HTHT - Earnings call transcript Q2 2022

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Operator

Good day, and thank you for standing by. Welcome to the H World Group Conference Call. I would now like to hand the conference over to your speaker today to Mr. Jason Chen, Investor Relations Director. Please go ahead.

Jason Chen

you. Thank good and everyone. evening, morning, Good us Thanks for joining today. Second to Half First World XXXX H Group's Quarter Earnings and Welcome Conference Call.

Joining Jin Ms. Founder our Ms. of us and Chairman, our Fei; Deputy Jihong. International our Mr. our today CFO, CEO Ji Chen Ms. Hui, CEO, Hui; Xinxin; Liu Mr. President, our our CFO, business, and He is Ye Qi, Ms.

questions. will remarks, their management be available answer prepared your Following to

the include continue, Harbor please the forward-looking note the statements States provision Safe will United Reform under we of Before Act Litigation discussion made that Securities today XXXX. Private of

involve risks statements Forward-looking inherent and uncertainties.

our World of different applicable from potential Group any obligations does such, with any in the number uncertainties may and filings A outlined not statements, and are undertake today. As required be update except as risks our laws. to results H views forward-looking SEC. materially public expressed the

measures discussion can during On performance. that Reconciliations the financial earnings our yesterday. adjusted call was those measures comparable mention release today, distributed will our of found also in to GAAP the we of be information

that, Group's recorded. at Mr. this slide Mr. Ji, is being as World call on is well of Qi. I now presentation the webcast turn call As a over H conference reminder, as this With conference supplementary ir.hworld.com. will Ji The available call website to please.

Ji Qi

Good morning, and good gentlemen. and evening, ladies

and very difficulties of and including in against European we We collaborated other of led to help took conducted to for and protect especially government a challenges demand cost a customers a in the our healthy them employees Second outbreak operations. our period We break. has for cities promising travel In period, posted quarter position procedures carrying ADR way, COVID, provided business. cash reductions both headquarters. with streamlining business measures as both all our to to China, COVID of hand, order turbulent support very has further our and to in hotel in scale XXXX recovery. In this large of disruptive like our Pent-up preventive our occupancy. been growth necessary On to significant well. major franchisees experienced healthy in disciplined maintain overcome Shanghai

many for recovered 'XX. XXXX in almost The in challenges external our to factors. economic has uncertainties recovery continued disruptions RevPAR able strengthening our different environment, business. through Facing we period past COVID geopolitical similar resilience which to to quarter. a the been focusing In levels posed competency, and quarter the wave us of the conflicts recognition, trend is same Second -- several years, on and have the core ride third

on our for We existing large-scale remove quality, market hotels, and growth, consistency continue needs. new our hotels to for upcoming hotel on market, brands potential. a network. China, soft including and vastly our continue opening focus our core and inferior Therefore, improvement ensuring are we sustainable quality is to essential senior

headquarter is especially decision We agile very and as lower-tier to regional the originality, We well asset of which headquarters. a market, making and will equipped will close market understanding development be employees. more customers, as with In to process. our established to Each order increase become we our further local franchisees in cities. penetration, better the market X our experienced create in

the opportunities Please? call our accelerate I the turn that, partners confident restructure quality our us management in are operating We allow business the details. Jin local Hui and for to that With in our such markets. a more to will growth of to provide discuss will

Jin Hui

recovery of Due of only bottom our level. XX% to As the COVID, usual, firstly Ji at review Page RevPAR you, reached recovery RevPAR business our Qi, Please let turn to me China for in quarter. XXXX impact a Thank the April X.

recovered improve XXXX of XX% to gradually our of range only over then, recovery level. the the XXXX since our to XXXX with Other RevPAR to in Putting to further of shows XX% RevPAR and Shanghai, of Beijing July started recovery XX% recovered in later of and RevPAR XX% However, RevPAR level provinces in cities consideration July. level. months. in

mentioned our first earnings in started reinforce we operations. our measures call, to for control we As quarter conference China cost

the we turn fact, some quarter. In had to X. achievements during Page Please

On rental over the achieved the rental million in quarter. expenses XX front, RMB we reduction second

our second overhead headcounts the quarter in roughly cost optimization we of in year beginning. compared reduced For to XX% headquarter,

