Company Results

Home Inns Group Full Year 2013 Total Revenues Up 10.1%

Total revenues increased 9.8% to RMB 1.61 billion (US$265.9 million) for the fourth quarter of 2013 and increased 10.1% to RMB 6.35 billion (US$1.05 billion) for the full year of 2013, which was within the guidance range.

Home Inns

Home Inns & Hotels Management Inc. (NASDAQ: HMIN), a leading economy hotel chain in China, today announced its unaudited financial results for the fourth quarter and full year ended December 31, 2013. 

Fourth Quarter and Full Year 2013 Financial Highlights

  • Total revenues increased 9.8% to RMB 1.61 billion (US$265.9 million) for the fourth quarter of 2013 and increased 10.1% to RMB 6.35 billion (US$1.05 billion) for the full year of 2013, which was within the guidance range.
  • EBITDA (non-GAAP) increased 35.5% to RMB 254.9 million (US$42.1 million) for the fourth quarter of 2013 and increased 37.2% to RMB 1,165.6 million (US$192.6 million) for the full year of 2013.  Adjusted EBITDA (non-GAAP) increased 28.2% to RMB 333.9 million (US$55.2 million) for the fourth quarter of 2013 and increased 22.7% to RMB 1.39 billion (US$229.8 million) for the full year of 2013.

Key Financial Results

(RMB in Millions except RMB per ADS)

4Q13

4Q12

V%

FY13

FY12

V%

Total Revenues

1,609.7

1,465.7

9.8%

6,353.0

5,769.7

10.1%

Income from Operations

105.5

36.3

191.1%

524.6

273.7

91.6%

     Adj. Income from Operations*

127.2

79.2

60.5%

625.6

464.1

34.8%

Net Income

12.9

6.3

104.7%

196.2

(26.8)

F

     Adj. Net Income*

91.8

80.6

13.9%

422.8

300.3

40.8%

EBITDA

254.9

188.2

35.5%

1,165.6

849.5

37.2%

     Adj. EBITDA*

333.9

260.5

28.2%

1,391.2

1,133.4

22.7%

Diluted Earnings per ADS

0.27

0.14

92.9%

4.20

(0.59)

F

     Adj. Diluted Earnings per ADS*

1.91

1.74

9.8%

8.83

6.62

33.4%

Note: Consolidation of Motel 168 financial results started on October 1, 2011 

"V%" represents year-over-year percentage change in amounts

"F" denotes a favourable change when the prior period amount was negative

* Indicates a non-GAAP financial measure which excludes share-based compensation expenses, integration expenses, upfront fee amortization of term loans, accelerated fee amortization on early extinguishment of Term Loan, gain or loss on change in fair value of convertible notes, gain or loss on change in fair value of interest swap transaction and net foreign exchange gain or loss (see commentary at the end of this earnings release for full details).

Fourth Quarter and Full Year 2013 Operational Highlights

  • Home Inns Group opened 437 new hotels in 2013 and operated 2,180 hotels across 287 cities in China under its three brands as of December 31, 2013.  There were a total of 417 viable hotel projects in the development pipeline at the end of 2013, including 161 hotels contracted or under construction (136 of which were franchised-and-managed hotels) and 256 hotels under due diligence (all of which were franchised-and-managed hotels), demonstrating continued strong interest in the three hotel brands within Home Inns Group.

                        Hotels Count                  

    Openings   

    Closures   

Group

Home Inn

Motel 168

Yitel

4Q13

FY13

4Q13

FY13

Total number of Hotels

2,180

1,784

378

18

139

437

10

29

     Leased-and-Operated

872

696

163

13

22

77

2

8

     Franchised-and-Managed

1,308

1,088

215

5

117

360

8

21

Contracted/under Construction

161

135

19

7

     Leased-and-Operated

25

17

7

1

     Franchised-and-Managed

136

118

12

6

Under Due Diligence

256

228

23

5

  • As of December 31, 2013, Home Inns Group had a total of 16.9 million unique active non-corporate members under its frequent guests program.

