 David Sun, CEO Hello, everyone, and thank you for joining us today to discuss our first quarter 2013 results. On back job of continued microeconomic weakness and senior impact of Chinese New Year holidays, we achieved sum results in the first quarter of 2013. We delivered a total revenue target within the RMB 1.4 billion gross sales. Our mature hotel group remained at fat stem hotels RevPAR year-over-year inspire of higher exposure of small market in low Tier cities net our peers. Motel 168s RevPAR improve 4.5% as a result of continued increase in occupancy rate. Our operating margin improved 1.7 percentage points as a result of high franchise mix, better expense ratio for both leased-and-operated hotels and corporate spending given by effective cost control and a productivity measures. Let's take a more detailed look at operation result. RevPAR for the group was down 0.8% for RMB 131 from RMB 132 a year ago resulting from 83.6% occupancy rate and ASR of RMB 156 compared to 80.7% occupancy rate and ADR of RMB 165 in the first quarter of 2012. At the end of the quarter, 1,278 of the gross hotels has been in operation inefficient for at least 18 months. RevPAR for this group of hotels was RMB 107 same as that in the first quarter of 2012. Occupancy rates was 86% increasing from 83.4% same period last year while ADR decreased to RMB 160 from RMB 165 a year ago. Normal first quarter low seasonal volume was further negatively impacted by continued overall market softness. We experienced pressure on both ADR and occupancy rate. In response, the company carried out a series of organized promotion to protect occupancy rate and maximize utilization. The impact of this promotional activity on average day rate was minimum. RevPAR for the core business of Home Inns and Yitel hotels was RMB 135 for the quarter compared to RMB 139 in the same period of 2012. Occupancy rate increased year-over-year to 85.6% from 84.4%. Of the 989 matured hotels under the Home Inns and Yitel brands, occupancy rate was up one percentage points at 89.6% from last year while ADR decreased RMB 4 resulted in 1.4% decrease in RevPAR or RMB 145 compared to RMB 147 in the first quarter of 2012. Looking at Motel 168, integration efforts continue to generate positive operating result. RevPAR increased by RMB116 primary as a result of improvements in occupancy rates, which increased significantly to 76.7% from 70.4% year-over-year. Conventions of large scale Motel 168 hotels to do brand operations are well off schedule and are expected to be completed by the end of second quarter. Total revenues from Motel 168 was within our initial expectation for quarter and we are on track to conclude the integrations in the second half of 2013. During the quarter, we opened 91 new hotels including 75 franchised-and-managed hotels and 16 leased-and-operating hotels. Franchised-and-managed hotels development has become a main driver for our network expansion. As of end of first quarter of 2013, about 56% of our hotels were franchised-and-managed hotels and 152 out of a total of 216 hotels in the pipeline is franchised-and-managed hotels. Going forward, we will further enhance – we will further emphasize the development and enhancement of the earnings quality of our franchise business as one of our most critical aspects of our overall possible growth strategy. Another important assessment of our business is frequent stay membership and our customer relationship management. As the March 31, 2013, our frequent guest program had reached a record high of 13.2 million consisting of unique active non-corporate members, up from 11.9 million as of December 31, 2012, increased 67% compared to 7.9 million a year ago. Together with our corporate accounts, member driven direct sales represent nearly 70% of our room nights sold which has been a consistent trend throughout the past few years, providing a stable revenue base. As our brand is increasingly associated with scale and reach and quality of customer service, we are more than ever keen to enhance customer experience before, during, and after their stay. We are little over four months into 2013 so far and overall market has not been any clear sign of material improvements in the near-term. We are hopeful that seasonal performance will enhance during the upcoming peak months of the year particularly driven by increasing leisure travels and a stable business activities. We maintain our new hotels development targets of 360 to 380 new hotels opening for the year and we'll closely monitor changes in near term trends of business and the leisure travelers and if need be, adjust our development plan accordingly. Our long term view remains positive on the growth opportunities in China economy and our leadership position in economy hotel sectors. Our corporate strategies are sound and will continue to be well executed. First, a study pace of network expansion primarily with franchised-and-managed hotel business model and optimal portfolio mix by age at leased-and-operated hotels driving consistent margin expansion. Second, maintain geographic diversity and more selectively target matured markets for the deep penetration. Third, leverage both Home Inns and Motel 168 brands to establish greater presence in economy hotel sectors where gross opportunities still exist in the foreseeable future. Fourth, further develop operational excellence at Yitels to capture mid and upscale market potential. Fifth, continue to strengthen corporate and managerial position and affecting these including cost control and productivity focus. With that, let me turn the call over to Hui Ping who will walk us through the financials. Hui Ping? Hui Ping Yan, CFO Thank you, David, and hello to everyone on the call. I'm pleased to first discuss our first quarter 2013 results, and will then provide our guidance for the remainder of the year. Motel 168 operations have been under integration into the group for operational management and measurement purposes since its acquisition October 1, 2011. We provided separate financial data from Motel 168 through the end of the 2012. We will provide and discuss operating metrics and revenue information from Motel 168 separately starting this quarter and for the remainder of the integration period in 2013. Please note that as I take you through numbers, I will only speak in RMB terms unless specifically mentioned. We delivered steady revenue growth in the first quarter, which was in line with our previous expectations. Total revenues for Home Inns Group were RMB 1.4 billion increasing 11.7% year-over-year. Including Motel 168, total revenue of RMB 343.5 million for the first quarter, which is an increase of 1.9% year-over-year. Total revenue from lease-and0operated hotels for the first quarter of 2013 were RMB 1.24 billion representing a 9.8% increase