At and we to we also continuously economic million difficulties. would is provided franchisees sustainable the to necessary XXX from strategy, rise We also continued the fee capabilities our second on Therefore, RMB time, center organizational our waivers order insist growth mentioned for existing to franchisees to to totaling the the our quarter, adjusted networks. business. our build in remove quality employees previously hotels same business and that implementing through localized a overcome upgraded our structure Hotel we customers, very cycle. to and on them in help

continue organizational key headquarters the headquarter. Therefore, more organizational well There started management changed penetrating such our market, last country year, quarter this China making fourth brands. turn are the the this realize As regional established X X. Please our localized X applied West middle whole management into economic X as In to of essential regional-based Page from We more brand-based performing further and These structure. as South importance since well are of we regional to upgrading and the penetrated we we regional offices and to less headquarter experience China are our to structure for year. and we capability operation regional adjustments. established to purposes previous scale developing and then. and

could on changes. faster local and better to team understanding franchisees, Firstly, reaction preference local the market have a customers, localized

and process. localized regional efficiency of shorter and a terms Secondly, in synergy could achieve and office higher management, a operational decision-making more operations, marketing sales

quality our Lastly, regions it and penetration target. help weak long-term achieve lower-tier in growth to the us our would previously cities development accelerate to sustainable

soft and last X our development, also we with exceed Based consumption our together Page hotel product next trends of market insist brand and China in or practice X. on upgrading own strategy. to economic the to brand growth market, years. judgment on we of terms future in in sustainable years, the turn the general In X decided the Please experiences from X accelerate, on

hotel few we soft to had improve And in may As up soft next already to that you our from remove X pipelines. continuously quarters, mainly brand the quality. cleaned our previous hotel years, Please in we notice hotels, Page further inferior inferior or economic X brand X. hotels turn existing networks including would

Our lower-tier progressing. penetration cities continuously

in cities. from second XX% as new and of turn XX, to operations the hotel coverage As of pipelines lower hotels quarter, XX% the XXX In are second from City Page well. in to tier of Please lower-tier X,XXX XX% in signings total June increased quarter. X. are of contributed also cities cities

for scale Up and our unchanged customer Middle Upscale segments for also have as We we well brand-based brand organizational X each X should the Our brand segments differentiated and structure still on hotel structure and its segment in innovation as as middle these segments, positioning, Like product operational management use steadily. keep experience. segments. are economic these strategy progressing and unique

the future the end segment middle in Scale believe development, operation of By ready terms XXX Middle harvest. scale upper to is pipelines In XXX have our in and hotels total in of Upper June, we China. we

are to our XXXth same market. time, seek the its brand, in openings opportunity leisure to the existing At milestone brand Madison going hotel the achieved we more recently. Our leverage on conversion further Manxin

Moving weak impacted. to hotels upscale recent segment, of negatively Upscale new the the signings undeniably, our given are market, property built newly

development. finding local more on alternatively, are market we the in opportunities government the focusing future also support However, and conversion corporations to

House our and market. month. Please RevPAR improved the to is DH We July turn domestic of XXX% House and and the quarter. further recovered to with XXX%. recognized in XXXX and recovery solid June brands second also by and saw are X. RevPAR level into to the tap Page had in exceed Series market. business It May over recovery leisure recovery accepted rate introduced Lastly, It month already a Blossom well XX% Blossom recently booming the continues really DH

are DH's now EBITDA expecting Please recent More full Page XXXX. importantly, to of recurring turn given recovery, year turn to for positive XX. the solid the we

RevPAR the also and supported the level, continues XX% its demand. quarter. XXXX and business trend The the recovery corporate traveling blended of XX% of ADR to terms recovery driven by in third increase the roughly In group leisure in in by recovered mainly by second was pent-up quarter, driven mainly

