Home Inns Group reports second quarter 2013 financial results

SHANGHAI - Home Inns & Hotels Management Inc., a leading economy hotel chain in China, announced its unaudited financial results for the second quarter ended June 30, 2013.
The Company acquired Motel 168 and has consolidated Motel 168's operating and financial results since October 1, 2011. Consolidated group numbers are presented in this earnings release unless specifically noted. For the purpose of providing more context and comprehensive information to investors regarding Motel 168's integration, the Company has separately presented operating metrics and key financial data for Motel 168 hotels through the end of 2012. The Company will continue to provide Motel 168's operating metrics and revenues through the remaining integration period in 2013.
Second Quarter 2013 financial highlights
Total revenues were in line with guidance and increased 10.5% to RMB 1.60 billion (US$261.0 million).
Net income attributable to ordinary shareholders increased 160.2% year over year to RMB 94.8 million (US$15.4 million). Adjusted net income attributable to ordinary shareholders (non-GAAP) increased 28.8% year over year to RMB 139.7 million (US$22.8 million).
EBITDA (non-GAAP) increased 22.4% year over year to RMB 348.7 million (US$56.8 million). Adjusted EBITDA (non-GAAP) increased 18.7% to RMB 393.6 million (US$64.1 million) or 24.6% of total revenues compared to 22.9% in the second quarter of 2012.
Second Quarter 2013 Operational Highlights
Home Inns Group opened 100 new hotels in the second quarter of 2013 and operated 1,953 hotels across 271 cities in China under its three brands as of June 30, 2013. There were a total of 206 hotels contracted or under construction, including 146 franchised-and-managed hotels. The pipeline of franchised-and-managed hotels remains strong given continued demand for this business model from existing and new potential franchisee partners.
Occupancy rate decreased 2.2 percentage points year over year driven by continued overall market softness while ADR was flat to the same period last year. The resulting year-over-year decrease in RevPAR in the second quarter of 2013 was consistent with economy hotels' market performance.
For the second quarter of 2013, RevPAR for Motel 168 improved 2.3% year over year to RMB 132 from RMB 129 as Motel 168's integration continued to generate improved results. Approximately thirty Motel 168 hotels completed dual-brand conversions and commenced operations in the second quarter of 2013. Motel 168 occupancy rate increased to 82.1% from 80.8% and Motel 168 ADR increased to RMB 161 from RMB 159 from the same period last year.
"Navigating through a persistently challenging business environment, the Company maintained steady revenue performance and delivered another quarter of margin expansion year over year," said Mr. David Sun, the Company's chief executive officer. "In spite of tough market conditions, Motel 168 hotels continued their trend of performance improvements as a result of solid execution of our integration plans. Our cost control and productivity measures have proven effective in generating sustainable benefits to protect margin. Meanwhile, the gradual increase of revenues from franchise operations will provide a steady support for profitability enhancements going forward."
"While prospects for long range growth remain positive for the travel industry in China, we expect the market to remain stable but to lack catalysts for dramatic improvements in macroeconomic conditions in the near term. Accordingly, we are adjusting the new leased-and-operated hotels target to 65 to 70 from the previous 80 to 90 but raising our total new hotel openings for the year to 400. This modification in our strategy will enable us to meet the strong demand for franchise development, to manage the pace of leased-and-operated hotel openings and to improve the effectiveness of our capital deployment. Even though we are lowering the revenue expectations for the year slightly, the impact of lower revenue is reasonably expected to be absorbed by a meaningful increase in our profitability," Mr. Sun continued. "We have executed rapid growth for nearly a decade and we have now established solid foundations for maintaining our leadership scale in the industry, improving profitability and increasing value-creation for our shareholders in this next stage of growth."
Total Operating Costs and Expenses were RMB 1.32 billion (US$215.7 million) for the second quarter of 2013, representing 82.6% of total revenues compared to RMB 1.24 billion or 85.8% of total revenues for the second quarter of 2012. Total operating costs and expenses excluding any share-based compensation expenses and integration costs (non-GAAP) for the second quarter of 2013 were 80.9% of total revenues, compared to 82.4% in the same period a year ago.
Total leased-and-operated hotel costs were RMB 1.19 billion (US$193.5 million), or 84.1% of leased-and-operated hotel revenues for the second quarter of 2013, compared to RMB 1.12 billion, or 86.3% of leased-and-operated hotel revenues for the second quarter of 2012. Total leased-and-operated hotel costs excluding any share-based compensation expenses and integration costs (non-GAAP) were 83.5% of leased-and-operated hotel revenues in the second quarter of 2013, compared to 84.3% in the same period a year ago. The year-over-year decrease in this expense ratio was mainly due to continued productivity and operational efficiency enhancements at the hotel operational level. Pre-opening cost was RMB 19.1 million (US$3.1 million) for the second quarter of 2013.
Personnel costs of franchised-and-managed hotels were RMB 42.3 million (US$6.9 million) for the second quarter of 2013. Personnel costs of franchised-and-managed hotels excluding share-based compensation expenses (non-GAAP) were 21.0% of franchised-and-managed hotel revenues in the second quarter of 2013, compared to 20.2% in the same period of 2012. The increase in personnel costs of franchised-and-managed hotels was consistent with the increase in the number of franchised-and-managed hotels in operation.
Sales and marketing expenses were RMB 17.3 million (US$2.8 million) for the second quarter of 2013 compared to RMB 15.6 million for the same period 2012. Sales and marketing expenses excluding share-based compensation expenses (non-GAAP) were 1.1% of total revenues for the second quarter of 2013, compared to 1.0% in the same period of 2012.
General and administrative expenses were RMB 76.7 million (US$12.5 million) for the second quarter of 2013 compared to RMB 74.0 million for the second quarter of 2012. General and administrative expenses excluding any share-based compensation expenses and integration costs (non-GAAP) were 3.7% of total revenues in the second quarter of 2013, compared to 3.7% from the same period of 2012. The cost structure for general and administrative expenses remained stable.
Income from Operations was RMB 180.1 million (US$29.3 million) for the second quarter of 2013 compared to RMB 120.4 million for the second quarter of 2012. Income from operations excluding any share-based compensation expenses and integration costs (non-GAAP) for the second quarter of 2013 was RMB 208.2 million (US$33.9 million), or 13.0% of total revenues, compared to RMB 170.4 million, or 11.8% of total revenues, in the same period of 2012. This year-over-year increase in the income from operations margin rate mainly resulted from continued productivity enhancement and efficiency gains at the hotel operational level.
Cash Flow
Net operating cash flow for the second quarter of 2013 increased 49.9% year over year to RMB 388.8 million (US$63.4 million) from RMB 259.3 million. Cash paid for capital expenditures during the quarter was RMB 188.8 million (US$30.8 million).
Capitalized expenditures for the second quarter of 2013 were RMB 202.6 million (US$33.0 million).
Outlook for Full Year and Third Quarter 201 3
Home Inns Group has revised its hotel development plan and now plans to open 400 new hotels in 2013, including 65 to70 leased-and-operated hotels and 330 to 335 franchised-and-managed hotels.
The Company lowers its total revenues expectation for the group for 2013 to be in the range of RMB 6,350 million to RMB 6,500 million, representing a growth of 10.1% to 12.7% over 2012. Total revenues expected for the full year of 2013 includes RMB 1,550 million to RMB 1,600 million from the Motel 168 brand.
Total revenues for Home Inns Group in the third quarter of 2013 are expected to be in the range of RMB 1,735 million to RMB 1,765 million, including RMB 425 million to RMB 435 million from the Motel 168 brand.

Sourced: TravelDailyNews