Q2 2022 H World Group Ltd Earnings Call

August 30, 2022

Yeah.

Good day, and thank you for standing by and welcome to the H World Group Conference call. At this time, all participants are in a listen only mode.

So to speak of presentation there'll be a question and answer session to ask a question you will need to press star one one on your telephone and wait for your name to be announced please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, Mr. Jason Chen Investor Relations Director. Please go ahead.

Thank you good morning, and good evening, everyone. Thanks for joining us today.

I'll come to <unk> group's 2022 second quarter and first half earnings conference call. Joining us today is our founder and chairman Mr. Jay Chang.

Our CEO , Mr. Jean Cui, our president Mr. <unk>, Zhang our CFO Ms. Cheng Please all right.

Tcf.

And our CEO of international business Ms <unk>.

Following their prepared remarks management will be available to answer your questions.

Before we continue please note that the discussion today will include forward looking statements made under the safe Harbor provision of the United States Private Securities Litigation Reform Act of 1995.

Forward looking statements involve inherent risks and uncertainties.

As such our results may be materially different from the views expressed today.

Number of potential risks and uncertainties are outlined in our public filings with the SEC.

<unk> group does not undertake any obligations to update any forward looking statement, except as required under applicable laws.

On the call today, we will also mentioned adjusted financial measures during the discussion of our performance.

Reconciliations of those measures to comparable GAAP information can be found in our earnings release that was distributed yesterday.

As a reminder, this conference call is being recorded.

Webcast of this conference call as well as supplementary slide presentation is available on export group's website at IR at <unk> Dot com.

With that now I will turn the call over to Mr. <unk> Mr. <unk>. Please.

Good morning America, the Uni, ladies and gentlemen.

Second quarter of 2022.

Sutherland.

And the promising period of our fees.

In China.

Yes.

Colby.

Especially like in mature cities like Shanghai posted a significant challenges to our hotel operations.

Our necessary measures to protect our customers and employees.

Elaborate.

You're carrying.

Great and then Q procedures against the <unk> space.

To provide the support to our franchisees so significant them overcome the cooking classes.

Yeah.

In order to maintain.

The cash.

Issues in it.

Okay.

<unk> conducted a cost reductions.

A very disciplined way.

<unk> streamlining of our headquarters.

On the other hand.

Our European business.

There is a very sales EBIT coverage.

And that the demand for travel to build both ADR and occupancy.

I think in the quarter.

For months at a coveted two similar level.

So it doesn't it.

18.

19.

Did you have a really good trend that continues in the third quarter.

In the past several years Colby.

The geopolitical conflicts.

Many of these reps.

And the challenges to our business.

Facing the uncertainties.

Internal R&D environment.

Environment.

Focusing on <unk>, our call on defense and agility.

Yes.

<unk>.

If he is able to drive it through different economic cycles.

We continue to focus on sustainable quality growth ensuring quality consistency.

Movement for our existing hotels.

New openings.

A follow up.

Therefore.

Continuing to the mall.

Third our hotels include the subsequent our hotel network.

China, our core market, the senior secured market divestment potential.

<unk> increased our market penetration.

The new loyalty tier cities.

In order to close to the local market level.

More.

Our decision making process.

This is Kevin.

Six regional headquarters each.

Each of the quarters.

Very fair.

And volatility, which you will commit.

Ending of the market.

Our customers franchisees and their employees.

We are confident that not too recent.

Recent structure restructure.

Please turn.

Turn it over the.

Management.

All right.

Similar to our quality growth and provide a more opportunities.

These partner partners in the local markets.

Our turning the call to the team to discuss our synergies.

Details please.

She is a tissue.

Finally, we mentioned.

Modular.

Please proceed.

Yes.

Yeah.

So the retail team yesterday.

I shall hand audio.

Thank you Julien.

Matt.

Hello, Rob halfway through.

So we are targeting.

Do you agree with that.

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Beijing.

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Thank God.

Joseph Luisa.

Thank you Jackie.

Sure Let me Firstly, a review of our business Rick business, our China business to Revpar recovery for the quarter. Please.

Please turn to page three.

Due to the impact of target our Revpar recovery reached a bottom in April at only 50, 53% of 2019 level.

Ever since then.

Our revpar recovery started to improve gradually in later losses.

Revpar in July recovered to 90% of 2019 level.

Putting the consideration of our Revpar in Beijing, and Shanghai, only recover to the range of 50% to 60% of 2019 level in July other cities and provinces shows better revpar recovery with over 95% of 2019 level.

It is the type of results for men.

Charge offs.

And then one could.

Alright.

Yes.

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So any tendering youll have on me two more Shenzhen intruder, some pulling it James.

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Chalmers Alcoa Corp.

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Chinese so which you didn't mean.

Jonathan <unk> Goldman Sachs.

Alright, gentlemen.

Jamie Jonathan.

So.

The movie.

Wholesale agenda and breathe quite interesting gene deposit funded.

You grew high teens as a synergy.

So deeply.

If the government in the Kingdom.

As we mentioned in our first quarter earnings Conference call, we started to reinforce cost control measures for our China operations.

In fact, we had some achievements during the quarter. Please turn to page four.

On the rental expenses crowd, we achieved over 16 million RMB rental reduction in the second quarter.

Overhead cost optimization in our headquarter, we reduced the roughly 10% of headcounts in the second quarter compared to the year beginning.

We also mentioned previously that we will continuously center on customers franchisees and employees to build our capabilities to ride through the economic cycle. Therefore in the second quarter, we provided totally RMB $120 million fee waivers for our franchisees.

To help them to overcome the difficulties.

At the same time in order to insist on implementing our sustainable quality growth strategy. We also adjusted and upgraded our organizational structure and have continued to remove ferial hotels from our existing networks.

Julian Segal plenty hardest thing she is a module that you again too.

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Pat facility, which hopefully within second quarter, Chile, <unk> without the funding.

Todd I know you do too way too valuable.

Those are the two eagle with other movie.

Amit.

This is just hitting Dundee this is Jack.

Now the critical Jonathan.

Dan This is on the big Honcho true highest through the closure of the bank.

They are today.

Curious as you can choose your at home soda.

I'm curious.

Jean <unk> designs.

These answers with organization. This is al Qaeda horiuchi bore or true that genius.

I have clearly changed the cheese.

Hotel business is a very localized business.

We are further penetrating into more and more that's kind of traded market.

We started to realize the importance of localized management capability.

Well ask the essential to continue upgrading our organizational structure.

Please turn to page five.

In the fourth quarter last year, we established south China regional headquarter.

And the west of China original headquarter. These two original offices up developing underperforming warehousing Stan.

Therefore, we applied this.

Prs <unk> to the whole country and established six regional headquarters this year.

We changed our organizational structure from previous brand base to original based management and operation for our economic and those scale brand.

There are three key purpose of making such adjustments firstly, a localized the team could have a better understanding on local customers franchisees preferred risks and a faster reaction to the local market changes.

Currently our localized original office could achieve more synergy in terms of operation.

And our marketing and management higher operational efficiency and a shorter decision making process.

Lastly, and it would help us to accelerate our lower tier cities penetration and the development in previous week reagents to achieve our long term sustainable quality growth targets.

Tim I apologize.

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It's equal of course, he has done in this as oxygen <unk> in the Williston versus onshore basins EBIT.

For local agenda that maturity.

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So we're taking that solution.

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In terms of brand and product development, we also insist on sustainable growth strategy.

Based on our own X Prs in a practice in the last three years together with our judgments on the general trends of future consumption upgrading in the China market.

We decided to accelerate exit from economic soft brands Hotel marketing next one or two years.

Please turn to page six.

As you may notice that in previous few quarters, we had already cleaned up mainly in federal economic softer brand hotel pipeline.

And in the next one or two years, we were continuously removed.

Cereal hotels, including soft brand hotels from our existing hotel networks to further improve our quality.

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We teamed with another chamber sensitiveness.

Please turn to page seven.

Our lower tier cities penetration continuously progressing.

As of June 30.

37% of hotel operations, and 56% of hotel seeing pipelines are contributed from lower tier cities.

In the second quarter, 58% of total of 561 year signings are from lower tier cities as well.

City coverage also increased to 1130 cities in the second quarter.

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Sort of on a per Gartner says how far that youll see the accretion.

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Our declining losses.

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Covered yet.

So it will be positive.

Barbara.

Continuing with our sockets.

So all of our other competitors, who are the same deals without that order for vessels of which Glenn will get down.

Down by us towards that.

Hi, Sheila.

Making Jordan Cove.

First of all in Europe .

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So Neil.

Our go down at the end of the project.

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So the early innings.

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Quality enhance G CSF <unk> see data from that.

Some big title Couldnt do that shortly into assets.

Please turn to page eight.

Our mid and upscale hotel segments also processing capacity.

Unlike economic and the Middle scale segment, we keep our organizational structure unchanged for these two segments.

We still use brand based management and operational structure.

These two segments at each brand in the sacraments should have.

Unique and differentiated strategy brand positioning.

Product innovation as well as customer X Prs.

In terms of the future development, we believe our upper mid scale segments is really each harvest.

By the end of June we have total of 445 upper middle scale hotels in operation and a 229 in pipelines in China.

Our leisure brands munching achieved its hundreds of hotels openings milestone recently.

At the same time, we are going to leverage more on our Madison grants to further seek.

