BEST CFO Says Worst Is Behind, Profitability Is Ahead

After the struggles of the Covid-19 pandemic, BEST’s Gloria Fan lays out a clear path to profitability.
Anna VodMar 31,2021,21:11

Logistics and supply chain services provider BEST Inc. (NYSE: BEST) recently unveiled another step toward rebalancing its business operations as it sold 517 million yuan worth of assets related to its B2C truck leasing unit. This was one in a number of measures BEST has undertaken to fast-forward its growth as it focuses on its core business segments.

These core units are Express, Freight, Supply Chain Management, and Global, all of which are recovered from the COVID-19 pandemic and on the growth path again in 2021, as Gloria Fan, BEST’s chief financial officer, told CapitalWatch in an interview earlier this month.

“The worst is behind us,” Fan said. “We are now focused on strengthening our fundamentals, balancing our network and improving the quality of our services, as well as our last-mile coverage.”

The Pivot Year

In late 2019, the Chinese integrated smart supply chain services provider believed that 2020 would be a great year for the company. Its founder and leader, Johnny Chou, is regarded by his team as a logistics visionary who led BEST to be the forerunner in many sectors of China’s transportation market and some big plans were laid out for the year. However, 2020 had other plans.

“2020 was a very strange year,” Fan told CW. “When the pandemic hit at the beginning of 2020, the country pretty much shut down.”

A big challenge was bringing back workers after the Lunar New Year holidays as travel and transportation were restricted throughout the country, Fan said. This happened on a season traditionally slow for most businesses in China – for BEST, the first quarter is historically non-profitable. However, the first quarter of 2020 was worse than ever as the company faced many challenges to return to operations.

Then, the “price war” started. In order to facilitate resumption of business operations after nationwide lockdowns, the Chinese government waived all road tolls between February and April 2020. And the logistics companies rushed to pass on cost savings to customers to expand market shares. “The price competition became very intense in the middle of the year,” Fan said.

“All the cost-saving was put into the market. And when highway tolls resumed, the costs increased while the prices for Express business have not yet returned to pre-pandemic levels.”

It was during this time that BEST began to work on a restructuring plan, laying out the reallocation of its resources.

Investing in Core Segments

In late 2020, BEST completed the wind-down of Store+, the platform that facilitated online merchandise sourcing and store management for small merchants to participate in online-to-offline commerce. Fan called Store+ “a great idea” but one that “needed a lot of resources.” While the platform was making progress, BEST needed to reduce costs and offloaded its unprofitable unit to independent third parties. CEO Chou called the move painful but necessary in a December interview with CW.

In another restructuring move, for its Supply Chain Management segment, BEST discontinued certain accounts with customers who were not making money and incurred credit issues. Instead, it focused on fewer key clients, implementing a franchise model with lighter assets.

The Express segment, which suffered the most during COVID-19, was one that required additional capital to recover from the pandemic. The company shifted some management roles, appointing Xiaoqing Wang as the new general manager of BEST’s Express service line. Wang, who has been with the company for over 10 years, is expected to fine-tune local market strategies and organization at a time when BEST eyes expansion in rural China, where it sees growing online consumption. The change will also help boost confidence on the franchise level as the market faces heavy pressure, as Chou said.

The second unit into which the company is pouring resources is BEST Global. Its Global business has been growing at breakneck speed and is expected to continue expanding. So far, BEST is established in Thailand, Vietnam, Malaysia, Singapore, and Cambodia. As e-commerce flourishes in Southeast Asia and many products are ordered from China, BEST believes this sector has significant potential for growth. In this segment, BEST has been setting up sortation centers, building its franchisee network, and focusing on quality and volume. In the full year 2020, parcel volume in Thailand grew 613% and in Vietnam 852%, according to the recent financial report.

“We anticipate the business in Vietnam and Thailand to double again this year, and we are targeting to break even in early 2022,” Fan told CW. In the short term, the two countries will be the overseas focus for BEST.

As announced recently, selling certain assets in the B2C truck leasing business to Sinolink Yongfu Asset Management, a unit of one of China’s top financial institutions, was part of the plan to refocus resources on the core business segments, implementing a lighter business model, and strengthening BEST’s ecosystem.

Optimistic on Future Growth

“With the challenges we faced after the pandemic hit, we realized that we need to come back to our core,” Fan told CW. “We understood that we were spreading too thin – with so many business units, some of which still required significant investment.”

Now, she says it is all in the past. “Now, we want to make sure our network is stable, our quality is good, and, of course, we will also balance our profit, quality, network stability as well as volume growth.”

Fan noted that BEST’s Freight segment remained a “bright spot” in the company’s business even amid the Covid-19 troubles of 2020. While it was also hard-hit, competition in this segment was not as intense, according to Fan, and BEST remained the leader in the market. So far, Freight’s average price as well as gross margin have both recovered to pre-pandemic levels. Fan said, “In 2021, we will expect the path of high growth and profitability for Freight.”

Similarly, the Supply Chain segment will turn up a profit in the first half, Fan believes. In this segment, which she says holds a high reputation and customer satisfaction in the market, BEST plans to continue to serve its key account customers and realize its franchise model to improve coverage.

Fan sees China’s logistics industry as still growing and healthy. As BEST continues to target on its market share growth, she says, it will focus on the fundamentals and the balance between quality and volume.

Gloria Fan joined BEST as CFO in late 2019. She has over 20 years of experience in financial management and capital markets and has served as CFO for a number of clean technology companies, including Bridgelux, Inc. and ClearEdge Powers, Inc. Formerly, she served at UTStarcom Inc. and oversaw its public offering on the Nasdaq. In 2008, Fan was awarded the "CFO of the Year" status by the Silicon Valley Business Journal.

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Topics:BEST, Gloria Fan