Q4 2022 H World Group Ltd Earnings Call
Speaker 1: Good day and thank you for standing by. Welcome to the H world Q4 2022 earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation there will be a question and answer session. To ask questions during the session you will need to press star 11 on your telephone.
Speaker 1: You will then hear an automated message to advise in your hand is raised. To withdraw your question please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jason Chen, Investor Relations Director. Please go out.
Speaker 2: Thank you. Good morning and good evening everyone. Thanks for joining us today. Welcome to Edgeworth Group 2022 Fourth Quarter and Full Year Earnings Conference call.
Speaker 2: Joining us today is our Chairman, Mr. Jee-Jee, our CEO , Mr. Jin Hui, our CFO , Ms. He Ji-hong.
Speaker 2: Our president is Liu Xingxin.
Speaker 2: Following their prepared remarks, management will be available to answer your questions.
Speaker 2: 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 security litigation reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties.
Speaker 2: As such, our results may be materially different from the views expressed today.
Speaker 2: A number of potential risks and uncertainties are outlined in our public findings with the SEC. Each board group does not undertake any obligations to update any forward-looking statements, except as required under applicable laws.
Speaker 2: On the call today, we will also mention adjusted financial measures during the discussion of our performance. Reconciliation of those measures to comparable GAAP information can be found in our earnings release that was distributed yesterday.
Speaker 2: As a reminder, this conference call is being recorded. The webcast of this conference call, as well as supplementary slides presentation, is available at ir.hworld.com.
Speaker 2: With that, now I will turn the call over to our Chairman, Mr. Ji-Ji. Mr. Ji, please.
Speaker 3: Good morning and good evening everyone. Thank you for joining our call today. 2022 has been a very challenging year for our students in China.
Speaker 3: with strict COVID policies in place for quite a long period of time across countries.
Speaker 3: Our dream is helping thoroughly impact as many people expected.
Speaker 3: However, we have shown strong resilience throughout this difficult time and continue to expand new hotel network.
Speaker 3: I would like to use this opportunity to extend our sensory appreciation to our customers, franchisees, employees and business partners for their support to go through this tough period together.
Speaker 3: No matter how difficult the business environment was, we did not stop developing our company future. Last year, we transformed our Chinese operations throughout, through organizational restructuring and established a firm grant in key regional markets.
Speaker 3: with our six fully equipped regional companies in China, when now we are prepared for penetration in more regional markets.
Speaker 3: lifting the COVID restrictions and as a few folks, economic development.
Speaker 3: We are embracing a strong recovery in the hotel market.
Speaker 3: We believe we are well positioned to capture the growth opportunity.
Speaker 3: This year we will focus on 3K areas. First, we will continue the high quality extension of our auto network.
Speaker 3: This will be largely driven by limited service of hotels.
Speaker 3: especially in low-tiosity and less-penetrated areas.
Speaker 3: Second.
Speaker 3: We were physically developed and established firm ground in middle skill and upper middle skill through multiple brand strategy.
Speaker 3: Last but not least, we will continue to strengthen our organizational and operational capabilities to achieve high operational efficiency.
Speaker 3: and provide a bit of protect and activities to our customers and the web franchisees.
Speaker 3: in our international business.
Speaker 3: We are very glad to report that. They achieved improvements in many operational areas over the last year. For your, for your adjusted EPDOT before impairment, has been positive for the first time since our acquisition.
Speaker 3: In addition, we have achieved significant breakthrough in loyalty programs. Give us yourWHEEZ Capcom Samantha Imagineers
Speaker 3: and the digitalization of operational processes.
Speaker 3: In 2023, we will focus on future margin improvement.
Speaker 3: digitalization, growth of direct sales, and expansion of hotel network.
Speaker 3: This award is full of uncertainties as we cope with the consequences of international monetary policies.
Speaker 3: and a continued regional conflict.
Speaker 3: We refuse to change our core confidence.
Speaker 3: in operations and various platforms to build up our overall resilience.
Speaker 3: We are confident that.
Speaker 3: With our continued innovation in this model and product, we can drive through different challenges and generate sustainable growth for our investors as well as entire ecosystem.
Speaker 3: With this, I will turn it over to Tim Quay.
Speaker 3: This is our turn for Ching-Kui.
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Speaker 2: Although the year of 2022 was full of challenges and difficulties.
Speaker 2: At what group as one of the leading company in the industry still cook the difficulties and made several business progresses during the year.
Speaker 2: Let's firstly discuss our main achievements for next year.
Speaker 2: discuss our main achievements for next Tijuana for the year. Please turn to page three.
Speaker 2: First of all, we kept our sustainable quality growth strategy unchanged.
Speaker 2: During the year, we opened 1,244 hotels.