Conversion opportunity in the existing market.

Moving to the upscale segment.

Given the recent week property market undeniably, our new signings of newly Butte upscale hotels on next week negatively impacted.

However, Alternatively, we are also focusing more on finding local governments corporations and conversion opportunities in the market to support the future development.

Lastly, our bluestem house and our recently introduced a balloon somehow serious brands.

So well recognized and accepted by the market.

Is really to further tap into the blooming domestic leisure market.

Yeah sure further still holds for the future.

<unk>, yes.

Can you engage either a playful and since we are talking to you soon.

With our earnings in the balance of the Juul Julius battles EBIT.

<unk> total earnings.

ZIP adding set.

The edge solid business recovery continues in the second quarter.

Just turn to page nine.

We saw the Revpar.

Revpar recovery improved and loss over months at recovered to 99% and 100% in May and June and July revpar to already exceed 2019 level with recovery rates of 103%.

Also future, earning.

EBITDA was one <unk>.

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So all of them here.

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Can be equipped with the earnings and Netherlands, if possible.

So those who do.

So we are cognizant of that.

Thank you the calculus.

Change orders as well as <unk> chosen the suite.

The usual <unk>.

So what are you doing.

The agent teams, we're teamed with at the moment.

So we are local so we're both him and the team here.

The settlement itself.

Sudan because of the unit.

Jim Nielsen Linda.

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Okay.

More importantly keep.

Given recent solid recovery, we are now expecting the edges recurring EBITDA to turn positive for the full year of 2022. Please.

Please turn to page 10.

In terms of the business recovery in the second quarter, it's blended revpar recovered to 93% of 2019 level, mainly driven by roughly 10% increase in ADR and the trend continues in the third quarter.

The recovery was mainly driven by leisure traveling and also supported by panned up corporate group demand.

However, although the risk rates on the business recovery was quite solid we continuously come tax rate cost control for the edge, which many increase mainly include headquarter overhead cost reduction operational efficiency improvements.

<unk> control as well as energy efficiency improvements and cost controls.

Lastly for longer term development, we continuously enhanced EHS organizational capability through integration of etch, what digital or distribution capability for efficiency and the direct channel performance.

We launched <unk> rewards membership program for better digital castings, Prs and captured captured the limited service market share in Europe .

By further investing in it of locking in their city kind of Sealy brands.

Yes.

Argued with Jean <unk>.

With that I will turn the call to <unk> to discuss our second quarter operational and financial performance.

Good morning, or good evening, everyone wherever you are.

Move on to our operational and financial review for the second quarter of 2022.

So on page slide.

Our hotels expanded by 12% in the second quarter to 774.

Compared with the second quarter of 2021.

692000, excluding DH Nexium quadrants hotel rooms expanded by 12% year on year to roughly 749000 in this quarter.

While hotel turnover in the second quarter, our total hotel turnover declined by 10% year on year to RMB 11, 8 billion in this quarter it.

It was mainly due to the large scale outbreak of omnicare environment since the late March in China, partially offset by our continued network expansion in China and strong business recovery of our European dignity.

Excluding the H hotel turnover of Nexium far too declined by 19% year on year to RMB $10 3 billion in this quarter.

Turning to page 13, let's be clear to blended revpar for Q2 declined by 31% compared to the 2019 due to the impact of Corona outbreak since mid March the ADR in Q2, 2022 would stop by seven 8% compared to 2019 at.

RMB 218.

Occupancy in Q2, with 22 percentage points lower than 2019, excluding the impact of hotel under recognition Revpar what's happening.

Putting the impact Revpar, what has to recover to 75% of 2019 level.

Turning to page 14.

<unk> ph business recovering further.

Accelerated in the second quarter.

Our legacy ph blended Revpar for Q2 grew by 203 33 percentage to a fixed fee fixed euro compared with Q2 2021.

Although still behind the 2019 level.

Occupancy improved by 35 percentage points compared with Q2, 2021, and ADR increased by nine 935% to 110, euro, which actually exceeded the 2019 level by 10%.

Please see our financial results on slide 15.

Total revenue declined by five 7% year on year to RMB, three 4 billion in Q2, mainly tracked by the 26%.

By the <unk>.

27% of plastic bottles revenue decline in Q2 to RMB two 5 billion next.

<unk> recorded a strong revenue growth of 311% year on year to RMB $921 million.

Revenue was in line with our previous guidance.

The lower Bakken.

Decline of legacy revenue was mainly due to the large scale <unk> outbreak since March breaking down the revenue of Q2 and on the revenue decreased by three 5% to RMB two 4 billion.

Excluding DH leads and on the revenue of slightly flat.

<unk> declined by 28, 7%.

Percent to RMB, one 5 billion.

Total revenue for monetized and franchise hotel declined by top 525% to RMB $945 million, mainly dragged by.

The decline of legacy <unk> business, but offset by the 100% yielding a growth lexical edge.

The $26 seven year on year decline of revenue from <unk> and franchised hotels selective molecule.

Also include roughly 200 million impact from management fee waiver provided for franchisees and also less Crs contribution because the channel change in this quarter.

Due to the strong recovery of flex it.

The managed Reits and franchise revenue contribution temporarily shrank to 27, 9% in Q2 2022, compared with 35% in Q2 2021 at group level.

Collecting quad two despite further expanded hotel networks with asset light model.

<unk> fee waiver provided to franchisee and lower.

Contribution in managed and franchise revenue.

Oh actually reduce the contribution of the Massachusetts and franchise business contribution.

Now, let's move on to the cost and profitability session on slide 16.

Due to the reported operating income was RMB 8 million compared to a positive RMB 629 million last year.

And a lot of $708 million a quarter before.

The large decline of operating income year on year was mainly due to weaker China performance.

Excluding DH Alexi <unk> operating income in Q2, 2022 was RMB $21 million compared to positive income RMB 730, $63 million last year, and a negative RMB 400 $116 million a quarter ago.

The hotel operating cost for 2022 second quarter was RMB 3 billion increased by $8 5 million or eight 5% year on year.

For legacy what you recorded RMB, two 2 billion hotel operating cost, indicating a one 5% year over year decline or a three 9% decline on a Q over Q basis.

Besides the variable cost savings associated with lower occupancy.

Major driver is also roughly RMB 60 million rental cost reduction, which is going to continue in the next few quarters.

Legacy DH, it's recorded RMB 804 million hotel operating cost, indicating a 49% year on year growth.

The increase was mainly due to the increase of variable cost associated with business recovery, such as labor F&B consumable variable rents and et cetera.

Other factors also including the impairment cost of terminating the lease agreements in this quarter and the less rental reduction compared to the same quarter last year.

Our pre opening cost increased by 93% year over year to RMB $31 million in Q2, mainly due to more limited service lease and also <unk>.

The construction during this quarter in China.

However, the absolute dollar amount of pre opening cost remained low as our future expansion of upscale hotels were mainly used asset light model, which we've mentioned in previous quarters as well.

Our SG&A in Q2 declined by seven eight year on year and $12 seven Q on Q to RMB $510 million.

Driven by the decrease in the legacy <unk>, but offset by an increase in legacy ph.

Including the H the SG&A for lexical actually declined by 21% Gilead to RMB $332 million. The decline was mainly attributable to the cost control measures by streamline head count and expenses in headquarter offices as well as less selling expenses along with weak China.

This performance.

On the other hand, DH selling expenses increased.

<unk> aligned with business recovery.

Other operating income in Q2 decreased by 57% year over year to RMB $153 million, because theres much less subsidies received from German government compared to the same quarter last year.

Turning to page 17, our adjusted EBITDA.

RMB 53 million in Q2 compared to RMB 1 billion a year ago.

Th EBITDA turned positive in Q2, 2022 to RMB 30 million compared to a loss of $72 million in 'twenty, one driven by accelerated business recovery.

Excluding GH Nexium quietly we reported an adjusted EBITDA of RMB 23 million compared to RMB, One 1 billion in Q1 2021.

You won.

This is mainly due to the impact of large.

Our scale omnicare environment, a break in this quarter and also there are roughly RMB $400 million foreign exchange loss for occupied.

The SFC crazy depreciation, which are denominated in euro, including our shares in our core our loans to GH and et cetera.

This adjustment is not changed.

Right.

In Q2 2022, we recorded adjusted net loss of RMB $84 million narrowed from a loss of RMB $662 million a quarter ago.

Excluding the H <unk> recorded.

<unk> net loss of $32 million narrowed from a loss of RMB $339 million a quarter ago.

Yeah.

Coming to the cash position, our net debt reduced to RMB five 7 billion by the end of Q2 from RMB 6 billion last quarter.

It was mainly due to the cash.

Generated from operation in this quarter.

Our cash balance was $4 7 billion and the Unutilized Bank facility were 3 billion given the Covid impact remains uncertain in the foreseeable future we remain cautious on Capex and Opex spending to reserve cash.

In addition, we have successfully refinanced.

Our upcoming syndication loan with a total outstanding amount of <unk>.

340 million Euro also we are prepared to meet the possible redemption of 2017 convertible bonds later this year.

Yeah.

Turning to page 20 on guidance.

In the third quarter of 2020.

How do you expect revenue to grow 13% to 17% compared to the third quarter of 2021.

Or to grow 5% to 9%.

Excluding GH on the assumption that there is no.

Large scale omicron outbreak again.

