7 Days Group Holdings Limited Announces Unaudited 2009 Fourth Quarter and Full Year Financial Results
Fourth Quarter Non-GAAP Net Income Increased to RMB5.8 million;
Adjusted EBITDA grew 203.6% year-over-year to RMB69.1 million;
Added 54 Net New Hotels for a Total of 337 Hotels
GUANGZHOU, China, March 8 /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 fourth quarter 2009 and full year 2009.
Fourth Quarter 2009 Financial Highlights
-- Total net revenues increased by 32.6% to RMB310.5 million (US$45.5
million)(1), compared to RMB234.2 million for the same period in the
fiscal year 2008.
-- Income from operations was RMB26.8 million (US$3.9 million) compared
with a loss of RMB10.2 million in the fourth quarter of 2008. Non-GAAP
income from operations increased to RMB 29.6 million (US$ 4.3 million)
from a loss of RMB5.2 million for the same period in the fiscal year
2008.
-- EBITDA was a loss of RMB30.1 million (US$4.4 million) as compared to
RMB23.5 million for the same period 2008. Adjusted EBITDA (which
excludes share-based compensation expense, loss on debt extinguishment
and change in fair value of ordinary share purchase warrants) increased
203.6% year-over-year to RMB69.1 million (US$10.1 million). EBITDA
margin was a loss as compared to 10.0% in the same period in the fiscal
year 2008. Adjusted EBITDA margin increased to 22.3% from 9.7% in the
same period in the fiscal year 2008.
-- Net loss attributable to the Company's shareholders was RMB93.4 million
(US$13.7 million), compared to RMB25.3 million for the fourth quarter
of the fiscal year 2008. Non-GAAP net income was RMB5.8 million
(US$0.9 million), compared to a loss of RMB26.1 million for the fourth
quarter of the fiscal year 2008.
-- Basic and diluted loss per ADS(2) were both RMB3.84 (US$0.56). Non-GAAP
basic and diluted earnings per ADS share were both RMB0.18 (US$0.03).
-- Net operating cash inflow was RMB86.5 million (US$12.7), an increase of
131.9% compared to RMB37.3 million in the fourth quarter of the fiscal
year 2008.
Full Year 2009 Financial Highlights
-- Total net revenues increased by 58.2% year-over-year to RMB1,141.3
million (US$167.2 million) compared to RMB721.4 million for 2008.
-- Income from operations was RMB73.9 million (US$10.8 million), compared
to a loss of RMB139.3 million in the fiscal year 2008. Non-GAAP income
from operations increased to RMB 85.3 million (US$ 12.5 million) from a
loss of RMB112.1 million in the fiscal year 2008.
-- EBITDA was RMB115.5 million (US$16.9 million), compared to a loss of
RMB39.0 million in the fiscal year 2008. Adjusted EBITDA was RMB229.7
million (US$33.7 million), compared to a loss of RMB22.3 million in the
fiscal year 2008. EBITDA margin increased to 10.1% from a loss in the
fiscal year 2008. Adjusted EBITDA margin increased to 20.1% from a loss
in the fiscal year 2008.
-- Net loss attributable to the shareholders was RMB104.0 million (US$15.2
million), compared to a net loss of RMB210.5 million in the fiscal year
2008. Non-GAAP net income was RMB10.3 million (US$1.5 million),
compared to a Non-GAAP net loss of RMB193.8 million during the fiscal
year 2008.
-- Basic and diluted loss per ADS were both RMB5.78 (US$0.85), compared
with the basic and diluted loss per ADS of RMB10.5 for the fiscal year
2008. Non-GAAP basic and diluted earnings per ADS were RMB0.45
(US$0.07).
-- Net operating cash inflow increased significantly to RMB248.6 million
(US$36.4 million), compared to RMB4.4 million in the fiscal year 2008.
Fourth Quarter and Full Year 2009 Operational Highlights
-- Opened one net and 30 net leased-and-operated hotels during the fourth
quarter and the fiscal year 2009, respectively.
-- Opened 53 net and 84 net managed hotels in the fourth quarter and the
fiscal year 2009, respectively.
-- As of December 31, 2009, 7 Days Group had 337 hotels in operation,
consisting of 236 leased-and-operated hotels and 101 managed hotels and
representing a total of 32,836 rooms and covering 54 cities.
-- As of December 31, 2009, there were 6 leased-and-operated hotels under
conversion and 58 managed hotels contracted but not yet opened.
-- In the fourth quarter of 2009, occupancy rate for all hotels, leased-
and-operated hotels and managed hotels were 88.1%, 90.0% and 80.0%,
respectively, as compared with 90.5%, 91.0% and 84.9% for the same
period in the fiscal year 2008. The decrease in occupancy rate was
primarily a result of a higher number of new managed hotels opened.
-- For full year 2009, occupancy rate for all hotels, leased-and-operated
hotels and managed hotels were 88.3%, 89.2% and 82.8%, respectively, as
compared with 88.1%, 88.4% and 83.3%, respectively, in the fiscal year
2008.
-- RevPAR(3) for all hotels declined slightly to RMB143.4 in the fourth
quarter of 2009, down from RMB145.0 in the same period in the fiscal
year 2008, while RevPAR for leased-and-operated hotels and managed
hotels in the fourth quarter of 2009 were RMB147.8 and RMB125.3,
respectively, as compared with RMB146.4 and RMB129.4, respectively,
during the fourth quarter of 2008.
-- For 2009, RevPAR for all hotels was flat at RMB140.9 as compared with
RMB140.9 in the fiscal year 2008; while RevPAR for leased-and-operated
hotels and managed hotels were RMB142.7 and RMB129.3, respectively, as
compared with RMB141.8 and RMB126.0, respectively, in the fiscal year
2008.
