Good day, ladies and gentlemen. Thank you for standing by. Welcome to the JD Logistics Fourth Quarter and Full Year 2023 Results Conference Call. At this time, all participants are in listen-only mode. After management's prepared remarks, there will be a Q&A session. Please note that this English simultaneous translation line will be in listen-only mode for the duration of the call, including the Q&A session. If you wish to listen to the management's original statement or ask a question during the Q&A session, you will need to be dialed in to the Chinese language line. I'll now turn the call over to Ms. Song Shuang, Head of Investor Relations team at JD Logistics.
Thank you, operator. Good day, ladies and gentlemen. Welcome to our fourth quarter and full year 2023 results conference call. Joining us today are our Executive Director and CEO, Mr. Hu, and CFO, Mr.Wu
Before we start, we would like to remind you that today's discussion may contain forward-looking statements, which involve a number of risks and uncertainties. Actual results and outcomes may differ materially from those mentioned in today's announcement and this discussion. The company does not undertake any obligation to update this forward-looking information, except as required by law. During today's call, management will also discuss certain non-IFRS financial measures for comparison purposes only. For a definition of non-IFRS financial measures and a reconciliation of IFRS to non-IFRS financial results, please refer to the annual results announcement for the year ended December 31, 2023, issued earlier today. For today's call, management will read the prepared remarks in Chinese and we'll only be accepting questions in Chinese during the Q&A session. A third-party interpreter will provide simultaneous interpretation in English on a separate line for the duration of the call.
Please note that English translation is for convenience purposes only. In the case of any discrepancy, management's statements in their original language will prevail. I would like to turn the call over to Mr. Hu. Please go ahead, sir.
Dear investors and analysts, welcome to JD Logistics' fourth quarter and full year 2023 earnings call. I'm Hu, CEO of JD Logistics. Thank you for joining us today. In 2023, China's economy showed signs of recovery and improvement, with supply and demand improving steadily. As the integrated supply chain, or ISC, industry leader, we continued helping more corporate customers through ISC services, facilitating cost reductions and efficiency improvements. While creating value for our customers, we achieved high quality growth in both revenue and profitability. In Q4 of 2023, our total revenue reached CNY 47.2 billion, up 9.7% year-over-year.
Our non-IFRS net profit was CNY 1.8 billion, increasing by 79.6% year-over-year. Non-IFRS net profit margin was 3.8%, which is the highest quarterly profitability that we've reached since our listing. These results reflected our ongoing success in optimizing our business structure and customer mix, improving end-to-end operational efficiency and ramping up business operation quality. Over the past year, we have dedicated ourselves to pursuing high quality growth. We remained focused on cost, efficiency, and customer experience while consolidating our differentiated competitive advantages centered on ISC solutions and high-quality logistics services. In 2023, our total revenue reached CNY 166.6 billion, increasing by 21.3% year-over-year.
Revenue from external customers increased by 30.8% year-over-year to CNY 116.6 billion, accounting for 70% of total revenue, representing a larger proportion compared with 2022. Following a successful achievement of profitability in the full year of 2022, our non-IFRS net profit in 2023 achieved a new record high of CNY 2.76 billion, a 218.8% year-over-year increase. Our non-IFRS net profit margin increased to 1.7%, showing growth compared with last year. In 2023, revenue from ISC customers increased by 5.2% year-over-year to CNY 81.5 billion. This included CNY 31.4 billion in revenue from external customers, up 7.7% year-over-year, driven by growth in our average revenue per customer, ARPC.
We have deepened collaboration with leading customers in various industries, such as Volvo Cars, the Auto, China, Beihua, and Bosideng. The number of our external ISC customers contributing annual revenue of at least CNY 100 million further increased to 31, compared with 26 in 2022. We're also pleased to see that both the number of customers and the ARPC for external ISC customers with annual revenue contribution of no less than CNY 10 million increased year over year, showing customers strong endorsement and recognition of our services, as well as the stickiness of our collaborations. In 2023, we achieved notable progress in both the automotive and apparel industries. In the auto industry, we've successfully developed ISC service products for automotive after-sales spare parts and serving many auto brands. As our partnerships with these customers deepen, we've continuously upgraded our ISC products and services.
In the second half of 2023, we extended the scope of the services from the after-sales spare parts sector to home charging piles for a well-known international new energy vehicle customer. We provided services such as warehousing, planning, transportation, and integrated delivery and installation of the home charging piles. Additionally, we've deepened our collaboration with leading clients in the apparel industry. In the second half of 2023, we collaborated with a well-known domestic sportswear brand to provide a full spectrum of supply chain services, such as integrated forward and reverse logistics and value-added quality inspection services, while further expanding into new areas such as store-to-customer delivery and store-to-store delivery. While making progress in our business, we've remained guided by our core value of customer first. As a result, we've received widespread recognition from customers and consumers for our professional and reliable services.