year-over-year including Motel 168 total revenue from lease-and-operated hotels for the first quarter of RMB 314.9 million, an increase of 1% year-over-year. Total revenues from franchise-and-manage hotels for the first quarter were RMB 164.1 million representing an increase of 28.3% year-over-year including Motel 168 revenue from franchise-and-manage hotel operation for the quarter of RMB 18.6 million, an increase of 19.8% year-over-year. Total operating cost and expenses were RMB 1.31 billion for the first quarter excluding any share based compensation expenses and integration cost, total operating cost and expenses were RMB 1.28 billion representing 91.5% of total revenues. This expense ratio decreased 1.7% year-over-year. Total leased-and-operated hotel cost, excluding share base compensation expense and integration cost for the first quarter of 2013 were RMB 1.19 billion, representing 95.7% of leased-and-operated hotel revenues in the quarter compared to 95.8% in the same period last year. Excluding share base compensation expenses personal cost of franchised-and-managed hotels for the first quarter were $26.1 million or 15.9% of franchised-and-managed revenues in the quarter compared to 16% in the same period last year. Excluding share based compensation expenses, sales and marketing expenses for the first quarter were $21 million representing 1.5% of total revenue compared to 1.4% in the same period of 2012. General and administrative expenses excluding share-based compensation expenses and integration cost were $51 million or 3.6% of total revenue for the quarter compared to 4.2% in the same period of 2012. This year-over-year decrease in general and administrative expenses as a percentage of total revenue was mainly due to continued cost measures to maximize economy of scale and leverage. Both adjusted income for operations and adjusted EBITDA as a percentage of total revenues increased year-over-year during the first quarter. Income from operations excluding share-based compensation expenses and integration cost for the first quarter of 2012 was RMB 39.2 million or 2.8% of total revenues compare to 9.7% or 0.8% of total revenues in the same period of 2012. The company achieved this margin improvements year-over-year instead of – in spite of tough market conditions through cost control, productivity gains and headquarter cost leverage. Adjusted EBITDA for the first quarter was RMB 216.1 million or 15.4% of total revenues compared to RMB 165.9 million or 13.2% of total revenues in the first quarter of 2012. Adjusted net income attributable to Home Inns Group shareholders was RMB 10.3 million for the first quarter of 2013 compared to an adjusted net loss of RMB 24.6 million in the same period of last year. Adjusted diluted earnings per ADS for the first quarter were RMB 0.22 or $0.04. During the first quarter the company generated a net operating cash flow of RMB 63 million more than double that of RMB 30.8 million in the same period of last year. Capitalize expenditures for the first quarter were RMB 192 million, while related cash paid for capital expenditures during the quarter was RMB 231.1 million. As of March 31, 2013 Home Inns Group had cash and cash equivalent of RMB 481.8 million, financial liabilities recorded on the balance sheet was RMB 1.07 billion consisted of outstanding balance of convertible bond issued in December of 2010 and interest rate swap contracts, both measure at fair value. The outstanding balance of the U.S. dollar denominated full-year term loan was RMB 733.5 million or remaining principle balance of $117 million. Now turning to the outlook. They remain near-term uncertainties in the marketplace that we cannot absolutely ascertain at this time. With over 200 – 2,000 hotels in operations or in the pipeline for conversions, we currently maintain our initial expectations for opening a total of 360 to 380 new hotels in 2013 including 270 to 300 franchise-and-managed hotels with the balance being leased-and-operated hotels. The company also maintains total revenue guidance for the group for the full-year to be in the range of RMB 6,600 million to RMB 6,800 million representing a growth of 14.4% to 17.9% over 2012. For the second quarter total revenues for the group in the second quarter expected to be in the range of RMB 1,580 million to RMB 1,610 million including total revenues from Motel 168 in the range of RMB 380 million to RMB 390 million. All above forecast reflect our current and preliminary view, which are subject to change. Now before we open the call for question. Let me reiterate what David has reviewed earlier on our passage way to profitable growth. After 10 years close of the rapid growth and expansion, we have entered into a stable growth stage. Franchise hotels growth will be our main approach to network expansion to further strengthen our leadership in scale in geographic reach, meanwhile enhancing our revenue structure for greater profitability continuously. These un-operated hotels growth will be balanced with the overall pace of growth as well as efficient capital deployment. We will be more selective in capture markets with the most growth potentials and margin upside. Meanwhile, a managed pace of growth will also result in our optimal hotel mix by age hence support steady margin expansion. We plan to conclude scheduled integration activities in Motel 1638 by the second half of this year, by no means would operational and profitability improvement fees. Further, we plan to fully leverage the second economy brand by increasing its market presence in a very complimentary way with our Home Inns core brand of hotel. Because we see the growth opportunity in this sector is still vast in the near-term and foreseeable future. Yitel hotels has been developing and will gradually become another growth engine meaningfully with similar return on investment profile. Last but not the least, this years of experience was increasing sophistication in managing a large organization with precession is part of our ability including cost control, couture and discipline will aid us in continued effort to address rising operating cost environment, which are more critical under tough market conditions where systemic pricing are not feasible. Together, with opportunistic pricing practice, productivity gains will continue to offset the impact of cost inflation hence protect our margin going forward. In conclusion, we are optimistic about the long-term opportunities in the market that we serve and confident that our solid business fundamental and internally controllable aspects of our business will enable us to deliver sustainable profitable growth. Source: Seeking Alpha from China Travel & Tourism News http://www.chinatraveltourismnews.com/ | |||
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