7 Days Group Holdings' CEO Discusses Q4 2012 Results

Source: Seeking Alpha 7 Days Group Holdings Limited (SVN) Q4 2012 Earnings Conference March 11, 2013 Yuezhou Lin - CEO Earlier today we reported results for the fourth quarter and full year 2012. The company recorded net revenues of RMB696 million, an increase of 27.6% year over year, exceeding our revenue guidance. The net income attributable to our shareholders was RMB7.9 m illion, marking the 12th consecutive profitable quarter for 7 Days since the first quarter of 2010. During the fourth quarter 2012, the total room count for all hotels in operation increased over 40% year over year and the total transaction value or TTV reached RMB1.52 billion, an increase of about 40% on a year-over-year basis. For the full year 2012, the company recorded net revenues of RMB2.56 billion, an increase of 27.6% year over year. The net income attributable to our shareholders was RMB176.0 million. During 2012 the total room count for all hotels in operation increased about 40% year over year, and the total transaction value or TTV increased over 50% on a year-over-year basis to RMB5.58 billion, which is a strong indicator of the company's rapidly increasing brand influence and market share in China's economy hotel industry. We continue to execute our rapid growth strategy in the fourth quarter 2012, with the addition of 1 09 new hotels to our network, including 32 leased-and-operated hotels and 77 managed hotels. During the full year 2012, we opened 401 new hotels, including 81 leased-and-operated hotels and 320 managed hotels. As of the yearend 2012, we had 1,345 hotels in operation with a presence in 208 cities across the country, including 492 leased-and-operated hotels and 853 managed hotels. Together with the hotels under conversion, we had 1,568 hotels in China. In mid-June 2012, we announced that the company's long-term development strategy would focus on the rapid expansion of managed hotels, as we believe that the managed hotel model is the key to the company's future rapid growth. By leveraging the advantages of managed hotels, the company is able to generate stable revenue growth by maintaining a rapid pace of expansion, getting greater operational leverage, expanding its brand presence and brand influence with a high return on employed capital. These factors have result ed in increasing profitability and stronger free cash flow generation. Also we are glad to see that we have already received certain preliminary benefits, thanks to the strategic shift. Together with our rapid expansion over the past few years, we have continued to upgrade our hotel facilities and improved services for our guests, and we remain committed to providing a better guest experience for our customers in the future. With our expanded hotel portfolio and increased member base, our brand image has continued to improve among customers. In November 2012, the company was named CCTV China brand due to its continued innovation of its eCommerce platform, its improved guest services, its fast growth of 1,500 hotels within seven years of operation, and also for having the largest loyalty program in the economy hotel industry in China, which currently consists of more than 50 million members. We believe that our huge membership base and industry-leading proprietary eCommerce platform will remain an important driving force behind 7 Days' future expansion. We expect to add 360 new hotels to our portfolio during fiscal year 2013, including 50 leased-and-operated hotels and 310 managed hotels. We estimate that net revenues will grow by 15% to 18% on a year-over-year basis. Before handing the call over to Eric, let me review the current status with regard to the going private proposal received by the company. The Board of Directors has received a proposal letter dated September 26 from certain existing shareholders of the company, including Mr. Boquan He, Nanyan Zheng and Carlyle Group and Sequoia Capital China and their respected affiliates to acquire all of the outstanding shares of the company not currently owned by them in a Going Private transaction. On February 28, 2013, the company announced that it entered into a definitive agreement and plan of merger with various parties pursuant to which Keystone Lodging Company Limited will [require] 7 Days Group for USD4.60 per ordinary share or USD13.8 per ADS. This consideration to be paid in the merger represents a 30.6% premium over the closing price of USD10.57 per ADS as quoted on September 25, 2012 which was the last trading day prior to the announcement of September 26, 2012 that it has received a Going Private proposal and implies the actual value for 7 Days Group for approximately USD688 million on a fully diluted basis. The company's Board of Directors acting upon the unanimous recommendation of the special committee formed by the Board