Speaker 2: Also, we continued to remove inferior hotels from our network and upgrade hotel products across all brands to improve customers' experiences.
Speaker 2: Secondly, we completed our organizational restructuring and established six regional offices to build up a solid foundation for further market penetration and high-quality operations in the future.
Speaker 2: Thirdly, we have conducted good cost control and achieved a rental reduction of around RMB 300 million in 2022 as well as a 15% headcount reduction in our headquarters during the year. Lastly, we waived around RMB 300 million in 2022 as well as a 15% headcount reduction in our headquarters during the year.
Speaker 2: management fee for our franchisees during the tough period last year as we always treat our franchisees as our important business partners.
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Speaker 2: Thank you for your attention.
Speaker 2: Thank you for watching.
Speaker 2: Thank you for your attention.
Speaker 2: We are very glad to see our rough part in China continue to perform well after reopening.
Speaker 2: Please turn to page 4. Since the official announcement of reopening in May-November last year, our China Red Power recovery was up trading month-over-month. Red Power recovered to 74%, 87%, 91% and 96% in last year-October, November , December , and October .
Speaker 2: period between 2023 and 2019.
Speaker 2: However, it also shows the impacts from product mix changes over past years as contribution from mid-scale and upper mid-scale increased, as well as our improving capabilities on ADR optimizations.
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Speaker 2: Please turn to page 5. Looking ahead in 2023, Sustainable quality growth would still be our core strategy for legacy Hwatu business.
Speaker 2: Under this strategy, we will focus on three key areas.
Speaker 2: Firstly, high-quality hotel network expansion through our membrane and flexible hotel strategy to achieve further in-depth penetration in China market.
Speaker 2: Secondly, to achieve new breakthrough development of the Miskill and upper Miskill segments, especially for those brands that we incubated in the past few years, such as Orange, Crystal Orange, Intercity, and Blossom House.
Speaker 2: Thirdly, we will further strengthen our organizational and digitalized operation capability.
Speaker 2: We will discuss each of these three focuses in detail in the following.
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Speaker 2: First of all, we will continue the high quality expansion of our hotel networks, especially in lower tier cities and less penetrated areas.
Speaker 2: First of all, we will continue the high quality expansion of our hotel networks, especially in lower tier cities and less penetrated areas. Please turn to page 6.
Speaker 2: At the end of 2022, we have total 8,411 hotels in operations in China, with net addition of 705 hotels during the year.
Speaker 2: Hotel scene operation in lower tier cities contributed 38% as of 2022, increased by 1% in 2018 compared to last year.
Speaker 2: We have 2,544 hotels in pipeline with lower tier cities contributed roughly 57% which was also increased by one percentage point compared to the last year number of cities coverage for both hotels in operations and pipeline increased to 1,126 cities
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Speaker 4: Thank you for your attention.
Speaker 2: Our hotel network expansion with high quality continued despite COVID impacts last year. Please turn to page 7.
Speaker 2: In terms of new hotel signings, we signed up 2,141 new hotels in the last year.
Speaker 2: Obviously, that was lower than 2,849 hotels we saw in the year of 2021. That was because of the COVID impact and the lower franchisee's confidence level.
Speaker 2: However, given that we are no longer doing the economic soft brand since last year, therefore, if we exclude the impact of the economic soft brand hotels, we actually signed up 2,123 hotels in 2022 compared to 2,477 hotels in the last year.
Speaker 2: The gap was narrowed.
Speaker 2: Similar to the new hotel signings, for the new openings, if we exclude the economics of the brand hotel, we actually opened 1,236 new hotels in year 2022, slightly lower than 1,293 hotels in 2021.
Speaker 2: On the hotel closure front, we totally closed around 539 hotels in 2022. In order to comply with our sustainable quality growth strategy, we continued to close more inferior economic soft brand hotels and hunting 1.0 version products.
Speaker 2: If we exclude this impact, our closure for the year of 2020 was 237 hotels compared to 175 hotels in the year of 2021. At the same time, please note that the total number of hotels in the country is
Speaker 2: Our number of hotel closures was lower than our 600 closures we previously guided in last year, as some hotel closure processes were uncompleted in December last year due to the impact of initial reopening from COVID. Be careful, those hotels may affect our total number of hotel closures for this year.
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Speaker 2: Along with our efforts on continuously improving our hotel quality, the proportion of low-quality hotels were declining consistently. Please turn to page 8.
Speaker 2: For example, number of economic soft brand and hunting 1.0 version hotels only contributed 13.4% by the end of 2022 significantly declined from 25.9% at the end of 2020.
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Speaker 2: At the same time, we continuously strengthen the matrix of our membrane.