In Q4, we secured a leading position among logistics service providers in service quality rankings published by Douyin. In 2023, we continually explored the business model of express delivery and freight delivery services and solidified our industry-leading position. In 2023, our revenue from other services, primarily including express and freight delivery services, increased by 42% year-over-year to CNY 85 billion. With regard to express delivery services, building on our leadership in setting high standards with our industry pioneering launch of same-day and next-day delivery services, this year, we launched our next morning delivery service, allowing consumers to receive their packages as early as 8:00 A.M. the next morning, after an order is placed, as well as the launch of personalized nighttime pickups and morning deliveries, targeting to consolidate our differentiated advantages.
Additionally, we upgraded our express delivery services with three service commitments: compensation for orders not picked up within an hour, compensation for late deliveries, and compensation for, not, or not for failure to deliver to doorstep. In terms of business development, we continue to deepen our efforts in the agricultural production zone and expanded our market share. For instance, we offer specific logistics services to merchants in the hairy crab production areas and beef and mutton-producing regions. With the rapid growth of live streaming e-commerce, we are continuously strengthening our partnerships with platforms such as Kuaishou, Douyin, and other interest-based e-commerce platforms. During the Double Eleven Shopping Festival, we served as Kuaishou's official logistics partner. With the consolidation of Deppon Logistics, our freight delivery services revenue ranks among the top tier in China.
We have been steadily enhancing our business and network synergies with Deppon, realizing cost reductions and operational efficiency enhancements. We firmly believe we'll continue to unlock further synergies going forward, enabling us to provide more efficient services. In the era of global supply chain reconstruction, we continue to construct our comprehensive global supply chain logistics network with overseas warehousing capabilities at the core, offering ISC services to both Chinese go-global brands and overseas customers. In addition to the Chinese go-global brands, we see more and more overseas customers choosing to cooperate with us. Take a well-known drinkware brand in the US as an example. As their order volume surges year over year during the Black Friday shopping season, the supply chain plan and logistics fulfillment capabilities affect the satisfaction of its end consumers.
Our local team communicated with the customer in advance to conduct sales forecasts and reasonable inventory deployment. Relying on our self-developed warehousing, automation equipment systems, and extensive operational experiences, we helped this customer improve fulfillment rate. Our high-quality service and continuously upgraded customer experience we provide are underpinned by our logistics infrastructure network and technological capabilities. By the end of 2023, we operated over 1,600 warehouses with an aggregate gross floor area, GFA, of more than 32 million square meters, including warehouse space managed through the Open Warehouse Platform. While extending our warehouse network nationwide, we continuously improving our capabilities in core processes. In 2023, JD Airlines achieved regular operations with six proprietary all-cargo airplanes and had four international cargo routes. By the end of 2023, we employed approximately 360,000 in-house delivery and operation personnel to ensure top quality services.
With respect to building our cross-border logistics network, by the end of 2023, we operate approximately 90 bonded warehouses, international direct distribution warehouses, and overseas warehouses, covering an aggregate GFA of nearly 900,000 square meters. We've established self-operated overseas warehouses in the U.S., Germany, the Netherlands, France, and the U.K. Meanwhile, with overseas warehousing capabilities at our core, we continue to construct our global supply chain logistics network. In addition to strengthening our logistics infrastructure, we continued to drive the organic integration of technological innovation and operational scenarios.... While enhancing our operational efficiency, we also empower ecosystem partners and consumers with our logistics technology. For example, in 2023, our self-developed and produced automatic put walls have been available for a number of external customers. In industries such as auto spare parts, apparel, and pharmaceuticals, overcoming the challenges associated with multiple SKU sorting.
Guided by our mission to drive superior efficiency and sustainability for the global supply chain, we have always fulfilled our social responsibilities by fully leveraging our advantages in ISC logistics services. In 2023, JDL swiftly responded to several emergencies, including the domestic flood disasters and earthquakes. As the first Chinese logistics company to set scientific carbon emission reduction targets, we're actively promoting the use of clean energy vehicles. In 2023, JDL deployed dozens of hydrogen-powered heavy-duty trucks, marking the first large-scale implementation of such trucks in China's logistics sector. Furthermore, we jointly released a supply chain emission management platform with relevant professional institutions to encourage more businesses to reduce carbon emissions and ultimately achieve their net zero emissions targets. Our ESG achievements have garnered recognition from multiple authoritative entities.
