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Svn investor ppt

  1. 1. 7 Days Group Holdings LimitedInvestor PresentationMarch 2013
  2. 2. Safe Harbor Statement Statements in this presentation contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as “will,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates” and similar statements and including, among other things, 7 Days Group’s revenue guidance for the first quarter of 2013 and business forecast for 2013 including the expected number of hotels to be opened, Company’s business strategies, its ability to leverage economies of scale and its ability to achieve strict cost controls and to deliver continued growth. These forward-looking statements are not historical facts but instead represent only the Company’s belief regarding future events, many of which, by their nature, are inherently uncertain and outside of the Company’s control. The Company’s actual results and financial condition and other circumstances may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. In particular, the Company’s operating results for any period are impacted significantly by the mix of leased-and-operated hotels and managed hotels in its chain, causing the Company’s operating results to fluctuate and making them difficult to predict. Other factors that could cause forward-looking statements to differ materially from actual future events or results include risks and uncertainties related to: uncertainties associated with factors typically affecting the lodging industry, including changes in economic conditions, adverse weather conditions, natural disasters or outbreaks of serious contagious diseases in markets where the Company has a presence; uncertainties regarding the Company’s ability to respond to competitive pressures; uncertainties regarding the Company’s ability to manage its expected growth; uncertainties regarding the Company’s ability to continue its growth and achieve profitability; risks associated with the Company’s limited operating history and historical operating losses, uncertainties regarding the Company’s ability to fund its working capital needs; uncertainties regarding its ability to successfully and timely identify, secure or operate additional hotel properties. The financial information contained in this release should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2011 Annual Report on Form 20-F filed with the SEC on April 26, 2012 and is available on the SEC’s website at www.sec.gov. For a discussion of other important factors that could adversely affect the Company’s business, financial condition, results of operations and prospects, see “Risk Factors” beginning on page 8 of the Company’s 2011 Annual Report on Form 20- F. The Company’s actual results of operations for the fourth quarter 2012 are not necessarily indicative of its operating results for any future periods. Any projections in this release are based on limited information currently available to the Company, which is subject to change. Although such projections and the factors influencing them will likely be changed, the Company will not necessarily update the information. Such information speaks only as of the date of this release. 1
  3. 3. Agenda Company Overview Investment Highlights Growth Strategies Financial and Operational Highlights Appendix 2
