H World Group Limited · HKEX:1179
H World — Huazhu Group — Q3 2019 Earnings Presentation
41 slides from H World's earnings presentation, Nov 12, 2019
Slide 1: Huazhu Group Limited Q3 2019 Earnings Call
Huazhu Group Limited (NASDAQ: HTHT) Q3 2019 Earnings Call November 12, 2019
Slide 2: Agenda
Agenda • Accelerated Growth Plan • Strategy Review • Operational and Financial Review • Q and A • Appendix 1
Slide 3: Accelerated Growth Goal to Build a Global Hotel Network
Accelerated Growth Goal to Build a Global Hotel Network International Luxury & Upscale Midscale Economy 2
Slide 4: Reach 10,000 Hotels in 3~5 years
Reach 10,000 Hotels In 3~5 years 3
Slide 5: China Lodging Market has Huge Room for Further Consolidation
China Lodging Market has Huge Room for Further Consolidation ~70% ~40% ~20% China Europe U.S. 中国 欧洲 美国 % of Branded-Chains Rooms 4
Slide 6: Huazhu Brand Portfolio to Consolidate Full Spectrum of China Lodging Industry
Huazhu Brand Portfolio to Consolidate Full Spectrum of China Lodging Industry Luxury & Upper Upscale Upscale & Upper Midscale Midscale Economy 5
Slide 7: We Aim to Become a Global Hotel Group with Major Presence in Home Country
We Aim to Become a Global Hotel Group with Major Presence in Home Country % of Global Rooms in Home Country 95% 79% 80% 63% Marriott 1990 2000 2010 2019 96% Huazhu + Deutsche Hospitality Huazhu (pro forma) 2019 Source: company annual/quarterly reports, 1990, 2000, 2010 and 2019Q3 6
Slide 8: Agenda
Agenda • Accelerated Growth Plan • Strategy Review • Operational and Financial Review • Q and A • Appendix 7
Slide 9: Strategic Focus for 2019
Strategic Focus for 2019 Fast Expansion in Hotel Network 01 Innovative Technology Applications to Improve Guest 02 Experience and Operational Efficiency Strategic Deployment in Upscale Segment 03 8
Slide 10: Strong Hotel Openings – Further Accelerated in Q3 2019
Strong Hotel Openings – Further Accelerated in Q3 2019 01 Hotel Openings (net) 3.0 X 3.2 X 921 486 309 152 Q3'18 Q3'19 9M'18 9M'19 9
Slide 11: Growing Hotel Pipeline Mainly Comprised of Franchised & Manachised Hotels
Growing Hotel Pipeline Mainly Comprised of 01 Franchised & Manachised (“F&M”) Hotels 34% 2,00 0 33% 35% 1,80 0 30% 30% 1,60 0 Unopened Hotel Pipeline as a 26% % of Hotels in Operation 25% 1,40 0 23% 21% 1,20 0 19% 19% 20% 1,00 0 17% 97% 1,736 15% 800 1,553 F&M hotels 600 1,311 1,105 10% 839 924 744
Slide 12: Technology Drives Fast Growth in Loyalty Program Membership
Technology Drives Fast Growth in 02 Loyalty Program Membership (in millions of members) 139 122 103 79 49 32 15 5 8 2011 2012 2013 2014 2015 2016 2017 2018 2019Q3 11
Slide 13: Advance Booking through Central Reservation
02 40%Advance Booking through Central Reservation 45M+ Huazhu APP downloads 25M+ WeChat followers By room nights, in Q3 2019 12
Slide 14: Online Payments
02 53% Online Payments In value terms, in Q3 2019 13
Slide 15: Soft Opening of Joya Hotel Taikoo Li in Chengdu by end of 2019
Soft Opening of Joya Hotel Taikoo Li 03 in Chengdu by end of 2019 14
Slide 16: Acquisition of Deutsche Hospitality ("DH")
Acquisition of Deutsche Hospitality (“DH”) Snapshot • Leading German operator with rich heritage since 1930 and • Reputable luxury and upscale brands in Germany Competitive • 5 brands, 118 hotels and 36 unopened hotels in 19 countries advantages • Multi-national experience for development and operat
Slide 17: DH: A Deal of Right Size
DH: A Deal of Right Size ROOMS REVENUES 4% 27% EBITDA MARKET CAP 9% 7% DH as % of Huazhu post-acquisition 16
Slide 18: Complementary Brand Portfolio
Complementary Brand Portfolio Luxury & Upscale 21.0% 79.0% 3.1% Midscale 96.9% 0.4% Economy 99.6% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100 % % of rooms post-acquisition 17
Slide 19: Geographic Footprint Expansion
Geographic Footprint Expansion East Asia Europe Middle East Africa 18
Slide 20: Synergies Generated After Acquisition
Synergies Generated After Acquisition • Growth of DH’s Luxury and Upscale brands in East Asia, mainly in East Asia China, through Huazhu’s strong platform Europe • Share Huazhu’s expertise and resources in loyalty program • Enrich product and Middle East geographic offering to and direct sales to en
Slide 21: Steigenberger Grand Hotels
STEIGENBERGER —e— GRAND HOTELS sannensnenemefhpanennennas 20
Slide 22: Steigenberger Resorts
ee STEIGENBERGER —= RESORTS 21
Slide 23: City Hotels
ahaa CITY HOTELS — Intercity! ote! 22
