Good morning or good evening and welcome to the Tuniu Corporation fourth quarter 2014 earnings conference call. [Operator Instructions]. I would now like to turn the conference over to Maria Xin. Please go ahead. Maria Xin^ Thank you and welcome to our fourth quarter 2014 earnings conference call. Joining me on the call today are Donald Yu, Co-founder and Chief Executive Officer, Alex Yan, Co-founder and Chief Operating Officer and Conor Yang, Chief Financial Officer. For today's agenda management will discuss highlights for the fourth quarter 2014 and the fiscal year 2014. Before we continue, I refer you to our Safe Harbor statement in earnings press release which applies to this call. I believe we will make forward-looking statements. Also this call includes discussions of certain non-GAAP financial measures. Please refer to our earnings release which contains a reconciliation of non-GAAP measures to the most directly comparable GAAP measures. Finally please note that, unless otherwise stated, all the figures mentioned during this conference call are in renminbi. I would now like to turn the call over to our Co-founder and Chief Executive Officer, Donald Yu.

Thanks Maria. Good day everyone. Welcome to our fourth quarter and full year 2014 earnings conference call. I am pleased to report that we ended the quarter with a solid topline growth of 91% year over year. As we continued to expand market share rapidly, Tuniu was ranked the number one online organizer tour provider in China with over 20.4% market share in 2014, up from 17.8% in 2013 according to our research, recent report. Our growth and market share expansion in 2014 were driven by our ability to aggressively capture outbound and the domestic opportunities. Within the fast-growing online outbound travel market, Tuniu grew our market share from 16% in 2013 to 20% in 2014. We saw strong demand for focus for tours to Europe, Japan and South Korea. Tuniu remains the market leader in Maldives and tour booked through Tuniu accounted for 17.4% of the overall travel market in China in the fourth quarter of 2014. We also made solid progress in the Japan market, as tours booked through Tuniu accounted for 3% to 4% of the overall online and offline travel market in China in 2014. These were both impressive achievements, considering that online leisure travel market only accounted for around 10% of overall leisure travel market in China in 2014. Within the online domestic travel market, Tuniu's gross booking for domestic tours in 2014 grew more than 9% [indiscernible], thanks to our ongoing supply chain [enhancement] effort which focused on direct procurement and the closer cooperation with local operators to provide the best value and flexibility to Chinese leisure travelers. Now I would like to walk you through Tuniu's strong competitiveness in five key areas which we believe have formed an effective barrier to entry and is difficult for our peers to replicate. They are broad…

Thank you Donald. Hello everyone. We are pleased to deliver a strong quarter with the net revenue exceeding top of our guidance and market expected growth in China leisure travel market. Now I will walk you through our fourth quarter and full year 2014 financial results in greater detail. Please note that all the mandatory amounts are in RMB, unless stated otherwise. You can find the US-dollar equivalents of the numbers in our earnings release. Starting from the fourth quarter of 2014, overall gross bookings for the quarter increased by around 70% year over year to over RMB1.4 billion. Organized tours accounted for 72% and outbound tours accounted for about 67% of the overall gross bookings in this quarter. For fourth quarter net revenues were RMB928.7 million, representing 91% year-over-year growth. Revenues for organized tours, which are recognized on a gross basis, were up 88.7% year over year to RMB896 million and accounted for 96.5% of the total net revenues for the quarter. The increase was primarily due to the rapid growth in demand for travel to certain international destinations such as Europe, North America, South Korea and Japan, and for domestic tours. The number of trips for organized tours exceeding local tours increased by 140% year over year to over 192,000 and the number of trips of local tours increased by 62,8% year over year to over 250,000. Revenues from self-guided tours, which are recognized on the net basis, were up 293% year over year to RMB28.6 million and accounted for 3.1% of our total net revenues. The increase in revenues were primarily due to margin improvement in Maldives and certain domestic tours. The number of trips of self-guided tours increased by 83.7% year over year to over 116,000 in the fourth quarter of 2014. Other revenues were up…

The first question comes from Amanda Chen of Morgan Stanley. Please go ahead.

Hi, good evening. Thank you management, thank you for taking my question. My first question is regarding Company's sales and marketing expenses. May we know if you already have an initial budget plan for 2015? If yes, could you please share if that percentage of total revenue will increase further? And also how much of it will be used for branding advertising and how much will be used for mobile promotions. That's my first question; thank you.

