7 Days Group Holdings Limited. Investor Presentation. May 2013

Transcription

1 7 Days Group Holdings Limited Investor Presentation May 2013

2 Safe Harbor Statement Statements in this presentation contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and as defined in the Private Securities Litigation Reform Act of These forward-looking statements can be identified by terminology such as will, expects, anticipates, future, intends, plans, believes, estimates and similar statements and including, among other things, 7 Days Group s revenue guidance for the second quarter of 2013 and business forecast for 2013 including the expected number of hotels to be opened, Company s business strategies, its ability to leverage economies of scale and its ability to achieve strict cost controls and to deliver continued growth. These forward-looking statements are not historical facts but instead represent only the Company s belief regarding future events, many of which, by their nature, are inherently uncertain and outside of the Company s control. The Company s actual results and financial condition and other circumstances may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. In particular, the Company s operating results for any period are impacted significantly by the mix of leased-and-operated hotels and managed hotels in its chain, causing the Company s operating results to fluctuate and making them difficult to predict. Other factors that could cause forward-looking statements to differ materially from actual future events or results include risks and uncertainties related to: uncertainties associated with factors typically affecting the lodging industry, including changes in economic conditions, adverse weather conditions, natural disasters or outbreaks of serious contagious diseases in markets where the Company has a presence; uncertainties regarding the Company s ability to respond to competitive pressures; uncertainties regarding the Company s ability to manage its expected growth; uncertainties regarding the Company s ability to continue its growth and achieve profitability; risks associated with the Company s limited operating history and historical operating losses, uncertainties regarding the Company s ability to fund its working capital needs; uncertainties regarding its ability to successfully and timely identify, secure or operate additional hotel properties. The financial information contained in this release should be read in conjunction with the consolidated financial statements and notes thereto included in the Company s 2012 Annual Report on Form 20-F filed with the SEC on April 10, 2013 and is available on the SEC s website at For a discussion of other important factors that could adversely affect the Company s business, financial condition, results of operations and prospects, see Risk Factors beginning on page 8 of the Company s 2012 Annual Report on Form 20-F. The Company s actual results of operations for the first quarter 2013 are not necessarily indicative of its operating results for any future periods. Any projections in this release are based on limited information currently available to the Company, which is subject to change. Although such projections and the factors influencing them will likely be changed, the Company will not necessarily update the information. Such information speaks only as of the date of this release. 1

3 Agenda Company Overview Investment Highlights Growth Strategies Financial and Operational Highlights Appendix 2

4 Fast-growing National Economy Hotel Market Leader No. 1 in growth in hotel expansion Highest number of new hotels opened in ,427 hotels in operation, expect to have 2,000 hotels by new hotels opened during last twelve months Total Transaction Value (TTV 1 ) year-over-year growth 50.4% in 2012 No. 1 in loyalty programs e-commerce platforms Over 56.3 mm members Highest room night contribution from members Website has highest internet traffic ranking Highest online booking ratio No. 1 Brand Influence in Economy Hotel Industry -- China Brand Power Index, Ministry of Industry and Information Technology, CCTV China Brand, CCTV, China s Best Economy Hotel, the 8 th China Hotel Starlight Award Presentation Ceremony, 2013 Sustainable profitability: 2010Q1 to 2013Q1 thirteenth consecutive profitable quarters 1 Definition of Total transaction value: total room revenue from leased-and-operated hotels and managed hotels. The metric is highlighted as an indicator of the scale and reach of 7 Days brands. 3

5 Accelerated Growth Driven by Managed Hotels Opening schedule and growth roadmap Total addressable market in China 1,704 2,000+ 1, * Source: China Tourism Bureau as of 12/31/10 and Company report Q2013 Total Transaction Value Cities covered 0.3 bn 0.8 bn 1.3 bn 2.1 bn 3.7 bn 5.6 bn 1.5 bn Members ~2m ~6m ~10m ~16.5m ~33.8m ~52.9m ~56.3m 4

6 Agenda Company Overview Investment Highlights Growth Strategies Financial and Operational Highlights Appendix 5

7 Unique Business Model Leads to Faster Growth Managed hotel model provides the best alignment of interest with owners and most attractive terms Accelerated pace of hotel openings Largest membership base with improved brand recognition and growing presence in new markets Well-designed and executed hiring and in-house training program + incentive scheme Best-in-class IT infrastructure and industry leading e- commerce system 114 Single brand strategy in economy segment, with highly standardized and efficient hotel operations 6