Slide 24: Conversion Brand
a> CONVERSION BRAND MaxX by STEIGENBERGER 23
Slide 25: Brand
—+— BRAND Jaz _ 24
Slide 26: Economy Brand
ECONOMY BRAND 25
Slide 27: Agenda
Agenda • Accelerated Growth Plan • Strategy Review • Operational and Financial Review • Q and A • Appendix 26
Slide 28: Rapid Expansion Accompanied by Strategic Investments for Future Growth
Rapid Expansion Accompanied by Strategic Investments for Future Growth Hotel Network Expansion Hotel Turnover (Number of rooms in operation, in thousands) (in RMB millions) 11,0 00 10,0 00 9,00 0 8,00 0 7,00 0 504 6,00 0 9,852 410 8,300 5,00 0 4,00 0 3,00 0 Q3'18 Q3'19 Q3'18 Q3'19 Net Revenues Adjus
Slide 29: Blended RevPAR Decreased by 0.8%
Blended RevPAR Decreased by 0.8% ADR Grew 2.6% in Q3’19 (RMB) 239 245 RevPAR Decreased 0.8% in Q3’19 (RMB) 217 Q3'18 Q3'19 215 Occupancy Dropped 3.1 pp in Q3’19 91% 88% Q3'18 Q3'19 Q3'18 Q3'19 28
Slide 30: Softer Same-Hotel RevPAR and Occupancy due to Macro Weakness
Softer Same-Hotel RevPAR and Occupancy due to Macro Weakness Mature Hotel Occupancy Outperformed Industry Average by 20 p.p. Same-hotel RevPAR and Occupancy Decline Mature Hotel Occupancy Remains High 30. 0% 96% 93% 92% 93% 87% 88% 86% 87% 89% 90% RevPAR 83% 20. 0% 9.5% 10. 0% 8.3% 6.5% 6.5% 7.9% 5.
Slide 31: Q3 Net Revenues Increased 10.4%, in line with Guidance
Q3 Net Revenues Increased 10.4%, in line with Guidance (9%-11%) Net Revenues from Leased Net Revenues and Owned Hotels (in RMB millions) (in RMB millions) 2,053 2,089 3,055 2,768 Q3'18 Q3'19 Net Revenues from Manachised and Franchised Hotels (in RMB millions) 939 Q3'18 Q3'19 699 Manachised and Franc
Slide 32: Increasing Revenue Contribution from Mid and Upscale Hotels
Increasing Revenue Contribution from Mid and Upscale Hotels Revenues from Mid and Upscale Hotels Grew by 23%; Mid and Upscale Hotels Revenues Contribution Increased by 6pp to 57% Revenue Growth Continued Revenue split by Segment Q3’19 1,90 0 (in RMB millions) 1,729 1,70 0 1,50 0 1,404 1,30 0 economy
Slide 33: Lower Operating Margin in Q3 2019 Due to Investment in Hotel Development Teams
Lower Operating Margin in Q3 2019 Due to Investment in Hotel Development Teams, Upscale Hotels and IT Capabilities Income from Operations as % of Net Revenues 28.0% 5.0pp 23.0% Q3'18 Q3'19 Hotel operating costs Pre-opening expenses SG&A Expenses and other and other operating costs as % of net as %
Slide 34: Strong Cash Balances Support Hotel Expansion and Capital Investments
Strong Cash Balances Support Hotel Expansion and Capital Investments Abundant Funding Resource for Expansion (in RMB millions) (390) 533 (605) 1,007 (118) (41) 4,451 4,065 Free cash flow = RMB 617 m Cash and cash Net Cash from Capex for Proceeds from Repayment of Investments Others Cash and cash equ
Slide 35: Funding Plan for DH Acquisition
Funding Plan for DH Acquisition • An all-cash transaction; • Syndication bank loan funding of EUR440 million and balance by Huazhu offshore cash; • Post-transaction net debt/EBITDA multiple estimated to be 2.89x • Plan to pay down borrowings using cash from operations and proceeds from disposal of i
Slide 36: Guidance
Guidance 2019 Revenue Guidance 2020 Hotel Openings • FY19 net revenues to grow 10%-12% • Gross opening target of about 1,700 hotels 35
Slide 37: Agenda
Agenda • Accelerated Growth Plan • Strategy Review • Operational and Financial Review • Q and A • Appendix 36
Slide 38: Same-Hotel Operational Data by Segment
Same-Hotel Operational Data by Segment Number of hotels in operation Same-hotel RevPAR Same-hotel ADR Same-hotel Occupancy As of For the quarter ended For the quarter ended For the quarter ended December 31, December 31, December 31, December 31, yoy change yoy change yoy change 2017 2018 2017 2018
Slide 39: Number of Hotels in Operation
Number of Hotels in Operation As of As of As of As of As of As of As of As of 12/31/2014 12/31/2015 12/31/2016 12/31/2017 12/31/2018 3/31/2019 6/30/2019 9/30/2019 Economy hotels 1,819 2,453 2,741 2,874 2,892 2,916 2,990 3,204 HanTing Hotel 1,648 2,003 2,181 2,244 2,283 2,303 2,331 2,381 Hi Inn 158 3
Slide 40: Number of Rooms in Operation
Number of Rooms in Operation As of As of As of As of As of As of As of 12/31/2015 12/31/2016 12/31/2017 12/31/2018 3/31/2019 6/30/2019 9/30/2019 Economy hotels 238,156 260,557 266,145 261,037 262,040 265,025 278,142 HanTing Hotel 205,577 221,157 223,121 220,646 221,825 222,983 227,925 Hi Inn 21,340
Slide 41: O efi
O efi NAS! Hee E