However, control energy as although efficiency cost the reduction, recent strict continuously for and business cost efficiency include recovery operational CapEx cost headquarter controls. was quite as mainly conduct solid, we improvements, well which DH, improvements overhead control

membership DH's efficiency program longer-term World digital and integration capability performance, enhance call relaunch experiences guest will for capability for or and performance. as direct our by channel a Europe development, better further organizational continuously of With in Rewards for distribution service H to Lastly, InterCity digital through Ye to limited Zleep discuss Fei I financial and captured market the brands. operational quarter that, and and share investing developing turn second we

Ye Fei

Thank Jin Hui. wherever to good are. you morning evening Good you, everyone, or

move for and second XXXX. to Let's on operational financial quarter our the review

Page the the compared XXXX hotel our with to by Slide -- of on second shown quarter XX, expanded As in rooms XXX,XXX. XX% second XXX,XXX of quarter

this XX% quarter. by Legacy-Huazhu in roughly year-over-year Excluding rooms XXX,XXX hotel DH, to expanded

offset late of turnover since It large-scale For continuous our by to our China, China billion our hotel network March to our in was business. second in but declined due RMB of the XX% mainly by outbreak European total business hotel quarter. and partially in turnover quarter, in recovery variant this year-on-year XX.X expansion the the strong Omicron

XX% billion QX XXX quarter. of Legacy-DH was was if XXXX The the quarter. outbreak XX -- percentage turnover of by for Page the in have XXXX. to at to the XX. Legacy-Huazhu to excluding impact Excluding impact Omicron impact, under in mid-March. of DH, the requisition, points of to hotel since declined have to compared in recovered RevPAR XXXX business by lower XX.X XX% XXXX X.X% second Turn RMB than recovery Turn XXXX RMB in QX level. If RevPAR while ADR accelerated including blended would Page to XX% would occupancy further compared this hotel XX, to RevPAR down Legacy-Huazhu due declined year-on-year by QX

XX% Total to with revenue Our on see percentage grew the XX. improved by level. to percentage exceeded Legacy-DH EURXXX, to billion. recorded QX lower the at of by in XX%. XX% X.X bottom. with declined revenue revenue a by of year-on-year the RMB Legacy-DH points X.X strong financial line in Revenue decline XX% million. previous to ADR XXXX RMB QX Legacy-Huazhu's revenue which guidance XXX% was for almost mainly QX, XXX growth and year-on-year dragged the XXXX our X.X to results the of The with compared was Omicron EURXX Decline billion QX Leased revenue improved XXX variant of -- compared still XXXX, large RMB since level RMB mainly to billion. QX Breaking by actually in although and Please Legacy-Huazhu the Owned Slide by scale behind QX, year-on-year the X.X% of blended X.X XX revenue due by XXXX, down by percentage occupancy by outbreak March. our increased RevPAR to

recovery the XXX our billion. revenue the contribution the channel level. X.X QX growth in declined Franchised strong provided CRS quarter. this RMB Manachised Manachised Excluding RMB shrank compared because DH, change by XX.X% XX.X% hotels management in XX% XX% Legacy-Huazhu to and XXXX of Total QX fee of include of from at to million, XX.X% Owned Legacy-DH. in declined business RMB business, Leased by also Franchised million revenue by to contribution Legacy-Huazhu of by decline year-on-year to from Franchised revenue and decline Due XXXX with the to temporarily roughly Group offset and waiver and impact the revenue of XXX Manachised also mainly less The XXX% was year-on-year Legacy-DH of dragged Legacy-Huazhu's from hotels but and franchisees

CRS despite and waiver Manachised further management business of provided the model, the Manachised revenue, Franchised Legacy-Huazhu, lower contribution franchisees contribution and actually networks with reduced contribution. Franchised hotel For our asset-light and to expanding in fee

a the large of loss move million RMB reported income The last a compared decline XX. million and million X operating let's to positive operating cost mainly business performance. QX, Now, due income of to to China quarter before. year weaker RMB profitability on was a RMB XXX In XXX the was session year-on-year and Slide on

