Good day, welcome to the ZTO Express first quarter financial results conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Huiping Yan, Chief Financial Officer. Please go ahead.
Thank you, operator. Hello, everyone. Thank you for joining us today. The company's results and an investor relations presentation were released earlier today and are available on the company's website at ir.zto.com. On the call today from ZTO are Mr. Meisong Lai, Chairman and Chief Executive Officer, and I, Huiping Yan, Chief Financial Officer. Mr. Lai will go through his prepared remarks, highlighting business operations, and I will then go through the financials and guidance. We will both be available to answer your question during the Q&A session that follows. As a reminder, this call may contain forward-looking statements made under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Such statements are based on management's current view and expectations of the market and operating conditions that 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 and may cause the company's actual results, performances or achievements to differ materially from those in the forward-looking statements. Further information regarding these and other risks, uncertainties and factors are included in the company's filings with the U.S. Securities and Exchange Commission.
The company does not undertake any obligations 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. Meisong Lai. Mr. Lai will go through his prepared remarks in its entirety in Chinese before I translate for him into English. Mr.
Lai, please go ahead.
大家好，感谢各位参加今天的电话会议。2022年一季度，中通业务量完成52.3亿件，同比增长16.8%。市场份额较去年同期增长了1.2个百分点，达到21.6%，实现了10.5亿元的调整后净利润，同比增长34.9%。从三月上旬开始，受部分地区疫情多发反发影响，收寄快递出现阶段性延缓，业务增长、快递分拨放缓，整体增长低于预期。特殊时期，集团和各地省市管理中心统一部署，一手抓安全行办，一手抓生产经营。在严格规范并执行疫情防控要求的同时，继续专注年初制定的工作目标。首先，高度重视网点和快递员的自身利益保障，把前端快递发展的利好完善地传递到基层网点，并通过收快递标准、标准细化和调整、疫情捐献贷款、小哥团体意外险、关爱基金等政策扶持与金融助力，保障网络底盘在特殊时期的稳固和韧性，以及长远持久的生命力。第二，加强网络治理。这是以网点为单位的综合性课题，包括中心和网点间的进出责任，网点到城乡和乡村末端的时效优化，设成网点完善管理责任，逐步形成一些网点的最优网络化模式。在这一综合治理过程中，匹配更合适的网络政策和管控措施，让网点更加稳定，更加健康，更可持续。第三，加速数字化管理能力建设，促进全链路、全环节、全要素的一体化。精品跟踪和协同提质增效，用科技赋能平台，充分发挥资源优势，推进平台降本提效，最大程度确保网络运营的安全和顺畅。尤其是打造以网点视角为主的网点管理系统，将网点管理系统从过去的手工工具变成活跃网络综合管理系统。第四，进一步优化投入质量考核指标和奖罚机制，尤其在运行期间，制定更人性化的网络考核指标，为网点赋能，提升信心。第五，继续营造多元化的产品和服务。疫情环境下，我们在主流电商渠道里的份额依然处于提升。星联、标快等时效产品与电商平台深化了探索和实施。以快递来了为首的高端服务能力，和以中通国际为首的国际服务能力也在探索和布局。第七，全国疫情的散播正逐步得到控制。关停中心已完成，渐渐有序复工。全国快递业务量由四月份约12%的负增长开始逐步恢复。五月下旬同比增长了1.3%。政府相关部门积极主动关注物流快递行业及基层企业，疏通政策衔接，解决畅通难题，帮助快递企业安全有序地推进各地的复工复产。时闻向好，依然可期。中通在五月中旬被纳入第一批上海市邮政快递业复工复产企业的白名单。中心和网点有序复工，包辅时效逐步恢复到常态水平。在完成动态清零目标前，我们预计在防控中安全生产将成为常态。国家在多次重大会议中提出了疫情要防住、经济要稳住、发展要安全的明确要求。物流快递企业将持续发挥稳经济、保畅通、促发展的积极作用。我们对依然旺盛的消费者需求充满期待，对中通的领先规模和效率优势富有底气，对整个网络应对困境和挑战的韧性充满信心。在接下来的日子里，我们将部署疫情防控常态化，同时扎实地落实各项工作目标，数字管理、精简施策、实时调整、提质增效、抓住机会、恢复势头，推动高效经营和稳健持续的发展，继续扩大中通的市场份额和盈利水平。五月八日，中通度过了二十岁的生日。二十年间，我们追赶、赶超、超越，乘风破浪，逆流而上。过去的成绩是所有中通人团结奋斗的结果，也离不开社会和时代的支持。不忘初心，感恩前行。今日站在时代的潮头浪尖，我们更以锐意改革精神固本强枝，看世界，抓落地，强执行。展望未来，我们将坚守初心，满怀信心，坚定决心，安和之所，抓住机遇，提质增效，强化网络优势，筑起生态护城河，努力成为受人尊重的百年企业，用我们的产品造就更多人的幸福。接下来请严总给大家介绍中通的财务业绩和状况。谢谢。
thank you for joining us today. In the first quarter of 2022, ZTO delivered a parcel volume of 5.2 billion, which increased 16.8%, expanding our market share by 1.2 points to 21.6%. Adjusted net income grew 34.9% to RMB 1.1 billion. Starting in early March, Omicron infections that erupted and spread across the country disrupted the industry's growth momentum, causing delays and stoppage in express delivery industry. Quarterly parcel volume level was below expectations. During this extraordinary time, ZTO headquarters and our provincial operations coordinated action plans and efforts, heightened prevention measures, and maintained continued operations wherever possible. We carried out stringent safety protocols while continue to focus on achieving goals and objectives that we set forth in the beginning of the year.
