded expectations. Meanwhile, with frequent e-commerce promotions and consumers' growing price sensitivity, the proportion of lower-value puzzles have continued to increase, exerting downward pressure on logistic pricing. Facing challenges, ZTO stayed committed to our high-quality growth strategy. On one hand, we accelerated the development of differentiated products and services and deepened cooperation with e-commerce platforms. Optimizing product mix as well as profitability while enhancing brand recognition and customer satisfaction. On another, we strengthened standardization and coordination across operational segments of our transit platform, further improved end-to-end timeliness, reduce the loss and damage and complaint rates. In addition, we ramped up effort to empower our network partners, enhancing their capabilities to alleviate pickup and delivery cost pressures and improve service quality. For 2024, BTO's annual parcel volume reached $34 billion, growing 12.6% year-over-year. Notably, number of retail parcels in the fourth quarter grew nearly 50%, significantly outpacing overall e-commerce parcel growth. Reverse parcels for the full year more than doubled compared to last year. The optimization of our product mix brought by an ascent positive enhancement to ASP for the core express delivery business. alleviating the impact from lower average weight per parcel enterprise competition. Together with continued operational cost efficiency gain and the stable SG&A structure, ZTO achieved an adjusted annual net income of $10.15 billion, increasing by 12.7% year-over-year. Entering 2025. The express delivery industry has maintained strong growth momentum. However, the trend of consumption downgrade has yet to reverse, and the price competition remains intense. In such a market environment, our core focus is to align closely with market dynamics, enhance service quality, achieve a higher than industry average volume growth. Further, we must motivate and enable our network partners with fair cost-bearing and profit-sharing mechanisms to effectively strengthen pickup and delivery infrastructure and cost-compativeness so as to improve market penetration for retail parcels alongside of e-commerce volume growth, and ultimately improve earnings of outlets and couriers, enhancing partner network stability. Key initiatives include the following. First, sync expertise into end-to-end service quality by refining operational procedures and implementing data benchmarking. Aligning performance with internal metrics and external indicators to optimize transit efficiency and resource utilization. Improved first-hours delivery ratio will boost overall timeliness and reinforce brand awareness. Second, effectively achieve mission-critical volume targets by granting full autonomy to regional management teams to stay lockstep with market changes with efficient resources. Ensuring fair and transparent network policies for all and adopting tiered approaches to tap into new customers' potentials. Joint efforts by pickup and delivery partners to effectively target incremental market can capture volume-driven growth opportunities. Third, further products and services enhancement by strengthening strategic partnership with e-commerce platforms, leveraging ZTO's integrated ecosystem resources to build comprehensive supply chain capabilities, refining differentiated products to enhance brand recognition and cultivate customer loyalty, Fourth, improve LASMA network expansion and penetration by clearly defining responsibilities of sectional coordinators to effectively execute initiatives such as profit sharing sufficiently to incentivize couriers to service retail parcels. Establish direct linkage between outlets and LASMA posts. Integrate commercial opportunities into local livings. These initiatives will help to reduce last-mile costs, increase retail volume, improve profitability for outlets and couriers, and expand consumer reach through multiple channels. Last but not least, improve end-to-end timeliness and operating efficiency by implementing technology and data-driven tools to optimize route planning, low-wage, and in-time capacity investments or upgrades. Over the past three decades, China's express delivery industry, represented largely by private enterprises, has evolved through scale expansion and concentration as well as profitability divergence. ZTO's rise from the latest-comer follower to a consistent leader is not a coincidence. Regardless of how the industry landscape has shifted, CTO's core competitiveness stems from our shared success philosophy so that our partners can also win. Our entrepreneurial spirit of dedication, perseverance, and focus as well as our proven ability to quickly adapt and grow through challenges and adversities Today, we stand at a critical junction of microeconomic and industry development. We firmly believe that China's express delivery industry and its broader logistic market hold immersed growth prospects. By staying committed to our focus on the industry and being our best, striving for operational excellence and expanding our scale leadership with healthy quality of earnings in sync with market dynamics, and stand behind our network partners. Together, we are confident and well-equipped to achieve our mission, which is to bring happiness to more people through our services. Next, let's welcome our CFO, Ms. Yen, to present the financial results and the future plans.