X.X QX XXXX income Excluding million DH, million and negative operating million to RMB quarter second quarter compared year XXX year-on-year. a X XXX cost last million billion, positive a ago. operating income X.X% was in by XX The hotel the RMB XXXX RMB was for -- RMB increased Legacy-Huazhu

also lower For billion roughly which driver continue operating RMB X.X% a occupancy, Legacy-Huazhu, next cost cost, a indicating a in X.X% major quarters. cost is basis. a few it Besides going associated rental the decline with hotel year-over-year recorded RMB savings reduction, decline or XX the X.X variable Q-over-Q to is on million

For growth, The and hotel less cost costs, increase year-over-year business cetera. to also last factors associated indicating recorded et due was operating consumer Legacy-DH, such XX% the and impairment quarter with rental RMB in compared quarter rents a including cost variable labor, mainly as increase year. million it of F&B, XXX to this the terminated growth. same lease of Other variable the agreement recovery, reduction

increased mainly RMB due million cost year-on-year quarter leased hotels to construction QX, by XX% preopening limited and in Our to XX more during owned in China. service, under this

amount model, cost upscale future which mentioned we our as preopening hotels as of previous low However, use the asset-light expansion remains absolute mainly of quarters in well. dollar will

increase the decrease by Legacy-DH. year-on-year the but XX.X% declined and RMB X.X% by QX in in the million, to Q-on-Q in offset SG&A XXX by driven Legacy-Huazhu Our

XX% DH, the measures offices Excluding cost decline headcount China mainly attributable million. expenses, XXX in to line The selling Legacy-Huazhu year-on-year by by SG&A less as control and headquarter along performance. RMB as declined to well the weak business was with expenses streaming for

On there's compared much selling last QX in income decreased increased is by subsidy XXX same received government DH Other because with business the to recovery. quarter year-on-year less hand, actually RMB from operating million year. expenses aligned XX% German to the other

Page XX. to Turning

RMB 'XX, accelerated QX was loss million DH EBITDA XXXX compared positive X a recovery. compared the million QX business RMB to million to RMB in RMB XX a ago. of adjusted by year Our to EBITDA in in XX driven XX billion turned

EBITDA et brought XX exchange asset million are quarter QX depreciation, billion and the also and is RMB This mainly our by euro, Accor, adjusted -- including in foreign due loss to an of outbreak million DH of impact in this to compared shares recorded QX. which there were roughly to loans Legacy-Huazhu in the RMB X.X variant DH, RMB XXX our Excluding Omicron XXXX by cetera. large-scale denominated

RMB we However, narrowed this adjusted XXX recorded adjustment of of quarter XX loss from is not a net ago. temporary. In RMB QX loss a XXXX, million million,

generated this RMB QX from cash DH, Excluding of to net loss billion a a debt mainly XX RMB from net quarter. quarter Legacy-Huazhu XXX It to billion X cash RMB Coming million, by ago. RMB the of operation recorded last X.X position, reduced the adjusted of due the from million our quarter. was narrowed loss in end to

unutilized billion. was billion Our cash facility X.X bank X balance RMB the and was RMB

Given the cautious in remains on foreseeable uncertain remain the CapEx COVID future, to OpEx we spending and impact cash. reserve

for open Omicron to Thank Session X% Q&A. XXXX that, assumption if revenue we before. refinanced a of to the XX% of no Turn the addition, to of excluding we outstanding on grow guidance. third Also, do third EURXXX grow XX year. the Question-and-Answer there In the up this In large-scale quarter to With successfully XX% meet redemption Page prepared is have quarter convertible expect with later let's mentioned our total amount on DH, to possible to are as or upcoming to outbreak we I bond compared syndication X% loan again million. that XXXX, of you. XXXX

Operator

our Thank from the of from you. [Operator first Instructions]. I question Ng Bank line America. show of comes Billy

Billy Ng

revenue just guidance we've that want to using this we when growth the in provided that what trend assumption Basically, And have and RevPAR seen quarter. in blended whether we September. August July we kind recovery that the know of continued seen were in for --

