China Living expects that net income in the first quarter of this year will drop 15% to 20% year-on-year, and if it does not include Deutsche Hotel’s revenue, it will fall 45% to 50%.
Editor’s note: This article comes from WeChat public account “Global Travel News” (ID: Traveldaily) .
In the early morning of March 27, 2020, Beijing time, China Living Group (hereinafter referred to as “China Living”) announced the fourth quarter and full-year financial report for the year ended 31 December 2019.
In the fourth quarter of 2019, overall same-store RevPAR dropped by 5.4% year-on-year; same-store ADR decreased by 2.7% year-on-year; same-store occupancy rate fell by 2.4% year-on-year. In 2019, same-store RevPAR fell 3.1% year-on-year; same-store ADR decreased 0.3% year-on-year; same-store occupancy rate fell 2.5% year-on-year.
Since the beginning of March, the business of Huazhu Hotel has resumed. China Living believes that it has passed the trough of business. In addition, the hotel operations of Deutsche Hotel Group acquired by Huazhu have also been affected by the spread of the epidemic in Europe.
Considering the impact of the epidemic, China Living currently estimates that 1600-1800 hotels will open in 2020. Huazhu is expected to close 350-450 hotels this year. China Living expects that net income in the first quarter of this year will drop 15% to 20% year-on-year, and if it does not include Deutsche Hotel’s revenue, it will fall 45% to 50%.
Summary of Operational Data for the Fourth Quarter
Huazhujing opened 630 hotels in the fourth quarter of 2019, including 11 directly-operated stores and 619 managed franchise and franchise stores; closed 163 hotels, including 20 directly-operated stores and 143 Manage franchise and franchise stores. Reasons for closing the store include:
Huazhu regards improving the quality of its products and services as a strategic priority. It temporarily closed 56 hotels for brand upgrades and business model transformation. At the same time, it closed 42 hotels that did not meet the Huazhu brand and operating standards.
Huazhu closed 33 hotels due to factors such as hotel replanning and lease expiry.
32 management franchise stores were closed due to operating losses.
Thanks to the higher ADR in the Huazhu brandThe proportion of mid-to-high-end hotels has increased. The overall ADR in the fourth quarter of 2019 was RMB 232, an increase of 0.9% compared to RMB 230 in the same period in 2018; the overall ADR in the third quarter of 2019 was RMB 245.
The overall occupancy rate in the fourth quarter was 82.2%, a decrease of 3 percentage points from 85.2% in the same period of 2018, mainly due to the weak macro economy and the dilution of newly opened hotels to the occupancy rate; the overall occupancy rate in the third quarter of 2019 It was 87.7%.
The overall RevPAR in the fourth quarter was 191 yuan, a decrease of 2.7% compared to 196 yuan in the same period of 2018, mainly due to weak macroeconomics; the overall RevPAR in the third quarter of 2019 was 215 yuan. Excluding HiSoft, Yilai, Starway, Meilun and other soft brands, the overall RevPAR in the fourth quarter of 2019 fell by 0.5%.
In terms of overall same-store data for the fourth quarter of 2019: same-store RevPAR was 188 yuan, a decrease of 5.4% compared to 199 yuan in the same period of 2018; same-store ADR was 222 yuan, a decrease of 2.7% year-on-year; same-store occupancy rate was 84.9 %, A year-on-year decrease of 2.4 percentage points. The decline in same-store data was mainly due to weak macro economy and increased promotion.
Summary of operating data for the whole year
For the whole of 2019, Huazhu opened 43 directly-operated stores and 1,672 managed franchise stores and franchise stores; closed 54 directly-operated stores and 273 managed franchise stores and franchise stores. As of December 31, 2019, Huazhu has a total of 5,618 open hotels (536,876 rooms), an increase of 27% year-on-year, including 688 directly operated stores, 4,519 managed franchise stores, and 411 franchise stores, operating in China And 437 cities in Singapore.
As of December 31, 2019, there were a total of 2,262 hotels to be built, including 43 directly operated stores and 2,219 franchise and franchise stores. The number of hotels to be built is equivalent to 40% of the total number of hotels in operation.
In 2019, the overall ADR was 234 yuan, an increase of 3.6% year-on-year; the overall occupancy rate was 84.4%, a decrease of 2.9 percentage points year-on-year; the overall RevPAR was 198 yuan, an increase of 0.1% compared to 197 yuan in the same period in 2018 . Excluding soft brands, RevPAR overall increased by 0.8%.
2The same-store RevPAR was 194 yuan in 019, a 3.1% decrease compared to 201 yuan in the same period in 2018; the same-store ADR was 224 yuan, a decrease of 0.3% year-on-year; the same-store occupancy rate was 87%, a decrease of 2.5 percentage points year-on-year.
As of December 31, 2019, the China Living Loyalty Program “Huazhuhui” has 153 million members, and members have contributed 76% of the night sales; 85% of the nights are from Direct sales channels.
