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Q2 2022 Yunji Inc Earnings Call Aug 25, 2022 (Thomson StreetEvents) — Edited Transcript of Yunji Inc earnings conference call or presentation Thursday, August 25, 2022 at 11:30:00am GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Chengqi Zhang Yunji Inc. – VP of Finance * Kaye Liu Yunji Inc. – IR Director * Shanglue Xiao Yunji Inc. – Founder, Chairman & CEO ================================================================================ Presentation ——————————————————————————– Operator [1] ——————————————————————————– Good morning and good evening, ladies and gentlemen. Thank you, and welcome to Yunji’s Second Quarter 2022 Earnings Conference Call. With us today are Mr. Shanglue Xiao, Chairman and Chief Executive Officer; Mr. Chengqi Zhang, Vice President of Finance; and Ms. Kaye Liu, Investor Relations Director of the company. Now I would like to hand the conference over to our first speaker today, Ms. Kaye Liu, IRD of Yunji. Please go ahead, ma’am. ——————————————————————————– Kaye Liu, Yunji Inc. – IR Director [2] ——————————————————————————– Hello, everyone. Welcome to our Second Quarter 2022 Earnings Call. Before we start, please note that this call will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on our current expectations and current market operating conditions and relate to events that involve known or unknown risks, uncertainties and other factors within the industry. These forward-looking statements can be identified by the terminologies such as will, expect, anticipate, continue or other similar expressions. For a detailed discussion of these risks and uncertainties, please refer to our related documents filed with U.S. SEC. Any forward-looking statements that we make on this call will be based on assumptions as of today and are expressly qualified entirely by the cautionary statements, risk factors and details of the company’s filing with the SEC. Yunji do not undertake any obligation to update this statement except as required under applicable law. With that, I will now turn over to Shanglue Xiao, Chairman and CEO of Yunji. ——————————————————————————– Chengqi Zhang, Yunji Inc. – VP of Finance [3] ——————————————————————————– (foreign language) ——————————————————————————– Kaye Liu, Yunji Inc. – IR Director [4] ——————————————————————————– [Interpreted] Hello, everyone. Welcome to Yunji’s Second Quarter 2020 Earnings Call. ——————————————————————————– Shanglue Xiao, Yunji Inc. – Founder, Chairman & CEO [5] ——————————————————————————– (foreign language) ——————————————————————————– Kaye Liu, Yunji Inc. – IR Director [6] ——————————————————————————– [Interpreted] During the second quarter, we successfully navigated through the uncertainties and the volatility brought about by the challenging macro backdrop, widespread resurgences of the pandemic and related control measures affecting a number of major cities across China. In the face of these headwinds, we retained our focus on optimizing our platform’s user experience while upholding our social responsibility to ensure users received outstanding fulfillment services and timely delivery of the [urgent free media] orders. We nimbly and proactively deployed our logistic resources. For example, in some (inaudible) reach our express delivery service to those providers such as (inaudible) Express who service remained unaffected by the pandemic. Furthermore, we optimized our inventory structure by transferring products between warehouses to ensure their ready — availability for delivery to users. ——————————————————————————– Shanglue Xiao, Yunji Inc. – Founder, Chairman & CEO [7] ——————————————————————————– (foreign language) ——————————————————————————– Kaye Liu, Yunji Inc. – IR Director [8] ——————————————————————————– [Interpreted] And in time, our supply side was also affected by the macro headwinds to a certain extent. [And due to that,] products could not be released from process or shipped out from factories in those regions severely affected by the pandemic. Unfortunately, this maintenance — these products were not available for purchase on our platform during the originally planned promotional period. Since during this year, the situation is greatly improved and our supply and cross-border logistics chains have both gradually recovered. Our private label product inventory has now been delivered, securing sufficient stock for merchandise sales during the last few quarters. Furthermore, we have taken preemptive measures to mitigate the potential future COVID-related supply chain disruptions by increasing our inventory to the private label products and the cross-border merchandise. ——————————————————————————– Shanglue Xiao, Yunji Inc. – Founder, Chairman & CEO [9] ——————————————————————————– (foreign language) ——————————————————————————– Kaye Liu, Yunji Inc. – IR Director [10] ——————————————————————————– [Interpreted] During the first half of this year, we adhered to our strategy of developing exclusive private label products, actively (inaudible) our products and offers