-- As of December 31, 2009, the number of 7 Days Club members increased
57.3% to over 9.75 million from 6.20 million as of December 31, 2008.
(1) The Company's reporting currency is Renminbi ("RMB"). The
translation of amounts from RMB to United States dollars is solely for
the convenience of the reader. RMB numbers included in this press
release have been translated into U.S. dollars at the noon buying rate
for U.S. Dollars in effect on December 31, 2009 in the City of New
York for cable transfers in RMB per U.S. dollar as certified for
customs purposes by the Federal Reserve Bank of New York, which was
US$1.00 = RMB6.8259. No representation is made that RMB amounts could
have been, or could be, converted into U.S. Dollars at that rate or at
any other rate on December 31, 2009.
(2) Each ADS represents 3 of the Company's ordinary shares.
(3) RevPAR represents revenue per available room
Recent Business Developments:
Mr. Alex Nanyan Zheng, 7 Days Group's Chief Executive Officer and Director, commented, "I am pleased to report strong results concluding a transformational year for 7 Days Group. In November 2009, we successfully completed our IPO, a key milestone in the growth and expansion of the Group. By 2009 fiscal year end, 7 Days has become the number two operator in the Chinese economy hotel market in terms of total number of hotels, based on a recent industry research conducted by Inntie. Our success has been achieved through continued execution of our strategy, which in 2009 allowed us to grow our portfolio of hotels to 337, expand our geographic footprint to an additional 21 new cities, and significantly increase revenue and income from operations. In addition, our 7 Days Club loyalty program has grown to over 9 million members, further strengthening this powerful platform for cultivating customer loyalty and generating potential new business. In short, with our track record of continuous innovation and industry leading technology, 7 Days Group enters 2010 well positioned for continued success in China's growing economy hotel market."
Mr. Eric Haibing Wu, 7 Days Group's Chief Financial Officer, added, "Our financial results reflect strong growth and our commitment to maintaining effective cost control measures. Our expanded operations supported our strong top-line growth, providing increased operational leverage and resulting in favorable Adjusted EBITDA. Further, we maintain a strong operating cash position giving us sufficient resources to execute our expansion plan. Although as a public company we expect a slight increase in G&A expenses beginning in the first quarter of the fiscal year 2010, we believe our scale and cost control initiatives position us for continued growth while continuing to manage hotel operating costs at a reasonable level."
Fourth Quarter 2009 Unaudited Financial Results
Gross revenues. Gross revenues for the fourth quarter of 2009 were RMB329.4 million (US$48.3 million), representing a year-over-year increase of 32.6% from RMB248.4 million in the fourth quarter of 2008 and a slight increase over RMB328.3 million in the third quarter of 2009.
Gross revenues from leased-and-operated hotels. Gross revenues from leased-and-operated hotels for the fourth quarter of 2009 were RMB326.0 million (US$47.8 million), 31.7% higher than the fourth quarter 2008's RMB247.5 million driven by the rapid expansion of the Company's hotel portfolio and a slight increase over RMB325.9 million in the third quarter of 2009.
Gross revenues from managed hotels. Gross revenues from managed hotels for the fourth quarter of 2009 jumped 296.1% year-over-year and 41.3% quarter-over-quarter to RMB3.4 million (US$0.5 million) as a larger number of these hotels came into operation. During the fourth quarter of 2009, 7 Days Group opened 53 net managed hotels.
Total net revenues. Total net revenues for the fourth quarter of 2009 were RMB310.5 million (US$45.5 million), representing a year-over-year increase of 32.6% from RMB234.2 million in the fourth quarter of 2008 reflecting a strong growth in the number of leased-and-operated hotels. Sequentially, total net revenues increased slightly from RMB309.7 million in the third quarter of 2009.
Hotel operating costs. Hotel operating costs for the fourth quarter of 2009 were RMB260.2 million (US$38.1 million), or 83.8% of the total net revenues, compared with 91.2% of the total net revenues during the same period in the fiscal year 2008 and 80.6% in the third quarter of 2009. The year-over- year improvement was primarily due to lower pre-operating costs as fewer new hotels were under construction in 2009. The sequential increase in hotel operating costs as a percentage of the total net revenues from the third quarter of 2009 was due to a seasonal decline in operating performance while the costs were relatively fixed in the fourth quarter of 2009.
Sales and marketing expenses. Sales and marketing expenses for the fourth quarter of the fiscal year 2009 were RMB9.3 million (US$1.4 million), or 3.0% of the total net revenues, compared with 4.4% of the total net revenues in the same period 2008 and 2.7% in the third quarter of 2009.
General and administrative expenses. General and administrative expenses for the fourth quarter of 2009 were RMB14.2 million (US$2.1 million), or 4.6% of the total net revenues, compared with RMB20.5 million, or 8.8% of the total net revenues in the same period of 2008, and RMB17.9 million, or 5.8% of total net revenues, in the third quarter of 2009. The improvement in the ratio of general and administrative expenses to the total net revenues in the fourth quarter of 2009 was primarily a result of effective cost controls and a net gain of approximately RMB5.7 million upon termination of a lease.
Accordingly, total operating costs and expenses was RMB283.7 million (US$41.6 million), representing 91.4% of the total net revenues, compared with 104.4% of the total net revenues in the same period 2008 and 89.0% in the third quarter of 2009.
Income (loss) from operations. Income from operations for the fourth quarter of 2009 was RMB26.8 million (US$3.9 million), compared with a loss of RMB10.2 million in the fourth quarter of 2008 and a sequential decrease of 21.2% from the third quarter of 2009. The year-over-year increase was driven by the growing proportion of mature hotels and an increased number of hotels in portfolio. Non-GAAP income from operations was RMB 29.6 million (US$ 4.3 million), as compared with a non-GAAP loss from operations of RMB5.2 million for the same period in the fiscal year 2008 and RMB37.2 million in the third quarter of 2009.