<unk> the floor.

With that let's open up for Q&A. Thank you.

Thank you.

As a reminder to ask a question you will need to press star one one on your telephone and wait for your name to be announced.

Please standby, while we compile the Q&A roster.

I show our first question comes from the line of.

Billy Nice.

From Bank of America. Your line is open.

Hi, good morning.

Well, we don't know when.

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Women's <unk>, Belgium.

There's a powerpoint Tien tsin.

Hi, Sean.

Ralph how are you doing.

Neutral.

Wasn't one.

Got it.

Thomas.

Maintenance revenue.

Our revenue guidance that sometimes Suzanne blanchet.

Lack of Roth conference with Us.

You guys have more of that.

Now what's eagle.

Sometimes youll need to Taiwan.

Basically just want to know whether the.

Recovery trend that we've seen in.

We have seen in July that continue in August and September and what kind of blended revpar assumption.

With that we will use them when we provided revenue guidance for.

This quarter okay.

I believe this is fei.

To your question, we activate so roughly like 85%.

Lending revpar recovery compared to 2019, so quarter.

Mhm.

Thanks for.

For the August .

In September do you think that will be better than July in terms of recovery or worse.

Okay.

Actually I think the August it's actually slightly better than 85%.

88 percentage, if we talk about recovery compared to 2019.

Okay. Thank you that's very useful.

Once he wasn't one second how do you do this well, Mike Hi, Dan the Sogou.

Sure Hi serial number <unk>.

Subito.

What wasn't one that Joseph.

Yes Anita.

My mum closest rollouts.

Two of them in your mail conduct hi, Tien Kensington.

Thank you Tony.

Youll Centennial question.

Okay.

We went out with that.

Choices DRG to the little guys.

So that'll examined in the change.

Do you see other changes.

It is a good example.

Susana itching hornell, because each in making changes.

<unk> two that says you the macondo.

Okay.

That's what it was relative to the changes, which usually goes with talent.

Uh huh.

So no change.

Sue.

So the issue for us.

Uhm.

Alrighty, thanks to the elements.

Each in the sense of the sort of what to do about like I said.

We launched in the us either to the phone.

So the one location to the Dol issue the bonds at Clinton here.

So the EIA openings this year.

Yourself.

And does it feel like if you look just at some good each including academia to them and with others.

Hum.

Can you tell us a tissue.

Yes.

Okay. The element is the bottleneck.

Kinder Morgan.

Sure.

For the second quarter, we actually signed up roughly over 500, new hotels during the quarter, but some of them saw from previous quarters backlogs.

In fact, given the impacts of the Covid as well as.

Economic conditions, a lot of cities, especially for those major cities, we are seeing some slowdown undeniably.

It will have some negative impacts on our new signings for the near future.

Entering into the third quarter.

Evan provision policy has gradually lift.

<unk> improved our.

Our new openings as well as construction for the hotels.

Less impacted from.

The carpet.

But putting all those things together together with corvid and economic conditions, especially for those tier one tier two cities definitely the impact of that going up in Alaska for a while.

Thank you.

Okay.

Yeah.

Next question please.

Yeah.

Thank you.

Our next question comes from the line of Simon Cheung from Goldman Sachs. Your line is open.

Yeah.

CCA and even those presentations you Suzanne <unk>.

Sure.

Neiman comfort.

So the way John .

Sure.

Pi.

Tom would you.

<unk> sure.

<unk>.

Anyway, you found me anymore.

This does conclude leasehold purchases.

John .

Giovanni.

Joe you have the name.

Hugo.

Hi, John .

<unk> is somebody on.

So my first question is relation to the.

Some of the reasons of the exceeding of the soft brands hotel, having seen some of the other competitors actually accelerating.

The positioning of these.

Market sentiment.

Im wondering whether what's the strong rationale reasoning behind salaried and it exists in the market and what's the major challenge that they can foresee in the next one or two years.

Okay. Thank you.

Sure I'll elaborate that.

Since I joined this wasn't the sequential.

Thank you gene.

Okay.

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The photographer and Thunder.

But once a year basis.

With us is in double digits.

Finally, our co gen could pursue the cost around about that sort of in the teens.

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You know when we go with it.

I told him in his answer Jim.

Where to shop with us.

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Beijing. According to each would be the Europeans are the sum of all of them the hospitalist communists rubber trees.

No.

In addition to noncore revenue.

Because on the gymboree with its usually the CIB the tissue the.

John that's a good thing when the charge offs. So you'll that is achieved analog because then you don't realize the one caused almost constant changing what you typically look at IP and all of them.

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Gotcha.

Yeah.

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You are good but you will see that.

And with that kind of thing with Google.

T J.

Okay. So yes.

We think that there is a lot of restaurants are curious on just parts. We also noticed that.

All of our peers.

We are using very different.

Thinking.

Sinking and developing strategies.

<unk> to our peers.

Yes.

Management team as well as our chairman.

<unk> several times in the previous few quarters that weaken the immune system or implementing our sustainable quality growth strategy.

As conditions.

No.

It makes the key decisions. So there's three reasons behind the one in China.

Our judgment on the future.

Trends of the consumption, that's actually especially in the lower tier cities, we are seeing and observing that.

Consumption upgrading.

The major trends in the near future people in those cities are requiring our high quality and a better life.

High quality products and enjoy a better life as the major trends in the future as well.

Secondly, we are also seeing that the governments are actually are putting more strict compliance requirements under regulation on dosing feria products not only in hotels, but also other industries as well.

We think our strategy change online with.

The government team also on the quality growth in the future.

And thirdly is our high confidence in terms of our high quality.

Economic.

Hotel product development, including hunting Apis.

As well as other major brands as well so that's why we make our decision that we cannot accelerate.

<unk> from the softer brad's economic settlements in the next one or two years.

Meanwhile, but when do you some windows.

Steven and then achieving going soon.

Thank you Joe.

Maybe some thoughts on the cost savings on that.

Sure enough.

Jonathan can achieve sustained neither timber.

Nicholas Woodman.

Selling general and Dino <unk> goes home.

It <unk> so.

So my second question.

In relation to the setup of the six regional headquarters.

The company, obviously, we are very successful in terms of.

On joining the cost in the last quarter Im wondering what would you be the implications of these new regional offices to bolt.

The cost as well as <unk> in the coming quarters. Thank you.

Monthly.

Was it included <unk> Orman says.

I'm good.

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We've been teaching cool chasms as Honda.

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Teaching them in the surveys continue at Mcdonalds.

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I think the automotive I think is becoming should the goods with resilient.

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Tim.

All of them.

In.

Spots are included either until.

Do you guys could impact while she shops.

Well, the charters, but lots of them and that's a good.

Further cuts in consort with the move.

Do you have any catch up.

So congrats on Hana <unk> younger backward.

So are there any sort.

The outlook is about some good that team had a quite a view of the Canadian will achieve over to Jonathan.

We're going to engage LSA, England someone went longer.

The truth is that from a tissue that's been good peer data, particularly because it tells us.

Yeah.

Yes.

You may notice we actually.

Making the economic and immuno scale limited service brands.

To the original office and attrition organisational structure from previous Brent base go to the original based it is very obviously that it will be much closer to our local customers franchisees and it becomes higher.

Higher efficiency in terms of the management and operation, especially in the lower tier cities and also it will enable us to build up a more comprehensive localize the supply chain.

<unk> are creating some synergies in terms of the sales and marketing strategies as well definitely we have our.

Our focus on cost control in fact, despite we are building six regional offices, but actually we have assigned some of the people and talent.

From our <unk>.

Previous previous headquarters to the original offices.

Because we are not only aside people from the development front, but also the management front as well.

Yeah.

And in terms of the.

In terms of the overall cost control.

So we can continue.

Continuously.

Control, our total cost, especially under these conditions. Thank you.

Thank you Giovanni.

Hello <unk>.

So yes, so long.

Yes.

Thank you.

Okay.

Even with the Union.

Adam.

This does that mean that the audio.

Consumable.

And lieutenant since then.

So it's all good.

Okay.

So with all that with AC transit.

Yeah.

Yes.

And what types of funding that's awesome.

And then so on.

Thank you Matt.

Eli I think Neal also listen to you guys.

Yes.

Great.

Yes.

Hum.

Thank you this to a very good questions. This is <unk>. So in regards to the softer brands.

Probably everyone knows thats back to a few years ago. There was another brand called <unk> very aggressively enter the in China and it becomes one of the largest hotel groups at that at that year. It makes us makes our thinking about our strategy and we also needs to react.

On their aggressiveness. That's why we also use a very defensive strategy to protect their competitions.

Yes.

Does it somehow.

So again and then Sheila.

Okay.

Sure.

And the chicken coop, which Ian Thats helpful.

Melissa.

Tim is it useful.

Liberty issued with Jaguar.

What do you do more modeling.

Yeah.

Lee with <unk>.

Really boundless.

No that's a model Taiwan.

So just.

Thank you Danielle.

T systems.

One one.

On the <unk>.

Sure.

Union alternative funds.

So she's she said for fiscal <unk>.

That's just the one that didn't.

Uhm.

Okay.

Some of them.

Houston.

Reduce the Vela in Indonesia woman that had been so leaving them with it.

Yeah.

You may now well into the mid <unk>.

The real issue on its own home market.

No.

A woman.

So we won't be all.