of Directors approved the merger agreement and the merger and also resolved to recommend that the company's shareholders vote to authorize and approve the merger agreement and the merger. The merger, which is currently expected to close during the second half of 2013, is subject to customary closing conditions as well as the approval by an affirmative vote of holders of the com pany's ordinary shares, representing at least two-thirds of the ordinary shares present and voting in person or by proxy as a single class at a meeting of the company's shareholders which will be convened to consider the approval of the merger agreement and the merger. I will now turn the call over to Eric to give a more in-depth look on our financial results. Eric, please. Eric Haibing Wu - CFO As Yuezhou noted, 2012 was a year of continued growth and expansion for 7 Days as we delivered consistent top and bottom line growth while expanding our hotel portfolio across China. We maintained our track record of growth in the fourth quarter with revenue exceeding guidance and a strong increase in EBITDA. Our results demonstrate the benefit of our asset-light expansion strategy which has allowed us to maintain the rapid pace of expansion, gain greater operational leverage, expand our brand presence, and generate stable fee-based income, with a hi gher return on employed capital. We'll continue to execute our asset-light strategy moving forward into 2013, as demonstrated by our pipeline, 91% of which is comprised of managed hotels at the end of the fourth quarter. Turning to our results in more detail, as a reminder, all financial figures provided are in RMB. As shown on slide seven, in the fourth quarter we added 109 net new hotels comprising 32 leased-and-operated hotels and 77 managed hotels. The new addition to our network in the fourth quarter brought our total net new hotels open for the year to 401. Of the 401 hotels, 81 were leased-and-operated hotels and 320 were managed hotels, in line with our asset-light managed hotel strategy. In total, as of December 31, 2012, our network consisted of 1,345 hotels covering 208 cities and comprising 492 leased-and-operated hotels and 852 managed hotels. As we move into 2013, we will continue to execute our managed hotels strategy as demons trated by our yearend pipeline which is heavily weighted towards managed hotels. Given the fractured nature of the economy hotel segment and the long-term trend of increasing business and leisure travel in China, we're confident that the market as a whole will continue to grow, providing further opportunity for the steady expansion of our portfolio moving forward. As a key element of our business model and underlying contributor to our sustained financial and operational growth, our industry-leading loyalty club continued to expand in 2012. Together with our powerful eCommerce system, these two elements comprise a meaningful competitive advantage which we will continue to leverage as the scale and scope of our hotel portfolio continues to grow. As noted on slide eight, as of December 31, 2012, we have approximately 52.9 million 7 Days Club members, an increase of 67% year over year. Highlighting the benefit of our eCommerce system, approximately 70% of room nights sold were booked directly through our online system in the fourth quarter 2012. Turning to our operational performance on slide 10, occupancy rate for leased-and-operated hotels were 79.2%, down from 86.4% in the fourth quarter of 2011. Occupancy rate for managed hotels was 77.4%, down from 80% in the prior-year period. Occupancy rate for the full year for leased-and-operated hotels and managed hotels were 82.9% and 80.3%, respectively, compared to 87.9% and 81.5%, respectively, in 2011. Our occupancy rate was mainly impacted by macroeconomic factors with some of our customers adopting a more conservative approach to spending. Moving to slide 11, revenue per available room or RevPAR for leased-and-operated hotels in the fourth quarter was RMB113.4 compared RMB143.3 in the fourth quarter 2011. RevPAR for managed hotels in the fourth quarter 2012 was RMB121.9 compared to RMB123.5 in the same period of 2011. For the full year, RevPAR for the leased-and-operated hotels and managed hotels was RMB138.3 and RMB126.9, respectively, compared to RMB146 and RMB127 in 2011. RevPAR for all hotels in 2012 decreased to RMB131.5 from RMB136.2 in 2011. While RevPAR was impacted by macroeconomic headwinds and the continued rapid expansion of our hotel portfolio, we're pleased to see that RevPAR in our mature hotels in the fourth quarter remained stable on a year-over-year basis. Let me now turn to our financial performance for the quarter and full year. For the fourth quarter of 2012, total net revenue increased to RMB696 million, up 27.6% year over year, exceeding our guidance range. Gross revenue from