Hu Qi, founder, executive chairman and CEO Ji Qi said, “Huazhai has ended a challenging 2019 with strong hotel opening and preparation data. Dedicated employees, a strong brand portfolio and solid execution This will enable Huazhu to further expand its market share and gain excellent operating results. “
“Looking forward to 2020, the new crown epidemic has become a major public health emergency of concern to China and the world. Our priority is to ensure the health and safety of our employees’ customers and the continued operation of our hotels. Since the outbreak in China, Huazhu Established a crisis response working group dispatched by the Central Command Center and supported by 18 regional divisions. The group maintains close communication every day to mobilize and coordinate resources and measures from inside and outside China Living. Our goal is to protect employees And customer safety, continue to provide emergency supplies to all hotels, and try to keep the hotel open. In addition, we are also using the internal information platform, a work application called H-Tone ™ to organize and coordinate the team for employees and joining Merchants obtain key information in a timely manner. At present, China Living has entered the initial recovery stage and is gradually improving the hotel business. With a comprehensive operating platform and online and offline multi-channel sales, China Living has maintained its leading position in the hotel industry. “
“Although Huazhu faces temporary challenges, as an industry leader, we remain confident in the long-term growth potential of the Chinese hotel industry and will seize opportunities to consolidate the development of the hotel industry.” Huazhu will focus on services Quality, innovative technology and organizational capabilities, and strive to become the world’s leading hotel group brand. “Ji Qi added.
Final quarter and annual financial data
In the fourth quarter, the total turnover of all Huazhu’s hotels reached 9 billion yuan, an increase of 21% year-on-year; the annual turnover reached 35 billion yuan, an increase of 19% year-on-year.
Net revenue for the fourth quarter was RMB 2.9 billion (US $ 418 million), an increase of 8.5% year-on-year;Revenue was 11.2 billion yuan (US $ 1.6 billion), a year-on-year increase of 11.4%, which was in line with previous growth expectations of 10% to 12%.
Hotel operating costs for the fourth quarter of 2019 were RMB 1.9 billion (US $ 270 million), an increase of 8.2% year-on-year. Excluding equity compensation expenses (non-GAAP), overall hotel operating costs in the fourth quarter were approximately RMB 1.9 billion (US $ 269 million), accounting for 64.4% of net revenue.
In the whole year of 2019, the hotel operating cost was 7.2 billion yuan (US $ 1 billion). Excluding non-GAAP, the hotel operating cost was 7.2 billion yuan (US $ 1 billion), accounting for 63.8% of net revenue .
Sales and marketing costs for the fourth quarter of 2019 were 134 million yuan (US $ 19 million), compared with 108 million yuan in the same period last year. For the full year of 2019, sales and marketing costs were 426 million yuan ($ 61 million), compared with 348 million yuan in 2018.
Non-GAAP non-GAAP profit before interest and tax (EBITDA) reached 1.1 billion yuan (US $ 152 million) in the fourth quarter, with EBITDA loss of 46 million yuan in the same period in 2018 and 898 million in the third quarter of 2019 Yuan.
Non-GAAP profit before interest and taxes for the year was RMB 3.6 billion (USD 510 million), an increase of 56.5% year-on-year.
Excluding equity compensation expenses and fair value gains and losses on available-for-sale financial assets, non-GAAP adjusted earnings before interest and taxes for the fourth quarter were 854 million yuan (US $ 122 million), a year-on-year increase of 15.9%. , A year-on-year decrease of 5.2%; the non-GAAP adjusted profit before interest and tax for the year was 3.35 billion yuan ($ 481 million), an increase of 2.4% year-on-year, mainly due to the expansion of the company’s hotel network and managementThe proportion of franchise stores and franchise stores increased. The adjusted EBITDA margin (Non-GAAP) for 2019 is 29.9%, compared with 32.5% in 2018.
The net profit attributable to Huazhu in the fourth quarter was 619 million yuan (US $ 89 million), and the net loss for the same period in 2018 reached 419 million yuan; the net profit attributable to Huazhu in the third quarter of 2019 was 431 million yuan RMB; net profit attributable to Huazhu for the full year of 2019 was RMB 1.8 billion (US $ 254 million), a year-on-year increase of 147.1%.
Excluding equity compensation expenses and fair value gains and losses on equity-type available-for-sale financial assets, non-GAAP adjusted net profit for the fourth quarter was RMB 411 million (USD 59 million), compared with 3.64 in the same period in 2018. RMB 100 million; Non-GAAP adjusted net profit for the year was RMB 1.6 billion (USD 225 million), compared to RMB 1.7 billion for the same period in 2018.
Cash turnover
Operating cash inflows for the fourth quarter of 2019 were RMB 979 million (US $ 140 million). Investment cash inflows in the fourth quarter were RMB 635 million (US $ 91 million). Financing cash inflows for the fourth quarter of 2019 were RMB 7.9 billion (US $ 1.1 billion).