8 Rapid Expansion Supports Sustainable Margin and Cash Flow Growth Strategic shift Net revenues (RMB mm) Focused on managed hotels to drive the long-term growth Lower risk Higher margin Better cash flow Leverage economies of scale inherent in managed hotel business model EBITDA exl. Share-based compensation expenses (RMB mm) Rapid hotel expansion driving top-line growth and total transaction value (TTV) 20% Leads to increasing economies of scale, supporting profit growth Thirteenth consecutive profitable quarters since 1Q10 Improved cash flow 7

9 Largest Membership Base Provides Competitive Aadvantages Largest and most effective membership base: 56.3 million members Lower customer acquisition cost 7 Days Club far exceeds competitors loyalty programs in terms of size and benefits Established industry leader Provides builtin customer base Allowing faster expansion Shorter ramp up period Helps improve operating performance One of the highest overnight occupancy rates in the industry Enhances customer loyalty Majority of total room nights by repeat customers Lowers operating costs Additional revenue streams Rental car and air ticket service on our website 200k+ surveys received from members every month ¹ Best-in-class proprietary integrated IT System Most active e-commerce platform 8

10 Industry Cost Leader With Higher Operational Efficiency Our distinguished competencies in membership program, ecommerce and information technology, as well as our unique ability to interact directly with our customers ensures high level of efficiency in both hotel and headquarter operations: Lower conversion costs Lower rent per room Lower staff costs Streamlined product design Modular fixtures and furnishings Lower Cap-ex per room Target existing properties in prime area Largest membership base allows the flexibility to select slightly off-main-street buildings Efficient use of real estate Lean operations while maintaining high customer satisfaction Performance-oriented incentive program Conversion cost per room¹ (RMB 000) Rent cost¹ (RMB/day/sq) Staff-to-room¹ Industry Average Industry Average 0.50 Industry Average ¹ source: 2009 China economy hotel survey 9

11 Unique Competitive Edge Improves Brand Influence and Drives Demand Always Focus on What Consumers Want Most High-quality services and amenities in core areas More interactive with members Value-oriented pricing Better beddings Better showers Better cleanliness Cultivates customer loyalty Encourage members to monitor the hotel service Hotel rating based on member s reviews Bring more value to members Competitive and consistent pricing Enhances member stickiness No. 1 Brand Influence in Economy Hotel Industry -- China Brand Power Index, Ministry of Industry and Information Technology, CCTV China Brand, CCTV, China s Best Economy Hotel, the 8 th China Hotel Starlight Award Presentation Ceremony,

12 Agenda Company Overview Investment Highlights Growth Strategies Financial and Operational Highlights Appendix 11

13 7 Days Long Term Growth Strategies Continued market penetration with one-brand strategy in economy hotel segment FY 2014 FY 2013 Target 2,000+ hotels in operation 310 Managed Hotels 50 L&O Hotels Total Current Coverage: 223 cities City with 1 hotel: 44% of total cities City with 2 5 hotels: 35% City with 6 9 hotels: 7% City with more than 10 hotels: 14% 12

14 Strategic Focus on Managed Hotels to Drive Profitable Growth Asset-light Growth Strategy Portfolio mix as at 31 Mar 2013 Focus on managed hotels as main growth driver Support continued rapid growth, stable revenue generation, expanding brand presence and influence with lower capital requirements and higher return on employed capital Strategic shift expect to increase profitability and free cash flow generation Leased-and- Operated hotels 35% Managed hotels 65% Leverage 7 Days leading loyalty club and best-inclass proprietary e-commerce platform Pipeline mix as at 31 Mar 2013 Leased-and- Operated hotels 6% Managed hotels 94% 13

15 Agenda Company Overview Industry Overview Investment Highlights Growth Strategies Financial and Operational Highlights Appendix 14

16 Consistent & Sustainable Growth Track Record Total net revenue (RMB mm) 2, , , , Q1 13Q1 Operating cash flow (RMB mm) Q1 13Q1 15

17 Sustainable Profitability EBITDA exl. SBC (RMB 000,000) 20.1% 23.3% * 22.7% 23.3% 21.0% 17.6% Adjusted EBITDA Adjusted EBITDA Margin 1Q12 Adjusted EBITDA 1Q13 Adjusted EBITDA Margin Net Income attributable to 7 Days (RMB 000,000) 7.9% * 6.4% % % (104.0) % Q12 1Q13 Net Income Net Margin Net Income Net Margin For 2010, there was positive impact from EXPO held in Shanghai during May to Oct. In 13Q1, going-private transaction related expenses were about 12mm, about 1.8% of total net revenues. 16

