BEST Inc.

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. We have seen momentum continued into first quarter with accelerating parcel volume growth and improving cost structure.

During the quarter, parcel volume increased by 6% year-over-year, representing market share of 9.5%. Gross margin contracted by 7.2 percentage points due to an ASP decline of 20.4% year-over-year, partially offset by a decrease in average cost per parcel of 14.3% year-over-year.

Our Freight business continued strong post-pandemic recovery and delivered a strong quarter with a higher-than-industry-average growth rate while returning to profitability. Gross margin improved to pre-COVID-19 levels as we continued to emphasize the e-commerce aspect of freight services, solidify the Company’s leadership position and brand recognition, and improve operating efficiency.

Freight volume increased by 25.1% year-over-year in the fourth quarter of 2020. Its gross margin was 5.5%, improved by 4.5 percentage points quarter-over-quarter as pricing continued to rebound.

Average cost per tonne and ASP both decreased by 16.7%. Moving to BEST Supply Chain Management, we targeted quality growth and profitability as we sharpened its focus to higher margined accounts.

In the fourth quarter of 2020, its gross margin6.3 percentage points year-over-year, primarily due to one-off costs incurred by closing down Store+-related operations, and pricing pressure associated with certain legacy key account customers, which are in the process of being discontinued. The total number of orders fulfilled by Cloud OFCs increased by 11.7% year-over-year to 136.1 million in the fourth quarter of 2020, while total number of orders fulfilled by franchised Cloud OFCs increased by 15.1% year-over-year to 67.1 million.

The number of franchised OFCs increased by 22.2% year-over-year to 358. BEST Global continued to make strong progress in cross-border and Southeast Asia business in the fourth quarter, with strong volume growth and margin improvement.

On a quarter-over-quarter basis, parcel volume in Thailand increased by 25% quarter-to-quarter to 12.3 million, while parcel volume in Vietnam increased by 36% quarter-over-quarter to 14 million. Its gross margin expanded by 7.4 percentage points year-over-year.

In November and December 2020, we expanded our sortation center in Bangkok, Thailand, and established a new flagship sortation center in Ho Chi Minh City, Vietnam. Across Southeast Asia, we now operated 24 Express hubs and sortation centers along with over 1,000 franchised last-mile service stations.

Looking ahead, we will continue to invest in our network, focusing on market share gain and parcel volume growth in those countries, and to enhance unit economics in order to achieve profitability in the near future. Turning to BEST UCargo, we continued to scale our full-trucking brokerage model to connect more drivers and customers onto its platform while reducing transportation costs for Express, Freight and Supply Chain Management.

As of December 31, 2020, the number of registered drivers on the UCargo mobile app increased by 70.6% year-over-year to 320,000. In the fourth quarter of 2020, the total number of transactions of trucking brokerage platform increased by 19% year-over-year to 255,000.

For BEST Store+, we have completed the winding down of our Store+ business as announced on November 15, 2020. Next, let me discuss our strategic plan for 2021.

China’s solid macro economic growth and the booming e-commerce market will lend a tremendous support to the logistics and the supply chain industry. We will continue to execute on our refocusing strategy and efforts to drive long-term growth and profitability.

For Express, while market expected to remain competitive, we do expect ASP per parcel decline to stabilize. We will continue to focus on sustainable long-term growth and profitability by focusing on optimizing product structure, improving operating efficiency, enhancing service quality and customer experience, and gaining market share.

We are targeting 20% to 25% volume growth for 2021. We also expect to reduce average cost per parcel by 10% for the full year, driven by optimizing the product mix, improve the dynamic routing schemes, refine the sorting efficiency, and investments in last-mile solutions.

For Freight, ASP per tonne has recovered to a pre-COVID level in the first quarter. We are targeting a volume growth of 40% and we continue with our strategy of growing e-commerce-related transactions, investing in our network, our services and enhancing customer satisfaction.

We will continue to enhance our franchise network capacity by incentivizing existing franchisees to the spending customer base and bringing more franchisee partners into our network. We are confident that Freight will deliver both a higher than industry growth rate and an increase in profitability, further strengthening its market leading position in the upcoming year.

