BEST Inc.
Q4 2020 Earnings Call Transcript

Published: 11 Mar 2021

[Operator:]

Good morning, and good evening, ladies and gentlemen. Thank you for standing by and welcome to BEST Inc.’s Fourth Quarter and Fiscal Year 2020 Earnings Conference. At this time, all participants are in a listen-only mode. Following management’s prepared remarks, there will be a Q&A session. With us today are Johnny Chou, BEST Inc.’s Chairman and CEO; and Gloria Fan, Chief Financial Officer. For today’s agenda, Johnny will give a brief overview of business and operational highlights. Then, Gloria will explain the details of financial results. Following the prepared remarks, you may ask your questions. Please note this call is also being webcasted on BEST Inc’s IR website at ir.best-inc.com. A replay of this call will be available after the call. An investor presentation is also available on the IR website.

[Johnny Chou:]

Thank you, operator. Good morning and good evening, everyone. Welcome and thank you for joining our earnings call. In the fourth quarter of 2020, we executed our strategic refocusing plan and turned our business around amid strong industry competition, attesting to our ability to make quick and decisive changes in our strategies and operational practices. We continued to make improvements to all of our business segments and reduced losses, which put us back on the path to strong growth and profitability. Our Express segment under new management focused on strengthening network stability, optimizing product and cost structure, as well as enhancing service quality, while Freight continued to solidify its industry leadership and returning to profitability. Next, let me go over our quarterly results and recent developments. For Express, the new management team executed strategic refocusing plan announced in November 2020, which resulted in an encouraging recovery, demonstrated by improving parcel unit economics, despite a net loss for the quarter due to 20.4% year-over-year drop in ASP per parcel, it achieved net profit for the month of December. In particular, the cost per parcel was reduced by 8.4% month-over-month. We also focused on improving network stability by providing support to our franchise network. Our efforts have strengthened our franchise network considerably. Our network remained open during the Chinese New Year holiday this year, and quickly recovered to its full capacity at the conclusion of the holiday. These initial results have affirmed our strategic direction and bolstered our confidence that we are on the right path for a sustainable recovery.

[Gloria Fan:]

Thank you, Johnny, and hello to everyone. We concluded a challenging 2020 with a fourth quarter focusing on strategic initiatives. We took decisive actions to realign our business to adapt to the evolving competitive market conditions as well as set a solid foundation for future growth. Our revenue for continued operations, affected by the challenging pricing environment and the wind down of Store+ during the fourth quarter was RMB9.3 billion. As part of the refocusing strategy, we identified and executed additional measures to manage our costs, expenses and liquidity. In the fourth quarter, we generated a net operating cash flow of RMB347 million, while maintaining a healthy combined balance of cash, cash equivalents, restricted cash and short-term investments of RMB4.5 billion. I will now provide a brief review of our fourth quarter 2020 financial results. Please note we only started to execute our refocusing strategy after mid-November, which has brought encouraging initial results across the segments, but with little of that reflected in our overall fourth quarter financials. Given the limited time on today’s call, I will be presenting some abbreviated financial highlights. I encourage you to read through our press release issued earlier today for further details. With the intense pricing environment, our gross profit for continued operations was RMB50 million, compared to RMB562 million in the same quarter of 2019. Gross margin was 0.5%, compared to 5.5% in Q4 2019. Adjusted EBITDA for continued operations was negative RMB288 million, compared to RMB259 million of Q4 2019. Next, moving onto key financial highlights for our business units. On a year-over-year basis, Best Express revenue decreased by 15.6% year-over-year to RMB5.8 billion in the fourth quarter of 2020, primarily due to a 20.4% year-over-year decrease in ASP per parcel, partially offset by a 6% year-over-year increase in parcel volume. The decrease in ASP is primarily attributable to competitive market dynamics. Adjusted EBITDA for BEST Express was negative RMB158 million compared to RMB338 million for the same period of last year.

[Operator:]

Your first question comes from Hans Chung from KeyBanc Capital Markets. Please go ahead.

[Hans Chung:]

Good morning, John and Gloria. Well, thank you for taking my questions. So I have a couple of questions. First, can you – it’s good to see we met breakeven for Express in December. And then can you provide any color for near term trend? Like say, the monthly performance in the Express from January, February, and then March month today, in terms of the volume growth and then the profitability and if possible maybe just how does that compare to the overall industry? And then second question will be about the 2021 outlook. Just any color about the profitability or the margin for the full year in Express and overall? Thank you.

[Johnny Chou:]

Okay. Basically in the fourth quarter we have restructured our organization and also seriously realigned our cost structure with the volume. So we are kind of a balancing our volume growth as well as the profitability. So we want to balancing the cost side of the picture and up the growth side of it, and then making sure that the bottom line is not impacted. So your question is for the – color for the month-by-month in January, February, I cannot give you exact number because the quarter is not ended, that is not audited. So but I can say is that in January and February, we continue to execute the – what do we have done in December. So the January and February, it has improved tremendously comparing with last year’s first quarter. With comparison with the market, our volume growth this year, we will be looking for a modest based on our own 20% to 25% that we have set on this trend. Basically what we want to do is again, to kind of strategically to align our volumes quarterly versus a purely just a number. So that’s number one. Number two is the portfolio outlook. As we said, we are continuing to looking for 20% to 25% of growth and that the market growth could be the strong and could be the relaxed based on the post the bureaus forecast; maybe, about 17% to 18%, but we are having about 20% to 25%. For full year in the Express side, our general goal is number one is to improve the quality of services, as a number – as the cost continue to go down and the ASP continue to go down, but it’s more important to really stressing on the party side, the timing of a delivery, the stability of the last mile franchisee delivery quality, as well as again, balancing your product mix between the cost and the idea. So, as a whole result, the growth could be a bit – we targeted about 20% to 25% was to improve the margin, and hopefully, the full year will bring us to a profitability.