Speaker 2: Please turn to page 9. In the Economic and Mid-Skill segment, Reformed, Hunting and G-Brands as our key core brands, and Ni Hao and Orange are complementary brands. We will further enhance our core brands power in the future.
Speaker 4: I hope you will enjoy this video. If you have any questions, please let me know. Please like and subscribe.
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Speaker 2: Please turn to page 10. In terms of our upper mid-skill segment development, we remain using our multi-brush strategy to further penetrate the market.
Speaker 2: Please turn to page 10 in terms of our upper mid scale segment development We remain using our multi brand strategy to further penetrate the market through adjusting and resorting our brand metrics
Speaker 2: We now have A brands in this segment which include Crystal Orange, Intercity, Max, Minachine, Citigo, Madison, Mercure and Novotel.
Speaker 2: At the end of 2022, we have total 523 hotels in operation and 287 hotels in pipeline for this segment.
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Speaker 2: It will be able in a ratherthese operational systems to building arms our organizational and operational system, comprehensively improving on the front of talent reserve.
Speaker 2: digitalization, franchisees and customer services, sales and loyalty programs, supply chain management and sustainable development.
Speaker 2: further improving organizational operational efficiency and creating more value to our franchisees and customers.
Speaker 2: Please turn to page 11.
Speaker 2: In terms of our customer service improvement, we are seeing our customers' ratings on our hotels continuously improving. It demonstrated that our customers are getting more satisfied with our hotel products and services.
Speaker 2: At the same time, customers' negative rating rate is consistently declining, indicating our continuous efforts on improving customers' experiences through providing better services and products.
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Speaker 2: Please turn to page 12. We will focus on three areas to reinforce our sales and marketing and royalty programs. The first one is on the ADR optimization.
Speaker 2: After completing our organizational restructuring and establishing six regional offices,
Speaker 2: Hotels, which located in each region, can set up a more flexible pricing system based on the local market conditions.
Speaker 2: Also, the pricing synergy can be achieved among various brands in each region, and the pricing range for different segments can become more reasonable.
Speaker 2: The second one is continuously enhancement and upgrade of H-WAS loyalty program. By leveraging on the large number of members and traffic, we will further dig the potentials through consistent upgrading and improving our loyalty program, such as the membership's privileges.
Speaker 2: Lastly, we will further improve our sales capabilities on corporate clients. We will continuously develop new top-tier corporate customers and generating more revenue contributed from our corporate clients through group bookings, conferences, banquets, and MICE activities.
Speaker 2: by leveraging our digitalized direct connection capability and closer cooperation with them.
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Speaker 2: The operational efficiency improvements for our leased and owned hotels is also very important for the group. Please turn to page 13.
Speaker 2: Firstly, we will constantly optimize the current list and own hotel portfolios. Those list and own hotels which are not meeting our requirements will probably be early terminated.
Speaker 2: Secondly, we will further improve the operational efficiency of the hotel to reduce the operating cost and improve the profitability for leased and owned hotels.
Speaker 2: Lastly, any new list and own hotel's investment in the future will be mainly determined by the return and strategic considerations, such as the flagship hotels.
Speaker 4: Thank you for watching.
Speaker 4: Next segment data analysis Will be dated in 30 minutes Thank you.
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Speaker 4: Please send to page 14. We will further strengthen our supply chain capability.
Speaker 2: We will provide full supply chain services and conduct in-depth operations to franchisees, as well as continuously upgrading products to achieve better quality products and more standardize the services with lower cost and higher efficiency.
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Speaker 2: Last but not least, we will pay more attention on SG-ESG and along some sustainable development.
Speaker 2: Please turn to page 15. In addition to the continuous efforts on social welfare and employee care in the past, we will make more efforts on ESG this year with three key focuses.
Speaker 2: The first one is to continuously improve and optimize the company's ESG database. The second one is to improve the efficiency of energy and water usage. The third one is to launch more green projects, including green suppliers and green living and so on.
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Speaker 2: I am the CEO of the DHEA. I am the CEO of the DHEA. Thank you. All above are our business reviews for last year and key strategic focuses for this year. With that, now I will turn the call over to our CFO Ms. He Ji Hong to discuss our DH business.
Speaker 2: and our 2022 full year financial performance. Thank you. Hello everyone. Thank you Jing Hui and thank you Jason. Please turn to page 16.
Speaker 1: In our international front, we are very happy to report that DH business achieved robust recovery in 2022 and achieved RMB 134 million adjusted AEDIDA before special write-off impairment and unrealized loss.