Thank you, Chairman Lai, and thank you, 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 year-over-year comparisons. Detailed financial information, performances, unit economics, and cash flow are posted on our website, and I'll go through some of the highlights here. We adhered to the principle of profitable growth and continued to improve the quality of services and customer satisfaction. We attained 11% parcel growth to reach $9.7 billion for the fourth quarter and 12.6% or $34 billion for the year. Adjusted net income grew 23.4% to $2.7 billion and 12.7% to $10.2 billion for the quarter and the year respectively. Total revenue increased 21.7% to $12.9 billion for Q4 and 15.3% to $44 billion for the year. ASP for the core express delivery business increased 10.3% or $0.13 for Q4 and 2.7% or $0.04 for the year. As the impact of decline in average weight per parcel and increase in incremental volume incentives were offset by the positive impact of the volume increase in retail parcels. The total cost of revenue was $9.2 billion and $30.6 billion for Q4 and the year respectively, which increased 22.3% for Q4 and 14.2% for the year. Overall unit cost for the core express delivery business increased 11.1% to 93 cents for Q4 and 1.9% to 87 cents for the year. Combined unit cost of sorting and transportation decreased 6.5% or 6 cents for Q4 and for the year it was 6% or 4 cents. benefiting largely from economies of scale. Specifically, unit cost of line haul transportation decreased 11.1% to $0.40 for Q4 and decreased 8.7% to $0.41 for the year, driven by more effective route planning in conjunction with improvements in fleet operations. Unit sorting cost was flat for Q4, and 2024 at $0.26 and $0.27, respectively. While improvements in automation and labor efficiency contributed to cost savings, additional costs were incurred for sorting activities conducted on behalf of franchise partners. Unit KA costs increased $0.15 for the Q4 and $0.07 for the year. in line with KA revenue increase driven by significant volume increases in retail and, more specifically, reverse parcels. Gross profit increased 20.2% to $3.8 billion for Q4 and increased 17.6% to $13.7 billion for 2024. Gross profit margin rate decreased 0.4 points to 29.1%, and increased 0.6 points to 31% for the quarter and the year respectively. SDNA, excluding SBC, decreased 7.3% to $649 million for Q4 and increased 9.3% to $2.4 billion for the year. SG&A expenses, excluding SBC as a percentage of revenue, declined to 5% for Q4 and 5.4% for the year, reflecting strong corporate cost efficiency. Income from operations increased 25.3% to $3.5 billion for Q4 and increased 17.7% to $11.8 billion for the year. Associated margin grew 0.8 points to 26.7% and 0.6% points to 26.6% for the year. Operating cash flow was 2.8 billion for the quarter and 11.4 billion for the year, representing decreases of 28.5% and 14.5% respectively. This decline was primarily due to, one, a one-time refund of franchise deposits totaling $1.2 billion under our new business policy to ease liquidity pressure of franchisees who, in the past, must make certain deposit with waybill purchases and then receive refund upon proper delivery of the package. Two, higher advances for reverse logistic operations based on the terms customary with platform operators. Three, tightening VAT rate refund policies. And four, a bigger portion of cash management products accounted under long-term financial investments where associated interest income is recognized over a term longer than a year on maturity. Our adjusted EBITDA for Q4 and 2024 was $4.6 billion and $16.4 billion, respectively. Capital expenditure for Q4 totaled $1.2 billion, and annual CapEx came in at $5.9 billion, indicating that we have achieved another year of free cash flow. Now moving on to business outlook based on current market and operating conditions. We estimated that the industry growth would likely be around 15% for 2025, and we anticipate the company's parcel volume for the year to be in the range of $40.8 billion to $42.2 billion, representing a 20% to 24% increase year over year. These estimates represent management's current and preliminary view, which are subject to change. This concludes our prepared remarks. Operator, please open the line for questions. Thank you.

Thank you. We will now begin the question and answer session. 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 question has been addressed, you would like to withdraw your question, please press star then 2. We do ask that you please limit yourself to two questions. Today's first question comes from Ronald Kung with Goldman Sachs. Please go ahead.