Operating Metrics

4Q2013

3Q2013

4Q2012

FY2013

FY2012

Occupancy Rate

84.0%

89.4%

83.8%

86.1%

86.1%

Average Daily Rate (ADR, RMB)

163

173

165

165

168

Revenue per Available Room (RevPAR, RMB)

137

154

138

142

144

  • For the fourth quarter of 2013, occupancy rate increased by 0.2% while ADR decreased by 1.2%, resulting in a year-over-year decrease of 0.7% in RevPAR.  The decrease in ADR was mainly due to soft market conditions and absence of pricing opportunities in the fourth quarter of 2013.  The sequential decrease in RevPAR was due to seasonality.
  • For the full year of 2013, occupancy rate remained stable, while ADR decreased by 1.8%, resulting in a year-over-year decrease of 1.4% in RevPAR.  The year-over-year decrease in ADR has narrowed compared to a year ago as market conditions stabilized and the hotels in lower tier cities continued to ramp up towards maturity. 

"Despite the weak market environment, our revenue results are within expectations, and the Company achieved continued margin expansion for the fourth consecutive quarter in 2013," said Mr. David Sun, the Company's chief executive officer.  "We exceeded our new hotel opening target, achieved stable performance from our mature hotels, and delivered improved earnings and profitability through the growth of our franchised-and-managed business, operational improvement from Motel 168 hotels, and effective cost control initiatives and productivity gains."

"While we are experiencing near term challenges in the macro environment, we continue to believe in the long-term growth prospects of China's travel and lodging industry," Mr Sun continued. "In the earlier years, we operated predominantly with the leased-and-operated business model while delivering rapid revenue growth.  Today, the Company has transformed into a franchise-focused growth portfolio enabling continued unit growth to strengthen its leadership in market presence.  As a result, , we expect a more moderate revenue growth going forward, but we  feel confident in the underlying business structure we have built to deliver stable margin expansion, meaningful earnings growth and increasing cash generation to create greater value for our shareholders."

Detailed Overview of Financial Results for Fourth Quarter and Full Year 2013

Total Revenues

(RMB/USD in Millions)

       Fourth Quarter 2013     

           Full Year 2013          

RMB

USD

V%

RMB

USD

V%

    Leased-and-Operated Hotels

1,401.6

231.5

7.4%

5,587.5

923.0

8.2%

    Franchised-and-Managed Hotels

208.0

34.4

29.4%

765.5

126.5

26.5%

Total Revenues

1,609.7

265.9

9.8%

6,353.0

1,049.4

10.1%

Less: Business Taxes and Related Surcharges

-98.5

-16.3

9.3%

-391.8

-64.7

10.9%

Net Revenues

1,511.2

249.6

9.9%

5,961.2

984.7

10.1%

Note: "V%" represents year-over-year percentage change in amounts

  • The year-over-year increases in total revenues from both leased-and-operated and franchised-and-managed hotels in the fourth quarter and full year of 2013 were mainly driven by an increase in the number of hotels in operation.  The Company continues to focus on the franchised-and-managed business model which it expects will represent the majority of new hotel openings over the next few years.

Total Operating Costs and Expenses / Total Operating Income

(RMB/USD in Millions)

Fourth Quarter 2013

Adjusted

GAAP Results

Reconciliation

Non-GAAP Results

RMB

USD

Vpts

RMB_

USD

   RMB

__USD

Vpts

Leased-and-Operated Hotel Costs

1,246.0

205.8

-5.1pts

3.5

0.6

1,242.5

205.2

-3.8pts

Franchised-and-Managed Hotel Personnel Costs

31.9

5.3

0.3pts

2.7

0.5

29.1

4.8

0.3pts

Sales and Marketing Expenses

47.0

7.8

1.2pts

0.4

0.1

46.6

7.7

1.2pts

General and Administrative Expenses

81.4

13.4

-0.6pts

15.0

2.5

66.4

11.0

-0.3pts

Total Operating Costs and Expenses

1,406.3

232.3

-4.1pts

21.6

3.6

1,384.7

228.7

-2.6pts

Total Operating Income

105.5

17.4

4.1pts

21.6

3.6

127.2

21.0

2.5pts

(RMB/USD in Millions)