Speaker 1: While we are very lucky to be able to capture the market recovery after COVID, this result would not have been possible without the disciplined cost reduction measures and the corporate restructuring effort. In addition, we are very lucky to have the authority of the corporate configuration to monitor the risk of COVID-19. In addition, we are very lucky to have the authority of the corporate configuration to
Speaker 1: We carried out a series of activities to bring the DH business to a new level.
Speaker 1: We rolled out our proprietary digital infrastructure in our hotels. We upgraded our loyalty program Hrewards internationally with enhanced benefits.
Speaker 1: We refresh the brand positioning and products for intercity and sleep hotels.
Speaker 1: And then last but not least, we implemented a new management system to attract the talent for our hotels and our headquarters. Please turn to page 17.
Speaker 1: In 2023,
Speaker 1: DH will focus on four strategic areas. Most importantly, we will continue our effort to improve margin.
Speaker 1: This includes both further improvement of our revenue as well as continued cost discipline.
Speaker 1: Number two, we will continue to invest in direct sales channels.
Speaker 1: with our H-rewards program, our reservation system, as well as mobile web booking platforms.
Speaker 1: We will continue to increase the ratio of direct bookends.
Speaker 1: Number three, we will continue to grow our hotel network by leveraging our strong brand.
Speaker 1: And number four, we will continue to carry out digitization of our core processes.
Speaker 1: Now I will turn to the financial section of today's call.
Speaker 1: Please turn to page 19.
Speaker 1: We all know 2022 was a very difficult year in China due to strict COVID policy.
Speaker 1: Despite the tough operating environment, we managed to grow our hotel network. The number of rooms increased 7% year on year to 809,478 rooms in 2022.
Speaker 1: Our hotel turnover was 49.6 billion renminbi.
Speaker 1: A 9% increase compared to 2021.
Speaker 1: increase compared to 2021.
Speaker 1: Due to restrictions of COVID policies, blended RFPAT for our China business in 2022 was 157 Renminbi.
Speaker 1: This is a decrease of 8.8% compared to 2021 and a 20.5% decrease compared to 2019.
Speaker 1: This was mostly due to lower occupancy, which was 5.5% lower than 2021 and 17.7% lower compared to 2019.
Speaker 1: mostly due to lower occupancy, which was 5.5% lower than 2021 and 17.7% lower compared to 2019. Why not have a slightlyComplete weather with the player in charge?
Speaker 1: In our international business
Speaker 1: The market recovery started in Q2 2022. We achieved 96% REFPA increase compared to 2021, which was driven by 23% of ADR increase and 21% occupancy increase.
Speaker 1: Please turn to page 22.
Speaker 1: In Q4 2022, our total revenue for the group increased by 11% compared to Q3 2022.
Speaker 1: which is mainly due to 66% revenue improvement in our international business.
Speaker 1: For the whole year 2022, our revenue increased by 8.4% year-on-year, which is contributed by 108.5% revenue increase from DH.
Speaker 1: For the whole year 2022, revenue from our China business decreased by 5.3%.
Speaker 1: However, the recovery of our China business accelerated after Chinese government announced the reopening policy in mid-November.
Speaker 1: The overall 4 Q2 022 revenue was at the high end of our guidance.
Speaker 1: despite the fee waiver of RMB 58 million to support our franchisees.
Speaker 1: Please turn to page 23. Operating costs in 4 Q2 022 was 3.4 billion Renminbi and 12 billion for the full year 2022. This includes Renminbi 195 million in total.
Speaker 1: and the minus 294 million for the full year 2022.
Speaker 1: Please turn to page 24.
Speaker 1: Our adjusted EBITDA was ZMMB 398 million in 4Q22 and 610 million for the full year 2022.
Speaker 1: Our China business reported a foreign exchange gain in 4Q22, but this was offset by impairment loss.
Speaker 1: For DH business, adjusted EBITDA in 4Q22 decreased by 68 million Zhemingbi compared to 2021 because of the absence of COVID-related government subsidies.
Speaker 1: which was received in 2022. For the whole group, adjusted net income was minus 255 million renminbi for 4 Q2 022 and minus 1.27 billion renminbi for the full year 2022. Please turn to page 5.
Speaker 1: the normalized EBITDA and the net income here separately.
Speaker 1: As you can see, the adjusted ABA before impairment and a full-res exchange was 1.7 billion NMB for the full year 2022.
Speaker 1: We achieved this level of normalized adjusted ABAIDA due to disciplined cost control measures.
Speaker 1: such as a rental reduction and a streamlining of our headquarters costs. Please turn to page 26.
Speaker 1: We would like to update everyone on the liquidity position as well.
Speaker 1: As of December 31, 2022, our next debt was RMB 4.8 billion.
Speaker 1: And our cash balance is renminbi 5.1 billion. We have unutilised the bank facility of renminbi 2.1 billion.