In 2023, JDL saw an improved score from the S&P Global Corporate Sustainability Assessment, CSA, ranking in the top tier among global logistics companies. Additionally, we were included in MSCI's ESG ratings, with several of our metrics surpassing the industry average. Looking ahead into 2024, we are committed to continuously cultivating industry-specific supply chain capabilities, particularly in key industries such as FMCG, apparel, and automotive. Centered around customer needs, we plan to integrate various resources to build operational capabilities and service products tailored to specific segments. We'll continue to adhere to JDL's core operational philosophy of reducing the frequency of goods moved and minimizing the distance of fulfillment. By optimizing the logistics network deployment and deeply integrating technology with operations, we aim to achieve efficiency improvements and cost optimization.
This year, we'll continue to explore and innovate with clear objectives to address and adapt to the dynamic market demand and challenges, propelling the development for the industry. Thank you. Next, I'd like to invite Mr. Wu Hao to discuss the details of financial performance.
Thank you, Mr. Hu. Hello, everyone. This is Wu Hao, CFO of JD Logistics. I'm pleased to present JDL's financial performance for Q4 and full year of 2023. In Q4 of 2023, amidst the rising tide of China's macroeconomic recovery, JDL maintained high-quality growth in overall revenue and profitability. In terms of revenue, we achieved further growth from our ISC customers, while our revenue from other customers obtained solid growth from express delivery and freight delivery services.
Through strategies of network structure optimization, refined operations, as well as business structure adjustments, we continuously facilitated efficiency gains and cost savings in all aspects of operation, leading to a notable enhancement in profitability. In Q4 of 2023, our non-IFRS net profit was CNY 1.8 billion, up significantly 79.6% year-over-year. Non-IFRS net profit margin was 3.8%, up 1.5% year-over-year. Building on the momentum of achieving our best third quarter profitability in the last quarter since listing, we achieved our highest quarterly profitability since listing in this quarter, along with a year-over-year turnaround in IFRS net profit. In 2023, our total revenue reached CNY 166.62 billion, up 21.3% year-over-year.
In Q4, our total revenue reached CNY 47.2 billion, up 9.7% year-over-year. Notably, revenue from external customers increased by 9.1% year-over-year to CNY 32.83 billion, accounting for 69.5% of total revenue, reflecting our success in steadily expanding our business from external customers. In Q4, revenue from ISC customers totaled CNY 23 billion, up 8.8% year-over-year. This included our ISC revenue from JD Group, which amounted to CNY 14.37 billion, up 11.3% year-over-year. The accelerated growth compared to the previous quarter was primarily attributed to the continuous increase in orders from the JD retail business in Q4. Moreover, our revenue from external customers maintained steady growth momentum, up 5% year-over-year to CNY 8.64 billion.
We continued to actively broaden and deepen our collaborations with existing customers to create sustained value for their high quality development. In Q4, our ARPC for external ISC also continuously increased by 15.4% year-over-year to CNY 156,000. In Q4 of 2023, our revenue from other customers maintained healthy growth, reaching CNY 24.19 billion, up 10.6% year-over-year. The increase was primarily due to our strengthened express and freight delivery capabilities, driven by technological advancements that enhanced overall logistics network efficiency and optimized customer experience. Furthermore, we continue to deepen on penetrating deeper into channels such as live streaming e-commerce. On top of our revenue growth, we achieved year-over-year improvements for our growth margin in both Q4 and the full year of 2023. Through our continued efforts to refine cost controls and optimize customer mix.
As our business scale expanded, our cost of revenue in Q4 was CNY 42.85 billion, up 9.3% year-over-year. Now, let's move to the main cost of revenue. First, employee benefit expenses were CNY 15.41 billion in Q4 of 2023, up 20.5% year-over-year. This increase was due to the increase in the number of our frontline operation employees from 371,000 at the end of Q4 of 2022 to 436,000 at the end of Q4 of 2023. The increase in the number of operation employees was mainly attributable to the addition of our own employees to key operational processes, such as last mile delivery. This was in order to upgrade our service and elevate customer experience, just as Mr.
Hu mentioned earlier that we have launched industry-leading services such as next morning delivery and nighttime pickups and delivery. In Q4, our total employee benefit expenses accounted for 32.6% of our total revenue, up 2.9% year-over-year. Outsourcing costs, another important component for cost of revenue, was CNY 17.68 billion in Q4 2023, up 3.4% year-over-year. It accounted for 37.5% of total revenue for the quarter, down 2.3% year-over-year. The continued optimization of outsourcing costs was largely driven by improved operational efficiency, as well as the optimization of our business and customer mix to improve business health.