No.

And then the meat.

You mean in the Ebola.

Hello.

Okay.

But she is all wildly up to this year.

Absolutely.

You too.

Okay.

Over the last several years of experience in the practice, we actually realized that to those various more SKU hotels, they actually do need the management.

Not the management not the pms not the technology at all so we are also not willing to sacrifice, our brands to helping them or to putting them in our networks.

So in the future we could have some alternatives such as we will empower them by using our technology capability, our supply chain capability to help them to opera.

In the industry.

In the near future, probably next would not two years.

In terms of the gross openings.

Our group's new openings might not be that.

Brian So our outstanding our large SKU that we mentioned several times that we emphasize on our quality growth and.

By leveraging about using the opportunity of.

The coverage, so we actually need to clean up the orders in February all hotels, and make some necessary adjustments internally as well.

In fact, the new our new openings not only our key targets are in the long term our key target in the long term should it be our capability.

Overcome the risk in our capability to be sustainable growth.

Is that you then.

So rami <unk> the Haynesville shale.

Florida was that you thought outstanding level detail.

We have Sean Hannan.

How long can you still get a third yet.

Well that's what.

With humans in the mengel.

And then let alone.

Okay.

Yes. Other companies asked you expanding into some of the brand strategy as well as <unk> is also doing very well in India. Because every company has their own strategy I don't give more comments on this.

Yes.

To get there.

So we'll see how the <unk> rollout.

Alright.

Yes, Bob.

Lula.

What's <unk>.

It kind of diesel.

These are not only able to get them.

Felicia it soon.

So it is a.

While in Louisville Assembly in Basel.

It is the odds of tissue.

Yeah.

And what is it.

It's not.

What is it going to lose those down.

Susan.

Sounds good.

Well most of the police.

As a team.

So on the Hela PCL.

The negative margin in case, you need it.

Yes.

Alright, and adult team will look sort of on a button.

Marshall.

We.

I believe that's a wholesale it no one wanted it so most of the recent deal done.

How do you think thats a good deal.

Yes.

It gives us unique bundle.

No.

Numerous onto the lineup.

Yes.

This was a whole having to that guy and his agenda.

Novartis is bubble no gambling in the bundle.

She mazzola, thanks, guys for that syndrome, that's usable for the.

Florida.

Yes.

Okay.

Yes.

So the captain Bob will tell you that we are ways.

So on lithium.

If you go this is Don.

Wonderful.

The JV.

Some of it is good news.

Sounds good.

On behalf of incentives.

On that one.

Shut them down.

Okay.

In terms of our organizational restructuring.

People might curious that whether we are going to hire a lot of people are increased headcount massively but.

But in fact, we are not.

<unk>.

I have studied a.

Large in terms of the.

Obviously states market Europe markets as well as this.

South American market actually comparing to China, China is big enough and actually each province, and regions have very different cultures and Ah.

Cultures, and a very differentiated such as if you compare Shanghai to achieve eight o'shaughnessy too, which also provinces dose areas are very much differences. So therefore in terms of further penetrating to the local market we have to.

Move forward of our organizational structure to be more closer to the local market.

In fact.

There is a lot of people such as the CEO of those six original headquarters are all aside from our headquarter and we are having more of a talent will be promoted from headquarter too.

Assigned to the original offices.

So each of the original offices will have a very strict cost control they won't be hiring too much of the people.

Actually putting altogether.

In terms of to reaching our target to have 10 to 10000 to 20000 hotels in total in the future and it's very necessary for us to have dose original August to further support to achieve these targets in the future.

Yeah.

Next question. Please thank you.

As a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced.

I show. Our next question comes from the line of CG Lin from CIC.

C J Lynch your line is open.

How does you said why don't you Donald.

Todays conference Outwork oil, even while you can't go to <unk>.

Well don't you Tom.

The issue with our labor shortage.

So let me give you a better life and Sanjay required he was asking cortana all hazards, yeah, you bet and I'm sure you like Changzhou Coke, where you had to Washington.

Now that we have today, there shouldnt, Sean salmon shifts.

So I have a question regarding mid to upscale markets. We measure before there is still potential for China's mid to upscale market. So what preparations have us made a racing.

To accelerate expansion in this segment in the future.

Generally customers all mid to upscale hotels.

Remember benefit so how do we design.

Our member benefits. Thank you.

Although a lot of it is LNG.

We've already millwork and digest a place of growth.

I don't think that that's what mother nature, but the answer is that pushing into all the time.

Some big ones.

Each year with Enel Chile.

<unk> pools, which will show <unk> cinzano edits and exits.

Let me just I mean, it's a handoff.

The cooler here without understanding the seamless.

When she was at Mangala <unk> to the <unk> Tianjin to political issue. This was achieved.

So on the island.

Oh it was on the onshore the tissues.

But some good <unk> with all the timing of our coatings on me.

Jim.

That's N G. They're managing acquisition you guys answered this year timing of Hudson.

So that's been good.

Engage on sheet or the phase <unk>.

I guess, a day without cohorts yet with.

With our shareholders and good quality isn't good.

Hi.

<unk> mentioned that downward tendency of diarrhea.

So as you might think Sia data at <unk>.

<unk>.

Therefore, there were lots of other categories.

Yes.

And then the pay up.

Use of that how do you see the Greensville suite to look at the hedging bhutto's, allowing or early taping out of Chile.

Hi, Brian .

Hum.

No.

Yeah.

On the <unk> because you don't want that's all been.

We're not changing that model.

She always an acquaintance with the Genesis as it.

It fits onto yours versus EG shall mainland so low during that Sunil pinching.

Ambient yields like toys, which.

But the way to the surface.

Tru, so often that would easily triple quads.

What's with an elite.

Yes.

Boswell weak.

Understood.

The <unk> into the gene was I'm not sure those relationships.

If I'm in cardioversion module with <unk>.

Yes.

In premium this year.

If we don't build it based on changes at Google The team get Tulsa element, New York some of that with you.

<unk> foods, yet women's accolades, yet up and do you have a daily.

This achievement niche audience hunting.

<unk> <unk> <unk>.

Can do that.

June two modern <unk>.

<unk> switch.

<unk> see it I mean, that's sort of China.

Wilmington.

Most of the coal to gas is how the whole year.

Change to get to London.

So it's <unk>.

Although this year to walk a couple that are quick wash out somewhat.

With adequate liquidity.

Good quarter.

Quarter, two just as obviously the cool cohort <unk> with your team.

Sure.

How much tissue.

Okay in terms of our Midscale and upscale upper middle scale developments as I mentioned.

In my prepared remarks previously.

Keep progressing Scott any in fact.

<unk> been preparing for this segment for last few years.

Auto was very good at in terms of the upgrading for the limited service, especially in the economic can skew segments before we argue that in terms of the cost control high efficiency, but for the upper middle scale, it's going to change from dose to the branding and the customer.

That's why we spent a few years to experimenting and discussing internally and adjusting our strategy accordingly.

In fact for this particular segment.

We have we have.

Several points firstly is in regarding to the product continuously product and branding.

Upgrades.

We have we have totally fixed brands, including the crystal orange and mature into city.

In Madison, and matching and Novatel as well to have a very differentiated customer service experiences and also in terms of the operation and organization structures, we have three key.

The us business units.

Crystal Orange in it might seem odd to first or business units.

Intercity and mature on our second business unit and the medicine.

Their business units.

Using too.

Catching the culberson opportunity in existing market.

For our membership.

Program and also the member privileges, especially for the upper Middle skill segment, we do.

Have some internal discussions.

And first of all we will have we will keep the core experiment is unchanged just like Amazon Prime members onto ourselves very very strong key core customers ex prs for each of the membership programs, but also in terms of the upper middle scale that we also leverage on each.

Off the brands and the hotel to provide different privileges and customer <unk> Prs. In addition to the core privileges for example, the opportunity it's really depends on each of the brands and the hotel itself.

In probably next half year or six months.

We will also.

Have more.

Adjustments.

And the discussion of thinking on the membership programs together, which the <unk> hospitality.

Yes. Thank you.

That's very clear thank you.

Thank you.

That concludes the Q&A session at this time I would like to turn the call back over to Mr. Jason Chen Investor Relations director for closing remarks.

Thank you everyone for taking your time with US today, and we look forward to connect with you again in upcoming quarter. Thank you bye bye.

This concludes today's conference call. Thank you for participating you may now disconnect.

You bet.

Hi.

The conference will begin to raise your hand during Q&A you can dial one one.

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<unk>.

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Yes.

[music].

Good day and thank you for standing by welcome to the H World Group Conference call. At this time all participants are in a listen only mode. After the speaker presentation there'll be a question and answer session to ask a question you will need to press star one one on your telephone and wait for your name to be announced please be advised that today's.

Conference is being recorded I would now.

To hand, the conference over to your Speaker today, Mr. Jason Chen Investor Relations Director. Please go ahead.

Thank you.

Owning and good evening, everyone. Thanks for joining us today welcome to <unk> group's 2022 second quarter and first half earnings conference call. Joining us today is our founder and chairman Mr. Zhang Our CEO Mr Inquiry.

Our president Mr. <unk>, Zhang our CFO , Ms <unk> <unk>, our deputy CFO , and the CFO and our CEO of international business <unk> Holdings.

Following their prepared remarks management will be available to answer your questions.