Thank you, President Lai, President Yan, and Sophie. Congratulations on this very stable performance of the past 24 years. I have two questions. We see that the goal for 2025 is to increase the stock price to be higher than the industry, and we just talked about 20 to 24. I would like to know if you have seen the development of our market share after the adjustment of the strategy in the first quarter of the second month to the end of the third month. Also, after the adjustment of the strategy this year, What is the current situation of the price of other competitors in the industry? And how should we judge that there is a rapid growth in the package for the entire year 2025? What is the impact of this year's profit? And then I want to hear about the capex in 2025. Is our capex cycle already at the top? So we will no longer have a bigger capex plan in 2025. Thank you, management, for the opportunity to ask a question. So number one is I want to ask about our priority on volume growth this year above industry. And so how has our market share progressed so far this year, the first quarter? And what has been the impact on pricing, just how other players are reacting? And what would be the impact to just our balance of profits this year with this strategic shift? And I want to hear about our CapEx, whether we think the CapEx cycle has peaked and the CapEx plan for 2025. Thank you.

今年的目标,通通的目标, 业务链生产12%到24%, This is based on our judgment on the industry. This is because the Chinese Communist Party has always been self-reliant on the military development of business volume, profit volume, and service volume. In the case of last year, we will focus on service volume and market share this year. You asked about the growth of the industry in January and February. In January and February, the industry's demand was strong. We expect that the express market this year can maintain a growth of about 15%. The main driving factors include the normalization of e-commerce sales, the rapid increase of green and small lines, and the continued increase of new businesses such as e-commerce, e-commerce, and e-commerce. 3. The government has launched a number of good policies, such as consumer support and change of heart, which has improved the consumer experience and led to a return on consumption. The high value of express delivery supports the continued growth of the package volume. In the future, cross-border logistics will bring more demand to the industry. Our expectation is that the increase in express delivery industry is still considerable.

So, first, let me translate for the chairman for the first two parts of your question, and then I'll answer the third part. For this year, we anticipated the growth of the industry to be around 15 percent, and we set our goal to be growing at 20 to 24 percent, which certainly indicate that we have a plan to grow above industry average in terms protecting and also enlarging our market share. It is, of course, without saying that we continue to focus on our strategy, overall strategy, which is to improve quality of services, maintain and expand our market leadership, as well as achieve reasonable profit. And this year, our Our focus will be gravitated towards the quality of services and also the market share and volume increases, and it's very clear indicated through our numbers. Then the second part of the question relating to the first two months into the year where we have observed, the growth momentum is still very much demonstrated because there are observed a lot of normalized e-commerce promotions. There are a lot of rapid increases in the smaller, lighter weight packages. And then the new business model, such as live streaming and e-commerce, and also reverse logistics, continues to drive additional volume. And then also, not the least, the government has rolled out lots of favorable policies to stimulate consumption, including trade-ins and subsidies, which also boosted consumer willingness to spend. It will support a recovery in consumption. The cost effectiveness of express delivery industry has in the past and will continue in the future to sustain steady increase in the parcel volume, because consumption is still with potential for growth. Now, looking ahead, some of the cross-border logistics and rural industry logistics will also fuel industry demand, as we talked about ZTO preparing and improving our capability in the supply chain of logistic services. So we think that the overall potential for the growth is very much intact. And for us to gradually roll out our new focus or new gravitation in the market share as well as our, alongside our quality of customer services, and it will help us achieve the goal that we set for us. Now, this year, we have achieved, in 2024, our capex came in at $5.9 billion. As we have pretty much established the entire network with close to 95 or about 95 supersorting centers, most of the capex spending for this year, 2025, will be on the remaining few tracts of land that we would want to secure to replace current rental spaces. And then plus also there are some upgrades of the existing facilities that will be in the plan. So we estimate our total 2025 capex will come in somewhere around $5 to $5.5 billion. And again, with strong cash flow from operations, we intend to repeat another free cash flow year. I hope that answers your question, Ronald.

Yes. Thank you.

Thank you. And our next question comes from Quinn Le Fan with Morgan Stanley. Please go ahead.