The operating cash inflow for the full year of 2019 was RMB 3.3 billion (about US $ 473 million), an increase of 8.0% over 2018. Investment cash outflows for the full year of 2019 were RMB 285 million (approximately $ 41 million), compared to RMB 6.3 billion in 2018. Financing cash inflows for the full year of 2019 were RMB 6 billion (US $ 868 million), compared to RMB 4.2 billion in 2018.
Cash and cash equivalents and restricted cash: As of December 31, 2019, the company’s total cash and cash equivalents were 3.2 billion yuan (US $ 465 million) and restricted cash was 10.8 billion yuan (US $ 1.5 billion) . The total transaction amount for the acquisition of Deutsche Hotels Group is approximately US $ 800 million, cash reserved for syndicated loan refinancing is US $ 500 million, and cash secured for some bank borrowings is US $ 220 million.
Debt financing: As of December 31, 2019, the company’s total loans were 16.6 billion yuan (2.4 billion U.S. dollars), and unspent credit available to the companyDegree is 1.7 billion yuan. As of December 31, 2019, short-term debt was RMB8.5 billion (US $ 1.2 billion).
Complete the acquisition of Deutsche Hotels and other related transaction activities
On January 2, 2020, China Lodging Holding Singapore, a wholly-owned subsidiary of China Living in Singapore, completed the delivery of 100% equity of Deutsche Hospitality. As of December 31, 2019, Deutsche Hotels Group had a total of 119 hotels, 23,353 rooms, and 39 unopened hotels in 20 countries around the world.
Outbreak impact and response measures
Since the outbreak of the new coronavirus in January 2020, the company has taken various precautions in all hotels, such as intelligent contactless services to helpProtect employees and customers. In addition to timely delivery of the required hotel supplies (coordinated and managed by Huazhu’s centralized purchasing team), we also provide temporary relief of franchise fees and help our franchisees obtain low-interest bank loans to meet their Short-term working capital requirements. Where conditions permit, the company tries to keep all hotels open.
The state has adopted strict national prevention and control measures against the epidemic, including travel restrictions, blockades in some cities, and hotel closures. These measures have negatively affected the occupancy rate and revenue of Huazhu Hotel. The company has taken some measures to reduce costs and increase cash flow in order to deal with the negative impact of reduced revenue:
1. Negotiate rent reduction and extension with the owner of the rented hotel;
2. Reduce or eliminate flexible budgets, including marketing, non-essential training, and capital investment;
3. New recruitments have been suspended, headquarters has been streamlined, and some hotel teams have arranged temporary vacations or reduced working days to accommodate lower hotel occupancy rates during the epidemic.
The state announced a series of relief measures for businesses, including rent reductions and delayed payment of social security and taxes, as well as continuous support from financial institutions. These measures will partially offset the impact of the epidemic on business income.
Due to the epidemic prevention and control measures taken in various places, the partial closure of the hotel and the low occupancy rate during this period may cause technical defaults on some of the company’s bank loans. The company is currently working with all relevant parties to seek exemptions when necessary. Since the outbreak, the company has also received further support from banks, including additional bank loans and lower interest rates.
Because the state has adopted effective prevention and control measures against the epidemic, and during the period, Huazhu employees have made great efforts. Since the beginning of March, Huazhu hotel business has initially recovered. Huazhu thinks that it has passed the trough of business. During the Spring Festival holiday, nearly 50% of domestic hotels in Huazhu were required to temporarily close, and the occupancy rate dropped sharply to about 10%. As of March 26, 2020, 93.5% of the hotels in China had resumed operations, with an occupancy rate of 62%, and continued to improve.
Since early March, hotel operations at Deutsche Hotels & Resorts have also been affected by the spread of the epidemic in Europe. To control the spread of the virus, the local government ordered the closure of many hotels of the Deutsche Hotels Group.
The German government announced a number of aid measures, including contributions to salaries for employees on leave, and details are still being processed. These assistance measures should help mitigate the negative impact of some hotel shutdowns.
Huazhu has adopted a series of measures to reduce costs and increase cash flow, such as reducing the cost of flexible budgets, controlling the number of employees, reducing and delaying capital expenditures and rent payments, etc., in order to deal with the impact caused by hotel closures. During this period, the company also contacted banks to request additional bank loans to support China’s European-based business.
Performance Outlook
Considering the impact of the epidemic, China Living currently estimates that 1600-1800 hotels will open in 2020. Huazhu is expected to close 350-450 hotels this year, including 300-350 hotels planned to be closed and 50-100 hotels due to special circumstances of the epidemic.
Huazhu expects that net income in the first quarter of this year will decrease by 15% to 20% year-on-year, and if it does not include the revenue of Deutsche Hotel, it will decrease by 45% to 50%. Considering the uncertainty of China’s economic recovery and the spread of the epidemic abroad, China Living is currently unable to provide accurate income forecasts for the full year 2020.