and developed a variety of fresh user-centric products. Our [big health] brand continues to contribute to the diversification and arrangement of the product category. During the first half of 2020, we developed more than 10 original products for weight management, skin care and body revitalization under our private label. This innovative product is scheduled to be launched in [succession on] our platform. Meanwhile, we upgraded our product formula with positive results. Our second generation fruit and vegetable product candy reaching the milestone of 5 million sales within 1 minute and 10 million sales within 20 minutes upon its launch on June 14, 2022. ——————————————————————————– Shanglue Xiao, Yunji Inc. – Founder, Chairman & CEO [11] ——————————————————————————– (foreign language) ——————————————————————————– Kaye Liu, Yunji Inc. – IR Director [12] ——————————————————————————– [Interpreted] On the cost margin front, we carried out fresh content marketing and brand development initiatives for our private-label skincare brand SUYE. As part of these efforts, we appointed a popular Chinese female celebrity as the brand’s spokesperson for our new product line containing ingredients used in mesotherapy treatment. In addition, SUYE’s marketing team produced a number of engaging short videos. These videos successfully boost the online and off-line brand awareness and attracted beauty lovers from both our own and third-party platforms. We are confident that this augmented traffic flows will serve as a solid foundation for future product commercialization. During SUYE’s 12th anniversary celebration, we launched a number of the new skin care products that contain ingredients used in medical aesthetics under the SUYE brand, generating over RMB 21 million sales during the and inventory celebration promotion. ——————————————————————————– Shanglue Xiao, Yunji Inc. – Founder, Chairman & CEO [13] ——————————————————————————– (foreign language) ——————————————————————————– Kaye Liu, Yunji Inc. – IR Director [14] ——————————————————————————– [Interpreted] Food is another strategic focus within our private label brand metrics. Our original brand concept for Gourmet Yunji was to enable our users to enjoy delicious food from all over the world without having to leave their home. This concept is also visually illustrated and amplified in our food category short video marketing content. China is a vast country with abundant resources and each region possess its own unique cuisine. We update our social media account on a weekly basis with video (inaudible) showing a dish from my hometown. This thing is designed to involve viewers’ nostalgia with hometown taste while innovating their interest in delicious food from several locations. Currently, each short video on our Gourmet Yunji official account on third-party platforms received around 1 million views constantly. We will continue to invest in content development on our own and third-party platforms. We’re confident that our [controlling] marketing content will substantially improve brand awareness and create a [significant] value in the near and long term. ——————————————————————————– Shanglue Xiao, Yunji Inc. – Founder, Chairman & CEO [15] ——————————————————————————– (foreign language) ——————————————————————————– Kaye Liu, Yunji Inc. – IR Director [16] ——————————————————————————– [Interpreted] Meanwhile, the pandemic has brought about certain changes in consumer behavior and mindset faced with an uncertain macro environment. Consumers are increasingly cautious with personal expenditures. As a result, market demand for discretionary products have declined. As a social e-commerce platform that maintains close relationships with its users, we aim to provide a valuable and trustworthy sellers. That it is the expectation. As in time, we continually strive to provide more attractive services to inspire customers. As such, we have enhanced our own seller system while launching more value-added services. ——————————————————————————– Shanglue Xiao, Yunji Inc. – Founder, Chairman & CEO [17] ——————————————————————————– (foreign language) ——————————————————————————– Kaye Liu, Yunji Inc. – IR Director [18] ——————————————————————————– [Interpreted] We upgraded the service provision in our health care category’s community groups by piloting our nutritional consulting service where users are provided with professional advice and feedback. For these [power service], we designated professional nutritionists to cover each community group and organize the 9 live streaming group classes with a team of professionals and sports experts. During this period, 90.6% of the trial users were successfully retained and they engaged with the nutritionists on a daily basis. ——————————————————————————– Shanglue Xiao, Yunji Inc. – Founder, Chairman & CEO [19] ——————————————————————————– (foreign language) ——————————————————————————– Kaye Liu, Yunji Inc. – IR Director [20] ——————————————————————————– [Interpreted] Looking ahead, in order to deliver ever higher levels of service to our users, we