  4. 4. Fast-growing National Economy Hotel Market Leader No. 1 in growth in hotel expansion • Highest number of new hotels opened in 2010 – 2012 • 1,345 hotels in operation, expect to have 2,000 hotels by 2014 • 401 new hotels opened during 2012 – industry record • Total Transaction Value (TTV1) year-over-year growth 50.4% in 2012 No. 1 in loyalty programs e-Commerce platforms • Over 52.9 mm members • Highest room night contribution from members • Website has highest internet traffic ranking • Highest online booking ratio “No. 1 Brand Influence in Economy Hotel Industry” -- China Brand Power Index, Ministry of Industry and Information Technology, 2012 -- CCTV China Brand, CCTV, 2012 Sustainable profitability: • 2010Q1 to 2012Q4 – twelfth consecutive profitable quarters1Definition of Total transaction value: total room revenue from leased-and-operated hotels and managed hotels. The metric is highlighted as an indicator of the scaleand reach of 7 Days’ brands. 3
  5. 5. Accelerated Growth Driven by Managed Hotels Opening schedule and growth roadmap Total addressable market in China Managed Hotels L&O Hotels 2,000+ 1,704 1,344 944 1163 568 853 337 533 247 101 491 541 321 411 236 2009 2010 2011 2012 2013E 2014E * Source: China Tourism Bureau as of 12/31/10 and Company report 2006 2007 2008 2009 2010 2011 2012 Total Transaction Value 0.06 bn 0.3 bn 0.8 bn 1.3 bn 2.1 bn 3.7 bn 5.6 bn Cities covered 7 20 33 54 89 141 208 Members ~0.2m ~2m ~6m ~10m ~16.5m ~33.8m ~52.9m 4
  6. 6. Agenda Company Overview Investment Highlights Growth Strategies Financial and Operational Highlights Appendix 5
  7. 7. Unique Business Model Leads to Faster Growth  Managed hotel model provides the best alignment of Accelerated pace of hotel openings interest with owners and most attractive terms  Largest membership base with improved brand recognition and growing presence in new markets  Well-designed and executed hiring and in-house training program + incentive scheme  Best-in-class IT infrastructure and industry leading e- 114 commerce system  Single brand strategy in economy segment, with highly standardized and efficient hotel operations 6
  8. 8. Rapid Expansion Supports Sustainable Margin and Cash FlowGrowth Strategic shift Net revenues (RMB mm) Focused on managed hotels to drive the long-term growth • Lower risk • Higher margin • Better cash flow Leverage economies of scale inherent in managed hotel business model Rapid hotel expansion driving top-line growth and total EBITDA exl. Share-based compensation expenses (RMB mm) transaction value (TTV)  Leads to increasing economies of scale, supporting profit growth  Twelfth consecutive profitable quarters since 1Q10 20%  Improved cash flow 7
  9. 9. Largest Membership Base Provides Competitive Aadvantages Largest and most effective membership base: 52.9 million members Additional Lower revenue streams customer  Rental car andacquisition cost air ticket service on our website Lowers Established operating industry leader costs Helps improve Enhances  7 Days Club far Provides built-  200k+ surveys received operating customer exceeds competitors’ in customer loyalty from members every performance loyalty programs in base month¹ terms of size and  Allowing faster  Majority of total benefits expansion  One of the highest room nights by overnight occupancy repeat customers  Shorter ramp up rates in the industry period Best-in-class proprietary integrated IT System Most active e-commerce platform 8
  10. 10. Industry Cost Leader With Higher Operational Efficiency Our distinguished competencies in membership program, eCommerce and information technology, as well as our unique ability to interact directly with our customers ensures high level of efficiency in both hotel and headquarter operations: Lower conversion costs Lower rent per room Lower staff costs  Streamlined product design  Target existing properties in  Lean operations while prime area maintaining high customer  Modular fixtures and satisfaction furnishings  Largest membership base allows the flexibility to select  Performance-oriented incentive  Lower Cap-ex per room slightly off-main-street buildings program  Efficient use of real estate Conversion cost per room¹ Rent cost¹ (RMB/day/sq) Staff-to-room¹ (RMB 000) 3.0 80 Industry Average Industry Average Industry Average 0.50 2.0 60 0.25 40 1.0 20 0.0 0.00¹ source: 2009 China economy hotel survey 9