Speaker 1: We would like to mention here that our cash position was further improved as of today since we did a very successful follow-up public offering of US$300 million in January 2023.
Speaker 1: And we liquidated our core shares at EUR 300 million in February 2023.
Speaker 1: Please turn to page 27. Each year we give a broad guidance for our business in the coming year.
Since China is just starting the recovery trajectory, and we need to further observe the business trends in the economy, we need to make sure that the economy is well-
We remain optimistic, but stay cautious.
We estimate our net revenue in Q1 2023 to grow at about 61 to 65% compared to Q1 2022.
Excluding DH business, our China business is estimated to grow at 53-57%.
For the year, revenue is estimated to grow at 42 to 46 percent and the China business is estimated to grow at 46 to 50 percent.
Gross Hotel Opening Target is estimated at 1400.
And we plan to close about 600 to 650 hotels.
Among the hotels to be closed in 2023, there are substantial numbers of them already not revenue generating but are still going through legal closure procedures due to delay because of the COVID-19 pandemic. A coastline to Beauharn, Los Angeles, is now opening Sunday.
Many of these hotels are soft-bred hotels and hunting 1.0. We will have some of these hotels to be officially taken out of inventory this year.
This concludes our presentation today. Now we can start with Q&A session.
Thank you. At this time we will conduct the question and answer session. As a reminder to ask a question you will need to press star 11 on your telephone and wait for your name to be announced.
To withdraw your questions, please press star 1-1 again. Please stand by while we compile the Q&A roster. The first question comes from the line of Ronald Loom of Bank of America. Please proceed with your question.
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Hi, good morning management. I have two questions. The first question is about the revenue guidance. So based on the first quarter revenue guidance for domestic China, the first quarter revenue
growing 53 to 57 percent and the full year revenue growing 46 to 50 percent. What would be the rough part recovery assumptions that the management is putting in right now? The second question is about the global expansion strategy. So what would be the next step for the global expansion strategy in this year and next year?
Would management still consider further mergers or acquisitions to complement the brand portfolios? Thank you very much.
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quite strong in the beginning of this year. And we are seeing the Ref-POD recovery was mainly driven by the ADR. However, we are still seeing the business traveling, I mean especially the business traveling still has some gap compared to the normal year. That's why the OCC was having some gap as well. So by considering all the factors in terms of the revenue guidance.
So by considering all the factors which we mentioned before, the REP new guidance actually implies the REP power recovery compared to the same period of 2019 was around 110%.
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Okay, so I will give you a little bit introduction to solve our strategy focus for the 2023. So basically, as you can see, after the reopening in the first quarter, we are seeing a quite strong demand in the China market, especially during the Chinese New Year. So we are still being very confident in terms of the demand in China and the growth potentials in the future. So definitely, so our
by improving the profitability as well as the customer's experiences. But at the same time, we will be looking for some of the opportunity and the potentials in the global market if there is something suitable.
I can add a little bit of flavor to our international business. Since the acquisition of DH, this business, DH business has been our base.
for our international expansion. After the COVID difficult time, we have seen really good turnaround of the business.
So starting in 2023, we will continue to use the Edge as a base for our international expansion.
So the basic what Mr. Jing Hui mentioned was really to improve the operations of DH but also further expand the DH brand in different markets. For example, we have good inroads into the Middle East as well.
For the international expansion in other areas, we remain optimistic for the further M&A opportunities. But I would say DH is our first and most priority at this moment.
Please proceed with your question.
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So I will ask a follow-up with English in the questions. I think Ronald earlier asked also about the 2023 revenue guidance and the implied RAPPA for the full year. I would like to see whether you can provide us the RAPPA guidance for the full year. And also that you know...
default acceleration, a guidance of accelerations in the hotel ads from 1.2 thousand to 1.4 thousand. You know, wondering whether you have seen a bit more appetite by the investors, hotel investors to come back into the market and also whether you have any update on the southern China regional office strategy. Thank you. At that point, you have a show.
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we are seeing a pretty good recovery from the leisure market. So in terms of the RFPAT, I mean in terms of the blended RFPAT recovery compared to the same period of 2019, the current full year revenue guidance implies the blended RFPAT will recover to 110-115% compared to the same period of 2019.
improving as well, especially post the Chinese New Year. So from the number front, we are seeing good trends in terms of the new signings and pipeline increase, which is slightly better than our previous expectations. And in terms of the less penetrated market development, not only the southern part of China, like for example, the central.
development in those particular regions. And we are still remain very confident in terms of the growth potentials over there, mainly leveraging our flagship stores strategy as well as our membrane development.
One moment for our next question.
Our next question comes from a mind of C.G. Lin of CICC. Please proceed with your question.