will increase investment in the development of service managers during the second half of this year, having implemented various strategic initiatives to reduce costs, improve operating efficiency and then develop private label brand products over the past year. Our gross margin has improved significantly. This improved gross margin enables us to increase service managers’ income as an incentive to reward outstanding performance. ——————————————————————————– Shanglue Xiao, Yunji Inc. – Founder, Chairman & CEO [21] ——————————————————————————– (foreign language) ——————————————————————————– Kaye Liu, Yunji Inc. – IR Director [22] ——————————————————————————– [Interpreted] With that, I will turn the floor over to Mr. Chengqi Zhang, our Vice President of Finance, to go through the financial results. ——————————————————————————– Chengqi Zhang, Yunji Inc. – VP of Finance [23] ——————————————————————————– Thank you, Shanglue. Hello, everyone. Before I go through our financial results, please note that all numbers stated in the following remarks are in RMB terms and all comparisons and percentage changes are on a year-over-year basis, unless otherwise noted. During the quarter, we were once again faced with the resurgence of COVID-19 and associated lockdown measures in Shanghai and across the country. Compared to the same period last year, our repurchase rate remained relatively stable at 79%, and our gross margin improved. Even in the face of this headwind, we intensified our focus on optimizing cost structure and developing our private label brand, enabling our business to navigate safely through the present macro uncertainties. Furthermore, we invested in our fulfillment partner base to ensure the delivery of products even within areas under strict pandemic control measures. Our cash position remains strong enough for us to successfully stir through the current market downturn and adverse economic environment. We will continue to reward our shareholders through share buybacks. Now let’s take a closer look at our financials. Total revenue were RMB 284 million compared to RMB 571 million a year ago. Revenues from sales of merchandise were RMB 237 million and revenues from our marketplace business were RMB 42 million. This decline in revenue was primarily the result of continued COVID outbreaks, particularly during April and May. The pandemic-related lockdowns disrupted our supply chain with our third-party suppliers, merchants and logistics service providers being particularly affected. Consumers’ willingness to spend was also impacted with uncertain macro conditions, fostering desire among consumers to save rather than spend. These factors combined to create merchandise strategies, logistical delays and a stagnating consumer demand, all of which negatively affected our operations during the first half of 2022. Their continued impact depends upon the future direction of the pandemic. And though we are seeing signs that the worst of the pandemic is behind us, we will remain vigilant and respond nimbly to further development. Despite these challenges, we improved our gross margin to 40.6% compared to 35.1% a year ago as a result of sustained customer loyalty to our private labels and the effective product curation strategy. Now let’s take a look at our operating expenses. Fulfillment expenses were RMB 43 million compared to RMB 50 million a year ago. This was primarily due to lower warehousing and logistics costs resulting from a reduction in the quantity of merchandise sold as well as reduced service fees from third-party payment settlement platforms. These savings offset the heightened logistic costs that resulted from us maintaining our supply chain flexibility during the pandemic lockdown period. Sales and marketing expense was RMB 58 million compared to RMB 61 million a year ago, mainly due to the decrease in member management fee, which was partially mitigated by increase in private label promotion expenses. Technology and content expenses were RMB 24 million compared to RMB 32 million a year ago. The decrease was mainly due to the reduction in personnel costs as a result of staffing structure refinements and reduced server costs. General and administrative expenses was RMB 32 million compared to RMB 43 million a year ago. This was primarily due to reduced personnel costs as a result of refinements to our staffing structure and professional service fees. Total operating expenses in the second quarter decreased to RMB 157 million from RMB 187 million in the same period of 2021. We recorded a loss from operations of RMB 30 million compared to an income of RMB 16 million a year ago. Net loss was RMB 25 million compared with net income of RMB 17 million a year ago, while adjusted net loss was RMB 17 million compared with adjusted net income of RMB 24 million a year ago. Basic and diluted net loss per share attributable to ordinary shareholders were both RMB 0.01 compared with basic and diluted net earnings per share attributable to ordinary shareholders of RMB 0.01 in the same period of 2021. Moving