Full Year 2013

Adjusted

GAAP Results

Reconciliation

Non-GAAP Results

RMB

USD

Vpts

RMB_

USD

   RMB

__USD

Vpts

Leased-and-Operated Hotel Costs

4,867.0

804.0

-3.9pts

21.7

3.6

4,845.3

800.4

-2.6pts

Franchised-and-Managed Hotel Personnel Costs

157.3

26.0

0.3pts

11.0

1.8

146.3

24.2

0.3pts

Sales and Marketing Expenses

109.9

18.2

0.4pts

1.5

0.3

108.4

17.9

0.4pts

General and Administrative Expenses

313.5

51.8

-0.6pts

66.9

11.0

246.6

40.7

-0.1pts

Total Operating Costs and Expenses

5,447.7

899.9

-3.6pts

101.1

16.7

5,346.6

883.2

-1.9pts

Total Operating Income

524.6

86.7

3.6pts

101.1

16.7

625.6

103.3

1.8pts

Note: "Vpts" represents year-over-year change in percentage points of total revenues

Total operating costs and expenses were RMB 1.41 billion (US$232.3 million) for the fourth quarter of 2013, representing 87.4% of total revenues for the quarter, and RMB 5.45 billion (US$ 899.9 million) for the full year of 2013, representing 85.8% of total revenues for the year.  Total operating costs and expenses excluding any share-based compensation expenses and acquisition and integration costs (non-GAAP) for the fourth quarter of 2013 were 86.0% of total revenues, compared to 88.6% in the same period a year ago, and 84.2% for the full year of 2013 compared to 86.1% for the full year of 2012.

  • Total leased-and-operated hotel costs were RMB 1.25 billion (US$205.8 million) for the fourth quarter of 2013, representing 88.9% of the leased-and-operated hotel revenues for the quarter compared to 92.6% in the same period a year ago, and RMB 4.87 billion (US$804.0 million) for the full year of 2013, representing 87.1% of the leased-and-operated revenues for the year compared to 89.9% for the full year of 2012.  Total leased-and-operated hotel costs excluding any share-based compensation expenses and acquisition and integration costs (non-GAAP) were 88.6% of the leased-and-operated hotel revenues in the fourth quarter of 2013 compared to 91.0% in the same period a year ago, and 86.7% for the full year of 2013 compared to 88.1% for the full year of 2012.  The year-over-year decreases in total leased-and-operated hotel costs as a percentage of leased-and-operated hotel revenues for both the fourth quarter and the full year of 2013 were mainly due to continued productivity gains at the hotel operational level.

Pre-opening cost was RMB 13.5 million (US$2.2 million) for the fourth quarter of 2013 and RMB 77.9 million(US$12.9 million) for the full year of 2013.

  • Personnel costs of franchised-and-managed hotels were RMB 31.9 million (US$5.3 million) for the fourth quarter of 2013, representing 15.3% of the franchised-and-managed hotel revenues for the quarter, which was unchanged from the same period a year ago, and RMB 157.3 million (US$26.0 million) for the full year of 2013, representing 20.6% of the franchised-and-managed revenues for the year compared to 20.7% for the full year of 2012.  Personnel costs of franchised-and-managed hotels excluding share-based compensation expenses (non-GAAP) were 14.0% of franchised-and-managed hotel revenues in the fourth quarter of 2013, compared to 13.8% in the same period of 2012, and 19.1% for the full year of 2013, which was unchanged from the full year of 2012. 
  • Sales and marketing expenses were RMB 47.0 million (US$7.8 million) for the fourth quarter of 2013, representing 2.9% of total revenues for the quarter compared to 1.7% in the same period a year ago, and 109.9 million (US$18.2 million) for the full year of 2013, representing 1.7% of total revenues compared to 1.3% for the full year of 2012. Sales and marketing expenses excluding share-based compensation expenses (non-GAAP) were 2.9% of total revenues for the fourth of quarter 2013 compared to 1.7% in the same period of 2012, and 1.7% of total revenues for the full year of 2013 compared to 1.3% of total revenues in 2012.  Both year-over-year increases in the sales and marketing expenses as a percentage of total revenues for the fourth quarter and full year were mainly due to increased spending on marketing programs including mobile apps development and implementation in support of Home Inns Group's multi-brand strategy and increased cost associated with the Company's member rewards program.  The Company's on-going marketing efforts remained cost-effective to support steady revenue expansion.
  • General and administrative expenses were RMB 81.4 million (US$13.4 million) for the fourth quarter of 2013, representing 5.1% of total revenues compared to 5.7% in the same period a year ago, and RMB 313.5 million (US$51.8 million) for the full year of 2013, representing 4.9% of total revenues compared to 5.5% for the full year of 2012.  General and administrative expenses excluding any share-based compensation expenses, and acquisition and integration costs (non-GAAP) were 4.1% of total revenues for the quarter compared to 4.5% in the same period of 2012, and 3.9% of total revenues for the full year of 2013 compared to 4.0% for the full year of 2012.  The year-over-year decreases in general and administrative expenses as a percentage of total revenues in both the fourth quarter and full year of 2013 were driven by effective cost control initiatives at headquarters with continued leverage from economies of scale.