Forward looking statements involve inherent risks and uncertainties.

As such our results may be materially different from the views expressed today.

Number of potential risks and uncertainties are outlined in our public filings with the SEC.

<unk> group does not undertake any obligations to update any forward looking statement, except as required under applicable laws.

On the call today, we will also mentioned adjusted financial measures during the discussion of our performance reconciliations of those measures to comparable GAAP information can be found in our earnings release that was distributed yesterday.

As a reminder, this conference call is being recorded the webcast of this conference call as well as supplementary slide presentation is available at what groups website at IR Dot <unk> Dot com.

With that now I will turn the call over to Mr. <unk> Mr. <unk>. Please.

Good morning, and thanks for the G&A, ladies and gentlemen.

In the quarter of 2022.

Okay.

And the promise.

Our fees.

In China.

Yes Colby.

Especially in mature cities like Shanghai posted a significant challenges to our hotel operations.

We took the necessary measures to protect our customers and employees.

Laterally.

You're carrying.

And then Q procedures.

<unk> great.

To provide the support to our franchisees.

Overcome it.

Yes.

Yeah.

In order to maintain.

Healthy cash.

Interest you.

<unk> conducted a cost reduction.

In a very disciplined way.

The streamlining of our hand.

Quarters.

On the other hand.

Our European business.

Compared with the very same fee recovery.

But demand for travel.

Most of the ADR.

During the quarter.

Our most coveted two similar level.

I'm sorry.

Isn't it.

Yes.

Hey team.

Nancy.

Did you comment really just trend that continued in the third quarter.

Okay.

Past several years Colby.

Geopolitical conflicts.

Many of these reps.

And the challenges southeast.

Thank you the uncertainties.

R&D environment.

We focus on.

Jenson our coal.

And the beauty of.

Midland organization.

If you're able to drive it through different economic effects.

We continue to focus on sustainable quality growth.

Turing quality.

The improvement for our existing hotels.

New openings.

You will follow.

Therefore.

Continue to demand.

Third a hotel.

So Glenn.

Hotel network.

China, our core market, the senior care market the divestment potential.

And increase our market penetration.

The new low tier cities.

In order to close to the local markets, maybe even more.

Our decision making process.

Yes.

Six regional headquarters.

Got it.

There is development.

Bruce and the team.

And the spending of the market.

Okay.

Thanks, Rajiv and then please.

We are confident that.

That's a reconstruction.

I'll turn it over to Denise.

Hi.

Similar to our quality growth.

Provide a more opportunities.

Each partner.

In the local market.

Is that our training they call for the day to day.

Scott.

Yes.

Please.

She is your tissue and so on.

Finally, we mentioned our hearts.

Total revpar that wafer Jean Paul.

Yes.

So the C Y you can E mail <unk>.

I shall hand audience.

Joining in the <unk>.

Ventura wafer Tien tsin, so liaisons and intrusive.

Included with Arlington, Nevada, Joseph <unk>.

It was used to call it our <unk> Beijing Jingwei.

<unk> <unk> dilutive.

June <unk> issued aquifer using other Joseph Luisa.

Thank you Gigi.

Sure Let me Firstly review our business.

China business Revpar recovery for the quarter.

Please turn to page three.

Due to the impact of Harvey our Revpar recovery reached a bottom in April at only 50, 53% of 2019 level.

Ever since then our Revpar recovery started to improve gradually in later losses.

Revpar in July recovered to 90% of 2019 level.

Putting the consideration of our Revpar in Beijing, and Shanghai, only recover to the range of 50% to 60% of 2019 level in July other cities and provinces shows rather revpar recovery with over 95% of 2019 level.

It is the type of results for men.

Charge offs.

Some of them.

Alright, you do industry relationships.

<unk> <unk> hundred <unk>.

The Permian <unk> Gen two dual channel.

So it's on Hulu or any timber and youll have Amit.

Two more Shenzhen intruder, some pulling it James.

<unk>.

Well I mean, <unk> <unk> zone.

Got it.

Chinese so which you didn't meet.

<unk> alright.

Alright.

Jamie and geography.

Adi.

Also with agenda equally the acquaintances within GE project timing.

They are already too high it changing is it was essentially <unk>.

Switching gears to government.

Sure.

As we mentioned in our first quarter earnings conference call.

We started to reinforce cost control measures for our China operations.

In fact, we had some achievements during the quarter. Please turn to page four.

On the rental expenses product.

We achieved over 16 million RMB rental reduction in the second quarter.

For overhead cost optimization in our headquarter, we reduced the roughly 10% of <unk>, Inc, second quarter compared to the year beginning.

To help them to overcome the difficulties.

At the same time in order to insist on implementing our sustainable quality growth strategy. We also adjusted and upgraded our organizational structure and the continued to remove.

<unk> hotels from our existing networks.

<unk> policy.

<unk> two.

It was <unk> or the bulletins.

Is it up and do you have binding bids were awesome.

Positive.

Yes, Sheila team for this engine <unk>.

Juniors.

<unk> Finance Corp, Aussie dollar for loans.

Tim you're an algorithm goes through the finance the Codell <unk>.

Gotcha.

Jimmy Choo.

<unk> incurred sundar.

Haiti, which hopefully within oncology <unk> with other clients.

And though you do two way to the other variables.

So that was eagle withheld in the movie.

Amit.

This is just hitting the only this is jonathan.

<unk>.

Don This is on the big Honcho true highest through the culture of the bank.

They are today in two.

As you can choose your own sort of curious gluten season, Jean <unk> designs.

Sean This is al Qaeda voids borrow a true that Jean Pascal.

That's a good way to answer that.

Hotel business is a very localized business.

As we are further penetrating into more and more that's penetrated market.

We started to realize the importance of local license management capability.

Well as the international to continue upgrading our organizational structure.

Please turn to page five.

In the fourth quarter last year, we established stars China regional headquarter.

And the west of China original headquarter Easter.

These two original offices are developing and are performing well since then.

Therefore, we applied this.

Prs <unk> to the whole country.

And established six regional headquarters this year.

We changed our organizational structure from previous brand base to original based management and operation for our economic and May those fuel brand.

There are three key purpose of making such adjustments.

Firstly, a localize the team could have a better understanding on local customers franchisees prefer rents and a faster reaction to the local market changes secondly, a localized original office could achieve more synergy in terms of operation sales and marketing under management higher operational.

Patients and a shorter decision making process.

Lastly, and it would help us to accelerate our lower tier cities penetration and the development in previous week reagents to achieve our long term sustainable quality growth targets.

Tim I apologize.

<unk> hundred 70 portfolio.

Willa.

Joshua tree through changes in ramping graduate nurses.

Well of course, we extend unisys oxygen Jojo.

That's one versus onshore basins, but I thought you said the total panda.

Jimmy let down at maturity.

<unk>.

So that kind of budget cheaper cheaper.

Without changing ranking dodger pitching that solution.

Hey, Doug.

<unk>.

The shoe that region.

In terms of brand and product development, we also insist on sustainable growth strategy.

Based on our own X Prs in the practice in the last three years together with our judgment on the general trends of future consumption upgrading in the China market.

We decided to accelerate exit from economic soft brands Hotel marketing next one or two years.

Please turn to page six.

As you may notice that in previous few quarters, we had already cleaned up mainly in federal economic softer brand hotel pipeline.

And in the next one or two years, we will continuously removed.

The real hotels, including soft brand hotels from our existing hotel networks to further improve our quality.

<unk> <unk> at each year.

So she is simple.

So they do it.

These increases in Sudan.

But dodge with Columbia.

Colombia with essentially.

So bill.

Dr <unk>.

<unk> with INTL.

<unk> light duty vehicles.

Alright.

<unk> was another E chamber sensitiveness.

Please turn to page seven our lower tier cities penetration continuously progressing.

As of June 30.

37% of hotel operations, and 56% of hotel seeing pipelines are contributed from lower tier cities.

In the second quarter, 58% of total of 561, new signings are from lower tier cities as well.

City coverage also increased to 1130 cities in the second quarter.

<unk> bye.

Sure.

So youll see the accretion.

So the U.

<unk> total debt to highway funding versus <unk>.

Got it.

I see.

Way too low declining voice.

<unk>.

Peggy.

Her covered here.

So looking very positive.

Truvada ammo team continued our saw which.

He has to do with some of other competitors.

Thanks Todd.

The vessels are without.

Brian .

Down to hours.

Alright.

Georgia.

The EBITDA margin.

First of all in Europe .

<unk> Santander.

Great.

Our go down to the end of the project.

Through the Azure team with us again.

So the R&D.

Yes.

<unk>.

So I'm pleased with our teams with a loser.

Just wanted to confirm that.

This equals <unk> <unk>.

Hi, Betsy.

Harding <unk>.

Some big HIFU Couldnt do other huge enthusiasm.

Please turn to page eight.

Our mid and upscale hotel segments also crop pricing strategies.

Unlike economic and the Middle scale segment, we keep our organizational structure has changed for these two segments.

We still use brand based management and operational structure.

These two segments as each brand in the segment should have.

Unique and differentiated strategy and brand positioning.

Product innovation as well as customer X Prs.

In terms of the future development, we believe our upper mid scale segments is really each harvest.

End of June we have totaled 445 upper middle scale hotels in operation and a 229 in pipelines in China.

Our leisure brands Miocene achieved.