on to liquidity. As of June 30, 2022, we had a total of RMB 645 million in cash and cash equivalents, restricted cash and short-term investments on our balance sheet compared to RMB 743 million. As of March 31, 2022, the decrease was partially caused by cash used in our share repurchase program. Our liquid assets were sufficient to cover our payable obligations, and we do not hold any long-term bank loans or debt on our balance sheet. On March 17, 2022, we announced our 2022 share repurchase program. As of June 30, 2022, we have repurchased over 6 million American depository shares, representing over 60 million Class A ordinary shares from the open market with cash flow and aggregate amount of approximately RMB 7 million. Furthermore, our Board of Directors has approved an extension of the repurchase program for another 6 months. We intend to continue to be opportunistic in repurchasing shares when we view our stock price as disconnected from the underlying fundamentals of the business. While we faced significant macro challenges in the first half of 2022, we are confident that our resilience and flexible business model, updated supply chain, improved product curation and optimized cost structure will power growth regardless of future uncertainties. We have achieved solid progress, and we expect to carry the optimized cost structure into the post-pandemic year, which we believe will bring long-term value to our shareholders. This concludes our prepared remarks for today. Operator, we are now ready to take questions. ================================================================================ Questions and Answers ——————————————————————————– Operator [1] ——————————————————————————– (Operator Instructions) Our first question comes from [Ethan Yu] from First Trust China. ——————————————————————————– Unidentified Analyst, [2] ——————————————————————————– (foreign language) At present, including the past June 18 promotion, GMVs via short videos and live gaming are growing rapidly. Could you share us some color or views on this trend? ——————————————————————————– Shanglue Xiao, Yunji Inc. – Founder, Chairman & CEO [3] ——————————————————————————– (foreign language) Thank you for your question. ——————————————————————————– Kaye Liu, Yunji Inc. – IR Director [4] ——————————————————————————– [Interpreted] Live streaming is not a new format, and we have done a lot of it in the past (inaudible). For us, live streaming is more like a content marketing than direct sales, especially for private label promotions. Marketing comes in many forms and we believe that high-value groups and the supply chain are the cornerstones of sales. ——————————————————————————– Shanglue Xiao, Yunji Inc. – Founder, Chairman & CEO [5] ——————————————————————————– (foreign language) ——————————————————————————– Kaye Liu, Yunji Inc. – IR Director [6] ——————————————————————————– [Interpreted] Marketing is what Yunji has been doing since establishment, and we have focused on this area a lot. Actually, either the photos or articles, they are the important channels for us to deliver the information. We have a group of [mall] users and service manager who love to share shopping experience. That is also a kind of content sharing. Live streaming and short videos make sharing more vivid. We are more than welcome to, as for live streaming and short videos, as a sharing method to ring fence the content and shopping experience to users. ——————————————————————————– Shanglue Xiao, Yunji Inc. – Founder, Chairman & CEO [7] ——————————————————————————– (foreign language) ——————————————————————————– Kaye Liu, Yunji Inc. – IR Director [8] ——————————————————————————– [Interpreted] Previously in May, the official account on third-party platforms has grown rapidly. The account offers interesting content every week and has many short videos, receiving around 1 million views confidently. Later, we will also try to organize live streaming sales on these accounts to promote private label products and Yunji’s deluxe and high-quality supply chain. ——————————————————————————– Shanglue Xiao, Yunji Inc. – Founder, Chairman & CEO [9] ——————————————————————————– (foreign language) ——————————————————————————– Kaye Liu, Yunji Inc. – IR Director [10] ——————————————————————————– [Interpreted] So we hope that these high-quality content and efficient live streaming could actually bring more value to our platform and users. ——————————————————————————– Operator [11] ——————————————————————————– (Operator Instructions) There are no further questions at this time. I’d like to hand the conference back to management for closing remarks. ——————————————————————————– Kaye Liu, Yunji Inc. – IR Director [12] ——————————————————————————– Thank you for joining us today. Please do not hesitate to contact us if you have any further questions, and we’re looking forward to talking with you next quarter. Bye. ——————————————————————————– Operator [13] ——————————————————————————– The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
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