[Hans Chung:]

Thanks. I think if it could have one more question, just regarding the – our balance sheet. So, we have the cash and cash equivalent about RMB4.5 billion. And then the short-term investment is around RMB3 billion to RMB3.1 billion, and we have a CapEx plan for this year by RMB1 billion. So, what’s the working capital requirement for the year? And then we might need just any planning not to do the capital raising in a near-term to enhance our balance sheet, the health.

[Johnny Chou:]

Yes. Okay. So, we actually notice the cash and cash equivalents, one more thing is that we also have about on the financial – the BEST asset financial side, we still have about RMB2.8 billion of assets, basically has been collecting very quickly, and returning very quickly. So on their side, on the BEST financial supplier side, we still have like RMB2.8 billion, and that should give us enough questions onto the financing on the liquidity side. Meanwhile, it’s a possibility during the year that we’re still looking at the some of the other financing schemes by raising capitals for the other business units, such as globals, as well as freight to strengthen our balance sheets. So, we do have a plan on that. So, those are the two things to answer your liquidity side. One is the BEST financial has a RMB2.8 billion assets. we are fastly collecting them back. so hopefully, we have more than RMB1 billion will be coming back on this year. We’re not investing anymore assets into the investment financial group. So, we’re collecting all these back. And another one is the other separate fund raisings for rage and the global.

[Hans Chung:]

I see, thank you.

[Operator:]

Thank you. Your next question comes from Ronald Keung from Goldman Sachs. Please go ahead.

[Ronald Keung:]

Thank you. Hi, Johnny and Gloria. I guess I have a few questions. For your Express, Johnny, you mentioned that you expect ASP declined to stabilize quite a bit this year, and at least the rate of decline has stabilized. How do we see this – the behavior of our other players? I think we do have some new entrance that has consistently been very aggressive in pricing and have been growing fast. So, when we talk about the ASP declines, do you think that will be for the industry or for specific players, or if there are more aggressive players, how will we plan to react and respond to still evolving competitive landscape for the rest of this year?

[Johnny Chou:]

Okay. The Express – the ASP in average, last year dropped, and the whole industry dropped about 20 plus. So, we are a little bit over 20 some plus and some of our peers even reduced at the kind of most significantly. So, 20 plus is the average decline in ASP last year. Given that we think of the ASP still going to be under some pressure due to a capacity over large capacity that had been built up over the years. And also, due to a skill extending a market in general, but we don’t see the ASP decline, where we significantly expanded it compared with what we did last year. So, I think this year, we kind of expected 5% to 10%, maybe, on the declining side, not just us, I think it was general market, because as I say last year, it was a huge drop. Basically, they made everybody – every player is a very tough environment. So yes, we do expecting a 5% to 10% drop, but we’re also expecting at least 10% of an improvement in our cost side.

[Ronald Keung:]

Right, thank you. And then on the supply chain business, you thought about focusing on higher quality merchants and the growth had slowed a bit and specifically what kind of customers are we kind of focusing on and I think traditionally, the customer has been supermarket is that one of those high quality that you would consider. And otherwise what’s our kind of focus maybe by category or by – yes, by category or merchants that we’re thinking about in this segment for the 2021 quality growth focus?

[Johnny Chou:]

Okay. Yes. So surprising as you ask fourth quarter was actually really impacted by shutting down the Store+ business, is overall Store+ they had about a project management group had about 40 – over 40 warehouses was supporting the Store+ business by shutting down there. And they include a lot of temporary one-time costs. Who is that behind us, but we also see a 2020 with two things. One is during the beginning of the year and middle of the year. Some of the customer does have some difficulties, even their own business. So we had some issues on the collectibles and also margins and also reduce the volumes, et cetera. But with the rebound – fast rebound in economics, especially in the fourth quarter and economic growth over 6.5%. So especially with rebound that, and what we are doing right now is to taking out some other customers debt during the year, which is impacted by a pandemic or some other competitive reasons, not the reasons we will kind of a really to stop the service there. But we were focusing on, I mean we’re always focusing on that. And we are very strong on sell industry. One is the apparel, clothing, apparel related area. We probably will have the best in this service category. Second is the fastest moving consumer goods, FMCG and that because we had a long history of working with world class, as well as some customers long. So these are two areas we really focusing on. Meanwhile supply chain I think the strategy is as you can see from our release the statements on our Cloud OFC. So in our franchise OFC has actually growing strong. So we are actually going to be moving to a lighter model with less of our own operator warehouses, which will pushing us on a hard time, right. Last year was really a big hit because we have over 1 million square meters warehouses, which we basically operated ourselves. And when the general economic concepts come down, that you’ve got a lot of, well, based on the space and all this stuff, and that there may be some impact. So this year, if you see, we are already in our fourth quarter, we are able to reduce a lot of our self operated warehouses by closing down or get out leased and moving more towards a franchise model, which will give us a much lighter and service management operated the model hands-on and we can grow ourself. So that is the moving-forward on strategy.

[Ronald Keung:]

Great. That’s very useful. Thank you. Thank you, Johnny.

[Operator:]

Thank you. This concludes our question-and-answer session. I would like to turn the conference back over to Johnny for closing remarks.

[Johnny Chou:]

Well, thank you operator. Thank you all for joining our call, and we appreciate that your support our BEST. Please reach out to our Investor Relations Team, if you have further questions. We look forward to speaking to you soon. Thank you.

[Operator:]

Thank you. The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.