7 Days Group Holdings Limited Announces Unaudited 2012 First Quarter Financial Results

GUANGZHOU, China, May 9, 2012 /PRNewswire-Asia-FirstCall/ -- 7 Days Group Holdings Limited ("7 Days Group" or the "Company") (NYSE: SVN), a leading and fast growing national economy hotel chain based in China, today announced its unaudited financial results for the first quarter 2012.

First Quarter 2012 Financial Highlights

• Total net revenues for the first quarter 2012 increased by 29.6% year-over-year to RMB545.0 million (US$86.5 million)[1].
  
• Income from operations for the first quarter 2012 was RMB23.3 million (US$3.7 million), compared to RMB7.4 million in the first quarter 2011. Non-GAAP income from operations for the quarter was RMB32.2 million (US$5.1 million), compared to RMB18.2 million for the same period in 2011. 
  
• EBITDA for the first quarter 2012 was RMB105.8 million (US$16.8 million), an increase of 69.1% year-over-year from RMB62.5 million for the same period in 2011. Adjusted EBITDA for the quarter was RMB114.6 million (US$18.2 million), an increase of 56.4% year-over-year. EBITDA margin was 19.4% compared to 14.9% in the same period in 2011. Adjusted EBITDA margin was 21.0%, compared to 17.4% in the prior year period. 
  
• Net income attributable to the Company's ordinary shareholders was RMB19.0 million (US$3.0 million), compared to RMB4.3 million for the same period in 2011. Non-GAAP net income attributable to the Company's ordinary shareholders was RMB27.8 million (US$4.4 million), representing a year-over-year increase of 84.3%.
  
• Basic and diluted earnings per ADS[2] were RMB0.38 (US$0.06). Non-GAAP basic and diluted earnings per ADS were RMB0.56 (US$0.09) and RMB0.55 (US$0.09), respectively.
  
• Net operating cash inflow was RMB93.8 million (US$14.9 million), compared to RMB97.5 million in the same period in 2011.
  

First Quarter 2012 Operational Highlights

• Added 100 net hotels, comprising 6 net leased-and-operated hotels and 94 net managed hotels in the first quarter 2012.
  
• As of March 31, 2012, 7 Days Group had 1,044 hotels in operation, consisting of 417 leased-and-operated hotels and 627 managed hotels, representing a total of 104,191 rooms covering 162 cities.
  
• As of March 31, 2012, there were a total of 189 hotels in the pipeline, including 30 leased-and-operated hotels under conversion and 159 managed hotels contracted but not yet opened.
  
• For the first quarter 2012, occupancy rates for leased-and-operated hotels, managed hotels and all hotels were 79.5%, 76.3% and 77.7%, respectively, compared to 85.7%, 79.0% and 82.8%, respectively, in the first quarter 2011. The year-over-year decrease in occupancy rates was mainly due to the higher number of new hotels in operation compared to the prior year period. RevPAR[3] for leased-and-operated hotels was RMB128.8 in the first quarter 2012, compared to RMB134.5 in the same period in 2011. RevPAR for managed hotels for the period was RMB116.0 in the first quarter 2012, compared to RMB115.8 for the same period in 2011. 
  
• As of March 31, 2012, the number of 7 Days Club members was approximately 38.6 million, a 108.0% increase from 18.6 million as of March 31, 2011.
  

Recent Business Developments:

Mr. Alex Nanyan Zheng, 7 Days Group's Co-Chairman of the Board of Directors and Chief Executive Officer, commented, "We are pleased to report solid results for the first quarter of 2012. Our financial performance was in line with our expectations and was mainly driven by the performance of our existing hotels as well as new hotel openings. Our outlook for the remainder of 2012 is favorable, as we believe the rapid expansion of our hotel portfolio will help to drive continued growth in revenue and profitability, which we believe will ultimately create greater value for our shareholders."

First Quarter 2012 Unaudited Financial Results

Gross revenues. Gross revenues for the first quarter of 2012 were RMB577.6 million (US$91.7 million), representing a year-over-year increase of 29.1% from RMB447.4 million in the first quarter 2011.

Gross revenues from leased-and-operated hotels. Gross revenues from leased-and-operated hotels for the first quarter 2012 amounted to RMB519.5 million (US$82.5 million), representing a 28.0% increase from RMB405.7 million in the first quarter 2011. 