Income from Operations was RMB 105.5 million (US$17.4 million) for the fourth quarter of 2013 and RMB 524.6 million(US$86.7 million) for the full year of 2013.  Income from operations excluding share-based compensation expenses and integration cost (non-GAAP) for the fourth quarter of 2013 was RMB 127.2 million (US$21.0 million), or 7.9% of total revenues, compared to RMB 79.2 million, or 5.4% of total revenues, in the same period of 2012.  Income from operations excluding share-based compensation expenses and integration cost (non-GAAP) for 2013 was RMB 625.6 million (US$103.3 million), or 9.8% of total revenues, compared to RMB 464.1 million, or 8.0% of total revenues, in 2012.  The year-over-year increases in the income from operations margin rate for both the fourth quarter and full year of 2013 were mainly driven by the increasing higher-margin revenue contribution from franchised-and-managed operations, continued operational improvements from Motel 168 hotels, and meaningful cost control savings and productivity gains from both the hotel level and corporate headquarters.

EBITDA (non-GAAP)  

(RMB/USD in Millions) 

             Fourth Quarter 2013            

                     Full Year 2013                   

RMB

USD

%Rev

V%

RMB

USD

%Rev

       V%

EBITDA (Non-GAAP)

254.9

42.1

15.8%

35.5%

1,165.6

192.6

18.3%

37.2%

     Net Foreign Exchange (Gain) / Loss

-13.6

-2.2

-0.8%

-49.8

-8.2

-0.8%

     Share-Based Compensation Expenses

19.6

3.2

1.2%

86.0

14.2

1.4%

     Accelerated Fee Amortization due to Early

     Extinguishment of Term Loan

-

-

-

41.9

6.9

0.7%

     Integration Cost

2.0

0.3

0.1%

15.0

2.5

0.2%

     Non-Operating Income

-

-

-

-0.9

-0.2

0.0%

     Loss on Fair Value Change in Convertible Notes

70.9

11.7

4.4%

133.4

22.0

2.1%

Adjusted EBITDA (Non-GAAP)

333.9

55.2

20.7%

28.2%

1,391.2

229.8

21.9%

22.7%

Note: "%Rev" represents amount as a percentage of total revenues

         "V%" represents year-over-year percentage change in amounts

 Consolidated Net Income Attributable to Home Inns Group's Shareholders

(RMB/USD in Millions)    

              Fourth Quarter 2013         

                      Full Year 2013                

RMB

USD

%Rev

V%

RMB

USD

    %Rev

       V%

Net Income (GAAP)

12.9

2.1

0.8%

104.7%

196.2

32.4

3.1%

           F

     Net Foreign Exchange (Gain) / Loss

-13.6

-2.2

-0.8%

-49.8

-8.2

-0.8%

     Share-Based Compensation Expenses

19.6

3.2

1.2%

86.0

14.2

1.4%

     Integration Cost

2.0

0.3

0.1%

15.0

2.5

0.2%

     Amortization of Upfront Fees on Term Loan

-

-

-

1.0

0.2

0.0%

     Accelerated Fee Amortization on Early

     Extinguishment of Term Loan Interest

-

-

-

41.9

6.9

0.7%

     Non-Operating Income

-

-

-

-0.9

-0.2

0.0%

     Loss on Fair Value Change in Convertible Notes         

70.9

11.7

4.4%

133.4

22.0

2.1%

Adjusted Net Income (Non-GAAP)