Ye Fei

estimate recovery Billy, compared XXXX this roughly your the question, third quarter. RevPAR like To for to is we Fei. XX% blended

Billy Ng

you terms or July And September, in that for of better recovery and the worse? will be think August do than

Ye Fei

the like is talk Actually, if is actually percentage about better XX to than compared recovery I XXXX. we August slightly think the XX%

Billy Ng

Language] [Foreign

Jin Hui

hotels over previous them XXX new we For but of quarter, the the backlog. during from some quarter, actually the up quarter's signed roughly second

hotels In well third near provision we fact, the given enter things future. or those X impacts openings all X, last COVID our has lifted impacted gradually economic slowdown. the construction definitely cities, impacts cities, the Tier some of given the especially lot But Undeniably, with seeing well putting as a quarter, But for cities, together to going Tier some the as from new especially will it the conditions, COVID. for the the policy impact have for a of the for those signings as and as have on improved, economic major for COVID into conditions, negative while. new are less those the the

Next question please.

Operator

I show our of line Goldman next Sachs. question the Cheung comes from Simon from

Simon Cheung

So the rationale soft the the accelerating some the competitors the my the having these hotel, in years? the what's seen I'm first X And relation of positioning or exist foresee in of strong X wondering segments. they of question to exceeding is whether the other actually are next of market major accelerating the that accelerations is or market? in reasoning what that behind challenge can brands

Jin Hui

Okay.

of think we there's yes, curious are on investors these a lot So parts.

one that thinking to our compared are of different we our notice peers, strategies also peers. We using very and developing

As our sustainable on going times our strategy as team previous we're to growth that Chairman as in quarters our conditions. management few quality the these under implementing emphasized insist well several

that So, makes key the decisions.

the trends major high are major there One judgment and are our the in the especially in quality the life, future. and we that future future a trends trends products -- cities cities, So, consumption in high-quality consumption the behind. better the X that People better those observing the of upgrading in and in as requiring near are enjoying life reasons the we as seeing lower-tier China, well. are on actually,

in high major also as hotel it's brands are well. product more HanTing, growth inferior only future. our Secondly, but and quality of our that think strategy being including also compliance putting our government not aligned And as change strict well. as requirements the on are hotels, as development, are are terms in We those seeing governments products, economic actually other industry the we ibis well other on confidence the the with high-quality also thirdly, regulation

from to brand why we economic or X So decision accelerate exit going we're softer segment make our the years. in -- that's X next that the

Simon Cheung

So, terms I'm headquarters. implications as of were both controlling regional my setup as coming of regional second is obviously the the the office in to The question in what this company in well new of be the the the X in the setup to wondering would cost very revenue successful quarter. the cost relation quarters? last

Jin Hui

Yes.

higher limited regional the As to much efficiency based. some in based marketing of will you on local the organizational service making is middle scale and to more have creating it also comprehensive build brand and of terms very And our the the and from economic it Definitely, synergies regional know that focus cities. structure the it in enable may be to customers, and as change well. cost strategies sales brands operation, supply control. terms previous especially obviously we the chain, us in the management in actually sales, lower-tier It the a will our becomes and localized we that franchisees closer office to

regional assigned offices management regional have conditions. control previous the people so especially headquarters In you. total fact, but the we And from these we the talent actually, control cost, X our and development of Thank because in to overall well. despite measures, assigned people cost the we some are can from offices, the but under continuously as front, we front also terms not building of only are our

Ji Qi

questions. Thank Qi. Ji you. This good is very are These two

we definitive need very That's their ago, the was their It also brands, there China brand competition. to So thinking makes in very that on a becomes largest soft their aggressively also few a one another everyone we probably the at called protect groups hotel strategy react back entered knows to aggressiveness. in about to OYO, why year. years and and strategy our regards use of that

Okay.