Thank you, operator. are accelerating development in the global scope. In fact, this has also accelerated the development of applications related to logistics, such as unmanned driving and other fields, such as humanoid robots. Considering the cost optimization we discussed in the previous stage or in the past 10 years, it mainly comes from the increase in automated autonomous vehicles and then the cost has been gradually reduced. In the future, under the background of the development of this new technology, I would like to ask the management level if there is any new thinking about cost efficiency improvement, or whether this technology may bring new space at the income end. This is the first small problem. The second small problem is related to the capital spending. Mr. Yuan just mentioned that the capital spending will have a small drop in 2025 compared to 2024. Because the building of the big sorting hub has been basically completed. If we assume that the development of technology will be very rapid, the corresponding cost of technology use will drop. Thank you, Benjamin, for taking my question. And congratulations on a very solid earnings growth. I have two questions. The first question is about technology. So in this year, or I think last year, we have started to see some speed up in AI and other technologies globally. And that has driven some technology potentially could be applied into the logistics sector, for example, autonomous driving, drones, humanoid. And record that maybe we have, during the past decade, have been achieving cost efficiency improvements through automation, and self-owned trucks. And the economy of scale has been marginally decreased. So with the new development in technology and AI, is there any new potentials in terms of cost saving or in terms of revenue expansion in the next decade? And the same question is also related to that. So Ms. Yang has mentioned CapEx. has been largely done regarding the sorting center-like system in China. But over the medium term, if we assume that the technology continues to evolve very fast, the cost of applying technology drops rapidly. Will that impact our expectation on TEDx over the medium term? Thank you.

Thank you for your question. Today, there are a lot of applications for AI in the express delivery industry. For example, in terms of knowledge and vision, we will link the visual device with the disassembly device. By automatically automating the process of the business, adjusting it, reducing the points, and increasing the operation efficiency, In the distribution industry, it has achieved automatic production of four codes. These applications actually increase the speed and reduce the cost. Today, there are many types of automatic equipment. For example, board-based, tape-based, and cross-band-based. It is used in different body types. The second one is the unmanned car, the unmanned car, the automatic driving. We are also entering a commercialized testing stage. Our central government is open-minded and cooperates with private companies in the market. The entire resource is jointly promoted to technical land. This year, I estimate that this unmanned vehicle express will be a very useful stage from the starting point to the end. Let me give you an example. The cost of a unmanned vehicle is about $2,000 to $3,000 per month. The operating cost is about $1,500 to $2,000 per day. Our traditional electric vehicle or diesel vehicle is about $1.50 a piece. A unmanned vehicle is only about $0.7 to $0.8 a piece. If we have high-tech materials and have deep cooperation with manufacturers, the cost will be lower, possibly up to 6 to 7 cents, or even up to 5 cents. So this year, we will be working hard at Modan. In terms of ability development, from the beginning, we will equip the corresponding smart devices. After the smart devices are equipped, the practicality will be greatly improved. Secondly, we will use a large number of five-seater vehicles from Wan Dian to Yishan. Thank you.