Yes Amanda. Sales and marketing will -- branding campaign is a long-term investment, so we invested in -- our plan is to invest two years, in 2014 and 2015. Therefore the percentage of sales and marketing will be similar to 2014 and then out of which probably 40% something will be offline versus online. Mobile will be increasing percentage spending out of the online. And the mobile marketing expenses will exceed the PC size. Thank you.

Got it, thank you. And my second question is regarding the new [indiscernible] product. Do you have any operating metrics that you can share with us, such as GMV contribution, gross margin compared with regular products. And anything you can share with us would be helpful; thank you.

Yes. The Tuniu-designed product GMV contribute to about 10% plus. And this year we will be more focusing on this; we'll try to increase to like 20% of the GMV. And the gross margin for this product line will be higher than our other product lines. Amanda Chen^ So did you see that maybe tourists for new introducing product prefers destination markets different from the regular tourist? Do they have any destination preference compared to your regular customers?

[Foreign Language]. Right. In terms that we have more focusing on the Tuniu-designed products, domestic packaged tours, European, Thailand, Japan and Korea products, yes. Amanda Chen^ Got it, thank you. And the final question is regarding the competition. We notice that the 4Q competition may be not as intense as we previously estimated. So the gross margin improved a lot year on year. Now I think 1Q already almost over, so did management see the competition maybe not as -- not that intense? Thank you.

Yes, right, in first quarter we do see some of our peers are new entrants of this market and because the online leisure travel is growing very fast and, therefore, attracting some of the smaller players in this market and they had been very, very aggressive. We are determined to fight against these and new competitors, if necessary, with more aggressive pricing. So first quarter we do see that happening, but on the other side we are happy to see our market share continue to increase.

Got it, thank you. Very quick for last question, actually it's for housekeeping; can you share with us your gross booking for fourth quarter?

In my script I did mention that the total Company's gross booking for the fourth quarter was about over RMB1.4 billion.

The next question comes from Evan Zhou to Credit Suisse. Please go ahead.

Hi, good evening. [indiscernible]. Conor, congratulations for the strong quarter. I've got two questions. Could you maybe provide some more color on our gross margin for this quarter? I know this has been a very standard quarter for the gross margin line and other than the relatively benign competitive environment, how do we attribute the effect from more contribution from the direct sourcing for the gross margin? And is there any color that you can give us for the gross margin trajectory in 2015? That would be very helpful, thank you.

Right, well direct procurement is our direction that we started from 2014 and will continue to increase that portion of the direct procurement of our overall product. If by doing so at least the gross margin can improve several percentage points, so that also helped in the fourth quarter. And regarding to the 2015 gross margin, again that is just like what we say in the past, in 2014 our top priority is the top line growth. We do investment in terms of the branding, in terms of the regional expansion, in terms of the pricing to grow our top line to gain more market share. We believe by expanding our market share that the [indiscernible] upscale will come and also more and more we can go to direct procurement. And sorry, we do not really give specific guidance on the gross margin numbers. Thank you.

Understood. Second question is regarding our marketing stand and customer retention profile. So I think we've been investing in our marketing and brand building for around two to three quarters already, so have we seen any improvement or any maybe customer call forward metrics that you can share with us along the way for the past couple of quarters? And also, regarding your spending focuses, did you see any specific areas that you think are more effective compared to the other channels? So any color you have, thanks.

[Foreign Language]. Right, actually we spend more marketing on the [Audio Gap] year-over-year increase over 200%, and also if we check in the [vital] index of Tuniu has also increased significantly. Therefore, these are the feedback of the investment and also we do see the mobile component continue to increase; that is also reflecting the effectiveness of our marketing. In terms of which area is more effective, the offline for December that's a popular TV investment is more like long-term, therefore it's hard to measure what kind of GMV they bring into our business, but it is reflected, as I said, the BAU or the traffic increase over 200%. But overall that mobile investment pricing is currently more effective than the PC side. The branding campaign also helps our mobile app download; by now we have accumulated over 120 million app downloads for mobile. Thank you.

The next question comes from Juan Lin from 86Research. Please go ahead.

[Indiscernible] congratulations on very strong guidance and thank you very much for taking my question. My first question is regarding your guidance, you have indicated a growth acceleration starting from the first quarter. What is the main growth driver in terms of product formatting organized tour, self-guided tour or in terms of the operating metrics is that mainly volume growth or to create improvement and any particular destinations that contribute to the strong top line guidance? Also, does it reflect a full-year growth pattern for 2015? And I have a follow-up question.