18 Managed Hotels - Record Expansion with Sustainable Operational Performance 1Q 13 operating performance: 300 new hotels added during last twelve months Y-o-Y ADR for 1Q 2013 increased by 2.0% Key operating metrics Average Daily Rate (RMB) Occupancy Rate RevPAR (RMB) % 84. 0% 81.5% 80.3% 76.3% 75.5% Q12 1Q Q12 1Q Q12 1Q13 17

19 Leased & Operated Hotels - Improving Mature Hotel Performance 1Q 2013 Operating performance Y-o-Y ADR for 1Q 2013 increased by 2.2% Improving mature hotel metrics demonstrates underlying strength of portfolio Key operating metrics Average Daily Rate (RMB) Occupancy Rate RevPAR (RMB) % 91.0% 87.9% 82.9% 79.5% 75.0% Q12 1Q Q12 1Q Q12 1Q13 18

20 Agenda Appendix Management team Industry Overview Hotel business model and economics Income statement & balance sheet Reconciliation of GAAP and non-gaap results 19

21 Management Team Boquan He, Chairman Nanyan (Alex) Zheng, Chairman Founder and former CEO of Robust Group Leading Chinese F&B company later acquired by Danone Over 20 years of entrepreneurial and consumer sector experience The Best Angel Investor 2008 Top Ten Angel Investors Over eight years management experience in China high-growth companies Four years at Ctrip.com, Vice President, marketing General Manager, southern China Highly respected entrepreneur and award-winning industry leader Yuezhou Lin, CEO One of the founding management team members of 7 Days Over 7 years with the Company Held various key functions Expert in IT system, e-commerce platform, business development Eric Haibing Wu, CFO Over nine years of work experience in PricewaterhouseCoopers in the U.S. and China Specialized in internal controls, risk management, corporate governance and audit support CPA and MBA Prototal Enterprises Limited (Owned by Boquan He) Principal Shareholders* WP RE (Cayman) International Ltd (Owned by Warburg Pincus) Happy Travel Limited (Owned by Actis) Fortune News International Limited (Owned by Nanyan Zheng) 23.8% 16.3% 11.8% 6.1% * As in Company s F report 20

22 The Chinese Economy Hotel Chain Industry Today: A Highly Fragmented, Early-stage Industry US China Growth potential Branding US market 2.5 economy hotel rooms per 1,000 people Established brands 68% of hotels with a brand affiliation China market 0.6 economy hotel rooms per 1,000 people Relatively new phenomenon Only 15% of hotels with a brand affiliation Fragmentation Dominated by a small number of players Largest player, Choice, has 6,415 hotels 1 Highly fragmented Largest player, Home Inns, has 1,859 economy hotels 1 Population size 2 Smaller population base 312mm Established middle class 108mm+ households with income over US$10,000 Moderate population density 9 cities with over 3mm population Larger population base 1,348mm Large and growing middle class 20mm+ households with income over US$10,000 High population density Over 250 cities with over 3mm population Largely untapped market in China allows significant expansion opportunities Sources: STR Global, China Economy Hotel Survey, Global Insight, CEIC Data, U.S. Census Bureau, IMF ¹ Data as of 2013Q1; ² United Nations population database, data projection for 2010; Population data from IMF as of

23 Industry Growth Well Supported by Underlying Demand Catalysts China GDP (RMBtrn) Internet population (mm) Domestic travel spending (RMB bn) Fast-growing China economy ,018 1,258 1, Large Internet population Robust domestic tourism Total contribution of Travel & Tourism to GDP (RMB bn) 2,616 3,114 3,398 3,562 3,709 4,156 Growing GDP contribution of Travel & Tourism Increasing capital investment for tourism development Government expenditure on tourism industry (RMB bn) Sources: National Bureau of Statistics of China; China Statistics Yearbook (2011); World Travel and Tourism Council 2012; iresearch; CEIC Data 22

24 Addressable market 1 3 star-rated hotels 1 ~9,860 hotels ~0.9 million hotel rooms Mixture of globally flagged hotels and locally run hotels Economy hotels 2 Highly fragmented Dominated largely by local operators Private guesthouses Large number of low-end guesthouses operated by independent operators Non-standardized accommodations Number of hotels (as of March 31, 2013) Top 8 economy hotel brands in China 2 Managed hotels Leased-and-operated hotels 1,517 1, , Home Inns+ 7 Days Inn Hantings³ Green Tree Jinjiang Thank Super 8 Motel 168+ Growth of economy hotel chains has been accelerating due to growing consumer demand for well-managed and affordable hotels + Motel 168 was accquaried by Home Inns in China Tourism Bureau as of 1Q Q2 China s Budget Hotel Ranking by Inntie ( ³ Excluded 35 hotels of Starway 23