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Considering its positioning economy hotels, is it quite similar with Orange Hotel's positioning in mid-scale hotels? And what is Nihon Hotel's opening target in the future? And also, what's the difference in the room numbers and reptile compared with hunting? Thank you. Hello. Hello.
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So to answer your questions, so actually along with our strategy with the lower tier cities penetration
hunting brands key customers or target customers. So as you know, hunting was positioned as a very unique business traveling product. And to fulfill those kind of new demand in the lower tier cities, we incubated our Ni Hao brand starting from 2020. And what we are targeting is to further penetrating the very mass market.
Thank you. At this time, I would now like to turn back to Jai-Hing Chen for closing remarks. Thank you everyone for taking your time with us today and we look forward to see you in the upcoming quarter. Thank you. Bye-bye. That concludes today's conference call. Thank you for participating. You may now disconnect.
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Good day and thank you for standing by. Welcome to the H world Q4 2022 earnings conference call. At this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session. To ask questions during the session, you will need to press star 11 on your telephone.
You will then hear an automated message to advise on your hand is raised. To withdraw your question please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jason Chen, Investor Relations Director. Please go ahead. Thank you. Good morning and good evening everyone. Thanks for joining us today.
Welcome to Edgeworth Group 2022 Fourth Quarter and Full Year Earnings Conference Call.
Joining us today is our Chairman, Mr. Jee-Jee, our CEO , Mr. Jin Hui, our CFO , Ms. He Ji-hong.
today is our chairman Mr. Jiqi, our CEO Mr. Jing Hui, our CFO Mr. Ji Hong, our president Mr. Liu Xingxin
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 security mitigation 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. A number of potential risks and uncertainties are outlined in our public findings with the SEC. Each board group does not undertake any obligations to update any forward-looking statements except as required under applicable laws.
On the call today, we will also mention adjusted financial measures during the discussion of our performance. Reconciliation 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 slides presentation is available at ir.hward.com.
With that, now I will turn the call over to our Chairman, Mr. Ji Chi. Mr. Ji, please. Good morning and good evening everyone. Thank you for joining our call today. 2022 has been a very challenging year for our students in China. We've seen big Covid policies in place for quite a long period of time across countries.
Our business has been seriously impacted, as many people expected. However, we have shown strong resilience throughout this difficult time and continue to expand New Hotel Network. I would like to use this opportunity to...
extend our sensory appreciation to our customers, franchisees, employees, and business partners for their support to go through this tough period together. No matter how difficult the business environment was, we did not stop developing our company fitter.
Last year, we transformed our Chinese operations throughout through organizational restructuring and established a firm grant in key regional markets.
With our six fully equipped regional companies in China, we are now well prepared for penetration in more regional markets.
With China lifting the COVID restrictions and the few focus economic development, we are embracing a strong recovery in the hotel market.
We believe we are well positioned to capture the growth opportunity. This year we will focus on 3K areas. First, we will continue the high quality expansion of our network.
This will be largely driven by limited service of hotels, especially in low-tier cities and less-penetrated areas.
by limited service hotels, especially in low tier cities and less penetrated areas. Second
We will further develop and establish firm grants in middle-skill and upper-middle-skill through multiple brand strategies. Last but not least, we will continue to strengthen our organizational and operational capabilities to achieve high operational efficiency and provide a better protect and services.
to our customers as well as the franchisees. In our international business, we are very glad to report that we achieved the improvement in many operational areas over the last year. For your adjusted EPDOT before impairment, we have been positive for the first time since the pandemic.
our acquisition. In addition, we have achieved significant breakthrough in loyalty programs, direct sales channel development, and the digitalization of operational processes.
In 2023, we will focus on future margin improvement, digitalization, growth of direct sales, and expansion of hotel network.
This award is full of uncertainties as we cope with the consequences of international monetary policies.
and continued regional conflicts. We will further change our core confidence in operations and various platforms to build up our overall resilience.
We are confident that.
With our continued innovation in finished models and products, we can drive us through different challenges and generate sustainable political growth for our investors as well as the entire ecosystem. This is our turn for today.
Thank you.
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I hope you enjoyed this video. Please subscribe to my channel. Thank you for watching. Please subscribe to my channel.
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Although the year of 2022 was full of challenges and difficulties, Edgeworth Group, as one of the leading companies in the industry, still cooped the difficulties and made several business progress during the year.
Let's firstly discuss our main achievements for the next QIHU for the year. Please turn to page 3. In the years of war, we kept our sustainable quality growth strategy unchanged.