Gross revenues from managed hotels. Gross revenues from managed hotels for the first quarter of 2012 increased by 39.7% to RMB58.2 million (US$9.2 million) from RMB41.6 million in the same period in 2011, and increased by 14.4% from RMB50.9 million in the fourth quarter 2011. During the first quarter 2012, the Company opened 94 net managed hotels.  

Total net revenues. Total net revenues for the first quarter of 2012 totaled RMB545.0 million (US$86.5 million), representing a year-over-year increase of 29.6% from RMB420.7 million in first quarter 2011, primarily resulting from the continued growth in the number of hotels in operation.

Hotel operating costs. Hotel operating costs for the first quarter of 2012 were RMB466.5 million (US$74.1 million), or 85.6% of total net revenues, compared with 86.0% of total net revenues in the first quarter 2011 and 77.5% of total net revenues in the fourth quarter 2011. Pre-opening expenses for the first quarter 2012 were RMB15.4 million (US$2.4 million), compared to RMB11.0 million (US$1.8 million) in the first quarter of 2011.

Sales and marketing expenses. Sales and marketing expenses for the first quarter of 2012 were RMB12.5 million (US$2.0 million), or 2.3% of total net revenues, compared with 2.7% of total net revenues in the same period of 2011 and 3.4% in the fourth quarter 2011.

General and administrative expenses. General and administrative expenses for the first quarter 2012 were RMB42.8 million (US$6.8 million), or 7.9% of total net revenues, compared to RMB40.3 million, or 9.6% of total net revenues in the same period of 2011, and RMB69.5 million, or 12.7% of total net revenues in the fourth quarter of 2011.

Accordingly, total operating costs and expenses amounted to RMB521.7 million (US$82.8 million), representing 95.7% of total net revenues, compared to 98.2% of total net revenues in the same period of 2011 and 93.6% in the fourth quarter 2011.

Income from operations. Income from operations for the first quarter 2012 was RMB23.3 million (US$3.7 million), compared to RMB7.4 million in the first quarter 2011 and RMB34.9 million in the fourth quarter 2011. Non-GAAP income from operations was RMB32.2 million (US$5.1 million), compared to RMB18.2 million for the same period of 2011 and RMB44.5 million in the fourth quarter 2011.

EBITDA. EBITDA for the first quarter 2012 was RMB105.8 million (US$16.8 million), an increase of 69.1% year-over-year from RMB62.5 million for the same period in 2011. Adjusted EBITDA for the quarter was RMB114.6 million (US$18.2 million) an increase of 56.4% year-over-year. EBITDA margin was 19.4% compared to 14.9% in the same period in 2011. Adjusted EBITDA margin was 21.0% compared to 17.4% in the prior year period.

Interest expense. Interest expense for the first quarter 2012 was RMB6.4 million, (US$1.0 million) compared to RMB0.3 million for the same period of 2011 and RMB4.6 million in the fourth quarter 2011.

Income tax expense. Income tax expense for the first quarter 2012 was RMB7.3 million (US$1.2 million), compared to RMB3.4 million in the same period of 2011 and RMB2.5 million in the fourth quarter 2011.

Net income attributable to 7 Days Group Holdings Limited ordinary shareholders. Net income attributable to 7 Days Group Holdings Limited ordinary shareholders was RMB19.0 million (US$3.0 million) in the first quarter 2012, compared to RMB4.3 million in the first quarter 2011 and RMB35.2 million in the fourth quarter 2011.

Non-GAAP net income. Non-GAAP net income was RMB27.8 million (US$4.4 million), compared to Non-GAAP net income of RMB15.1 million for the first quarter 2011 and Non-GAAP net income of RMB44.8 million in the fourth quarter 2011.

Basic and diluted earnings per ADS. Basic and diluted earnings per ADS were RMB0.38 (US$0.06) for the first quarter 2012, compared to basic and diluted earnings per ADS of RMB0.09 in the first quarter 2011 and basic and diluted earnings per ADS of RMB0.70 in the fourth quarter 2011. Non-GAAP basic and diluted earnings per ADS were RMB0.56 (US$0.09) and RMB0.55 (US$0.09), respectively, for the first quarter 2012, compared to non-GAAP basic and diluted earnings per ADS of RMB0.30 in the same period of 2011 and basic and diluted earnings per ADS of RMB0.90 and RMB0.89, respectively, in the fourth quarter2011.