First, we prioritized on protecting the rights and interests of the grassroots, and insisted on passing through the increase in delivery fee in its entirety into the hands of delivery outlets and couriers. Through supportive measures such as detailed standardized pickup and delivery fee schedule and equitable reallocation procedures, added lending for designated prevention use, renewal of couriers accidental group insurance and special care funds, we strengthened the network foundation that in ensuring its resilience and vitality.
Second, we raised bars for comprehensive outlet management on an outlet by outlet basis, from establishing direct routes to and from sorting centers, to improving timeliness of parcel bound for urban and rural areas, to enhancement of managerial effectiveness. We are fine-tuning the matrix model of management for tier one partner outlets. As a result, more appropriate policies and performance measures are put in place so that our network of outlets can become more stable, profitable, and sustainable.
Third, we accelerated the digitization initiatives to streamline end-to-end process, allowing close monitoring and coordination of all critical stages of operations to drive effectiveness and efficiencies. Technology solutioning was there to provide more scientific approach to maximize resource utilization, productivity gain, and safe operations. Development of an operating system from all of its perspectives has transformed previous toolkit applications into an integrated process-driven task management framework. Fourth, we improved the performance evaluation and associated reward and reprimand mechanisms. During the COVID disruption, more user-friendly scorecards were set up to ease burden and boost confidence for our network partners. Fifth, we designed diversified products and services to meet varying customer demands. Our presence among mainstream e-commerce volume continued to increase as we introduced more time-definite products, such as premium and standard, as part of the effort for product enrichment.
The higher-end service that was nicknamed as Kuaidi and other expanded cross-border capabilities are all being developed and tested. Recently, sorting centers and service outlets in the affected areas have been gradually resuming operations, while outbreaks across the nation become more and more under control. In contrast to a year-on-year decline of nearly 12% in April, express parcel volume recorded a 2.3% increase during the May holiday break for the industry. Government agencies have been paying close attention to logistics industries and proactively working with companies on their day-to-day challenges by coordinating policies from different governing bodies, sorting through conflicts and blockages.
ZTO Shanghai was among the first few logistics companies to restart operations in early May. Volume and timeliness are gradually trending normal. Before the goal of dynamic zeroing is achieved, we expect prevention procedures will become part of the daily norm.
The central government has established clear directives that the epidemic must be contained, the economy must be stabilized, and growth must be safe. Express delivery companies will continue to play an active role in ensuring smooth and safe logistics operations, which will support the economic growth. We anticipate that the consumer demand will remain strong. We believe in our competitive advantages with scale and efficiency, and we are confident in our entire network's ability to endure hardship and overcome challenges. Looking ahead, routines need to be established for prevention on one hand, while we firmly implement our strategic goals through data-driven management, precise policy design, and timely adjustments to enhance productivity and profitability. We aim to seize rebound opportunities and reestablish momentum so as to accelerate our market share gain and earnings growth. May eighth marked ZTO's twentieth anniversary.