Right, the accelerated growth top line guidance is a result of our continuing long-playing investment in branding and regional expansion and technology. We see that a very strong top line growth from our continuing European product lines, Thailand and South East Asia is recovering, organized tours still are going very strong and actually we have seen pretty much across the board strong growth of our product line. And we expect that with the more relaxing visa application for Chinese people, for example the US visa, for example Japan visa, these will be helpful to contribute more top line growth in 2015. Thank you.

Thank you Conor. My second question is regarding the revenue split and tax rate. So out of the organized tours, what is the revenue contributed by local tours and what are the tax rates in Q4 for organized tour, local tour and self-guided tour?

Yes, tax rate remains quite stable and overall organized tours are around 7% to 8% and self-guided tours about 5-6% overall. In our overall business, we do see that our package tour for organized tours going faster than the local tours. We had disclosed the number of trips [indiscernible] and the as cheap local tours are about RMB350 so we can cancel out the numbers.

Thank you very much, Alex. My final question, if I may, what is the cash flow from operating activity for the fourth quarter?

Okay, this quarter, due to the loss, we have a negative operating cash flow and also, through our more direct procurement, for example we're dealing with [indiscernible] but we're dealing directly with airlines, dealing directly with the upstream resources, especially like airlines we need to do some prepay. Therefore, in our balance sheet, you can see that the prepayment and other current assets has been increased quite a bit, therefore it's causing, together with the loss, it's causing a negative cash flow from operating activity.

[Operator Instructions]. The next question comes from Tian Hou from TH Capital. Please go ahead.

Good evening management, congratulations on the strong top line growth. I have a couple of questions; one is related to your direct procurement initiative. So for this business, can you give us some color on either what's the target, how much you can grow this part of the business? That's number one. Number two, also for the direct procurement, isn't there a potential risk to cause conflict with the service provider or product provider on your platform, since you are also doing direct procurement? That is number one question, I have another follow-up. Hello? Give me two seconds.

Okay.

[Foreign Language]. Right, in terms of our domestic product, about 50% of the domestic package tour is already we do the direct procurement, but in 2014, there was a very small portion on the outbound [indiscernible]. This year will be increased more on the outbound package tour for direct procurement and also continuing to increase the overall percentage. In terms of the conflicting with suppliers our direct procurement mostly, for example, we use a Tuniu design product or others, is a kind of differentiate and target to more like mid to high-end customer's needs, rather than more mass market from suppliers. Since we are growing at very high growth rate year-over-year, the amount increased could be allocated to direct procurement, but as our supply [indiscernible] doing business with Tuniu. Thank you.

Okay, so follow-up on that Conor. So what is the margin profile on the direct procurement product, the gross margin?

Typically we do that direct procurement will enhance 2%, 3% or even -- it depends on product line, but overall that's couple of percentage points higher than we purchase from suppliers, like wholesale suppliers.

So by the end of the year what percentage of your total GMV do you envision come from direct procurement?

Yes, I think that overall that of our GMV, I think that will be over 30% of our GMV will come from direct procurement for 2015.

Very helpful. Last question is related to sales and marketing and can you break down the composition of the sales and marketing how much is from the brand advertising, how much spend on staff and the traffic and, going forward, what's your plan in different component?

Again that's in 2014, on the offline advertising mostly for campaign -- a branding campaign is close to 40 something percent of our overall marketing expenditures. And the online portion is slightly above this versus offline. The difference will be last year in online portion, the first three-quarters we spend more on like PC, on advertising, more than the mobile site; but middle of last year the mobile advertising spending has already surpassed PC and we expect this trend to continue of more -- spend more on mobile for our online portion of advertising. Thank you.

The next question comes from Ida Yu from CICC. Please go ahead

Hi good evening, thank you for taking my questions. My first question is in regard of your organized tour and as we see that based on estimation, correct me if I'm wrong, I see the average price down 19% year-over-year and is this due to the competition or change in destination mix? And what do you see the trend going forward?

Yes, for organized tour we estimate a drop, year-over-year, a little bit because of the product mix. Again, as we mentioned, that this year in domestic product package tour we go more direct to like direct procurement, so therefore as Donald mentioned, that in certain package in the past we have to gather 20 people in departing city, now we can spread around in multiple departing cities and get people into their destination. This has greatly enhanced the business and many tours, because there were not enough people, therefore trip got cancelled. So the growth rate of our domestic package tour increased quite fast this year and the SP of domestic is small than the outbound organized tour, so therefore we do see that happening.