I'll again translate for the first part and then more specifically address your second part of the question as it relates to the cost. There has been a wide application of AI technology in the industry and of course ZTO is without exception. For example, machine vision We integrated with visual recognition technology and also the algorithm in our sorting equipment and the process, enabling the system to automatically adjust operating procedures and also reduce sorting errors and improve efficiency in the order processing field, AI also enabled automatic generation of four segment tracking codes. The four segment tracking codes will allow the smallest unit of destination determination so that the package could go directly to the courier. In terms of customer service, for example, we also have AI powered tools to enable quicker response speed as well as reduce dependency on human intervention. So there are plenty of opportunities that are currently already in place for us to utilize this technology. And certainly, as it continues to develop, we will stay at the forefront to cooperate and work with the leading research companies in applying their technology in our operational environment. Chairman Lai referred to some of the application as well, not only to our operating platform, but also to our network partners. on the last mile front and the end. For example, he indicated that he has recently visited many of our franchise outlets, and he has observed the improved level of automation, which allowed not only standardization of the operation of express delivery, but also improved efficiency, reduced cost, Some of the specific examples that we are able to work with our network partners in empowering them in adopting advanced technology includes autonomous driving vehicles. Chairman indicated that this application already went into the commercialization. We maintained an open attitude towards new technology and work in collaboration with these research firms and roll out solutions specifically for our initiatives, which is the direct link. So for one autonomous vehicle, it has great advantage over manned vehicles. Examples here is on average, on a monthly average, manned vehicle would cost about 2,000 to 3,000 RMB. And the daily operating capacity is about 1,500 to 2,000 packages. The traditional manned vehicles are typically a fossil fuel powered vehicle, and it costs about $0.15 per package. But using the autonomous vehicle that we are currently in design and ready to roll out in 2025 would estimate cost only 7 to 8 cents per package. We are looking to purchase in bulk with these factories and the research firm, which will further reduce the cost on a per unit basis to somewhere around five to six cents or even lower to five cents so one of our focus is not necessarily spending our own money but using our brand using our influence to work with the research firm as well as the manufacturer in empowering our network partners to secure OEM equipment and offer better competitive price for our network partners. And secondly, the example that Chairman referred to is when our network partners, the outlet, use more and more of the autonomous vehicles, where the government continuously roll out or remove limitation on the use of autonomous vehicles on the road, we believe there will be greater opportunity for us to help reduce per unit cost and improve efficiency. Now, to the third part of the question, as I alluded to earlier, We are of the philosophy that at the right time, spending the right amount of money, technology is continuously evolving and we are watching closely in how it could best integrate into our operations as well as helping our network partners in improving their efficiencies. So at the forefront, we will utilize our brand influence as well as our technological influence sensitivity as well as awareness, as you know that we have over 1,100 IT personnel, including some of the algorithm engineers. They will help us in participating and benefiting from this technological development trend. Cost-wise is very much paced with our volume increase as well as our efficiency gain plan. To just bring about additional color as we truly achieve the trilayer throughput, as our volume continues to increase, then the cost will be deployed. As we mentioned earlier, scientifically making investment is important for us. we are, from a very practical term, approaching this option for us. Thank you.

Thank you very much. That's very insightful.

Thank you. Thank you. And our next question comes from Aaron Wu with UBS. Please go ahead.

Thank you, Mr. Lai, Mr. Yan, and Mr. Sofi. Thank you for your question, and congratulations on your good performance last year. I have two small questions here. One is about our umbrella and retreat. Last year, our business growth was very strong. I want to ask if we have any corresponding growth goals this year. Another one is, We also noticed that the competition is getting more and more intense. If we look at it from a profit perspective, what are the trends in the past few seasons? What are the trends in the future? I'd like to hear your judgment. The second question is about our cost. In terms of cost, we can see that our core cost, which is the transportation cost, is below 7 cents. I'd like to hear Thank you, Mr. Lai, Ms. Yan, and Sophie for taking my questions. I got two questions. First one is regarding our ratio, including the return puzzle. We have seen strong growth momentum last year, and we'll see that momentum would continue for this year. Do we have any growth target on that? Also, we have noted the competition on this front is getting more intense. What kind of the UEE level we have seen during the past couple of quarters and the trend we expect going forward? Another question is also regarding our cost. We have seen our cost capacity including transport and sorting costs have been below like 0.7 RMB. And what would be the potential cost cutting potential from here and the level we would eventually see going forward? And do we expand, do we see like the cost burden from social insurance will be that big for us? Thank you.