91.8

15.2

5.7%

13.9%

422.8

69.8

6.7%

40.8%

Note: "%Rev" represents amount as a percentage of total revenues

         "V%" represents year-over-year percentage change in amounts

         "F" denotes favourable changes when the prior period amount was negative

Basic and Diluted Earnings Per Ordinary Share and Per ADS

          Fourth Quarter 2013     

            Full Year 2013           

Ordinary Share

ADS Share

Ordinary Share

ADS Share

RMB

USD

RMB

USD

RMB

USD

RMB

USD

Basic

0.14

0.02

0.27

0.05

2.12

0.35

4.23

0.70

Diluted

0.14

0.02

0.27

0.04

2.10

0.35

4.20

0.69

Adjusted Basic (Non-GAAP)

0.98

0.16

1.96

0.32

4.56

0.75

9.12

1.51

Adjusted Diluted (Non-GAAP)

0.96

0.16

1.91

0.32

4.41

0.73

8.83

1.46

Cash Flow

Net operating cash flow for the fourth quarter of 2013 was RMB 276.8 million (US$45.7 million), compared to RMB 217.7 million in the same period of 2012.  Capitalized expenditures for the fourth quarter of 2013 were RMB 320.6 million (US$53.0 million), while related cash paid for capital expenditures during the quarter was RMB 271.4 million (US$44.8 million).  

For the full year of 2013, net operating cash flow was RMB 1.19 billion (US$195.8 million), compared to RMB 747.8 million in 2012.  Capitalized expenditures for 2013 were RMB 929.5 million (US$153.5 million), while related cash paid for capital expenditures during the year was RMB 897.5 million (US$148.3 million).  

Balance Sheet

As of December 31, 2013, Home Inns Group had cash and cash equivalents of RMB 1.16 billion (US$191.1 million).  The outstanding balance of convertible notes issued in December 2010 (measured at fair value) was RMB 1.16 billion (US$191.2 million).  The outstanding balance of the U.S. dollar-denominated three-year term loan was RMB 713.3 million (US$117.8 million).

Outlook for First Quarter and Full Year 2014

Home Inns Group targets to open no less than 450 new hotels in 2014, including approximately 70 to 90 leased-and-operated hotels and 360 to 380 franchised-and-managed hotels. 

Home Inns Group expects total revenues for the group for 2014 to be in the range of RMB 6,800 million to RMB 7,000 million, representing a growth of 7.0% to 10.2% over 2013.  Total revenues for the group in the first quarter of 2014 are expected to be in the range of RMB 1,460 million to RMB 1,490 million.

These forecasts reflect our current and preliminary views and are subject to change.

This announcement contains translations of certain RMB amounts into U.S. dollars solely for the convenience of the reader. Unless otherwise noted, all translations from RMB to U.S. dollars are made at a rate of RMB 6.0537 to US$1.00, the noon buying rate for December 31, 2013 set forth in the H.10 statistical release of the Federal Reserve Board.

Key Personnel Change

Huiping Yan will be resigning as chief financial officer effective April 30, 2014, in pursuit of opportunities outside of the Company.  Ms. Yan joined the Company in July 2009 as the senior vice president of finance and strategy and was later promoted to chief financial officer on May 1, 2010.  A search for a replacement has commenced and May Wu, our current chief strategy officer and former chief financial officer, will be acting CFO effective from May 1, 2014, until a suitable candidate comes on board.

Home Inns & Hotels Management Inc.