EBITDA was a loss of RMB30.1 million (US$4.4 million) as compared to RMB23.5 million for the same period in 2008 and RMB67.9 million in the third quarter of 2009. Adjusted EBITDA for the fourth quarter was RMB69.1 million reflecting a 203.6% year-over-year increase and a 6.6% decrease compared to the third quarter of 2009. Adjusted EBITDA margin was 22.3% during the forth quarter, an increase of 12.6 percentage points year-over-year and a decrease of 1.6 percentage points compared to the third quarter of 2009.
Interest expense. Interest expense for the fourth quarter of 2009 was RMB18.2 million (US$2.7 million), representing a year-over-year decrease of 22.5% and a 19.6% decrease compared to the third quarter of 2009. The year-over-year and quarter-over-quarter decrease was primarily due to the redemption, in full, of the Company's senior notes in early December 2009.
Loss on debt extinguishment. Loss on debt extinguishment of RMB26.5 million (US$3.9 million) was recognized in the fourth quarter of 2009, following the December 2009 senior note redemption. The charge, which had no current impact on the Company's cash flow, primarily reflected unamortized discount on senior notes payable and debt issuance costs.
Change in fair value of ordinary share purchase warrants. Prior to the completion of the Company's initial public offering (IPO), the Company had outstanding warrants the value of which was required to be marked to market at the end of each quarter utilizing the Black-Scholes model. These warrants were exercised in full in November 2009 in conjunction with the IPO. Based on the exercise price and the IPO share price, the Company's recognized an additional loss of RMB70.0 million (US$10.2 million) in the fourth quarter of 2009, compared to a gain of RMB5.8 million in the fourth quarter of 2008 and a loss of RMB2.9 million in the third quarter of 2009. As all the warrants have been exercised, the Company will not recognize any gains or charges in future periods in respect of these warrants.
Income tax benefit (expense). Income tax expense for the fourth quarter of 2009 was RMB5.8 million (US$0.9 million), compared to the income tax benefit of RMB1.8 million in the fourth quarter 2008 and the income tax expense of RMB4.5 million in the third quarter of 2009. The increase was primarily due to an increase in taxable profits generated by the Company's subsidiaries.
Net income attributable to 7 Days Group Holdings Limited shareholders. Net loss attributable to 7 Days Group Holdings Limited shareholders was RMB93.4 million (US$13.7 million) in the fourth quarter of 2009, compared to a net loss attributable to 7 Days Group Holdings Limited shareholders of RMB25.3 million in the fourth quarter of 2008 and a net income attributable to 7 Days Group Holdings Limited shareholders of RMB3.4 million in the third quarter of 2009.
Non-GAAP net income. Non-GAAP net income was RMB5.8 million (US$0.9 million), compared to Non-GAAP net loss of RMB26.1 million for the fourth quarter of 2008 and Non-GAAP net income of RMB9.6 million, reflecting a sequential decline of 39.2%, from the third quarter of 2009.
Basic and diluted net loss per ADS. Basic and diluted loss per ADS were RMB3.84 (US$0.56) for the fourth quarter of 2009, compared to the basic and diluted loss per ADS of RMB1.26 for the same period in 2008 and the basic earnings per ADS of RMB0.18 and diluted earnings per ADS of RMB0.09 in the third quarter of 2009. Non-GAAP basic and diluted earnings per ADS were RMB0.18 (US$0.03), compared to non-GAAP basic and diluted loss per ADS of RMB1.29 in the same period in 2008 and the basic earnings per ADS of RMB0.48 and diluted earnings per ADS of RMB0.27 in the third quarter of 2009. As disclosed in the Company's IPO prospectus, the calculation of basic and diluted loss per ADS was affected by deemed dividends totaling RMB29.0 million (US$4.2 million) which resulted from a pre-IPO share transfer from the 5 largest shareholders to the Company's Series C investors (such share transfer was considered an inducement to the investors to convert their preferred shares in connection with the IPO). The deemed dividends did not reduce total equity and net income (loss) attributable to the Company's shareholders but did reduce net income (loss) attributable to the Company's ordinary shareholders.
Cash, restricted cash and pledged bank deposits. As of December 31, 2009, the Company had cash, restricted cash and pledged bank deposits of RMB346.8 million (US$50.8 million), representing a quarter-over-quarter increase of 3.5%, from RMB335.1 million as of September 30, 2009.
Operating cash flow. Net operating inflow for the fourth quarter of 2009 was RMB86.5 million (US$12.7 million), representing a year-over-year increase of 131.9% from RMB37.3 million in fourth quarter of 2008.
Full Year 2009 Unaudited Financial Results
Gross revenues. Gross revenues for 2009 were RMB1,210.1 million (US$177.3 million), representing a year-over-year increase of 58.2% from RMB765.0 million in 2008.
Gross revenues from leased-and-operated hotels. Gross revenues from leased-and-operated hotels for 2009 were RMB1,202.0 million (US$176.1 million), 57.4% higher than the fiscal year 2008's RMB763.7 million driven by the expansion in the number of leased-and-operated hotels.
Gross revenues from managed hotels. Gross revenues from managed hotels for 2009 increased by 494.5% to RMB8.1 million (US$1.2 million) as more managed hotels were added to the Company's hotel portfolio.