In the yesteryears, against all odds, we went from keeping up to catching up to taking the lead, achieving all records we set for ourselves in both quality and quantity. All of our past success came not only from the hard work of our people, but also from the support of the time and history and the entire society. We do not take for granted of what we have, and we will journey forward with gratitude. Today, riding the rising tide, we are determined to buckle details and enforce execution. Tomorrow, we will hang tight to our aspiration and belief, secure our core competencies and enhance quality, develop comprehensive might that extend to eco advantages, which will enable us to bring happiness to more people through our services. Now allow me to take us through the financial results.
As I go through financials, please note that unless specifically mentioned, all numbers quoted are in RMB, and percentage changes refer to year-over-year comparisons. Detailed analysis of our financial performance, unit economics, and cash flows are posted on our website, and I'll only go through some of the highlights here. In the first quarter, ZTO maintained the momentum of profitable growth. Our parcel volume grew 16.8% to 5.2 billion, expanding the quarterly market share by 1.2 points to a record 21.6%. With steady execution of our strategy, the income from operations robustly increased 76.4% to CNY 1.4 billion, and associated margin grew 4.3 points to 14.1%. Total revenue increased 22.1% to CNY 7.9 billion.
ASP for the core express delivery business increased 8.5% or CNY 0.11, thanks to a healthier competitive dynamics. There is an average of CNY 0.15-CNY 0.20 per package delivery fee increase since fourth quarter last year. Total cost of revenue was CNY 6.3 billion, which increased 16.9%. Overall unit cost of revenue for the core express delivery business increased 3.6% or CNY 0.04. More specifically, line-haul transportation costs per parcel decreased 0.2% to CNY 0.57 as a combined result of surging fuel costs offset by cost efficiency gains from increased use of high-capacity trailer trucks, improved load rate, and better route planning. Unit sorting costs increased 6.5% to CNY 0.36, driven by increased labor rates and higher depreciation and amortization charges, not entirely absorbed by increased level of automation.
Lower than expected volume dampened our scale advantage for the quarter. As we look forward to volume returning to normal, our cost advantage and scale efficiencies will continue to demonstrate. Gross profit increased 47.7% to RMB 1.6 billion as a result of increased volume in ASP. Gross margin rate increased three point six points to 20.5%. SG&A expense excluding share-based compensation as a percentage of revenue dropped 0.2 points to 5.6%, demonstrating a stable and sound corporate cost structure. Adjusted net income increased 34.9% to RMB 1.1 billion, and associated margin grew 1.2 points to 13.3%. Our operating cash flow grew 131.8% to RMB 1.1 billion.
Capital expenditure totaled RMB 1.8 billion, which is at a lower level as planned. Now let's talk about the guidance. The spread of Omicron caused the derailment of the entire industry's growth momentum starting in March, and we are slowly but surely coming out of it. The industry declined 11.9% year-over-year for the month of April. The good news is that in May, we saw daily volume reached over 300 million, especially during and after the 3- to 4-day May holiday break. Volume growth has come back to positive. Given our visibility into the month of May, we estimated the cumulative volume increase for the first half of the year to be around 4.5%-5% for the industry and around 9%-11% for ZTO.
There is a fair chance that an orderly recovery will take place and the economy would resume growth. Accordingly, the express delivery industry could also continue its current trajectory and get back to a healthy clip of around 10%-13% growth for the second half, which means excuse me. I gotta take a sip of water. Which means the industry for the whole year could grow between 7.5% and 10%. Now, taking these into consideration, as well as the current market condition, plus the COVID uncertainties that still remain, the company revised its annual parcel volume projection to be in the range of 24.96 billion-25.86 billion, representing a 12%-16% increase year-over-year.
Relative to the entire industry performance, the company is confident to achieve 1 percentage point or more increase in its market share gain for the entire year. These estimates represent management's current and preliminary view, which are subject to change. Now, this concludes our prepared remarks. Operator, please open the call for questions. Thank you.
Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. In the interest of time, please limit yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our roster. Our first question will come from Thomas Chong with Jefferies. Please go ahead.
Thanks management for taking my questions. I have a question regarding the situation of the pandemic and the monthly parcel volume trend. Given we have seen positive parcel volume growth in the first few days of May, how should we think about for the full month as well as our thoughts about the June performance? A follow-up on that that is relating to double confirm the first half the growth is around 4.5%. How should we think about the growth momentum in Q3 and Q4? Thank you.