  11. 11. Unique Competitive Edge Improves Brand Influence and DrivesDemand Always Focus on What Consumers Want Most …… High-quality services and More interactive with Value-oriented pricing members amenities in core areas  Better beddings  Cultivates customer  Bring more value to loyalty members  Better showers  Encourage members to  Competitive and  Better cleanliness consistent pricing monitor the hotel service  Enhances member  Hotel rating based on stickiness member’s reviews “No. 1 Brand Influence in Economy Hotel Industry” -- China Brand Power Index, Ministry of Industry and Information Technology, 2012 -- CCTV China Brand, CCTV, 2012 10
  12. 12. Agenda Company Overview Investment Highlights Growth Strategies Financial and Operational Highlights Appendix 11
  13. 13. 7 Days’ Long Term Growth Strategies Continued market penetration with one-brand strategy in economy hotel segment 7% 14% FY 2014 44% 35% FY 2012 Target 2,000+ hotels in operation 320 Managed Hotels Total Current Coverage: 208 cities 81  City with 1 hotel: 44% of total cities L&O Hotels  City with 2–5 hotels: 35%  City with 6–9 hotels: 7%  City with more than 10 hotels: 14% 12
  14. 14. Strategic Focus on Managed Hotels to Drive Profitable Growth Asset-light Growth Strategy Portfolio mix as at 31 Dec 2012 Focus on managed hotels as main growth driver Leased-and- Operated hotels Support continued rapid growth, stable revenue 37% generation, expanding brand presence and influence with lower capital requirements and higher return on employed capital Managed Strategic shift expect to increase profitability and free hotels cash flow generation 63% Leverage 7 Days’ leading loyalty club and best-in- Pipeline mix as at 31 Dec 2012 class proprietary e-Commerce platform Leased-and- Operated hotels 9% Managed hotels 91% 13
  15. 15. Agenda Company Overview Industry Overview Investment Highlights Growth Strategies Financial and Operational Highlights Appendix 14
  16. 16. Consistent & Sustainable Growth Track Record Total net revenue (RMB mm) 2,557.2 2,003.4 1,498.9 1,141.3 721.4 696.0 454.6 2008 2009 2010 2011 2012 11Q4 12Q4 Operating cash flow (RMB mm) 572.5 457.5 335.3 248.6 106.1 154.5 4.4 2008 2009 2010 2011 2012 11Q4 12Q4 15
  17. 17. Sustainable Profitability EBITDA exl. SBC (RMB ‘000,000) 23.3% 21.6% 21.0% 23.3% * 22.7% 20.1% 146.4 118.0 608.4 348.8 455.6 229.7 4Q11 4Q12 2009 2010 2011 2012 Adjusted EBITDA Adjusted EBITDA Margin Adjusted EBITDA Adjusted EBITDA Margin Net Income attributable to 7 Days (RMB ‘000,000) 6.9% 7.9% * 6.4% 6.5% 5.4% 176.0 117.7 128.9 35.2 37.9 (104.0) 4Q11 4Q12 2009 2010 2011 2012 Net Income Net Margin Net Income Net Margin* For 2010, there was positive impact from EXPO held in Shanghai during May to Oct. 16
  18. 18. Managed Hotels - Record Expansion with Sustainable Operational Performance 4Q & FY12 operating performance:  320 new hotels added during last twelve months  Y-o-Y ADR for 4Q and FY 2012 increased by 2.0% and 1.4% respectively Key operating metrics Average Daily Rate (RMB) Occupancy Rate RevPAR (RMB)156.2 156.7 155.8 158.0 154.3 157.4 82.8% 84. 0% 81.5% 80.3% 80.0% 77.4% 129.3 131.6 127.0 126.9 123.5 121.92009 2010 2011 2012 4Q11 4Q12 2009 2010 2011 2012 4Q11 4Q12 2009 2010 2011 2012 4Q11 4Q12 17