Cash and pledged bank deposits. As of March 31, 2012, the Company had cash and pledged bank deposits of RMB469.6 million (US$74.6 million), representing a year-over-year increase of 31.5% from RMB357.1 million as of March 31, 2011.

Operating cash flow. Net operating cash inflow for the first quarter 2012 was RMB93.8 million (US$14.9 million), representing a decrease of 3.8% from RMB97.5 million in the first quarter 2011.

Guidance

The Company expects to generate total net revenues in the range of RMB630 million to

RMB640 million in the second quarter 2012. These forecasts reflect the Company's current and preliminary view, which is subject to change.

Conference Call

7 Days Group Holdings Limited senior management will host a conference call at 10:00 pm (Eastern) / 7:00 pm (Pacific) Wednesday, May 9, 2012, which is 10:00 am (Beijing) on Thursday, May 10, 2012 to discuss its first quarter 2012 financial results and recent business activity. The conference call may be accessed by calling the following numbers:

Passcode:   7Days

A live webcast of the conference call and replay will be available on the investor relations page of 7 Days Group's website at http://en.7daysinn.cn/.

A telephone replay will be available shortly after the call.  The dial-in details are as follows:

Conference ID number:             50937240

About 7 Days Group Holdings Limited

7 Days Group is a leading and fast growing national economy hotel chain based in China. It converts and operates limited service economy hotels across major metropolitan areas in China under its award-winning "7 Days Inn" brand. The Company strives to offer consistent and high-quality accommodations and services primarily to the growing population of value conscious business and leisure travelers who demand affordable, clean, comfortable, convenient and safe lodging, and to respond to its guests' needs.

Use of Non-GAAP Financial Measures 

To supplement 7 Days Group's unaudited financial results presented in accordance with U.S. GAAP, the Company has used the following non-GAAP measures defined as non-GAAP financial measures by the Securities and Exchange Commission (the "SEC") to report its financial results:

• Non-GAAP income from operations represents income from operations reported in accordance with GAAP, excluding share-based compensation expense.
• Non-GAAP net income represents net income reported in accordance with GAAP, excluding share-based compensation expense.
• Non-GAAP earnings per ADS represents non-GAAP net income divided by the number of ADS used in computing basic and diluted earnings per ADS.   
• EBITDA represents net income reported in accordance with GAAP, adjusted for the effects of interest income and expense, provision for income tax, depreciation and amortization.
• Adjusted EBITDA represents EBITDA, excluding share-based compensation expense.

The Company believes EBITDA is a useful financial metric to assess its operating and financial performance before the impact of investing and financing transactions, if any, and income taxes. In addition, 7 Days Group believes that EBITDA is widely used by other companies in the lodging industry and may be used by investors as a measure of its financial performance. Given the significant investments that 7 Days Group has made in the past in property and equipment, depreciation and amortization expense comprises a meaningful portion of its cost structure. 7 Days Group believes that EBITDA will provide investors with a useful tool for comparability between periods because it eliminates depreciation and amortization expense attributable to capital expenditures. The presentation of EBITDA should not be construed as an indication that the Company's future results will be unaffected by other charges and gains the Company considers to be outside the ordinary course of its business. 7 Days Group also calculates Adjusted EBITDA excluding share-based compensation expense. The Company prepares its financial statements in accordance with GAAP and, accordingly, expenses its employee share options. Since share-based compensation expenses are non-cash expenses, the Company believes excluding them from its calculation of EBITDA allows it to provide investors with a more useful tool for assessing its operating and financial performance.

The use of EBITDA and Adjusted EBITDA has certain limitations. Depreciation and amortization expense for various long-term assets, such as property and equipment, income tax expense, interest expense and interest income have been and will be incurred and are not reflected in the presentation of EBITDA. Each of these items should also be considered in the overall evaluation of its results. Additionally, EBITDA does not consider capital expenditures and other investing activities and should not be considered as a measure of the Company's liquidity. The Company compensates for these limitations by providing the relevant disclosure of its depreciation and amortization, interest expense and interest income, income tax expense, capital expenditures, share-based compensation expense and other relevant items both in its reconciliations to the GAAP financial measures and in its consolidated financial statements, all of which should be considered when evaluating the Company's performance. The terms EBITDA and Adjusted EBITDA are not defined under GAAP, and EBITDA and Adjusted EBITDA are not measures of net income, operating income, operating performance or liquidity presented in accordance with GAAP. When assessing the Company's operating and financial performance, investors should not consider this data in isolation or as a substitute for the Company's net income, operating income or any other operating performance measure that is calculated in accordance with GAAP. In addition, the Company's EBITDA and Adjusted EBITDA may not be comparable to EBITDA or Adjusted EBITDA or similarly titled measures utilized by other companies since such other companies may not calculate EBITDA and Adjusted EBITDA in the same manner as the Company does. 