Thank you, Mr. Chong, for your question. Let me answer this. I'll give you a little bit more breakdown. Yes, indeed. In the month of May, we saw a recovery, especially during the May holiday. On a cumulative basis, including the first 5 months of the year, we are looking at around 3-3.5% at most of cumulative growth, because the really first 2 months of the growth is fairly strong for the industry. The industry, specifically for the month of May, we think it's probably just coming out of the negative and into the positive territory. Then for the month of June, with the consideration of the shopping gala of 618, we think it could have a good possibility of reaching the high single digits of growth year-over-year.
Now, with these together, it gives us a rough estimate of the first half of the year for the industry to be around 4.5%. Now going into the third and the fourth quarter, we referenced to what happened in the first outbreak of COVID-19 in late 2019 into 2020. The rebound, it was healthy. With that into consideration and also referencing to the projection that was given by the State Post Bureau in the beginning of the year, which says the industry is capable of growing at least 13%, we estimated the third quarter and the fourth quarter for the second half of the year to grow at around 10%-13%.
Specifically perhaps 12%-14% or 10%-12% respectively for the third and the fourth quarter. That gives us for the entire year around 7.5%-10% growth for the industry. I hope that is detailed enough. However, I want to ensure that you understand there are still lots of uncertainties in the outcome of the recovery, what might take place in terms of the pace. For sure it's going to recover. It's the matter of how long it will take. As we go deeper into the second half of the year, then we will have a better view. Thank you.
Thank you.
Again, if you have a question, please press star then one. Our next question will come from Tian Hao with TH Capital. Please go ahead.
就是关于中国的经济嘛，中国的经济啊，的确是比较弱，大家都看得到。那么可以看到就是现在大家对于这个物流 delivery 的这个需求呢，从长途变短变成短途，从电商呢变成餐饮、送菜呀、送餐呢。那么在这一方面，就是对我们中通未来的业务的这种策划战略有什么样的一个影响？主要是这两个行业上的东西，我那个翻译一下的。The first one is the difference between the one business and the franchise model.
What is that, Mr. Lai, you know, view on that. What is the ZTO's how this is going to strengthen its own competitive advantage. The second is regarding the end user behavior change from a long haul to a short distance from e-commerce to food and grocery delivery. In that front, you know, does the ZTO have any plan? 就 是 这 两 个 问 题 ， 赖 总 ， 谢 谢 。
好的，这个加盟跟直营这两个模式究竟谁好谁差。其实我自己认为各有一个历史。当然中通一直是从加盟走到今天，我们感觉到这个模式它的优势是非常明显的。第一，它扩张速度快，第二，它能够激发所有这个我们站点的内生动力，它是给支持的。我自己理解呢，就是这个加盟模式，就是我们改革开放的这个联产承包责任制，这个产权问题是非常清晰的，就是粮食分产出来，归谁是非常清晰。所以我并不代表这个加盟模式一定它的服务品质不行。其实这么多年过来，我们每年中通的这个服务的时效每年都是在进步的。所以我自己认为呢，不管哪一种模式，它只要能够满足用户的需求，能够帮助这个客户降低成本，提升效益，增强竞争力，都是好模式。那我们自己对中通呢，这个还是充满信心，就是我们如何保障平衡好总部，中心跟站点，包括我们员工的这个利益分配这个问题。所以中通现在在做的就是更加责任，比如说业务员的快递责任，我们的政策到小到边，其实也是能够既能够保障我们最基层的利益，同时也能够激发他们的内生动力。同时在这样的基础上，其实我们的服务品质会越来越好。第二个这个业务的走向问题，这个我们长期来讲，我认为快递业它的这个增长，还会在中国强大的这个市场的支撑下，这个长期来看，对这个增长，我们是有信心的，就是今年的增长也是有信心的，尽管四月份有一些下浮，但五月份快递我自己判断应该是到正增长，那下半年，这个需求还是在。然后关键的问题，它业务量有没有，其实是它的效率导向。也就是说，不管你是从这个餐饮前，或者是从长距离到短距离，但是给用户带来的它一定是效率导向，就是花少的钱买到更多的东西。从我们的生产制造商或者农业来讲，一定是花更少的成本覆盖到更多的范围。那今天的快递呢，其实已经具备这样的能力，比如说我们过去大部分是工业品下乡，就是发达地区，长三角，珠三角到西南、西北，过去的货多，今天其实农产品上行已经这个起了巨大的作用。所以我们的农产品在当地从这个产地到当地的城乡市场，今天通过中国快递，这个成本的优势，已经能够，比如到海南，到哈尔滨，到上海，到广东，这个成本已经相差无几，所以，给用户带来方便，给我们的这个制造业生产商带来成本的优势。我自己呢，还是非常有信心。谢谢。
谢谢赖总。
Thank you, Tian, for your question. I'll translate for Mr. Lai and also supplement where needed. First of all, whether a directly operated vertically owned model or a franchise model is better is really a discussion we had for years. It's not about one better versus the other, but each has its own advantages or disadvantages. We look back in the history, the speed of expansion, the way that we are able to motivate thousands of entrepreneurs to be part of the tremendous growth supported with economic growth. All these show that the express delivery in a franchised model is not necessarily in providing any quality of services inferior to the directly operated model.