Total net revenues. Total net revenues for 2009 were RMB1,141.3 million (US$167.2 million), representing a year-over-year increase of 58.2% from RMB721.4 million in the fiscal year 2008. The growth was primarily driven by the expansion in the number of leased-and-operated hotels
Hotel operating costs. Hotel operating costs for 2009 were RMB971.6 million (US$142.3 million), or 85.1% of total net revenues, compared with 101.2% of total net revenues in the fiscal year 2008. The improvement in terms of hotel operating costs as a percentage of total net revenues resulted from improved operational leverage following a significant increase in the number of hotels in operation and higher revenues.
Sales and marketing expenses. Sales and marketing expenses for the fiscal year 2009 were RMB30.8 million (US$4.5 million), or 2.7% of total net revenues, compared with 5.1% of total net revenues in the fiscal year 2008. The reduction in sales and marketing expenses as a percentage of total net revenues reflected the results of increased revenues and effective cost cutting measures.
General and administrative expenses. General and administrative expenses for the fiscal year 2009 were RMB65.1 million (US$9.5 million), or 5.7% of total net revenues, compared with 13.0% of total net revenues in the fiscal year 2008. The decrease was due to the combined effect of reduced consulting expenses, lower staff costs as a result of reduced headcount, the reduction in share-based compensation expenses for corporate office employees and a net gain of approximately RMB5.7 million upon termination of a lease.
Accordingly, total operating costs and expenses for the fiscal year 2009 was RMB1,067.4 million (US$156.4 million) representing 93.5% of total net revenues, improving from 119.3% of total net revenues in the fiscal year 2008.
Income (loss) from operations. Income from operations for 2009 was RMB73.9 million (US$10.8 million), compared to a loss of RMB139.3 million in the fiscal year 2008. Non-GAAP income from operations increased to RMB 85.3 million (US$ 12.5 million) from a loss of RMB112.1 million in the fiscal year 2008.
EBITDA. EBITDA was RMB115.5 million (US$16.9 million), compared to a negative EBITDA of RMB39.0 million in the fiscal year 2008. Adjusted EBITDA was RMB229.7 million (US$33.7 million), compared to a negative Adjusted EBITDA of RMB22.3 million in the fiscal year 2008. Adjusted EBITDA margin was 20.1%, an improvement from negative Adjusted EBITDA margin in the fiscal year 2008.
Interest expense. Interest expense for the fiscal year 2009 was RMB81.9 million (US$12.0 million), representing a year-over-year decrease of 3.1%, from RMB84.5 million in the fiscal year 2008.
Change in fair value of ordinary share purchase warrants. Change in fair value of ordinary share purchase warrants resulted in a loss of RMB76.4 million (US$11.2 million) in the fiscal year 2009, compared to a gain of RMB10.5 million in the fiscal year 2008.
Income tax benefit (expense). Income tax benefit for 2009 was RMB5.0 million (US$0.7 million), compared to tax benefit of RMB0.8 million in the fiscal 2008.
Net income (loss) attributable to 7 Days Group Holdings Limited shareholders. Net loss attributable to 7 Days Group Holdings Limited shareholders was RMB104.0 million (US$15.2 million) in 2009, compared to a net loss attributable to 7 Days Group Holdings Limited shareholders of RMB210.5 million in the fiscal year 2008.
Non-GAAP net income. Non-GAAP net income was RMB10.3 million (US$1.5 million), compared to a loss of RMB193.8 million during the fiscal year 2008.
Basic and diluted net income (loss) per ADS. Basic and diluted loss per ADS were RMB5.78 (US$0.85) for 2009. Non-GAAP basic and diluted earnings per ADS were RMB0.45 (US$0.07), compared to Non-GAAP basic and diluted loss per ADS of RMB9.69 in the fiscal year 2008. As described above, the calculation of earnings (loss) per ADS was impacted by deemed dividends totaling RMB29.0 million (US$4.2 million) resulting from a pre-IPO share transfer from the 5 largest shareholders to the Company's Series C investors.
Operating cash flow. Net operating inflow for the fiscal year 2009 was RMB248.6 million (US$36.4 million), a substantial increase from RMB4.4 million in 2008.
Outlook
Looking ahead, the Company believes the general industry outlook for 2010 remains encouraging, as China continues to deliver strong macro economic growth amidst a more stabilized global economic climate. Government initiatives that may benefit the economy hotel market include (i) efforts to promote the development of China's inner provinces, including economic initiatives and investments targeted at developing infrastructure, transportation and commerce in emerging regions and provinces, and (ii) ongoing government efforts aimed at increasing domestic consumption and developing the domestic tourism industry. Management believe these initiatives will help drive long-term growth of the economy hotel industry by increasing domestic business and leisure travel, thereby opening new markets for expansion. To capitalize on these trends, the Company is continuing to expand its nation-wide network of hotels. Finally, a critical component of the 7 Days Group's growth is its nationally recognized brand name, supported by its top-ranked website and eCommerce platform. The Company will continue to strengthen the content of its online platform seeking to constantly improve the guest experience. In addition, management intends to leverage the unique and powerful 7 Days online platform to develop more efficient and cost effective marketing strategies to expand its customer base and increase customer loyalty.
Guidance
The Company expects to generate total net revenues in the range of RMB289 million to RMB295 million in the first quarter 2010. The net number of new hotels opened in 2010 is expected to be between 170-200 with 70-80 leased-and-operated hotels and 100-120 managed hotels. 7 Days Group expects full-year 2010 total net revenues to grow 29% to 35% over the full-year 2009.