For reasons same to the use of EBITDA and Adjusted EBITDA described above, the Company has also reported net income, basic and diluted earnings per ADS and income (loss) from operations on a non-GAAP basis, excluding share-based compensation expenses in the relevant period.  These non-GAAP operating measures are useful for understanding and assessing the Company's underlying business performance and operating trends and the Company expects to report net income, basic and diluted earnings per ADS and income from operations on a non-GAAP basis using a consistent method on a quarterly basis going forward. 

7 Days Group believes that both management and investors benefit from referring to these non-GAAP financial measures in assessing 7 Days Group's financial performance and liquidity and when planning and forecasting future periods. Readers are cautioned not to view non-GAAP results on a stand-alone basis or as a substitute for results under GAAP, or as being comparable to results reported or forecasted by other companies, and should refer to the reconciliation of GAAP results with non-GAAP results for the periods set forth in the tables at the end of this release. 

Safe Harbor Statement

This press release contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar statements and including, among other things, 7 Days Group's revenue guidance for the second quarter 2012 and business forecast for 2012, including the expected number of hotels to be opened (including a breakdown of expected new leased-and-operated hotels and new managed hotels), Company's business strategies, its ability to offer consistent and high-quality accommodations and services at an affordable price, its ability to leverage the economies of scale and its ability to achieve strict cost controls and to deliver continued growth. These forward-looking statements are not historical facts but instead represent only the Company's belief regarding future events, many of which, by their nature, are inherently uncertain and outside of the Company's control. The Company's actual results and financial condition and other circumstances may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. In particular, the Company's operating results for any period are impacted significantly by the mix of leased-and-operated hotels and managed hotels in its chain, causing the Company's operating results to fluctuate and making them difficult to predict.

Other factors that could cause forward-looking statements to differ materially from actual future events or results include risks and uncertainties related to: uncertainties associated with factors typically affecting the lodging industry, including changes in economic conditions, adverse weather conditions, natural disasters or outbreaks of serious contagious diseases in markets where the Company has a presence; uncertainties regarding the Company's ability to respond to competitive pressures; uncertainties regarding the Company's ability to manage its expected growth; uncertainties regarding the Company's ability to continue its growth and achieve profitability; risks associated with the Company's limited operating history and historical operating losses; uncertainties regarding the Company's ability to fund its working capital needs; uncertainties regarding its ability to successfully and timely identify, secure or operate additional hotel properties. The financial information contained in this release should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 2011 Annual Report on Form 20-F filed with the SEC on April 26, 2012, which is available on the SEC's website at www.sec.gov. For a discussion of other important factors that could adversely affect the Company's business, financial condition, results of operations and prospects, see "Risk Factors" beginning on page 8 of the Company's 2011 Annual Report on Form 20-F. The Company's results of operations for the first quarter 2012 are not necessarily indicative of its operating results for any future periods. Any projections in this release are based on limited information currently available to the Company, which is subject to change. Although such projections and the factors influencing them will likely be changed, the Company will not necessarily update the information. Such information speaks only as of the date of this release.

Statement Regarding Unaudited Financial Information

The financial information set forth above is unaudited and subject to adjustments. Adjustments to the financial statements may be identified when the annual financial statements are prepared and audit work is performed for the year end audit, which could result in significant differences from this unaudited financial information.

Contacts:

Investor Contact:

Vivian Chen, Investor Relations Director
7 Days Group Holdings Limited
Tel: +86-20-8922-5858
[email protected]

Investor Relations (HK):
Mahmoud Siddig, Managing Director
Taylor Rafferty
Tel: +852 3196-3712
[email protected]

Investor Relations (US):
Marc Raybin, Director
Taylor Rafferty
Tel: +1 (212) 889-4350
[email protected]

-- FINANCIAL AND OPERATIONAL TABLES FOLLOW --

SOURCE 7 Days Group Holdings Limited