  19. 19. Leased & Operated Hotels - Improving Mature Hotel Performance 4Q & FY 2012 Operating performance  Y-o-Y ADR for 4Q and FY 2012 increased by 1.6% and 0.5% respectively  Improving mature hotel metrics demonstrates underlying strength of portfolio Key operating metrics Average Daily Rate (RMB) Occupancy Rate RevPAR (RMB)160.0 164.9 166.2 167.0 165.8 168.5 89.2% 91.0% 87.9% 82.9% 86.4% 79.2% 142.7 150.0 146.0 138.3 143.3 133.42009 2010 2011 2012 4Q11 4Q12 2009 2010 2011 2012 4Q11 4Q12 2009 2010 2011 2012 4Q11 4Q12 18
  20. 20. Agenda Appendix Management team Industry Overview Hotel business model and economics Income statement & balance sheet Reconciliation of GAAP and non-GAAP results 19
  21. 21. Management Team Boquan He, Chairman Nanyan (Alex) Zheng, Chairman  Founder and former CEO of Robust Group  Over eight years management experience in China  Leading Chinese F&B company later acquired by high-growth companies Danone  Four years at Ctrip.com,  Over 20 years of entrepreneurial and consumer sector  Vice President, marketing experience  General Manager, southern China  “The Best Angel Investor”  Highly respected entrepreneur and award-winning  “2008 Top Ten Angel Investors” industry leader Yuezhou Lin, CEO  One of the founding management team members of 7 Days Principal Shareholders*  Over 7 years with the Company  Held various key functions  Expert in IT system, e-commerce platform, Prototal Enterprises Limited business development 23.5% (Owned by Boquan He) WP RE (Cayman) International Ltd Eric Haibing Wu, CFO 16.0% (Owned by Warburg Pincus)  Over nine years of work experience in Happy Travel Limited 11.7% PricewaterhouseCoopers in the U.S. and China (Owned by Actis)  Specialized in internal controls, risk management, corporate governance and audit Fortune News International Limited support 9.1% (Owned by Nanyan Zheng)  CPA and MBA * As in Company’s 2011 20-F report 20
  22. 22. The Chinese Economy Hotel Chain Industry Today:A Highly Fragmented, Early-stage Industry US China Growth  US market  China market potential  2.5 economy hotel rooms per 1,000 people  0.6 economy hotel rooms per 1,000 people  Established brands  Relatively new phenomenon Branding  68% of hotels with a brand affiliation  Only 15% of hotels with a brand affiliation  Dominated by a small number of players  Highly fragmented Fragmentation  Largest player, Choice, has 6,243 hotels1  Largest player, Home Inns, has 1,772 economy hotels1  Smaller population base  Larger population base  312mm  1,348mm  Established middle class  Large and growing middle class Population size2  108mm+ households with income over US$10,000  20mm+ households with income over US$10,000  Moderate population density  High population density  9 cities with over 3mm population  Over 250 cities with over 3mm population Largely untapped market in China allows significant expansion opportunitiesSources: STR Global, China Economy Hotel Survey, Global Insight, CEIC Data, U.S. Census Bureau, www.inn.net.cn, IMF¹ Data as of 2012Q4; ² United Nations population database, data projection for 2010; Population data from IMF as of 2011 21
  23. 23. Industry Growth Well Supported by Underlying Demand Catalysts… China GDP (RMBtrn) 47 40 22 31 34 18 27 Internet population Domestic travel spending 2005 2006 2007 2008 2009 2010 2011 (mm) (RMB bn) Fast-growing 1,931 457 513 China economy 384 1,258 273 1,018 210 777 875 111 137 529 623 2005 2006 2007 2008 2009 2010 2011 Large Robust 2005 2006 2007 2008 2009 2010 2011 Internet domestic population tourism Total contribution of Travel & Government expenditure on Tourism to GDP (RMB bn) Growing tourism industry (RMB bn) GDP contribution Increasing capital of Travel & investment for 206 Tourism tourism 155 182 4,156 141 2,616 3,114 3,398 3,562 3,709 development 102 120 2006 2007 2008 2009 2010 2011 2006 2007 2008 2009 2010 2011Sources: National Bureau of Statistics of China; China Statistics Yearbook (2011); World Travel and Tourism Council 2012; iResearch; CEIC Data 22