Unaudited Condensed Consolidated Balance Sheet

December 31, 2012

December 31, 2013

RMB '000

RMB '000

US$ '000

ASSETS

Current assets:

Cash and cash equivalents

663,156

1,156,743

191,080

Restricted cash

205,739

173,276

28,623

Accounts receivable, net

98,176

99,964

16,513

Receivables from related parties

6,818

5,509

910

Consumables

41,600

41,231

6,811

Prepayments and other current assets

172,534

181,232

29,937

Deferred tax assets

80,369

78,839

13,023

Total current assets

1,268,392

1,736,794

286,897

Investment in a jointly controlled entity

6,625

5,832

963

Property and equipment, net

3,846,835

4,049,337

668,903

Goodwill

2,254,631

2,254,631

372,439

Intangible assets, net

1,149,419

1,112,499

183,772

Other assets

117,350

86,027

14,211

Non-current deferred tax assets

310,762

407,564

67,325

Total assets

8,954,014

9,652,684

1,594,510

LIABILITIES

Current liabilities:

Accounts payable

76,825

89,170

14,730

Payables to related parties

3,798

3,029

500

Short term loans

12,571

-

-

Finance lease liabilities

6,660

1,376

227

Salaries and welfare payable

215,569

222,865

36,815

Income tax payable

76,382

88,551

14,628

Other taxes payable

27,761

31,344

5,178

Deferred revenues

202,874

202,949

33,525

Other unpaid and accruals

165,886

228,881

37,808

Other payables

925,134

911,641

150,593

Deferred tax liability

29,439

52,155

8,615

Total current liabilities

1,742,899

1,831,961

302,619

Long term loans

735,404

713,337

117,835

Deferred rental

631,618

691,456

114,220

Deferred revenues

45,089

54,075

8,933

Finance lease liabilities

1,620

-

-

Deposits due to franchisees

91,462

115,351

19,055

Other long term payables

10,620

20,537

3,392

Unfavorable lease liabilities

370,548

337,627

55,772

Financial liabilities 2

1,066,771

1,157,295

191,172

Deferred tax liabilities

288,321

283,522

46,834

Total liabilities

4,984,352

5,205,161

859,832

Commitments and contingencies

Shareholders' equity

Ordinary shares (US$0.005 par value; 

200,000,000 shares authorized, 

91,672,320 and 94,814,866 shares issued 

and outstanding as of December 31, 2012 

and December 31 2013, respectively)

3,574

3,671

606

Additional paid-in capital

2,802,905

3,080,596

508,878

Statutory reserves

158,417

206,892

34,176

Retained earnings

992,505

1,140,252

188,356

Total Home Inns shareholders' equity

3,957,401

4,431,411

732,016

Noncontrolling interests

12,261

16,112

2,662

Total  shareholders' equity

3,969,662

4,447,523

734,678

Total liabilities and shareholders' equity

8,954,014

9,652,684

1,594,510

Note 1: The conversion of Renminbi ("RMB") into United States dollars ("US$") is based on rate of US$1.00=RMB6.0537on December 31, 2013, representing the certificated exchange rate published by the Federal Reserve Board.

Note 2:Financial liabilities represent convertible notes  measured at fair value.

 

Home Inns & Hotels Management Inc.

Unaudited Condensed Consolidated Statement of Operations

Quarter Ended

Year Ended

December 31, 2012

September 30, 2013

December 31, 2013

December 31,2012

December 31,2013

RMB '000

RMB '000

RMB '000

US$ '000

RMB '000

RMB '000

US$ '000

Revenues:

 Leased-and-operated hotels 

1,304,958

1,535,082

1,401,635

231,534

5,164,799

5,587,480

922,986

 Franchised-and-managed hotels 

160,724

204,078

208,048

34,367

604,936

765,491

126,450

 Total revenues 

1,465,682

1,739,160

1,609,683

265,901

5,769,735

6,352,971

1,049,436

 Less: Business tax and related surcharges 

(90,149)

(106,150)

(98,490)

(16,269)

(353,418)

(391,821)

(64,724)

 Net revenues 

1,375,533

1,633,010

1,511,193

249,632

5,416,317

5,961,150

984,712

 Operating costs and expenses: 

    Leased-and-operated hotel costs – 

 Rents and utilities 

(514,213)

(533,571)

(533,188)

(88,076)

(1,953,243)

(2,108,924)

(348,369)

 Personnel costs 

(245,909)

(273,501)

(256,064)

(42,299)

(1,037,371)

(1,073,754)

(177,372)

 Depreciation and amortization 

(158,078)

(172,918)

(180,503)

(29,817)

(612,789)

(692



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