Thank you for your question. This is an important indicator of our president's work. He is a high-quality, . . . . There is still a certain gap between excellent brands. Since last year, we have taken the income increase of business owners and the growth of the retail ratio as an important work. The effect is still relatively obvious. Last year, in the fourth quarter, our retail size has exceeded 7 million yuan. Free retail is 3 million yuan. Online retail is 4 million yuan. Our goal for this year is to reach 840 million yuan. In fact, this goal is still relatively high. It is about to grow by about 50%. The specific implementation measures are to continue to advance from end to end. We will implement the cost by online pricing tools Our stores and business owners let small and medium-sized consumers improve business owners' ability to receive and receive. The second is to ensure service quality. We conduct platform services online and require regulators to assess and upgrade the optimization of the system tools to ensure that the quality of the upper door is maintained and the industry is leading. Thirdly, we will strengthen the cooperation between platform and image. We will strengthen the cooperation between platform and image through the improvement of service capability, strengthen communication, and expand the image of platform and image. Fourthly, we will expand the retail industry. Through online and offline marketing activities, we will promote discounting small cities, and promote the expansion of land, production, customers, and other ways to strengthen the impact of consumers on Chinese brands. We still have some experience with small companies. There are some regulations for going up and down. For example, going up and down for two hours, going up and down for an hour. Even if we use a single unit, we may be able to do half an hour or even shorter things in the future. You just mentioned the cost problem. We think that from the transportation aspect, In addition to the control of the branches, the control of the branches, the control of the branches, the control of the branches, the control of the branches, the control of the branches, the control of the branches, We will strengthen the ability to build in this area, the promotion of corner-to-corner development, and the development of the This year, the net profit target of Wang Tian is to reach 42.6%, which is almost 40% of the net profit, and it will reach the end of the year. A vote can save more than $0.02. We believe that through further optimization, the cost decrease will still be very obvious. Regarding social security, . . . . . . Thank you very much. Thank you for your question. And let me translate and supplement where need be.

So first of all, regarding the retail volume, in 2004, our average retail parcel volume exceeded 7 million parcels, with 3 million from our own ordering channel and then about 4 million from the reverse parcel, which doubled from last year. For 2025, our goal is to achieve 8.4 million daily volume on average, just compared to 2024 at 5.46 million, which more than will likely to be doubled in that. It's a pretty high goal, and so we have planned our passageway to achieve such goal in the following four areas. One is to continue to implement our initiatives so that our couriers can achieve the lion's share of the retail market price. The tools that we will use is embedded in their handheld devices. which will help incentivize the couriers to serve retail packages. Number two, we will continue to work with the platform in implementing the measurement metrics and make that part of the measurement internally so that the specific targets, specific goals will be achieved. The system improvements will also be in sync with such initiatives. The continued collaboration or deepening arrangements with our platform will also help expand the service area of the retail or specifically reverse parcels. The product differentiation as number four will help improve our ability to serve different customer needs. If it's speed, if it's quality, if it's combination, we will be able to expand and meet different demands. And the question that you have also mentioned about the cost further reduction, we believe in terms of our transit, what we have done in continuous breakdown of the whole process and reduce damage, reduce loss, and also together with the where we mentioned the tri-layer throughput model will help us reduce sortation frequency, as well as connecting destination and origination outlets or centers, will help us reduce the cost on a per-unit basis. Our goal for 2025 is to achieve at least $0.03 reduction for sortation and transportation combined unit cost. With the success in implementation of our initiatives to establish direct link between outlets and post, our goal is to have around 42.6 or almost 40% and above of the packages go directly to the outlet, which will translate into about $0.20 per package savings. We think there are, again, more opportunities for us to reduce costs as our volume continues to improve and increase. Now, the third question regarding to the social welfare expenses, we've always focused on people. and continuously we protect and improve the interest and the rights of our couriers. We have our self-employed employees as well as the outsourcing employees 100% coverage on their social welfare payment. The couriers also were encouraged We also encourage our outlet owners to cover the couriers, and we have helped them achieve 100% commercial insurance coverage. To be noted is that in the industry, we are the first to roll out a corporate-sponsored, all-weather, 24-7 coverage. accidental group insurance for our couriers. Currently, the stability or the turnover rate performance of our courier in the industry is relatively better than the rest. We not only have the lower cost, but also have the willingness to work with the brand to provide better a sense of belonging and also a sense of achievement. With the radius surrounding the post, we believe we are able to help our couriers not only receive better income but also have better work environment and safer work environment. And I hope that answers your question.

Thanks, Ms. Lange. That's very clear. Thank you.

Thank you. And this concludes our question and answer session. I'd like to turn the conference back over to the company for closing remarks.

Again, thank you, everybody, for joining today's call, and thank you for your continued support. We are available for further questions or discussion and we look forward to talk to you soon.

Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.