During the year, we opened 1,244 hotels. Also, we continued to remove inferior hotels from our network and upgrade hotel products across all brands to improve customers' experiences. Secondly, we completed our organizational restructuring and established six regional offices and six regional offices.
to build up a solid foundation for further market penetration and high quality operations in the future. Thirdly, we have conducted good cost control and achieved a rental reduction of around RMB 300 million in 2022 as well as a 15% headcount reduction in our headquarters during the year.
Lastly, we waived around RMB 300 million management fee for our franchisees during the tough period last year as we always treat our franchisees as our important business partners.
For those who want to see more videos like this, please subscribe to our channel. Please subscribe to our channel. Please subscribe to our channel. Please subscribe to our channel.
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We are very glad to see our rough part in China continue to perform well after reopening.
Please turn to page 4. Since the official announcement of reopening in May-November last year, our China Red Power recovery was up trading month-over-month. Red Power recovered to 74%, 87%, 91% and 96% in last year-October, November , December and January this year respectively.
In February 2023, Refpar further recovered to 140% of 2019 level. The recovery rate in February was mainly impacted by the timing mismatch of Chinese New Year holiday period between 2023 and 2019. However, it also shows the impacts from product mix changes over past years as contribution from mid-skill and upper mid-skill increased, as well as our improving capabilities on ADR optimizations.
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Design of the new design will be a key part of the development of the new design. Please turn to page 5. Looking ahead in 2023, sustainable quality growth would still be our core strategy for legacy Hwaju business.
Under this strategy, we will focus on three key areas. Firstly, high-quality hotel network expansion through our membrane and flagship hotel strategy to achieve further in-depth penetration in the China market.
Secondly, to achieve new breakthrough development of mid-scale and upper-mid-scale segments, especially for those brands that we incubated in the past few years, such as Orange, Crystal Orange, Intercity, and Blossom House. Thirdly, we will further strengthen our organizational and digitalized operation capability.
We will discuss each of these three focuses in detail in the following.
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First of all, we will continue the high quality expansion of our hotel networks, especially in lower tier cities and less penetrated areas. Please turn to page 6. At the end of 2022, we have total 8,411 hotels in operations in China, with net addition of 705 hotels during the year.
Hotels in operation in lower tier cities contributed 38% as of 2022, increased by 1% compared to last year. We have 2,544 hotels in pipeline, with lower tier cities contributed roughly 57%, which was also increased by 1% compared to last year. Control of cities coverage for both hotels in operations and pipeline increased to 1,000
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Our hotel network expansion with high quality continued despite COVID impacts last year. Please turn to page 7.
In terms of new hotel signings, we signed up 2,141 new hotels in the last year. Obviously, that was lower than 2,849 hotels we signed in year of 2021. That was because the COVID impact and the lower franchisees confidence level.
However, given that we are no longer doing the economic soft brand since last year, therefore, if we exclude the impact of economic soft brand hotels, we actually signed up 2,123 hotels in 2022 compared to 2,477 hotels in the last year.
the gap was narrowed. Similar to the new hotel signings, for the new openings, if we exclude the economics of the brand hotel, we actually opened 1,236 new hotels in year of 2022, slightly lower than 1,293 hotels in 2021.
soft brand hotels and hunting 1.0 version products. If we exclude this impact, our closure for the year of 2020 was 237 hotels compared to 175 hotels in year of 2021.
At the same time, please note that our number of hotel closures was lower than our 600 closures we previously guided in last year, as some hotel closure processes were uncompleted in December last year due to the impact of initial reopening from COVID. Therefore, those hotels may affect our total number of hotel closures for this year.
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Along with our efforts on continuously improving our hotel quality, the proportion of low-quality hotels were declining consistently. Please turn to page 8.
For example, number of economic soft brand and hunting 1.0 version hotels only contributed 13.4% by the end of 2022 significantly declined from 25.9% at the end of 2020.
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We continuously strengthen the metrics of our membrane. Please turn to page 9. In the economic and the mid-skill segment, we formed Hanqing and G-brand as our key core brands, and Nihao and Orange are complementary brands. We will further enhance our core brands power in the future.
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Please turn to page 10. In terms of our upper-mid scale segment development, we remain using our multi-brand strategy to further penetrate the market. We are adjusting and resorting our brand metrics.
We now have A brands in this segment, which include Crystal Orange, Intercity, Max, Mind Machine, Citigo, Madison, Mercure and Novotel. At the end of 2022, we have total 523 hotels in operation and 287 hotels in pipeline for this segment.
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H-World is also committed to continuously upgrading and strengthening our organizational and operational system, comprehensively improving on the front of talent reserves, digitalization, franchises and customer services, sales and loyalty programs, supply chain management.
and sustainable development, further improving organizational operational efficiency, and creating more value to our franchisees and customers. Please turn to page 11. In terms of our customer service improvement, we are seeing our customers' rating on our hotels continuously improving. It demonstrated that our customers are getting more satisfied with our hotel products and services.