The important part is it is a crucial element in terms of how we are able to ensure the investment and the reward of our franchise network is fair and equitable. Our initiatives throughout our 20 years demonstrate that commitment and also result of success in allowing the express market share gain, efficiency gain, as well as servicing the customer needs. You specifically talked about during the pandemic or hard times, what happens to some of the more vertically operated business. Our view is that the time as this are extremely fortunate but rare.
The entire growth of the industry hinged upon economic growth, has been intact and then also will be intact going forward, and a franchise model will continue to demonstrate its foundational design, which is to, again, motivate with self-propelled intention to grow in quality as well as quantity. That leads to the second part of the question. The express delivery industry is a long journey. We do know that the first part of the year, the Omicron impact was quite devastating. However, despite such, we saw the rebound in the month of May, and we are expecting the demand remains intact. Volume or not, distance short or long, we think the critical consideration is whether efficiencies is there.
For example, as we grow into more of the rural areas, going into the farm, going to the factories, the goal is to spend less but achieve more, either for manufacturers, for merchants or for consumers. The efficiency and the scale achieved by the express delivery industry has been an enabler for the past growth. We expect it to continue to be the case in the future. The example Mr. Lai gave us is that, when we have products in the eastern part of the country or north part of the country, as it being shipped, the produces or goods or daily necessities, the cost of going into all these directions across the nation are very much similar with very little differences.
That is because the efficiencies of the entire network, the high efficient operations and the people and of course, the network partners that made it all possible. Going into the future, certainly we will expand our capabilities into diversified products and services, serving different needs, different distances or different type of goods and different consumer groups. That doesn't change our overall goal to continue to seize the opportunity that is presented to us in the Chinese economic growth and the industry growth. I hope that answered your question.
Thank you, Huiping.
Our next question will come from Frank Yip with Daiwa Capital Markets. Please go ahead.
对，赖总跟颜总好。这边有两个小问题想请教一下。第一个是有关于我们今年怎么看整个行业的竞争态势，特别可能就是单价方面。有没有说就是我们从现在最近的疫情影响，令到整个行业的竞争
跟之前有点不一样。那第二个问题是想了解一下，就是我们，就是有关，就是快递服务，就是那个，不用给那个VAT的一个，financial的一个影响。Now, my first, got two questions. First related to the market competition landscape. How is the real for the industry ASP go for this year? Do you see any changes for the market competition, after the recent outbreak, pandemic outbreak? The second question is what is the financial impact for the express services VAT waiver?
对，谢谢。竞争态势，不管外面怎么变化，但是有一点就是，你有规模，然后有成本优势，你服务品质又是好的，这个它肯定这个份额会增加。我自己判断呢，就是这个中国快递肯定是会进入一个市场份额会越来越集中，强者越强的这样的一个局面。疫情的影响呢，其实我 - Let me first translate for Chairman for the first question, and then I'll take your second question.
It doesn't matter what the external changes are. There are a few critical internal considerations, especially our capacity, our efficiency gain, because the overall growth trajectory of the economy of China is still on an upward trend, and the express delivery industry has been a catalyst as well as a beneficiary of that growth. We think that the industry dynamics will continue to shift towards a more concentrated players taking greater share of the market and the stronger ones will become even stronger. In terms of the pricing, we think the Omicron or the pandemic is going to become a thing of the past, even though it might continue to be part of our norm as prevention measures are becoming our day-to-day norm.