Conference Call
7 Days Group Holdings Limited senior management will host a conference call at 8:00 am (Eastern) / 5:00 am (Pacific) / 9:00 pm (Beijing) on Tuesday, March 9, 2010 to discuss its fourth quarter 2009 and full year 2009 financial results and recent business activity. The conference call may be accessed by calling the following numbers:
China: 8008190121
Hong Kong: 852 2475 0994
US / International: 1 718 354 1231
US Toll Free: 1 866 519 4004
Conference ID number: 55416906
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:
US (toll free): 1866 214 5335
International Dial-In: +61 2 8235 5000
Conference ID number: 55416906
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 SEC to report the fourth quarter 2009 and full year 2009 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, loss on debt
extinguishment and change in fair value of ordinary share purchase
warrants.
-- Non-GAAP earnings per ADS represents non-GAAP net income divided by
the number of ADS used in computing basic and diluted earnings per ADS.
-- EBITDA represents net income reported in accordance with GAAP, adjusted
for the effects of interest income and expense, provision for income
taxes, depreciation and amortization.
-- Adjusted EBITDA represents EBITDA, excluding share-based compensation
expense, loss on debt extinguishment and change in fair value of
ordinary share purchase warrants.
The Company believes EBITDA is a useful financial metric to assess its operating and financial performance before the impact of investing and financing transactions 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, loss on debt extinguishment and change in fair value of ordinary share purchase warrants. The Company prepares its financial statements in accordance with GAAP and, accordingly, expenses its employee share options and recognizes the impact of loss on debt extinguishment and changes in the fair value of its ordinary share purchase warrants. Since share-based compensation expense, loss on debt extinguishment and change in fair value of ordinary share purchase warrants 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 excluding share-based compensation expense, loss on debt extinguishment and change in fair value of ordinary share purchase warrants 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 expense, loss on debt extinguishment and change in fair value of ordinary share purchase warrants in the fourth quarter and full year of 2009. These non-GAAP operating measures are useful for understanding the 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 (loss) 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 under the Private Securities Litigation Reform Act of 1995
This press release contains "forward-looking statements," including, among other things, 7 Days Group's beliefs as to the overall industry outlook and the factors driving expected growth, its expected results for 2009 and guidance for 2010; the continued growth and expansion of its business, the expansion of its customers base, an expected increase in customer loyalty, the benefits of continuing focus on its strategies, the effectiveness of its cost-control initiatives, the hotel industry outlook, the stabilization of global economic climate, the growth of the Chinese economy and the hotel industry, and the continuation of government stimulus. 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 lease-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: risks associated with the Company's limited operating history and historical operating losses; uncertainties regarding the Company's ability to continue its growth and achieve profitability; uncertainties regarding the Company's ability to fund its working capital needs; uncertainties regarding the Company's ability to expand its operations while maintaining consistent and high-quality accommodations and services; uncertainties regarding the Company's ability to respond to competitive pressures; and 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. 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 Registration Statement on Form F-1 filed with the Securities and Exchange Commission dated November 19, 2009. 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 16 of the Company's prospectus included in such Registration Statement. The Company's actual results of operations for the fourth quarter and full year of 2009 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 change, 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 unaudited financial information set forth above is preliminary and subject to adjustments. Adjustments to the financial statements may be identified when audit work is performed for the year end audit, which could result in significant differences from this preliminary unaudited financial information.
-- FINANCIAL AND OPERATIONAL TABLES FOLLOW --
7 Days Group Holdings Limited
Consolidated balance sheet information
31/Dec/08 30/Sep/09 31/Dec/09
RMB' 000 RMB' 000 RMB' 000 US$'000
ASSETS
Current assets:
Cash 283,850 276,995 341,370 50,011