At the same time, customers' negative rating rate is consistently declining, indicating our continuous efforts on improving customers' experiences through providing better services and products.
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Please turn to page 12. We will focus on three areas to reinforce ourselves and marketing and
The second one is continuously enhancement and upgrade of H-WAS loyalty program. By leveraging on the large number of members and traffic, we will further dig the potentials through consistent upgrading and improving our loyalty program, such as the membership's privileges.
Lastly, we will further improve our sales capabilities on corporate clients.
We will continuously develop new top-tier corporate customers and generate more revenue contributed from our corporate clients through group bookings, conferences, banquets, and MICE activities by leveraging our digitalized direct connection capability and closer cooperation with them.
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The operational efficiency improvements for our list and own hotels is also very important for the group. Please turn to page 13. Firstly, we will constantly optimize the current list and own hotel portfolios. Those list and own hotels which are not meeting our requirements will probably be early terminated.
Secondly, we will further improve the operational efficiency of the hotel to reduce the operating cost and improve the profitability for leased and owned hotels. Lastly, any new leased and owned hotels investment in the future will be mainly determined by the return and strategic considerations, such as the flagship hotels. Thank you for your attention.
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Please send to page 14. We will further strengthen our supply chain capability.
We will provide full supply chain services and conduct in-depth operations to franchisees, as well as continuously upgrading products to achieve better quality products and more standardize the services with lower cost and higher efficiency.
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We will pay more attention on SG-ESG and long-term sustainable development. Please turn to page 15. In addition to the continuous efforts on social welfare and employee care in the past, we will make more efforts on ESG this year with three key focuses.
The first one is to continuously improve and optimize the company's ESG database. The second one is to improve the efficiency of energy and water usage. The third one is to launch more green projects, including green suppliers and green living and so on.
I am the CEO of CFO He Ji Hong. I am the CEO of DHEU, the CEO of HUOI. Thank you. All above are our business reviews for last year and key strategic focuses for this year. Now I will turn the call over to our CFO Ms He Ji Hong to discuss our DH business.
and our 2022 full year financial performance. Thank you. Hello everyone. Thank you Jing Hui and thank you Jason. Please turn to page 16.
In our international front, we are very happy to report that DH business achieved robust recovery in 2022 and achieved RMB 134 million adjusted EDI before special write-off impairment and unrealized loss. While we are very lucky to be able to capture the market recovery after COVID, we are very happy to report that the market recovery is now over.
This result would not have been possible without the disciplined cost reduction measures and the corporate restructuring effort. In addition, we carried out a series of activities to bring the DH business to a new level.
We rolled out our proprietary digital infrastructure in our hotels. We upgraded our loyalty program H-rewards internationally with enhanced benefits. We refreshed the brand positioning and products for intercity and sleep hotels. And then last but not least, we implemented a new management system.
to attract the talent for our hotels and our headquarters. Please turn to page 17.
In 2023, DH will focus on four strategic areas. Most importantly, we will continue our effort to improve margins.
This includes both further improvement of our revenue as well as continued cost discipline. Number two, we will continue to invest in direct sales channels.
With our H-rewards program, our reservation system, as well as mobile web booking platforms.
We will continue to increase the ratio of direct bookings. Number three, we will continue to grow our hotel network by leveraging our strong brand. And number four, we will continue to carry out digitization of our core processes.
Now I will turn to the financial section of today's call. Please turn to page 19. We all know 2022 was a very difficult year in China due to strict COVID policy. Despite the tough operating environment, we managed to grow our hotel network.
The number of rooms increased 7% year on year to 809,478 rooms in 2022. Our hotel turnover was 49.6 billion renminbi, a 9% increase compared to 2021. Page 20
Due to restrictions of COVID policies, blended red part for our China business in 2022 was 157 renminbi.
This is a decrease of 8.8% compared to 2021 and a 20.5% decrease compared to 2019. This was mostly due to lower occupancy.
which was 5.5% lower than 2021 and 17.7% lower compared to 2019.
5.5% lower than 2021 and 17.7% lower compared to 2019. Page 21. Page 27 of 32
In our international business, the market recovery started in Q2 2022. We achieved 96% REP increase compared to 2021, which was driven by 23% of ADR increase and 21% occupancy increase. Please turn to page 22.
In Q4 2022, our total revenue for the group increased by 11% compared to Q3 2022, which is mainly due to 66% revenue improvement in our international business. For the whole year 2022, our revenue increased by 8.4% year on year.
after Chinese government announced the reopening policy in mid-November. The overall full Q22 revenue was at the high end of our guidance despite fee waiver of renminbi 58 million to support our franchisees.