The competition since the month of September last year has become more stabilized and sensible, because everyone has realized and experienced the past pain, and market share gain could be a short stint, but it's not sustainable for the long run. Quality and efficiency is still what the consumers or our customers demand. Pricing going forward, we think will continue to remain stable here and there in certain regions, depending on the capacity and the demand, there will be reasonable changes, but that is all part of the normal competition, and we think that's not going to become a unreasonable and out of economic basis. The second part of the question, the
Yes, the government has given VAT waivers for services related to the prevention related to goods that are for prevention. What happens to our businesses, the impact might come with the rate differential. In other words, because we pay VAT for the entire receipt, which includes the delivery fee, and the delivery fee element is enjoying the VAT waiver as they go into the hands of our network partners who deliver those packages. Of course, the delivery network will issue receipts to us. Some of those network partners are able to enjoy zero VAT rate. As we report the entire receipts with our 6%, because we don't differentiate in our receipts whether it's zero or 6% taxed. There is a rate differential that we are.
We're required to take the burden off. Does that answer your question?
Our next question will come from Parash Jain with HSBC Hong Kong. Please go ahead.
Hi, thank you. If I may ask two questions. First of all, when I look at your slide 9, and for whatever it's worth, when we look at your next five years of e-commerce sales forecast versus the parcel volume growth, parcel volume growth is trailing by about 3.5%. Shall we think more as the differential is more of an inflation? Or are we seeing a trend where customers are again start to consolidate the volume before they place an order? And secondly, given the inflationary environment, I would really appreciate if you can talk about a bit of sensitivity to some of your key cost items, specifically related to fuel and labor, and your operating leverage opportunity, i.e. I mean, you have done a tremendous job in the first quarter.
How shall we think about every additional 10% of volume that you handle? How shall we see the change in cost, i.e., what shall we think as more fixed versus variable? Thank you so much. Hello?
Yes, thank you for your question. On slide 9, we talked about the volume growth in China. I think the volume growth has starting to exhibit a. Hold on one sec. On page 9 for the market growth.
Yes.
The express delivery. Let me just give you an overview. I'm looking at the page nine. It says percentage of market share by various different players. Is that correct?
No, I was more referring to expectation is that the volume growth will be 8.5%, driven by 12% growth in online retail sales. The volume growth is trailing the retail sales. Is it because the ticket size is increasing, and is it largely inflation? Or you think that we will continue to see the volume growth will trail the online retail sales as consumers start to consolidate the volumes before they place an order?
I think the interpretation when you look at the online retail growth, the online physical goods growth and the entire economic growth, we believe the e-commerce growth is at a faster pace and still.
Yeah.
Being growing at a faster pace because more and more the people are going online and becoming web shoppers. The parcel in itself, we do believe they are becoming more scarce or more of a sporadic order placing versus concentrated as in before, during the shopping gala of November eleventh. Day-to-day goods are being also placed, orders are also being placed online instead of going to the grocery stores. That is the trend. That also another factor to consider is we are going into other than consumer logistics, we are also going into the rural areas, going into the farms, going into the factories and bringing in service to those needs and those demands.
The produce, which is of recent years the development, more and more people are developing the habit of buying their perishables even online. The second part of question relates to our cost element. Overall, I think the industry is in a way a brick-and-mortar. We do have a facility cost. We have the depreciation and amortization of our invested assets, hard assets. The machinery, the trailer trucks that we have mentioned, those are also all part of our cost. The labor cost is what we are keeping a watchful eyes on because that's still a large portion of our total cost.
The leverage is on gradually introducing a replacement of these labor costs with machinery, automation, and then also the digitization investment into our IT technologies is also part of our effort to continue to address the cost increases in the labor. The network framework of how we are developing more direct routes will also reduce the number of sortation, hence reducing the sorting cost and transportation cost. That's also part of the structure of the cost that we are able to find opportunities to further enhance efficiencies.
Okay, thank you so much.
You're welcome.
This concludes our question and answer session. I would like to turn the conference back over to Huiping Yan for any closing remarks.
Thank you, everyone for your interest and continued support of our business. The fact that the Omicron disrupts the business process is, I think largely behind us, and we are optimistic about the growth prospect of the Chinese economy as well as the express delivery industry. With our advantages clearly distinguished from the rest and our capacity and efficiency gains that are still underway, with the benefit of digitized approach in proper and more detailed management in finding productivity as well as efficiency. We are confident in the growth of our business in terms of volume as well as our ability to deliver an even faster growth in our profitability. With that, again, thank you everyone for joining today's call. We look forward to speaking with you individually soon. Thank you.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.