Restricted cash 51,381 57,906 -- --
Pledged bank deposits 3,977 232 5,400 791
Short-term investment -- -- 293,613 43,015
Accounts receivable 3,465 3,857 4,557 668
Prepaid rent 61,733 60,716 64,509 9,451
Other prepaid expenses and
current assets 46,872 50,444 48,392 7,089
Amounts due from related
parties 59 -- -- --
Deferred tax assets 1,864 7,205 7,551 1,106
Total current assets 453,201 457,355 765,392 112,131
Property and equipment, net 962,976 1,032,970 1,013,500 148,478
Rental deposits 39,117 40,766 38,297 5,610
Investment in and advances
to affiliate 1,358 1,436 1,359 199
Other assets 16,542 9,110 -- --
Deferred tax assets 2,221 16,764 15,867 2,325
Total assets 1,475,415 1,558,401 1,834,415 268,743
LIABILITIES And EQUITY
(DEFICIT)
Current liabilities
Short-term bank borrowings -- 80,000 -- --
Senior notes payables -- 522,868 -- --
Accounts payable 273,133 186,172 141,056 20,664
Bills payable 13,676 774 17,142 2,511
Accrued expenses and other
payables 108,074 128,873 162,164 23,757
Amounts due to related
parties 162 162 162 24
Income taxes payable 1,844 5,482 5,965 874
Total current liabilities 396,889 924,331 326,489 47,830
Long-term bank borrowings -- 30,000 110,000 16,115
Senior notes payables 504,142 -- -- --
Borrowings from related
parties 7,101 4,117 3,233 474
Accrued lease payment 99,373 113,260 116,896 17,125
Ordinary share purchase
warrants 60,277 66,644 -- --
Refundable deposits -- 13,836 24,250 3,553
Deferred revenue 5,732 5,217 5,046 740
Total liabilities 1,073,514 1,157,405 585,914 85,837
Series A convertible
preferred shares 78,294 78,294 -- --
Series C convertible
preferred shares 436,428 436,428 -- --
Equity:
Series B convertible
preferred shares 7,523 7,523 -- --
Ordinary shares 61,502 61,502 140,377 20,565
Subscription receivables (1,418) -- -- --
Additional paid-in capital 169,089 175,857 1,559,458 228,462
Accumulated other
comprehensive income 30,304 30,533 30,696 4,497
Accumulated deficit (380,971) (391,538) (484,925) (71,042)
Total 7 Days Group
Holdings Limited
share holders'
equity (deficit) (113,971) (116,123) 1,245,606 182,482
Non-controlling interests 1,150 2,397 2,895 424
Total equity (deficit) (112,821) (113,726) 1,248,501 182,906
Commitments and contingencies
Total liabilities and
equity (deficit) 1,475,415 1,558,401 1,834,415 268,743
7 Days Group Holdings Limited
Consolidated statements of operations information
Quarter Ended
Dec 31 Sep 30 Dec 31
2008 2009 2009
RMB'000 RMB'000 RMB'000 US$'000
Total Revenues 248,402 328,289 329,389 48,256
Leased-and-operated
hotels 247,546 325,890 325,999 47,759
Managed hotels 856 2,399 3,390 497
Less: Business tax and
surcharges (14,154) (18,624) (18,851) (2,762)
Net revenues 234,248 309,665 310,538 45,494
Operating costs and
expenses
Hotel operating costs (213,555) (249,536) (260,186) (38,117)
Sales and marketing
expenses (10,353) (8,217) (9,338) (1,368)
General and
administrative
expenses (20,527) (17,863) (14,173) (2,076)
Total operating
costs and expenses (244,435) (275,616) (283,697) (41,561)
Income (loss)
from operations (10,187) 34,049 26,841 3,933
Year Ended
Dec 31 Dec 31
2008 2009
RMB'000 RMB'000 US$'000
Total Revenues 765,017 1,210,071 177,276
Leased-and-operated
hotels 763,656 1,201,980 176,091
Managed hotels 1,361 8,091 1,185
Less: Business tax
and surcharges (43,583) (68,756) (10,073)
Net revenues 721,434 1,141,315 167,203
Operating costs and
expenses
Hotel operating costs (730,204) (971,550) (142,333)
Sales and marketing
expenses (36,897) (30,824) (4,515)
General and
administrative (93,631) (65,074) (9,533)
expenses
Total operating costs
and expenses (860,732) (1,067,448) (156,381)
Income (loss) from
operations (139,298) 73,867 10,822
Quarter Ended
Dec 31 Sep 30 Dec 31
2008 2009 2009
RMB'000 RMB'000 RMB'000 US$'000
Other income
(expenses)
Interest income 847 88 713 104
Interest expense (23,447) (22,607) (18,177) (2,663)
Loss on debt
extinguishment -- -- (26,477) (3,879)
Change in fair
value of
ordinary share
purchase
warrants 5,777 (2,939) (69,957) (10,249)
Equity income
(loss) of an
affiliate 59 (15) (21) (3)
Income(loss)
before income tax (26,951) 8,576 (87,078) (12,757)
Income tax
benefit
(expense) 1,831 (4,542) (5,811) (851)
Net income(loss) (25,120) 4,034 (92,889) (13,608)
Net income
attributable to
noncontrolling
interests (188) (589) (498) (73)
Net income(loss)
attributable to 7
Days Group
Holdings Limited
shareholders (25,308) 3,445 (93,387) (13,681)
Year Ended
Dec 31 Dec 31
2008 2009
RMB'000 RMB'000 US$'000
Other income (expenses)
Interest income 2,395 3,669 538
Interest expense (84,470) (81,867) (11,994)
Loss on debt
extinguishment -- (26,477) (3,879)
Change in fair value of
ordinary share purchase
warrants 10,484 (76,376) (11,189)
Equity income (loss) of
an affiliate 186 23 3
Income(loss) before
income tax (210,703) (107,161) (15,699)
Income tax benefit
(expense) 781 4,952 726
Net income(loss) (209,922) (102,209) (14,973)
Net income attributable
to Noncontrolling
interests (608) (1,745) (256)
Net income(loss)
attributable to 7
Days Group Holdings
Limited shareholders (210,530) (103,954) (15,229)
Quarter Ended
Dec 31 Sep 30 Dec 31