Hundreds of hotels openings milestone recently.

At the same time, we are going to leverage more on our Madison grants to further.

Conversion opportunity in the existing market.

Moving to the upscale segment.

Given the recent week property market undeniably, our new signings of newly Butte upscale hotels on next week negatively impacted.

However, Alternatively, we are also focusing more on finding local governments corporations and conversion opportunities in the market to support the future development.

Lastly, our Blossom house, and our recently introduced <unk> somehow serious brands.

So well recognized and accepted by the market.

Is really to further tap into the blooming domestic leisure market.

Yeah sure further still holds as you sell some.

<unk> digital yet.

Can you engage either a playful tend to yourself intrusive.

We're really pleased with our earnings in the Netherlands, with the Joe Douglas battles EBIT.

Chilean toehold, earning Julien.

So the EBIT.

The edge solid business recovery continues in the second quarter.

Just turn to page nine we saw.

Revpar recovery improved and loss overhauls at recovered to 99% and 100% in May and June and July revpar to already exceed 2019 level with recovery rates of 103%.

Also.

The earnings or EBITDA.

Walter <unk> of RBC.

So all of them here or is it although pleased with that.

Yes.

Let me be equipped with the earnings.

Is it possible for a bedroom, so those who do.

So we are anyway.

Thank you Doug.

Change orders as well as <unk> chosen so.

How that's useful.

So the hurdle.

Uhm teams in teams with at the moment.

We have overall, so we're both him and the team here.

In the settlement wholesale.

And because of the unit.

Nielsen Linda.

Yes for the tsunami.

<unk> initiatives that you took.

So supervisory team with <unk>.

<unk>.

Yeah.

Sure.

But.

Yes.

Sorry.

More importantly.

Given recent solid recovery, we are now expecting the edges recurring EBITDA to turn positive for the full year of 2022. Please.

Please turn to page 10.

In terms of the business recovery in the second quarter, it's blended revpar recovered to 93% of 2019 level, mainly driven by roughly 10% increase in ADR and a trend continues in the third quarter.

The recovery was mainly driven by leisure traveling and also supported by Panda corporate group demand.

However, although the rate of the business recovery was quite solid we continuously conduct strict cost control 40 edge, which mainly increase mainly include headquarter overhead cost reduction operational efficiency improvements.

<unk> control as well as energy efficiency improvements and cost controls.

Lastly for longer term development, we continuously enhanced EHS organizational capability through integration of AD towards digital or distribution capability for efficiency and the direct channel performance.

Relaunch as rewards membership program for better digital Castex Prs and captured captured the limited service market share in Europe by further investing in it of locking in their city kind of Sealy brands.

Yes.

Argued with Jean <unk> continue.

With that I will turn the call to <unk> to discuss our second quarter operational and financial performance.

Good morning, or good evening, everyone wherever you are.

Move on to our operational and financial review for the second quarter 2022.

So on page slide.

Our hotel rooms.

<unk> by 12% in the second quarter to 774 compared with the second quarter of 2021 of 692000, excluding DH Nexium quadruple hotel rooms expanded by 12% year on year to roughly 749000.

This quarter.

While hotel turnover in the second quarter, our total hotel turnover declined by 10% year on year to RMB 11, 8 billion in this quarter.

Excluding the H hotel turnover of Nexium far too declined by 19% year on year to RMB $10 3 billion in this quarter.

Turn to page 13, let's be clear to blended revpar for Q2 declined by 31% compared to the 2019 due to the impact of Corona outbreak since mid March the ADR in Q2, 2022 was topped by seven 8% compared to the 2019 at.

RMB 218.

Occupancy in Q2 was 22 percentage points lower in 2019, excluding the impact of hotel under recognition Revpar what's happening.

Regarding the impact Revpar, what has recovered to 275% of 2019 level.

Turning to page 14.

<unk> ph business recovering further.

Accelerated in the second quarter.

Our legacy ph blended Revpar for Q2 grew by 203 33 percentage to 56 euro compared with Q2 2021.

Although still behind the 2019 level.

Occupancy improved by 35 percentage points compared with Q2, 2021, and ADR increased by nine 935% to 110, euro, which actually exceeded the 2019 level by 10%.

Please see our financial results on slide 15.

Total revenue declined by five 7% year on year to RMB, three 4 billion in Q2, mainly tracked by the two 6%.

By the almost 27% of <unk> revenue decline in Q2 to RMB, two 5 billion less BPH recorded a strong revenue growth of 311% year on year to RMB $921 million revs.

Revenue was in line with our previous guidance.

The lower Bakken.

Decline of legacy revenue was mainly due to the large scale <unk> outbreak since March breaking down the revenue of Q2 leased and other revenue decreased by three 5% to RMB two 4 billion.

Excluding DH leave and on the revenue of legacy collateral.

<unk> declined by 28, 7%.

Percent to RMB, one 5 billion.

Total revenue from monetized and franchise hotel declined by top 525% to RMB $945 million, mainly dragged by.

The decline of legacy <unk> business, but offset by the 100% yearly growth of legacy ph.

The $26 seven year on year decline of revenue from <unk> and franchised hotels and active partner.

<unk> incurred roughly 200 million impact from management fee waiver provided for franchisees and also less Crs contribution because the channel change in this quarter.

Due to the strong recovery of flexibility.

The <unk> and franchise revenue contribution temporarily shrunk to 27, 9% in Q2 2022, compared with 35% in Q2 2021 at group level.

Selected two despite further expanding hotel networks with asset light model, our management fee waiver provided to franchise and lower.

Contribution in monetize and franchise revenue.

Actually reduce the contribution of the management and franchise business contribution.

Now, let's move on to the cost and profitability session on slide 16.

Due to the reported operating income was RMB 8 million compared to a positive RMB $629 million last year.

And a loss of $708 million a quarter before.

The large decline of operating income year on year was mainly due to weaker China business performance.

Excluding DH legacy modules operating income in Q2, 2022 was RMB $21 million compared to positive income RMB 730, $63 million last year, and a negative RMB 400 $116 million a quarter ago.

The hotel operating cost for 2022 second quarter was RMB 3 billion increased by $8 5 million eight 5% year on year.

For legacy Parker, It's recorded RMB, two 2 billion hotel operating cost, indicating a one 5% year over year decline of three 9% decline on a Q over Q basis.

Besides the variable cost saving associated with lower occupancy.

A major driver is also roughly RMB 60 million rental cost reduction, which is going to continue in the next few quarters.

The legacy DH, it's recorded RMB 804 million hotel operating cost, indicating a 49% year on year growth.

The increase was mainly due to the increase of variable cost associated with business recovery, such as labor F&B consumable variable rents and et cetera.

The factors also including the impairment cost of terminating the lease agreement in this quarter and the less rental reduction compared to the same quarter last year.

Our pre opening cost increased by 93% year on year to RMB $31 million in Q2, mainly due to more limited service needs and also <unk>.

Under construction during this quarter in China.

However, the absolute dollar amount of Preopening costs remained low as our future expansion of upscale hotels were mainly used asset light model, which we've mentioned in previous quarters as well.

Our SG&A in Q2 declined by seven eight year on year and $12 seven Q on Q to RMB $510 million drill.

Driven by the decrease in the legacy <unk>, but offset by the increase in legacy ph.

Including DH the SG&A for electric <unk> declined by 21% Gilead to RMB $332 million. The decline was mainly attributable to the cost control measures by streamline head count and expenses in headquarter offices.

As well as less selling expenses, along with weak China business performance.

On the other hand, DH selling expenses increased.

<unk> aligned with business recovery.

Other operating income in Q2 decreased by 57% year over year to RMB $153 million, because theres much less subsidy received from German government compared to the same quarter last year.

Turning to page 17, our adjusted EBITDA was RMB.

RMB $53 million in Q2, compared to RMB 1 billion a year ago.

<unk> EBITDA turned positive in Q2, 2022% to RMB 30 million compared to a loss of $72 million in 'twenty, one driven by accelerated business recovering.

Excluding GH Nexium factual recorded an adjusted EBITDA of RMB 23 million compared to RMB, One 1 billion in Q1 2021 Q1.

This is mainly due to the impact of large.

Scale omicron environment, a break in this quarter and also there are roughly RMB $400 million foreign exchange loss for occupied.

The SSD crazy depreciation, which are denominated by euro, including our shares in our core our loans to GH and et cetera. However, this adjustment is not temporary.

Temporary.

In Q2 2022, we recorded adjusted net loss of RMB $84 million narrowed from a loss of RMB $662 million a quarter ago.

Excluding the H <unk> recorded.

Adjusted net loss of $32 million narrowed from a loss of RMB $339 million a quarter ago.

Sure.

Coming to the cash position, our net debt reduced to RMB five 7 billion by the end of Q2 from RMB 6 billion last quarter was mainly due to the cash.

Generated from operation in this quarter.

Our cash balance was $4 7 billion and the Unutilized Bank facility were 3 billion given the pull the impact remains uncertain in the foreseeable future we remain cautious on Capex and Opex spending to reserve cash.

In addition, we have successfully refinanced.

Our upcoming syndication loan with a total outstanding amount of the.

340 million Euro also we are prepared to meet the possible redemption of 2017 convertible bonds later this year.

Turn to page 20 on guidance.

In the third quarter of 2020.

Actually expect revenue to grow 13% to 17% compared to the third quarter of 2021.