  24. 24. Addressable market  ~9,860 hotels  Large number of low-end  ~0.9 million  Highly guesthouses hotel rooms fragmented operated by 1–3 star-rated Economy Private independent hotels1  Mixture of hotels2  Dominated guesthouses globally flagged largely by local operators hotels and operators  Non-standardized locally run accommodations hotels Top 8 economy hotel brands in China2 Number of hotels (as of December 31, 2012) Managed hotels Leased-and-operated hotels 1,438 1,345 981 970 652 492 690 465 192 466 447 970 334 786 853 516 498 466 447 151 183 Home Inns+ 7 Days Inn Hantings³ Green Tree Jinjiang Thank Super 8 Motel 168+ Growth of economy hotel chains has been accelerating due to growing consumer demand for well-managed and affordable hotels+ Motel 168 was accquaried by Home Inns in 20111 China Tourism Bureau as of 1Q 20122 2012Q2 China’s Budget Hotel Ranking by Inntie (http://www.inn.net.cn/)³ Excluded 54 hotels of Starway 23
  25. 25. Leased-and-operated Hotels vs. Managed Hotels Managed hotels Leased-and-operated hotels  Capitalize on our hotel chain’s maturity and brand recognition  Lease existing properties from real estate owners without the same level of capital expenditure  Large supply of qualified buildings owned by PRC state-owned enterprises in desirable locations  License our brand to third parties and manage the hotels, including hiring and training hotel staff under stringent control of 7 Days Inn’s  Convert properties to conform to 7 Days Inn standards quality standards  Easily replicable product designs, such as modular bathroom and furniture designs, expedite installation and fit-out time Business  Unified management and quality control standards model  All hotels are operated and managed under 7 Days Inn’s unified hotel operating system, including management functions such as: staff recruitment, training, daily operation, financial management, sales and marketing, etc.  Provide full range of services to managed hotels so as to meet the quality control and internal control standards of leased-and-operated hotels, including decision-making assistance, customer base and efficiency analysis, investment and consulting services, cost control analysis and guidance, etc.  Recruitment, training, and management of all hotel managers and staffs conducted by head office, with rigorous selection process  Centralized procurement and unified financial management; gradually reduce average cost by achieving economies of scale  Mature IT infrastructure (e.g. central reservation system and hotel management system) and service platform effectively centralize the monitoring and quality control of all hotels  High-margin with minimal cost  Lean capital deployment  Ongoing management fee 5-7% of hotel revenues  RMB52,000 (US$7,613) per room  One-time management fee – Industry average of RMB62,500 (US$9,151)Economics  Fast pay-back  Revenues from managed hotels have grown significantly  Typical conversion period of 4 months – Versus more than one year construction period for own-build- operate model 24
  26. 26. Streamlined and Modularized Product Design 25 25