Supply Chain Management will focus on quality, growth and profitability, and it will be lighter and leaner in 2021. It will continue to grow the Company’s franchised OFC business, focus on key account customers with higher margins and reduce operating expense.

Global provides another pillar for our growth. In addition to further expansion in Southeast Asia, we intend to leverage our domestic and international logistics network to capture the fast-growing cross border opportunities.

We are targeting 100% parcel volume growth in Southeast Asia and significant margin improvement. In summary, while the Company suffered major setbacks due to the pandemic in 2020, we have taken decisive actions to steer the Company back to the path of growth and profitability.

We firmly believe the worst is behind us and the future is bright. We enter 2021 with optimisim, strong momentum, and anticipated strong growth of our business as the year progresses.

We are determined to strengthening our market share, optimize cost structure, improve service quality and customer experience, and build out a leading integrated smart supply chain and logistics company to deliver sustainable and powerful future growth. Now I would like to turn the call over to our CFO Gloria, to walk you through our fourth quarter financials.

Go ahead, Gloria.

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. As Johnny mentioned, it achieved net profit in December, giving early signals on the effectiveness of our turnaround measures.

BEST Freight strengthened its leadership position during the quarter. Its Q4 revenue increased by 4.2% year-over-year to RMB1.6 billion, primarily due to a 25.1% year-over-year increase in freight volume.

This was partially offset by a 16.7% year-over-year decrease in ASP per tonne. Adjusted EBITDA for BEST Freight was RMB32 million compared to RMB33 million for the same period of last year.

Q4 revenue for BEST Supply Chain Management decreased by 10.9% year-over-year to RMB542 million due to pricing pressure associated with a few legacy key account customers, which are in the process of being discontinued. Adjusted EBITDA for BEST Supply Chain Management was negative RMB67 million compared to negative RMB58 million for the same period of last year.

BEST UCargo’s Q4 revenue increased by 5.4% year-over-year to RMB958 million. Adjusted EBITDA for BEST UCargo was negative RMB35 million compared to negative RMB14 million last year.

Q4 revenue for BEST Global increased by 87.1% year-over-year to RMB253million, primarily due to strong growth in parcel volumes in Southeast Asia. Adjusted EBITDA for BEST Global was negative RMB55 million compared to negative RMB59 million for the same period of last year.

We are now reporting Store+ in discontinued operations. Next, let’s review some major operating expense items of fourth quarter.

Please note, all of this expenses excluded share-based compensation. Selling, general and administrative expenses for continued operations was RMB475 million or 5% of the revenue in the fourth quarter compared to RMB374 million or 3.7% of the revenue in the same quarter of 2019.

The increase in SG&A expenses was primarily attributable to additional accrued provisions for certain trade receivables, as some of our customers credit were affected by the pandemic and the losses on disposal of fixed assets due to upgrade of Express equipment. R&D expenses for continued operations was flat compared to the same quarter of 2019, which was RMB52 million.

CapEx in the fourth quarter was RMB331 million or 3.6% of total revenue compared to RMB388 million or 3.8% of the revenue for the same period of last year. For more of our 2020 full year financial results, please refer to our earnings release for further details.

And now for our business outlook. Based on current market conditions and the current operations, we expect our revenue of full year of 2021 to be between RMB34 billion to RMB36 billion.

This represents management’s current and the preliminary expectation, which is subject to change. Our CapEx is expected to be RMB1 billion for 2021, as we anticipate the recovery in the future growth of our business.

Looking forward, the combination of cost reduction, cash flow management and the optimization of resource allocation remains our top priority within our segment operations and at the corporate level. As we progress into 2021, we will remain focused on improving our capital structure, enhancing our balance sheet and cash flow to support company’s future growth.

This concludes the fourth quarter financial updates. Now we are opening the call to Q&A.

Thank you.

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.

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.

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.

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.

I see, thank you.

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?

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.

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 [indiscernible] 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?

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.

Great. That’s very useful.

Thank you. Thank you, Johnny.

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.