H World Group Ltd Q4 FY2021 Earnings Call

Thank you, Andrew. Good morning and good evening everyone. Thanks for joining us today. Welcome to Huazhu Group's 2021 fourth quarter and full year earnings conference call. Joining us today is our Founder and Chairman, Mr. Ji Qi; our CEO, Mr. Jin Hui; our President, Ms. Liu Xinxin; our CFO, Ms. Chen Hui; our Deputy CFO, Ms. Ye Fei; and our CEO of international business Ms. He Jihong. Following their prepared remarks, management will be available to answer your questions. Before we continue, please note that the discussion today will include forward-looking statements made under the Safe Harbor provision of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, our results may be materially different from the views expressed today. A number of potential risks and uncertainties are outlined in our public filings with the SEC. Huazhu Group does not undertake any obligations to update any forward-looking statements, except as required by applicable laws. On the call today we will also mention adjusted financial measures during the discussion of our performance. Reconciliation of those measures to comparable GAAP information can be found in our earnings release that was distributed yesterday. As a reminder, this conference call is being recorded. The webcast of this conference call, as well as supplementary slide presentations, are available on Huazhu Group's website at ir.huazhu.com. With that, now I will turn the call over to Mr. Qi Ji. Mr. Ji, please.

Good morning and good evening everyone. 2021 was another challenging year, with costs, the variation and resurgence of COVID-19, and, of course, many uncertainties in the lodging industry. At the same time, global macro conditions are becoming increasingly complex. Since China's economic development strategy is changing from high-speed growth to high-quality development, we also adjusted our strategy from previous upscale growth to sustainable quality goals, focusing on high-quality hotel development. With this new strategy, we should be able to achieve sustainable and quality growth, creating greater value for our customers, employees, and franchisees and making the industry equitable by leveraging our unique three-in-one model, which includes brand, traffic, and technology. Under the sustainable quality growth strategy, growth remains a priority but relies on two critical conditions. One is precision or accuracy, achieved by leveraging Huazhu Hotel technology and innovative capability, along with a people-oriented organization. This allows for more precise operations that achieve high efficiency and quality. Moreover, precision requires benchmarking against world-class companies to maximize staff efficiency within the company. Additionally, both products and services need to improve, focusing on simplicity, concentration, and perfection around our core strategy. Success or failure is often determined by small details in the hotel business; hence, precision becomes increasingly important. The second condition is value or benefit, which means creating long-term value and social benefit. We remain focused on delivering greater value to our stakeholders across the value chain of lodging while pursuing challenging long-term goals. Finally, we will emphasize ESG development—environmental protection, carbon emission reduction, social welfare, and corporate social responsibility—to bring long-term benefits to our customers, employees, franchisees, owners, shareholders, communities, and nations. With that, I will turn the call over to Jin Hui to discuss our development and focus.

Thank you, Ji Qi. As mentioned earlier, 2021 was a challenging year. However, we consistently implemented our strategies and achieved significant accomplishments. Please refer to Slide Four. In terms of Quality Hotel expansion, we reaffirmed our standards for the Comfort 360 program and Quality Hotel. By the end of the year, we had 7,830 hotels in operation, with net openings of 1,041 hotels. We expanded into lower-tier cities, adding around 200 new cities during the year. We successfully launched the Intercity and Maxx brands in the China market. Additionally, through our joint venture with Sunac, we opened 14 Steigenberger brand hotels in China in 2021, and we introduced the Blossom House brand to target the growing domestic leisure travel market. In our multi-dimensional direct sales, we recorded solid member growth of 14%, reaching 193 million members by the end of 2021. We also launched our H-world app version 3.0 to merge customer service across online and offline platforms. Our room nights from corporate customers grew to 11% in the fourth quarter of 2021, and our CRS contribution improved to 63% in the same quarter. Furthermore, we have begun the gradual rollout of our One Global Digital Platform for DH hotels. Of course, the resurgence of COVID has consistently impacted our RevPAR recovery. Please look at Slide Five. With China still implementing a zero-COVID policy, significant outbreaks lead to stricter travel restrictions that heavily affect our RevPAR recovery. In February, following the Chinese New Year, we noticed a steady week-over-week recovery in our RevPAR. However, since March, the rapid spread of the highly infectious Omicron variant in China has disrupted this recovery trend. As of March 22, our month-to-date RevPAR had only recovered to 64% of the same period in 2019. Please refer to Slide Six. Though we are facing numerous difficulties and challenges, we remain committed to executing our sustainable quality growth strategy. We have devised four strategic forecasts for 2022, focusing on growth strategy, brand strategy, membership strategy, and digitalization strategy. I will elaborate on each of these strategies in the upcoming slides.

Thank you. I jumped the gun a little bit. Good morning and good evening to everyone. Let's move on to our operational and financial review for the fourth quarter and full year of 2021. As shown on Slide 22, our combined hotel networks expanded by 15% in 2021 to 753k rooms across 7,830 hotels, compared with 652k rooms across 6,789 hotels in 2020. Excluding DH, the Legacy Huazhu Hotel network expanded by 16% year-over-year to roughly 728k rooms across 7,706 hotels in 2021. For our hotel turnover in 2021, total hotel turnover grew by 36% year-over-year to RMB 45 billion. This growth was mainly due to our continuous network expansion in China and the low base of 2020. Excluding DH, Legacy Huazhu’s turnover grew 38% year-over-year to RMB 42.7 billion in 2021. Turn to Page 23. Legacy Huazhu blended RevPAR for Q4 '21 was RMB 163, which is 14% lower than the 2019 level. The ADR in Q4 was up by 3% compared to the 2019 level at RMB 239, while the occupancy in Q4 was 14 percentage points lower compared to 2019, mainly due to the COVID-19 resurgence in November. For the full year 2021, Legacy Huazhu blended RevPAR was RMB 172, which reflected a decline of 13% from 2019, but an increase of 16% from 2020. The ADR was RMB 239, up by 2% compared to 2019, while occupancy was 12 percentage points lower compared to 2019. These impacts were mainly due to several COVID-19 outbreaks throughout 2021, especially in the latter half. Turn to Page 24. Despite the recovery in the fourth quarter being interrupted by the Omicron variant since November, our Legacy DH business saw strong recovery in Q4 2021 on a yearly basis. DH's blended RevPAR for Q4 21 rebounded by 153% to 43 Euro compared with Q4 2020. Occupancy improved by 24 percentage points compared with Q4 2020, and the ADR improved by 24% to 94 Euro, which is only 3% lower than the 2019 level. For the full year, DH blended RevPAR slightly increased by 4% to 32 Euro compared to 2020, mainly driven by a 3% increase in ADR, while occupancy was relatively flat at 35% between 2020 and 2021.

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

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.