Okay and my second question is in regard of the self-guided tour. In terms of the gross booking, can you share more operating data with us? And what are the destinations now included and what is the proportion of thee domestic trips in self-guided tour? Thanks.

Yes, for the self-guided tour that again overall that half is noted. On the domestic side that pretty even spreading around those most popular destinations, such as [San Yar, Lijiang, Xiamen] is also quite popular. Domestic trips overall for our Company is about -- outbound it's about 67, so domestic about 30 something.

The next question comes from Ella Ji from Oppenheimer. Please go ahead.

Yes, congratulations on a strong quarter. First also a question relating to the direct purchases -- direct procurement. So Conor, you mentioned that in 2015 you target to cover over 30% of total GMV, so long-term to you think you can eventually make 100% of all your tours all from direct procurement or do you think, especially for some overseas tours, maybe there is something that you have to still rely on third parties?

[Foreign Language]. Yes, in the past direct procurement percentage was too low. Now, as we scale up many destinations, our scale is enough for us to go direct procurement. So that's a nature evolvement. But in terms of the overall mix that we believe that direct procurement will continue to increase to certain optimal level. But suppliers, like wholesale suppliers, still quite important because many of them they are good at certain destinations or certain departing city to certain destinations, therefore by working with them they can still broaden the product offerings. And there are different types of created product resemble more like mass market from wholesale suppliers and mid to high-end products from our Tuniu branded products. Therefore, there will be a combination of suppliers and also the direct procurement going forward.

Thank you. Would you mind just providing your estimate of over the long-term what's the optimum level of the mix?

[Foreign Language]. Yes, well we think that 50%, 50% mix of direct procurement versus wholesales suppliers will be probably the situation.

Got it, thank you. My second question is relating to the competition level on the market. So over the past two years, online travel has been a very competitive sub-segment and almost all companies are losing money. So Donald, I wonder if you can comment on the competition level as we enter 2015. Do you think it's stabilizing or do you think it's getting worse? We start to see in some other areas, such as tax, how people consolidate instead of compete with each other. So I wonder if you can comment in the online travel segment, do you expect the M&A Activities will also pick up in 2015? Thank you.

[Foreign Language]. Right, we believe that in 2015 -- we have experience that is very fast growing in this online leisure travel market, the penetration rate increased from [70.7%] in 2013 to 10% in 2014 and believe we will continue this trend going forward. Therefore, eventually we will track lots of competitors, but we will continue to maintain our -- to widen our leading position in this area as any certain area or segment that we see more crazy competitors who are determined to fight against them to grab market share and gain market leadership. And in terms of M&A, yes we are looking as we continue increase our market share we will look for a suitable [indiscernible] we may acquire them; because this industry is still very fragmented. Thank you.

Thank you, that's very helpful. A housekeeping question now. How big is your flash sales in 4Q?

Still around 5% of GMV for the last minute sales, flash sale, like deep promotion products.

Okay, so in 2015 do you expect this mix to remain stable at around 5%?

Actually we give all our product line a good chance to run ahead, but we do not target a specific in favor of this one or others. If market opportunity is there, we will continue to see very fast growth of our flash sales. But we believe we have achieved the market leadership, even leader, in this area.

And the last question for today will come from Henry Guo from JG Capital. Please go ahead.

Hey, thanks for taking the questions. A very quick one. So I note the Company has started the TV sponsorship last year Q3, Q4, which incurred significant sales and marketing spending here. So what are your plans for the first half of 2015, are you guys going to continue to spend money on the TV sponsorships or what is the budget for 2015 for that? Thank you.

Right our product line has a very high ASP in nature and also, to cope with our regional expansion that we'll continue to invest in branding campaign. WE believe by the end of this year we should have enough -- we should have work above in terms of the regional expansion and the top line marketing campaign was to go together for the regional expansion. Then, after that, we will see the shrinking budget percentage for marketing.

This concludes our question and answer session. I would like to turn the conference back over to Conor Yang, Chief Financial Officer, for any closing remarks.

Once again, thank you for joining us today. Please don't hesitate to contact us if you have any further questions. Thank you for your continued support and we look forward to talking with you in the coming months. Thanks.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.