25 Leased-and-operated Hotels vs. Managed Hotels Managed hotels Capitalize on our hotel chain s maturity and brand recognition without the same level of capital expenditure License our brand to third parties and manage the hotels, including hiring and training hotel staff under stringent control of 7 Days Inn s quality standards Leased-and-operated hotels Lease existing properties from real estate owners Large supply of qualified buildings owned by PRC state-owned enterprises in desirable locations Convert properties to conform to 7 Days Inn standards Easily replicable product designs, such as modular bathroom and furniture designs, expedite installation and fit-out time Business model Unified management and quality control standards All hotels are operated and managed under 7 Days Inn s unified hotel operating system, including management functions such as: staff recruitment, training, daily operation, financial management, sales and marketing, etc. Provide full range of services to managed hotels so as to meet the quality control and internal control standards of leased-and-operated hotels, including decision-making assistance, customer base and efficiency analysis, investment and consulting services, cost control analysis and guidance, etc. Recruitment, training, and management of all hotel managers and staffs conducted by head office, with rigorous selection process Centralized procurement and unified financial management; gradually reduce average cost by achieving economies of scale Mature IT infrastructure (e.g. central reservation system and hotel management system) and service platform effectively centralize the monitoring and quality control of all hotels Economics High-margin with minimal cost Ongoing management fee 5-7% of hotel revenues One-time management fee Revenues from managed hotels have grown significantly Lean capital deployment RMB52,000 (US$7,613) per room Industry average of RMB62,500 (US$9,151) Fast pay-back Typical conversion period of 4 months Versus more than one year construction period for own-buildoperate model 24

26 Streamlined and Modularized Product Design 25 25

27 Financial Information 2013 Q1 Balance Sheet (Unaudited) 7 Days Group Holdings Limited Consolidated balance sheet information Quarter Ended 31/Mar/12 31/Dec/12 31/Mar/13 RMB' 000 RMB' 000 RMB' 000 US$'000 ASSETS Current assets: Cash 466, , ,321 60,430 Pledged bank deposits 3,054 3,443 3, Short-term investment 60, Accounts receivable 6,758 17,015 13,919 2,241 Prepaid rent 158, , ,589 28,433 Other prepaid expenses and current assets 56,059 77,608 77,399 12,462 Hotel supplies 46,826 56,591 46,204 7,439 Amounts due from related parties Deferred tax assets 19,978 26,222 26,406 4,252 Total current assets 818, , , ,886 Property and equipment, net 1,679,664 1,970,763 1,927, ,423 Rental deposits 79,091 90,824 93,618 15,073 Land use right 23,889 23,426 23,272 3,747 Prepaid rent 63,268 71,088 68,328 11,001 Intangible assets, net 29,374 26,221 25,170 4,053 Goodwill 61,041 61,041 61,041 9,828 Other non-current assets Deferred tax assets 53,287 62,513 63,518 10,227 Total assets 2,808,162 3,037,021 2,982, ,238 LIABILITIES AND EQUITY Current liabilities: Accounts payable 208, , ,034 37,038 Bills payable 10,177 11,475 12,990 2,092 Short-term bank borrowings 342, , ,377 30,170 Accrued expenses and other payables 403, , ,170 75,863 Amounts due to related parties 1,793 2,601 3, Income taxes payable 19,694 25,617 21,858 3,519 Total current liabilities 986, , , ,198 Long-term bank borrowings 26, ,381 97,329 15,671 Accrued lease payment 218, , ,404 42,411 Unfavorable lease contract liability 7,643 7,136 6,967 1,122 Refundable deposits 15,250 14,850 15,750 2,536 Deferred revenue Deferred rebate income 6,350 5,727 6,916 1,114 Borrowings from related parties 1, Income taxes payable 6,644 3,317 3, Deferred tax liabilities 3,039 7,527 6,977 1,123 Total liabilities 1,272,489 1,398,910 1,327, ,709 Equity: Ordinary shares 141, , ,610 22,801 Treasury stock - (67,137) (67,137) (10,810) Additional paid-in capital 1,632,426 1,649,880 1,664, ,940 Accumulated other comprehensive income (475) (721) (941) (152) Accumulated deficit (219,379) (62,303) (56,859) (9,158) Total equity attributable to 7 Days Group Holdings limited 1,553,669 1,661,036 1,680, ,621 Non-controlling interests (17,996) (22,925) (25,415) (4,092) Total equity 1,535,673 1,638,111 1,655, ,529 Total liabilities and equity 2,808,162 3,037,021 2,982, ,238 26