<unk> to grow 5% to 9%.

Excluding GH on the assumption that there is no.

Large scale omicron outbreak again.

<unk> the floor.

With that let's open up for Q&A. Thank you.

Thank you.

As a reminder to ask a question you will need to press star one one on your telephone and wait for your name to be announced.

Please standby, while we compile the Q&A roster.

I show our first question comes from the line of.

Billy Nice.

From Bank of America. Your line is open.

Hi, good morning, Doug.

Well when you awesome San Diego once you Joseph.

Well, Mike Hohn, Belgium.

And then the pop point, Tim This is Giovanni.

Okay.

Hi, Sean.

Sure.

Ralph how are you doing that guy baber mutual AP.

It wasn't one.

Alright.

Thomas.

<unk> Nikko revenue guidance that sometime soon thank you.

Blanda Roth conference.

You guys. So.

Yes.

Sure.

What's <unk>.

Sure.

Basically just want to know whether the.

Recovery trend that we've seen.

We have seen in July that continue in August and September and what kind of blended assumption.

With that we will use them when we provided revenue guidance for.

This quarter okay.

I believe this is fei.

To your question, we estimate roughly like 85%.

Blended revpar recovery compared to 2019 third quarter.

Okay.

Thanks and for the August .

In September do you think that will be better than July in terms of recovery or worse.

No.

Actually I think the August it's actually slightly better than 85%.

88 percentage, if we talk about the recovery compared to 2019.

Okay. Thank you.

That's very useful and once he wasn't one Joseph <unk>.

Hi.

Hi, Dennis.

So as a high single Lambda <unk> <unk>.

So by door.

Well it wasn't one that Joseph.

Needs Anita.

My main concern.

All right.

And then you'll mail conduct type Yang sin.

<unk> can you tell me.

Youll Centennial question.

Okay.

I think we would have without <unk>.

Choices DRG to the level.

I mean guy so better demand in the change of the.

You too.

The other thing it is a good example.

Susana itching hormone <unk>.

Each of <unk>.

<unk> to debt issued.

The settlement was relative to the changes with which uses equals with talent.

To be assessed on orders.

So the issue for us.

Uhm.

Alrighty, thanks to Oakland element.

Each in the into the <unk>.

Okay.

Do those in the us.

Okay.

Sure the deposit because of content.

So the entire openings this year.

<unk>.

And does it feel like a tier two.

It's been good each including academia to them and will add about that.

So the email to us its issue.

Yes.

Barcelona.

Okay.

Yeah.

The second quarter, we actually signed up roughly over 500, new hotels during the quarter, but some of them saw from previous quarters backlogs.

In fact, given the impacts of the Covid as well as economic conditions.

A lot of cities, especially for those in major cities, we are seeing some slowdown undeniably.

We'll have some negative impacts on our new signings for the near future.

But entering into the third quarter given provision policy has gradually.

It improved.

Our new openings as well as construction for the hotels have less impacted from.

The carpet.

But putting all those things together together with corvid and economic conditions, especially for those tier one tier two cities definitely the impact they're going to go.

In Alaska for a while.

Thank you.

Okay.

Yeah.

Next question please.

Thank you I show.

Our next question comes from the line of Simon Cheung from Goldman Sachs. Your line is open.

Okay.

Sydney Windows presentation of oil you Suzanne <unk>.

Neiman come to John So the way John .

Sure.

Wrapping pie.

Would you do.

<unk>.

Meanwhile, you found me handymen.

I think the leasehold.

John .

<unk>.

The mid <unk>.

Hugo.

Tom Shanghai ramping by the one piece is somebody on.

So my first question is relation to the south.

Some of the reasons of the exceeding of the soft brands hotel, having seen some of the other competitors actually.

Some of the ratings.

The positioning of these.

Market sentiment.

Im wondering whether whats the strong rationale reasoning behind salaried anything that exists in the market and what's the major challenge that they can foresee in the next one or two years.

Thank you.

We'll elaborate that.

That's 100% of sequential.

Thank you gene.

The deposit, which I think will mean.

Awesome, Thanks, you've achieved so.

It's Andrew.

But on a per year basis.

With us is in double digits similar to the call.

<unk> could pursue the cognizant <unk> genes.

<unk>, Inc, or <unk>.

<unk>.

So bumping along towards understanding Jim.

<unk> is one of the hottest would've been in Colorado.

<unk>.

No.

I told him in his answer Jim.

Shelby.

Since he chooses because efficiency.

Deposit.

Beijing, According to each with regard to the sum of all of them the hospitalist covenants registries.

No.

Revenue.

So because of the.

<unk> with its usually the.

The issue there.

Gotcha Gotcha, England, Josh so you'll that is achieved.

It <unk> mean that cause you to look at IP and all of them.

Hum.

<unk> you can.

Gotcha.

Gordon.

Tusa, the CG <unk> and Romania attending the tight you got into the <unk>.

The ranking.

This is.

Could you do that you will have to shoot.

Okay.

Judy.

T J.

Okay. So yes.

We think that there is a lot of the restaurants are curious artist parks, we also noticed that.

One of our peers we.

We are using very different.

<unk> thinking.

Sinking and developing strategies compared to our peers.

Yes.

Our management team as well as our chairman.

<unk> several times in the previous few quarters that weaken the immune system or implementing our sustainable quality growth strategy.

These conditions.

No.

<unk> makes the key decisions. So there are three reasons behind one in China, we our judgment on the future.

Trends of the consumption, that's actually especially in the lower tier cities, we are seeing and observing that consumption upgrading.

The major trends in the near future people in those cities are requiring our high quality and a better life high quality.

Products and enjoy a better life as the major trends in the future as well.

Secondly, we are also seeing that the governments are actually are putting more strict compliance requirements under regulation on dosing feria products not only hotels, but also other industries as well.

We think our strategy change online with.

The government team also on the quality growth in the future.

And thirdly is our high confidence in terms of our high quality.

Economic.

Hotel product development, including hunting Apis.

As well as other major brands as well so that's why we make our decision that we can now accelerate.

Just from the softer brad's economic settlements in the next one or two years.

Meanwhile, the windy some windows.

Steven.

Achieving going soon.

Sounds good.

Could you give me some good cost saving Joseph.

Botswana.

It seems like Jonathan to achieve sustained needed.

EG Newcastle.

<unk> women.

Selling general and Tina Youll go Cheng.

Kandahar.

So my second question is.

In relation to the setup of the six regional headquarters.

The company, obviously very successful in terms of.

On Jordan the cost in the last quarter Im wondering.

Would you be the implications of this new regional offices to.

Both.

The cost as well as the revenue in the coming quarters. Thank you.

Peter.

Was it simply whenever that <unk> good.

Shannon, Florida Gwomeus as Huntley example, with its <unk> product line.

The digestibility gene.

<unk> cool <unk> Honda <unk>.

Thank you.

From a <unk> and the culture of the wounds co locating.

Teaching them on the shelf is continuing with Amazon Peninsula co. Gen. <unk> chocolate that enrollment is a cause issue that gave us a good chuck of understanding.

The automotive I think is becoming should the goods with resilient fee based on Clanswoman.

Timber.

All of them.

Chooses spots will include a pinhead there, although the quality of the credit.

The impact wont choose to shop.

Michelle and Palazzo and that's a good father.

<unk> had some concerns in the Wyoming County, So we will Miss you on the congrats on Hana.

Younger backward.

Some of it or any political the geologists bots. So good that team had the quality of the company will achieve over to Katherine.

Further engage LSA, England at number one on that.

From a tissue.

Dr. David since you alluded to the <unk>.

Yes.

Note that we actually.

Making the economic in EMEA was scaled limited service brands to the original office and attention Organisational structure from previous Brent base that you. The original based it is very obviously that it will be much closer to our local customers franchisees and it becomes higher.

Higher efficiency in terms of the management and operation, especially in the lower tier cities and also it will enable us to build up a more comprehensive localize the supply chain.

<unk>, creating some synergies in terms of the sales and marketing strategies as well.

Definitely we have our.

Our focus on cost control in fact, despite we are building six regional offices, but actually we have assigned some of the people and talent.

From our <unk>.

Previous previous headquarters to the original offices.

Because we are not only a solid people from the development for us, but also the management front as well.

Yeah.

And in terms of the.

In terms of the overall cost control.

So we can continue.

Continuously.

Control, our total cost, especially under these conditions. Thank you.

Oh, Thank you good morning.

Hello <unk>.

So it's holding up well.

Yes.

Thank you.

Yes.

Even when the unit.

<unk>.

This does that mean that.

<unk> consumable.

While in Louisiana.

So what would that be.

Okay.

So with all that.

Yes.

And what types of a foundation that's awesome.

And then so.

Thank you Matt.

Eli as Neil muscles of Amiga.

Monday format.

The Kingwood Anthony CFM.

Hi, Dan.

Thank you this to a very good question. This is <unk>. So in regards to the softer brands.

Probably everyone knows thats back to a few years ago. There was another brand called <unk> very aggressively entered the in China and that becomes one of the largest hotel looks at that at that year. It makes us makes our thinking about the strategy and we also needs to react.

On their aggressiveness. That's why we also use a very defensive strategy to protect their competitions.

Ingo you didn't as Siggi.

Is it some charts.

So again and then sure gladly.

Yes.

Okay.