2008 2009 2009
RMB'000 RMB'000 RMB'000 US$'000
Deemed dividends -- -- (28,993) (4,248)
Net income (loss)
attributable to
7 Days Group
Holdings Limited
ordinary shareholders (25,308) 3,445 (122,380) (17,929)
Basic net income
(loss) per
ordinary share (0.42) 0.06 (1.28) (0.19)
Diluted net income
(loss) per
ordinary share (0.42) 0.03 (1.28) (0.19)
Year Ended
Dec 31 Dec 31
2008 2009
RMB'000 RMB'000 US$'000
Deemed dividends -- (28,993) (4,248)
Net income (loss)
attributable to
7 Days Group Holdings
Limited ordinary
shareholders (210,530) (132,947) (19,477)
Basic net income (loss)
per ordinary share (3.51) (1.93) (0.28)
Diluted net income (loss)
per ordinary share (3.51) (1.93) (0.28)
7 Days Group Holdings Limited
Reconciliation of GAAP and Non-GAAP Results
Quarter Ended
Dec 31 Sep 30 Dec 31
2008 2009 2009
RMB'000 RMB'000 RMB'000 US$'000
Net income (loss)
attributable to 7
Days Group Holdings
Limited
shareholders (GAAP) (25,308) 3,445 (93,387) (13,681)
Interest income (847) (88) (713) (104)
Interest expense 23,447 22,607 18,177 2,663
Income tax expense
(benefit) (1,831) 4,542 5,811 851
Depreciation and
amortization 28,061 37,372 40,000 5,860
EBITDA (non-GAAP) 23,522 67,878 (30,112) (4,411)
EBITDA% 10.0% 21.9% (9.7%) (9.7%)
Share-based
compensation
expenses 5,020 3,197 2,781 407
Loss on debt
extinguishment -- -- 26,477 3,879
Change in fair
value of ordinary
share purchase warrants (5,777) 2,939 69,957 10,249
Adjusted EBITDA
(non-GAAP) excluding
share-based compensation
expense, loss on debt
extinguishment and
change in fair value of
ordinary share purchase
warrants 22,765 74,014 69,103 10,124
Adjusted EBITDA% 9.7% 23.9% 22.3% 22.3%
Year Ended
Dec 31 Dec 31
2008 2009
RMB'000 RMB'000 US$'000
Net income (loss) attributable
to 7 Days Group Holdings
Limited shareholders (GAAP) (210,530) (103,954) (15,229)
Interest income (2,395) (3,669) (538)
Interest expense 84,470 81,867 11,994
Income tax expense
(benefit) (781) (4,952) (725)
Depreciation and
amortization 90,196 146,173 21,414
EBITDA (non-GAAP) (39,040) 115,465 16,916
EBITDA% (5.4%) 10.1% 10.1%
Share-based compensation
expenses 27,221 11,412 1,672
Loss on debt extinguishment -- 26,477 3,879
Change in fair value of ordinary
share purchase warrants (10,484) 76,376 11,189
Adjusted EBITDA (non-GAAP)
excluding share-based
compensation expense, loss on
debt extinguishment and change
in fair value of ordinary share
purchase warrants (22,303) 229,730 33,656
Adjusted EBITDA% (3.1%) 20.1% 20.1%
Non-GAAP net income (loss) attributable to 7 Days Group Holdings Limited
Shareholders
Quarter Ended
Dec 31 Sep 30 Dec 31
2008 2009 2009
RMB'000 RMB'000 RMB'000 US$'000
Net income(loss)
attributable to 7
Days Group Holdings
Limited shareholders
(GAAP) (25,308) 3,445 (93,387) (13,681)
Share-based compensation
expenses 5,020 3,197 2,781 407
Loss on debt extinguishment -- -- 26,477 3,879
Change in fair value
of ordinary share
purchase warrants (5,777) 2,939 69,957 10,249
Net income (loss) attri-
butable to 7 Days Group
Holdings Limited share-
holders excluding
share-based compensation
expense, loss on debt
extinguishment and change
in fair value of ordinary
share purchase warrants
(Non-GAAP net income) (26,065) 9,581 5,828 854
Year Ended
Dec 31 Dec 31
2008 2009
RMB'000 RMB'000 US$'000
Net income(loss)
attributable to 7
Days Group Holdings
Limited
shareholders (GAAP) (210,530) (103,954) (15,229)
Share-based compensation
expenses 27,221 11,412 1,672
Loss on debt extinguishment -- 26,477 3,879
Change in fair value of
ordinary share
purchase warrants (10,484) 76,376 11,189
Net income (loss) attri-
butable to 7 Days Group
Holdings Limited share-
holders excluding
share-based compensation
expense, loss on debt
extinguishment and change
in fair value of ordinary
share purchase warrants
(Non-GAAP net income) (193,793) 10,311 1,511
Earning (loss) per share
Quarter Ended
Dec 31 Sep 30 Dec 31
2008 2009 2009
RMB RMB RMB US$
Basic net earning
(loss) per ordinary
share (GAAP) (0.42) 0.06 (1.28) (0.19)
Diluted net earning
(loss) per ordinary
share (GAAP) (0.42) 0.03 (1.28) (0.19)
Basic net earning (loss)
per ordinary share
(Non-GAAP), excluding
share-based compensation
expense, loss on debt
extinguishment, change
in fair value of ordinary
share purchase warrants
and deemed dividend (0.43) 0.16 0.06 0.01
Diluted net earning (loss)
per ordinary share
(Non-GAAP), excluding
share-based compensation
expense, loss on debt
extinguishment, change
in fair value of ordinary
share purchase warrants
and deemed dividend (0.43) 0.09 0.06 0.01
Weighted average
ordinary shares
outstanding:
Basic 60,000,000 60,000,000 95,883,725
Diluted 60,000,000 108,316,558 97,259,150
Year Ended
Dec 31 Dec 31
2008 2009
RMB RMB US$
Basic net earning (loss)
per ordinary share (GAAP) (3.51) (1.93) (0.28)
Diluted net earning(loss) per
ordinary share (GAAP) (3.51) (1.93) (0.28)
Basic net earning (loss)
per ordinary share (Non-GAAP),
excluding share-based
compensation expense, loss on
debt extinguishment, change
in fair value of ordinary share
purchase warrants and deemed
dividend (3.23) 0.15 0.02
Diluted net earning (loss) per