28 Financial Information 2013 Q1 Income Statement (Unaudited) Quarter Ended Mar 31 Dec 31 Mar RMB'000 RMB'000 RMB'000 US$'000 Total Revenues 577, , , ,182 Leased-and-operated hotels 519, , ,929 96,111 Managed hotels 58,180 87,958 81,181 13,071 Less: Business tax and surcharges (32,612) (40,355) (37,570) (6,049) Net revenues 545, , , ,133 Operating costs and expenses Hotel operating costs (466,480) (560,637) (556,912) (89,668) Rental expenses (165,391) (190,645) (192,826) (31,047) Staff cost (89,142) (114,169) (116,089) (18,691) Depreciation and amortization (73,021) (84,790) (87,435) (14,078) Hotel supplies (24,468) (40,439) (34,268) (5,517) Utilities (57,773) (46,554) (60,954) (9,814) Other (56,685) (84,040) (65,340) (10,520) Sales and marketing expenses (12,459) (31,702) (16,097) (2,592) General and administrative expenses (42,785) (52,555) (53,806) (8,663) Total operating costs and expenses (521,724) (644,894) (626,815) (100,923) Income from operations 23,303 51,136 13,725 2,210 Other income (expenses) Interest income 2, , Interest expense (6,385) (2,875) (4,591) (739) Income before income tax 19,027 49,061 10,233 1,648 Income tax expenses (7,341) (13,844) (7,043) (1,134) Net income 11,686 35,217 3, Net income attributable to non-controlling interest 7,283 2,683 2, Net income attributable to 7 Days Group Holdings Limited ordinary shareholders 18,969 37,900 5, Basic earnings per ordinary share Diluted earnings per ordinary share Other Comprehensive loss Foreign currency transaction adjustment, net of nil income tax (805) (1,857) (220) (35) Comprehensive income 10,881 33,360 2, Less: Comprehensive income attributable to noncontrolling interest (7,283) (2,683) (2,254) (363) Comprehensive income attributable to 7 Days Group Holdings Limited ordinary shareholders 18,164 36,043 5,

29 Financial Information Selected Non-GAAP Financial Statement EBITDA(non-GAAP) Quarter Ended Mar 31 Dec 31 Mar RMB'000 RMB'000 RMB'000 US$'000 Net income attributable to 7 Days Group Holdings Limited ordinary shareholders 18,969 37,900 5, Interest income (2,109) (800) (1,099) (177) Interest expense 6,385 2,875 4, Income tax expenses 7,341 13,844 7,043 1,134 Depreciation and amortization 75,170 87,429 90,226 14,527 EBITDA (non-gaap) 105, , ,205 17,100 EBITDA% 19.4% 20.3% 16.6% 16.6% Share-based compensation expenses 8,868 5,187 6,682 1,076 Adjusted EBITDA (non- GAAP) excluding share-based compensation expenses 114, , ,887 18,176 Adjusted EBITDA% 21.0% 21.0% 17.6% 17.6% Non-GAAP net income attributable to 7 Days Group Holdings Limited ordinary shareholders Quarter Ended Mar 31 Dec 31 Mar RMB'000 RMB'000 RMB'000 US$'000 Net income attributable to 7 Days Group Holdings Limited ordinary shareholders (GAAP) 18,969 37,900 5, Share-based compensation expenses 8,868 5,187 6,682 1,076 Net income attributable to ordinary shareholders excluding share-based compensation expenses (Non GAAP net income) 27,837 43,087 12,126 1,953 28

30 Use of Non-GAAP Financial Measures To supplement 7 Days Group's financial results presented in accordance with U.S. GAAP, the Company has used the following non-gaap measures defined as non-gaap financial measures by the SEC: Non-GAAP income from operations represents income from operations reported in accordance with GAAP, excluding share-based compensation expense Non-GAAP net income represents net income reported in accordance with GAAP, excluding share-based compensation expense, loss on debt extinguishment and change in fair value of ordinary share purchase warrants Non-GAAP earnings per ADS represents non-gaap net income divided by the number of ADS used in computing basic and diluted earnings per ADS EBITDA represents net income reported in accordance with GAAP, adjusted for the effects of interest income and expense, provision for income taxes, depreciation and amortization Adjusted EBITDA represents EBITDA, excluding share-based compensation expense, loss on debt extinguishment and change in fair value of ordinary share purchase warrants 7 Days Group believes that both management and investors benefit from referring to these non-gaap financial measures in assessing 7 Days Group s financial performance and liquidity and when planning and forecasting future periods. Readers are cautioned not to view non- GAAP results on a stand-alone basis or as a substitute for results under GAAP, or as being comparable to results reported or forecasted by other companies, and should refer to the reconciliation of GAAP results with non-gaap results for the periods set forth in the tables at the end of this release 29