Third, our total rental cost was CNY 3.33 billion in Q4, up 8.1% year-over-year, primarily due to an increase in the number and floor areas of our logistics facilities, such as warehouses. As of December thirty-first, 2023, we operated over 1,600 warehouses, including warehouses managed by Deppon Logistics. GFA of our warehouse network, including warehouse space managed through the open warehouse platform, exceeded 32 million sq m. Our total rental cost in Q4 represented 7.1% of our total revenue, down 0.1% year-over-year. Besides the major costs mentioned above, along with the expansion of our business scale, depreciation and amortization costs as a percentage of revenue slightly decreased due to economies of scale. Furthermore, through our refined operations and optimization of the business mix, our costs as a percentage of revenue also decreased.
In terms of expenses, our operating expenses in Q4 were CNY 3.04 billion, remaining flat year-over-year and accounting for 6.4% of total revenue, down 0.6% year-over-year. Among them, selling and marketing expenses were CNY 1.29 billion, 2.7% of total revenue, which remained flat year-over-year. Selling and marketing expenses accounted for 3.9% of revenue from external customers, also flat year-over-year. In Q4 of 2023, our R&D expenses were CNY 880 million, accounting for 1.9% of total revenue, down 0.2% year-over-year. We continue to enhance our automation, digital, and intelligence capabilities through technological investments, thereby boosting our core competencies. Additionally, we will persist in promoting refined operational management, precisely allocating resources, and empowering external partners.
Our G&A expenses were CNY 870 million, down 10.4% year-over-year, due to decrease in share-based payments, accounting for 1.4-1.8% of total revenue, down 0.4% year-over-year. In terms of profit, we recommend that you consider our non-IFRS measures, which we believe better reflect our core operations. Both non-IFRS profit and non-IFRS EBITDA exclude items that we believe are not indicative of our core operating performance to facilitate investors and other users of financial information to understand and evaluate our results of core operations. In Q4, our non-IFRS net profit was CNY 1.8 billion, up significantly 79.6% year-over-year. Non-IFRS net profit margin was 3.8%, up 1.5% year-over-year, reaching the highest quarterly profitability since listing.
The improvement in non-IFRS net profit margin was primarily attributable to the comprehensive impact of the year-over-year increase in gross margin, decrease in operating expense ratio, and changes in other gains. Non-IFRS EBITDA for Q4 was CNY 4.97 billion, an increase of 26% year-over-year, with a non-IFRS EBITDA margin of 10.5%, representing a year-over-year improvement of 1.4%. On a full year basis, the non-IFRS net profit amounted to CNY 2.76 billion, up significantly, 218.8% year-over-year. Non-IFRS net profit margin was 1.7%, up 1% year-over-year. We also continue to monitor our cash reserves and cash flow to maintain healthy, sufficient capital to support business development and meet our operational needs.
In Q4, we saw a year-over-year improvement in our free cash flow as net operating cash inflow under IFRS continued to improve year-over-year, and our capital expenditure, both in absolute amount and as a percentage of revenue, decreased year-over-year. For the full year of 2023, our capital expenditure was CNY 5.1 billion, making up 3% of total revenue, in line with our investment plan for the year. On a full year basis, our adjusted free cash flow increased from a net inflow of CNY 1.3 billion in 2022 to CNY 2.8 billion in 2023. By the end of 2023, our combined balance of total cash resources amounted to CNY 42.2 billion.
In the future, we will adopt a steady and effective capital expenditure based on the pace and needs of our business development, enhancing our mid- to long-term capabilities and improving our network deployment along with operational efficiency. Finally, I'd like to express our heartfelt thanks to our shareholders for their enduring support and trust in JDL. Going forward, we'll maintain our focus on cost, efficiency, and experience. Specifically, we'll improve our capabilities in products and services centered around ISC, and strive to further expand and penetrate external markets. Additionally, we'll optimize costs through improved operational efficiency, solidify and enhance our profitability, and create greater value for our valued customers and shareholders. Thank you. That concludes my prepared remarks. Now we can start the Q&A session.
Thank you, Mr. Wu. This concludes our prepared remarks. We'd like now to open the call to our questions.
As a reminder, we'll only accept questions in Chinese. Operator, please start the Q&A session when ready. We'll start the Q&A session. To ask a question, please dial in to the Chinese line and then press star one on your telephone's touch tone keypad. To ask a question, please press star one. The first question comes from Thomas.