practice, the realized need the we small the that not scale several the Over experience last not years they all. at actually management, those the very hotels, PMS, and don't technology management, actually not

also helping networks. our to them our them to or So, putting we in willing to are sacrifice brand not

the them we quality or -- up the as bright the to So in such as that our That next by capability that as X hotels outstanding new could years, the we we be the near so necessary COVID, the using empower in adjustments to help on industry. clean openings In openings, not mentioned operate or some our large using scale. will the times future, them probably capability, might Group's leveraging X future, those and need And to have of internally or all supply technology growth. emphasize our actually alternatives several in the in by inferior we chain of make terms we some opportunity by gross well.

risk new are not openings target our fact, sustainable be only overcome in our target capability In to should long key our be long the to the capability term the growth. the key our in term, and

still soft expanding own the strategy more has So, give on also yes, comments every as strategy. company well other companies this. very India doing I brand as are their because in well don't

Okay.

I compare In or terms of whether are a market the United a market, headcount South people and very provinces that Shaanxi, of as are each big such American China, our you Europe of and cultures lot market, organizational enough. Jiangsu well we restructuring, as people But lot provinces, and And hire as Shanghai might or very not. to much to China terms different have to States actually, differentiated the different. comparing in we very Tibet studied fact, areas going massively. in increase if regions those cultures are have curious the is actually

into So terms of market, local the move structure we to more of, to in organizational local penetrate market. be further the have to forward to closer therefore, our

talent will fact, regional headquarter. to In CEO as having those to more assigned offices. regional lot headquarter promoted of is people the be headquarters from be a we from such assigned X the there are And are all of our of

to us target They the regional the much total achieve terms offices be this cost future, strict future. all in people. in to together support target to is each very of So have XX,XXX very the further have necessary in hotels Actually will offices for in XX,XXX putting a won't to the reaching to too regional those control. of of it hiring have our

Next question, please.

Operator

comes show [Operator Instructions]. Sijie from question line Lin of I the next our from CICC.

Sijie Lin

mentioned a have market. question regarding still market. I upscale there's So, Chinese before for potential We major mid-to-upscale

what have And made benefits. years of generally, the us to order segment customers expansions in operations in mid-to-upscale in So, member this accelerate recent future? in hotels

benefits? we do member our how design So,

Jin Hui

Okay.

upscale our development, In in scale our progressing terms mentioned up-middle mid-scale keep as I my -- previously, and of in we -- remarks steadily. prepared

the In fact, terms the have the good was we segment few cost accordingly. terms a strategy efficiency. spent high going of why at are for years. and experimenting the for discussing we experiences. branding to good the those to upper-middle preparing change been the of for this But operating last for very to before, That's and the in we few control, customer internally economic segment our in Huazhu scale at and it's adjusting and limited the in years middle-scale service, especially from

for have points. fact, this In particular several segment, we

conversion business and Mercure using we Crystal are units the opportunity catching and second Crystal have Madison, totally in the Manxin regarding have upgrades, and we operation Firstly, branding Madison very product products, brands, the to experiences. Novotel Manxin Mercure, terms Intercity X continuously well are the including business customer differentiated and And and a the existing units the in and The market. business as in organization business structures, key X the BUs, to also Orange, unit. and of And as first have to are and the Orange Intercity unit.

discussions. the that key -- Amazon first terms experiences internal customers of core of segment, program strong will members. experience scale some each also of our also privileges. And have keep experiences the the programs, and upper-middle also to in brands on each For core we leverage provide for hotel do of addition the member privileges just There have upper-middle especially is and the and the all, will privileges, to very, Prime scale but a for we in like unchanged, membership membership the core the very we we different customer

itself. on probably For depends discussion next half programs will the and brands the we yes. each or the hotels more X and it Hospitality, the example, with also of the membership really year on have in months, together Deutsche the And thinking adjustments opportunity,

Operator

to would concludes the the Thank time, Chen, you. to Mr. Jason call I Director remarks. this of for Relations Q&A That like turn End At back Investor Q&A over closing session.

Jason Chen

everyone, and for Bye-bye. we your to forward time us upcoming you, again Thank Thank look connect in quarter. taking you with today, with you.

Operator

you for Thank participating. call. conference today's concludes This

You may disconnect. now

H World Group Limited (HTHT) 30 Aug 222022 Q2 Earnings call transcript