  27. 27. Financial Information – 2012 FY Balance Sheet (Unaudited) 7 Days Group Holdings Limited Consolidated balance sheet information Quarter Ended 31/Dec/11 30/Sep/12 31/Dec/12 RMB 000 RMB 000 RMB 000 US$000 ASSETS Current assets: Cash 493,256 385,070 378,809 60,803 Pledged bank deposits 19,852 3,484 3,443 553 Short-term investment 10,000 - - - Accounts receivable 7,881 16,870 17,015 2,731 Prepaid rent 152,629 173,112 171,370 27,507 Other prepaid expenses and current assets 52,550 69,433 77,608 12,457 Hotel supplies 47,371 51,904 56,591 9,083 Amounts due from related parties - 87 87 14 Deferred tax assets 19,842 19,144 26,222 4,209 Total current assets 803,381 719,104 731,145 117,357 Property and equipment, net 1,701,431 1,851,653 1,970,763 316,329 Rental deposits 69,861 90,731 90,824 14,578 Land use right 24,044 23,581 23,426 3, 760 Prepaid rent 73,419 63,822 71,088 11,410 Intangible assets, net 30,426 27,272 26,221 4,209 Goodwill 61,041 61,041 61,041 9,798 Other non-current assets 500 - - - Deferred tax assets 46,096 62,615 62,513 10, 034 Total assets 2,810,199 2,899,819 3,037,021 487,475 LIABILITIES AND EQUITY Current liabilities: Accounts payable 249,592 247,871 300,240 48,192 Bills payable 16,009 13,182 11,475 1,842 Short-term bank borrowings 334,686 71,000 130,015 20,869 Accrued expenses and other payables 418,308 477,603 511,800 82,150 Amounts due to related parties 333 1,850 2,601 417 Income taxes payable 25,509 36,947 25,617 4,112 Total current liabilities 1,044,437 848,453 981,748 157,582 Long-term bank borrowings - 178,975 121,381 19,483 Accrued lease payment 206,113 238,642 256,472 41,167 Unfavorable lease contract liability 7,812 7,305 7,136 1,145 Refundable deposits 15,823 15,050 14,850 2,384 Deferred revenue 770 608 - - Deferred rebate income 6,663 5,984 5,727 919 Borrowings from related parties 1,388 892 752 121 Income taxes payable 6,644 6,644 3,317 532 Deferred tax liabilities 4,565 2,935 7,527 1,208 Total liabilities 1,294,215 1,305,488 1,398,910 224,541 Equity: Ordinary shares 141,080 141,133 141,317 22,683 Treasury stock - (67,137) (67,137) (10,776) Additional paid-in capital 1,623,275 1,638,948 1,649,880 264,824 Accumulated other comprehensive income 330 1,136 (721) (116) Accumulated deficit (238,348) (100,203) (62,303) (10,001) Total 7 Days Group Holdings Limited share holders’ equity 1,526,337 1,613,877 1,661,036 266,614 Non-controlling interests (10,353) (19,546) (22,925) (3,680) Total equity 1,515,984 1,594,331 1,638,111 262,934 Total liabilities and equity 2,810,199 2,899,819 3,037,021 487,475 26
  28. 28. Financial Information – 2012 Q4 & FY Income Statement (Unaudited) Quarter Ended Year Ended Dec 31 Sep 30 Dec 31 Dec 31 Dec 31 2011 2012 2012 2011 2012 RMB000 RMB000 RMB000 US$000 RMB000 RMB000 US$000Total Revenues 578,481 724,252 736,385 118,198 2,127,938 2,709,356 434,881 Leased-and-operated hotels 527,609 646,330 648,427 104,080 1,927,537 2,409,805 386,800 Managed hotels 50,872 77,922 87,958 14,118 200,401 299,551 48,081Less: Business tax and surcharges (32,852) (40,854) (40,355) (6,477) (124,560) (152,171) (24,425)Net revenues 545,629 683,398 696,030 111,721 2,003,378 2,557,185 410,456Operating costs and expenses Hotel operating costs (422,878) (517,129) (560,637) (89,988) (1,593,260) (2,033,508) (326,400) Rental expenses (152,923) (179,513) (190,645) (30,601) (571,351) (707,692) (113,592) Staff cost (88,794) (100,887) (114,169) (18,325) (317,374) (406,623) (65,267) Depreciation and amortization (66,961) (80,602) (84,790) (13,610) (241,020) (314,189) (50,431) Hotel supplies (25,967) (35,800) (40,439) (6,491) (97,452) (135,112) (21,687) Utilities (35,618) (47,744) (46,554) (7,472) (145,468) (190,030) (30,502) Other (52,615) (72,583) (84,040) (13,489) (220,595) (279,862) (44,921) Sales and marketing expenses (18,336) (19,059) (31,702) (5,089) (49,222) (82,116) (13,181) General and administrative expenses (69,542) (57,596) (52,555) (8,436) (209,786) (201,271) (32,306)Total operating costs and expenses (510,756) (593,784) (644,894) (103,513) (1,852,268) (2,316,895) (371,887)Income from operations 