Good evening. Thank you, management, for accepting my question. My first question is about last year, in Q3 and Q4, customer number increased quarter-over-quarter, so I was wondering, in this year, especially given the macro uncertainties, how do you view the potential growth of customer number and ARPC? And secondly, in Q4, profit margin performed very well, so I was wondering, how do you see the trends of the JDL's growth and net margin?
Hi, Thomas. Thank you for your question.
You mentioned the macro conditions, so I will base my answer from this and provide our view on customer number and ARPC, as well as overall business growth. In 2023, for customers contributing over CNY 50 million, we have maintained steady growth. It's true that there are some uncertainties in the macro environment, but we steadily implemented our strategy, and we solidified our channels to broaden our business... and that's how we've been able to maintain business growth, especially in terms of customer number. Specifically, in terms of capacity building, we also implemented dedicated initiatives. especially in terms of FMCG, apparel, furniture, and fresh produce. We focused on these sectors in improving capacity building. And we also worked on providing better ISC products and services, like strengthening our B2B and B2C ISC services.
Here's my answer to our first question.
Thomas, I'd like to answer your second question. In 2023, the key word for us was to pursuing high quality, steady business growth. So as you can see, we improved operational profitability, including both growth and net margin. And behind such improvement was the series of adjustments we made to optimize our business structure and customer mix, and of course, we also continued to improve our products and make expansion and contraction decisions in our business. And we also focused on improving efficiency. During the pandemic, there were some challenges, and after the pandemic passed, we improved our operations and iterated our products. In terms of technology-driven products, we also made attempts with different technologies, such as the automation of delivery vehicles. And we have seen improvements in this area.
So there is significant progress in margin improvement, and we'll continue with this general direction to continue to increase our margin.
Thank you.
Thank you. Next question comes from Fan Tianshu from Bank of America.
Fan from Bank of America. I have a big question. China has recently put forward the policy of upgrading large-scale old equipment, and JD has an advantage in large equipment. So in this regard, do you see any opportunities, especially regarding customers, and will you make any investments in this area this year?
This business, well, we started with home appliances, and the country encouraged selling home appliances in the countryside. I think we started this business over 10 years ago, around 2011, and we started to sell and replace old home appliances.
And now with this new policy, I think we are well prepared, because we already have a good foundation for this business over the years, and we will provide better products and services to meet users' needs. As to new opportunities, we'll enhance capacity building and upgrade our services. Over the years, we have honed our services in this business. And we will continue to deepen our presence in this segment, and provide good services to customers. We will provide more efficient and convenient services to our customers.
Thank you.
Next question is from Goldman Sachs. Hi, management, I'm David from Goldman Sachs.
First, congrats on good performance in Q4. My question is regarding external customers for ISC services, which are outlook in 2024.
And now e-commerce is all the rage, and what's your plan outlook for your overseas e-commerce business? ...
Well, first, regarding the ISC business, we want to deepen our collaboration with customers. As we mentioned just now, we will deepen our capacities when it comes to ISC services. And especially industry-specific service capacities, such as the apparel industry. And our capacities would be wide-ranging, such as warehouse management. We will also tap into more customers' demands to improve our services and truly address our customers' pain points for ISC services. That will be the core of our philosophy. As to the specifics, based on our business development progress and needs, we will make further improvements to our logistics network, optimize costs. So basically, we'll make efforts to optimize our services and capacities.
As to your second question, our overseas logistics services are centered around our overseas warehouses, and we also provide omni-channel services. We want to grow together with our customers. We also serve Chinese companies going to the global market by improving our service timeliness and address their pain points.
Thank you.
Next question. Next question comes from Citibank.
In Q4, revenue growth from JD Group recovered very well. So I was wondering, what is the reason for such excellent growth? And also, what's your outlook for growth from JD Group in 2024? And recently, there are regulations that there will be some changes in the delivery services, and how will this impact JDL?
Well, in Q4, our revenue growth was driven significantly by a revenue increase from JD Group.
JD Group, they adjusted the threshold for free shipping services, and that did play a positive role. There were also some other changes from JD Retail that generally enhanced user experience. As to the new regulations on delivery services, so far it's not clear that it will have an impact on our services. Now, the general trend is to provide customers with free shipping services for both live streaming orders and also providing subsidies. That will encourage the customers to place orders. Generally, I think the trend of revenue growth from JD Group will be stable.
Due to time constraints, that concludes today's Q&A session. At this time, I'll turn the conference back to Shuang for any additional remarks.
Thank you again for joining us today. If you have any further questions, please contact our IR team directly. Thank you.