Sure.

Chickens in Asia, which then thats helpful.

<unk>.

Melissa.

Jim is it useful.

We've enabled Zaghawa, there's always you know more doing it.

Yeah.

Lee with <unk>.

Ashish.

No that's a model for Taiwan.

Pardon.

Yes.

Hey, Julien.

T systems.

One one.

Unbilled easily.

Some volatile union.

But listen RJ.

Yes.

So as.

So Sean.

That's just the one.

On top of your EBIT.

Some of them, who are chasing that Houston will energy reduce vela in Indonesia woman.

So leaving them with it.

Yeah Yeah.

And then what you do.

The real issue on Lasalle.

No.

A woman.

Open mobile monthly.

And then the meat.

I mean in conclusion the anomaly.

John that gives us all the key with anomaly.

It was wildly up till this year.

Absolutely.

You too.

Okay.

Over the last several years <unk> Prs in the practice, we actually realized that to those various more SKU hotels, they actually don't need the management.

Not the management not the pms not the technology at all so we are also not willing to sacrifice our brands.

To helping them or putting them in our networks. So in the future. We could have some alternatives such as we will empower them by using our technology capability, our supply chain capability to help them to operate in the industry.

In the near future, probably next would not two years.

In terms of the gross openings, our group's new openings might not be that.

Brian So our outstanding our large SKU that we mentioned several times that we emphasized on our quality growth and.

By leveraging or by using the opportunity of after.

After COVID-19, so we actually need to clean up the orders in February all hotels, and make some necessary adjustments internally as well.

In fact, the new our new openings are not only our key targets.

In the long term our key target in the long term should it be our capability to overcome the risk in our capability to be sustainable growth.

Is that you then Gibson.

So let me <unk> the Haynesville Juliet is Florida.

In a little detail.

How many how much can you still give it to again gentlemen.

Well, that's all but with humans in the mengel.

And then let alone.

Okay.

Yes. Other companies asked you expanding into some of the brand strategy.

Well as <unk> is also doing very well in India. Because every company has their own strategy I don't give more comments on this.

Yes.

And we'll see how the Gulf, although Google out of Hollywood.

So yes.

Lula.

<unk>.

Yes.

Given the police it.

As soon as the vessel so it is not easy.

This is.

While in Louisville Assembly in Basel.

Yes.

I appreciate you taking this year.

And where does it go.

What is it going to lose those thanks.

And Susan.

It sounds good yeah.

Well most of the police.

It hasn't been.

So.

So on Brazil the negative.

And then Keith you need it.

Yes.

Good day.

Well look that up on our books.

Yeah.

Marshall.

Really that's on wholesale it no one wanted to most of the recent deal done.

How do you fit in there.

Thank you.

Yes.

Thanks, gentlemen.

Julian will live with us with a lot of that.

Yes.

So as a whole how do you see that guy is agenda.

Agenda.

This is Bob Mcdonough abundant data calculation, she Bob for that thanks for that.

It's huge.

Florida Anyhow.

Yes.

And then one last one.

Yes.

So this is Hudson.

I'll tell you that we are.

So on like that even though that may be.

This is Don.

Some of the JV alcohol somewhat it is good news.

Sounds good.

On behalf of incentives.

1000 <unk>.

That's been done.

Okay.

In terms of our organizational restructuring.

My curious that whether we are going to hire a lot of people are increased head count massively but.

But in fact, we are not.

<unk>.

I have studied a.

Large in terms of the.

AG States market Europe markets as well as us.

South American market actually comparing to China, China is big enough.

And actually each province, and regions have very different cultures and.

Our local cultures and a very differentiated such as if you compare Shanghai acuity bait O'shaughnessy too, which also provinces. Those areas are very much differences. So therefore in terms of to further penetrating to the local market we have to.

Move forward.

Of our organizational structure to be more closer to the local market.

<unk>.

There is a lot of you know people such as the CEO of those six original headquarters are all aside from our headquarter and we are having more talent will be promoted from headquarter to <unk>.

To be assigned to the original offices.

For each of the original offices will have a very strict cost control they won't be hiring too much of the people.

Actually putting altogether.

Terms off to reaching our target to have 10 to 10 to 20 hotels in total in the future and there is various necessarily for us to have those original August to further support to achieve these targets in the future.

Yeah.

Next question. Please thank you.

As a reminder to ask a question you will need to press star one one on your telephone and wait for your name to be announced.

I show. Our next question comes from the line of CG Lin from CIC.

C J Lynch your line is open.

How does your body power.

Got you don't know, whether you're going to ask yet Julio Quintana southwest, Ohio, even while you can't go to <unk>.

<unk> hit all Duval Ghansham.

Yes, my issue with our labor shortage.

And the corporate has been excellent.

Yes, sure Sanjay required I guess, asking cortana all hazards.

And I'm sure you like Changzhou quickly a year ago.

Now that we have trade show in Shanghai, we showed them a quick holiday.

I have a question regarding mid to upscale markets. We measure before there is still potential for China's mid to upscale market. So what preparations have made in recent years.

To accelerate expansion in this segment in the future.

And generally customers all mid to upscale hotels.

Remember benefit so how do we design.

I'll remember benefit thank you.

Although it is LNG.

Everybody Millwork and digest.

Thank you Sir.

And that's what mother nature, but the answer is that pushing into the Italian <unk>.

Some big ones.

Each year with Enel Chile.

<unk> foods, which will surely <unk> cinzano down the goods.

That means I mean, it's our Haynesville <unk>.

Could you share with us.

This is Hal.

Sure. This is Michael <unk>.

The new leader, namely the opinion to political issue this was achieved.

Oh it was on the ontologies for reduce it.

Some good <unk> with auto tagging according to <unk> 16.

That's N G dimensioning, the coaching and guidance that the sheer timing involved.

Good afternoon.

Engage on sheet elevates, our schedule with the team there.

Just a day without coverage yet were $1 <unk> acquire needed and good so the general.

<unk> mentioned that downward tendency of diarrhea.

So as you might think <unk> Sanjay.

And Jimmy would you see it.

<unk> the Buda acreage in lots of other data.

Therefore, we thought that <unk> had.

The payout.

And the use of that.

These are <unk> to <unk> <unk>.

With that being either Chile good.

<unk> on the Western Carnival.

Asia.

Anything on the <unk>, because you don't want hassle or.

We're not changing that model.

She always an acquaintance with the Genesis is it fit onto your horses EG shall mainland.

Modern that Enel pinching zombies yields.

Orders, which relate to the surface hub, because they wouldn't tru, so often that would easily tupelo hardwood.

<unk>.

Yes.

Boswell week.

So im going to lenders.

The <unk> come in into the gene was material relationships.

If I may.

<unk>.

Yes, much in premium this year.

If we can build a bit on chunky that cohort it's union personnel in the New York So in order to again minions hunting these year foods yet.

Sure.

Johan <unk>.

Jim and niche audience hunting.

<unk> <unk> <unk>.

Can do that.

June two modern <unk> switch.

<unk> see it I mean, that's all it changes.

Wilmington.

Most of the call joining us is how the whole year and the change to get in there to London.

So it's <unk>.

Although this year to what <unk> was helpful.

Without it.

<unk>.

Which isn't good throughout the.

Quarter, two just as obviously the cohort cohort <unk> with your team.

Sure.

How about tissue.

Okay in terms of our Midscale and upscale upper middle scale developments as I mentioned.

In my prepared remarks previously.

We are.

Keep progressing steadily in fact.

We have been preparing for this segment for last few years.

Auto was.

Good at in terms of the upgrading for the limited service, especially in the economic kind of immuno SKU segments. Before we argue that in terms of the cost control high efficiency, but for the upper middle scale, it's going to change from dose to the branding and the customer experience is that's why we.

Few years to experimenting and discussing internally and adjusting our strategy accordingly.

In fact Oh.

For this particular segment.

We have.

Several points firstly is in regarding to the product continuously product and branding.

Upgrades.

We have we have totally six brands.

<unk> Crystal Orange mature into city.

In Madison, and matching and novelty as well to have liver differentiated customer experiences.

And also in terms of the operation and organization structures.

We have three key.

B use business units.

Crystal Orange in the Miocene August 1st of business units.

Intercity and mature on our second business unit and in Medicine.

The business units.

Using two catching.

Coloration opportunity in an existing market.

For our membership.

Program and also the member privileges, especially for the upper Middle scale segment.

Do you have some internal discussions.

First of all we will have we will keep the core experience is unchanged just like Amazon Prime members onto ourselves very very strong key core customers ex prs for each of the membership programs, but also in terms of the upper middle scale that we also leverage on each of the.

The brands and the hotel to provide different privileges and customer <unk> Prs. In addition to the core privileges for example to afternoon tea.

It really depends on each of the brands in the hotel itself.

And in probably next half year or six months, we will also.

Have more.

Adjustments and the discussion of thinking on the membership programs together, which the thought hospitality yes.

Yes. Thank you.

That's very clear thank you.

Thank you.

That concludes the Q&A session at this time I would like to turn the call back over to Mr. Jason Chen Investor Relations director for closing remarks.

Thank you everyone for taking your time with US today, and we look forward to connect with you again in upcoming quarter. Thank you bye bye.

This concludes today's conference call. Thank you for participating you may now disconnect.

Q2 2022 H World Group Ltd Earnings Call

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