ordinary share (Non-GAAP),
excluding share-based
compensation expense, loss
on debt extinguishment,
change in fair value of
ordinary share purchase
warrants and deemed dividend (3.23) 0.15 0.02
Weighted average ordinary shares
outstanding:
Basic 60,000,000 69,044,665
Diluted 60,000,000 70,420,089
Quarter Ended December 31, 2009
% of % of % of
Total Total Non- Total
GAAP Net Share-based Net GAAP Net
Result Revenue Compensation Revenue Result Revenue
RMB'000 RMB'000 RMB'000
Operating costs
and expenses (260,186) 83.79% 541 0.17% (259,645) 83.61%
Sales and
marketing
expenses (9,338) 3.01% 158 0.05% (9,180) 2.96%
General and
administrative
expenses (14,173) 4.56% 2,082 0.67% (12,091) 3.89%
Total operating
costs and
expenses (283,697) 91.36% 2,781 0.90% (280,916) 90.46%
Income from
operations 26,841 8.64% 2,781 0.90% 29,622 9.54%
Quarter Ended December 31, 2009
% of % of % of
Total Total Non- Total
GAAP Net Share-based Net GAAP Net
Result Revenue Compensation Revenue Result Revenue
US'000 US'000 US'000
Operating costs
and expenses (38,117) 83.79% 79 0.17% (38,038) 83.61%
Sales and
marketing
expenses (1,368) 3.01% 23 0.05% (1,345) 2.96%
General and
administrative
expenses (2,076) 4.56% 305 0.67% (1,771) 3.89%
Total operating
costs and
expenses (41,562) 91.36% 407 0.90% (41,155) 90.46%
Income from
operations 3,932 8.64% 407 0.90% 4,339 9.54%
Quarter Ended December 31, 2008
% of % of % of
Total Total Non- Total
GAAP Net Share-based Net GAAP Net
Result Revenue Compensation Revenue Result Revenue
RMB'000 RMB'000 RMB'000
Operating costs
and expenses (213,555) 91.17% 719 0.31% (212,836) 90.86%
Sales and
marketing
expenses (10,353) 4.42% 293 0.13% (10,060) 4.29%
General and
administrative
expenses (20,527) 8.76% 4,008 1.71% (16,519) 7.05%
Total operating
costs and
expenses (244,435) 104.35% 5,020 2.14% (239,415) 102.21%
Loss from
operations (10,187) -4.35% 5,020 2.14% (5,167) -2.21%
Year Ended December 31, 2009
% of % of % of
Total Total Non- Total
GAAP Net Share-based Net GAAP Net
Result Revenue Compensation Revenue Result Revenue
RMB'000 RMB'000 RMB'000
Operating
costs and
expenses (971,550) 85.13% 1,795 0.16% (969,755) 84.97%
Sales and
marketing
expenses (30,824) 2.70% 678 0.06% (30,146) 2.64%
General and
administrative
expenses (65,074) 5.70% 8,939 0.78% (56,135) 4.92%
Total operating
costs and
expenses (1,067,448) 93.53% 11,412 1.00% (1,056,036) 92.53%
Income from
operations 73,867 6.47% 11,412 1.00% 85,279 7.47%
Year Ended December 31, 2009
% of % of % of
Total Total Non- Total
GAAP Net Share-based Net GAAP Net
Result Revenue Compensation Revenue Result Revenue
US'000 US'000 US'000
Operating costs
and expenses (142,333) 85.13% 263 0.16% (142,070) 84.97%
Sales and
marketing
expenses (4,516) 2.70% 99 0.06% (4,417) 2.64%
General and
administrative
expenses (9,533) 5.70% 1,310 0.78% (8,223) 4.92%
Total operating
costs and
expenses (156,382) 93.53% 1,672 1.00% (154,710) 92.53%
Income from
operations 10,822 6.47% 1,672 1.00% 12,494 7.47%
Year Ended December 31,2008
% of % of % of
GAAP Total Total Non-GAAP Total
Net Share-based Net Net
Result Revenue Compensation Revenue Result Revenue
RMB'000 RMB'000 RMB'000
Operating costs
and expenses (730,204) 101.22% 3,584 0.50% (726,620) 100.72%
Sales and
marketing
expenses (36,897) 5.11% 1,163 0.16% (35,734) 4.95%
General and
administrative
expenses (93,631) 12.98% 22,474 3.12% (71,157) 9.86%
Total operating
costs and
expenses (860,732) 119.31% 27,221 3.77% (833,511) 115.54%
Loss from
operations (139,298) -19.31% 27,221 3.77% (112,077) -15.54%
7 Days Group Holdings Limited
Operating Data
As of and for the As of and for the
quarter ended year ended
Dec 31 Sep 30 Dec 31 Dec 31 Dec 31
2008 2009 2009 2008 2009
Hotels in operation 223 283 337 223 337
Leased-and-operated
hotels 206 235 236 206 236
Managed hotels 17 48 101 17 101
Hotels under conversion 49 77 64 49 64
Leased-and-operated
hotels 34 4 6 34 6
Managed hotels 15 73 58 15 58
Total hotel rooms for
hotels in operation 22,352 28,266 32,836 22,352 32,836
Leased-and-operated
hotels 20,697 23,646 23,764 20,697 23,764
Managed hotels 1,655 4,620 9,072 1,655 9,072
Total hotel rooms for
hotels in conversion 4,821 7,476 6,168 4,821 6,168
Number of cities covered
for hotels in operation 33 41 54 33 54
Average occupancy rate 90.5% 92.2% 88.1% 88.1% 88.3%
Leased-and-operated
hotels 91.0% 92.9% 90.0% 88.4% 89.2%
Managed hotels 84.9% 88.1% 80.0% 83.3% 82.8%
Average daily rate (in
RMB) 160.2 160.0 162.9 159.9 159.6
Leased-and-operated
hotels 160.9 160.1 164.2 160.4 160.0
Managed hotels 152.4 159.4 156.6 151.2 156.2
RevPAR (in RMB) 145.0 147.6 143.4 140.9 140.9
Leased-and-operated
hotels 146.4 148.7 147.8 141.8 142.7
Managed hotels 129.4 140.5 125.3 126.0 129.3
For more information, please contact:
7 Days Group Holdings Limited
Investor Relations
Phone: +86-20-8922-5251
Investor Relations (HK):
Ruby Yim, Managing Director
Taylor Rafferty
Phone: +852 3196 3712
Investor Relations (US):
Mahmoud Siddig, Director
Taylor Rafferty
Phone: +1-212-889-4350
SOURCE 7 Days Group Holdings Limited
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