leased-and-operated hotels increased by 22.9% year over year to RMB648.4 million and the gross revenue from managed hotel increased 72.9% year over year to RMB88 million. For the full year, total net revenue increased by 27.6% year over year to RMB2,557.2 million. Our fourth quarter and full year revenue gro wth was driven by the continued growth in the number of our hotels in operation. As shown on slide 12, total hotel operating costs for the fourth quarter were RMB560.6 million, representing 80.5% of total net revenue, up from 77.5% of total net revenue in the fourth quarter of 2011. Preopening expenses for the fourth quarter were RMB13.9 million in the third quarter of 2012. For the full year, hotel operating costs were RMB2,033.5 million or 79.5% of the total net revenue, in line with 2011. Sales and marketing expenses in the fourth quarter were RMB31.7 million or 4.6% of total net revenues versus 3.4% in the year-ago period and 2.8% in the third quarter of 2012. Sales and marketing expenses as a percentage of revenue increased on a quarter-over-quarter basis mainly due to business development activities and associated media and brand promotions at yearend and slightly increased advertising expenses and sales commissions during the fourth quarter of 20 12. Sales and marketing expenses for 2012 were RMB82.1 million or 3.2% of net revenue compared with 2.5% of net revenues in 2011. G&A expenses for the fourth quarter was RMB52.6 million or 7.6% of total net revenue compared to 12.7% in fourth quarter 2011 and 8.4% in the preceding quarter. The year-over-year decrease in G&A expenses for the fourth quarter were primarily due to the decreased impairment loss for property and equipment as well as decreased share-based compensation expenses. G&A expenses for fiscal 2012 were RMB201.3 million, 7.8% of total net revenue, down from 10.5% in 2011. Moving to slide 13, income from operations was RMB51.1 million in the fourth quarter or -- which is 46.6% increase from RMB34.9 million in the same period last year. Income from operations for the full year 2012 increased by 59% to RMB240.3 million. Non-GAAP income from operations for the full year was RMB267.4 million, an increase from RMB194.6 million in 2011. EBITDA was RMB141.2 million for the fourth quarter, a 30.3% increase over the same period last year. Adjusted EBITDA, which excludes share-based compensation, grew 24.1% over the fourth quarter last year to RMB146.4 million. Fourth quarter EBITDA margin was 20.3%, up from 19.9% in the period -- in the prior period, and adjusted EBITDA margin was 21%, down slightly from 21.6% in Q4 2011. EBITDA for the full year 2012 was RMB581.3 million, up 41% year over year, and adjusted EBITDA rose 33.5% year over year to RMB608.4 million. EBITDA margin for the full year was 22.7%, up from 20.6% in the prior year, and adjusted EBITDA margin was 23.8%, up from 22.7% in 2011. Net income attributable to our shareholders in the fourth quarter was RMB37.9 million, a 7.6% increase from RMB35.2 million in the fourth quarter of 2011, which marks the 12th consecutive quarter of profitability for 7 Days. Non-GAAP net income was RMB43.1 million, a slight decrease from RMB 44.8 million in Q4 2011. Net income margin for the fourth quarter was 5.5%, down from 6.5% in the fourth quarter of 2011. Net income attributable to our shareholders for 2012 was RMB176 million compared RMB128.9 million last year. Full year non-GAAP net income was RMB203.2 million, an increase from RMB172.4 million in 2011. With continued growth, effective capital management and execution of our asset-light strategy, we have maintained a robust balance sheet, a summary of which is provided on slide 15. As of December 31, 2012, we have cash and cash bank deposits of RMB382.3 million. Net operating cash flow for the fourth quarter increased 45.5% year over year to RMB154.5 million. For the full year, net operating cash inflow increased by 25.1% year over year to RMB572.5 million. We believe that our asset-light strategy, which is emphasized on less capital intensive managed hotels will allow us to deliver healthy free cash flow levels moving forward in 20 13. Our strong performance in the fourth quarter and the full year demonstrate the merits of our strategy and our commitment to delivering profitable growth. We entered 2013 with a robust financial position and a healthy growth momentum, and believe that our continued focus on execution will allow us to deliver a sustainable performance in the year ahead. Moving on to our guidance, we expect to generate total net revenue in the range of RMB620 million to RMB635 million in the fourth quarter of 2013 and the full year 2013 total net revenue to grow 15% to 18% over the full year 2012. from China Travel & Tourism News http://www.chinatraveltourismnews.com/

Put the internet to work for you. via Personal Recipe 701383