34,873 89,614 51,136 8,208 151,110 240,290 38,569Other income (expenses) Interest income 2,350 1,716 800 128 6,224 7,887 1,266 Interest expense (4,627) (5,221) (2,875) (461) (7,212) (21,459) (3,444) Equity income (loss) of an affiliate - - - - 120 - -Income before income tax 32,596 86,109 49,061 7,875 150,242 226,718 36,391 Income tax expenses (2,507) (25,011) (13,844) (2,222) (36,259) (67,540) (10,841) Net income 30,089 61,098 35,217 5,653 113,983 159,178 25,550Net income attributable to non-controlling interest 5,131 2,511 2,683 431 14,903 16,867 2,707 Net income attributable to 7 Days Group Holdings Limited ordinary shareholders 35,220 63,609 37,900 6,084 128,886 176,045 28,257Basic earnings per ordinary share 0.23 0.43 0.26 0.04 0. 86 1.18 0.19Diluted earnings per ordinary share 0.23 0.43 0.26 0.04 0.85 1.18 0.19Other Comprehensive income (loss)Foreign currency transaction adjustment, net of nil income tax (2,861) 480 (1,857) (298) (15,319) (1,051) (169)Comprehensive income 27,228 61,578 33,360 5,355 98,664 158,127 25,381Less: Comprehensive income attributable to noncontrolling interest (5,131) (2,511) (2,683) (431) (14,903) (16,867) (2,707)Comprehensive income attributable to 7 Days Group Holdings Limited ordinary shareholders 32,359 64,089 36,043 5,786 113,567 174,994 28,088 27
  29. 29. Financial Information – Selected Non-GAAP Financial StatementEBITDA(non-GAAP) Quarter Ended Year Ended Dec 31 Sep 30 Dec 31 Dec 31 Dec 31 2011 2012 2012 2011 2012 RMB000 RMB000 RMB000 US$000 RMB000 RMB000 US$000Net income attributable to 7 Days Group Holdings Limited ordinaryshareholders 35,220 63,609 37,900 6,084 128,886 176,045 28,257Interest income (2,350) (1,716) (800) (128) (6,224) (7,887) (1,266)Interest expense 4,627 5,221 2,875 461 7,212 21,459 3,444Income tax expenses 2,507 25,011 13,844 2,222 36,259 67,540 10,841Depreciation and amortization 68,382 83,237 87,429 14,033 246,007 324,126 52,026EBITDA (non-GAAP) 108,386 175,362 141,248 22,672 412,140 581,283 93,302EBITDA% 19.9% 25.7% 20.3% 20.3% 20.6% 22.7% 22.7%Share-based compensation expenses 9,585 7,227 5,187 833 43,483 27,127 4,354Adjusted EBITDA (non- GAAP) excluding share-based compensationexpenses 117,971 182,589 146,435 23,505 455,623 608,410 97,656Adjusted EBITDA% 21.6% 26.7% 21.0% 21.0% 22.7% 23.8% 23.8%Non-GAAP net income attributable to 7 Days Group Holdings Limited ordinary shareholders Quarter Ended Year Ended Dec 31 Sep 30 Dec 31 Dec 31 Dec 31 2011 2012 2012 2011 2012 RMB000 RMB000 RMB000 US$000 RMB000 RMB000 US$000Net income attributable to 7 Days Group Holdings Limited ordinaryshareholders (GAAP) 35,220 63,609 37,900 6,084 128,886 176,045 28,257Share-based compensation expenses 9,585 7,227 5,187 833 43,483 27,127 4,354Net income attributable to ordinary shareholders excluding share-basedcompensation expenses (Non GAAP net income) 44,805 70,836 43,087 6,917 172,369 203,172 32,611 28
  30. 30. Use of Non-GAAP Financial Measures To supplement 7 Days Groups financial results presented in accordance with U.S. GAAP, the Company has used the following non-GAAP measures defined as non-GAAP financial measures by the SEC:  Non-GAAP income from operations represents income from operations reported in accordance with GAAP, excluding share-based compensation expense  Non-GAAP net income represents net income reported in accordance with GAAP, excluding share-based compensation expense, loss on debt extinguishment and change in fair value of ordinary share purchase warrants  Non-GAAP earnings per ADS represents non-GAAP net income divided by the number of ADS used in computing basic and diluted earnings per ADS  EBITDA represents net income reported in accordance with GAAP, adjusted for the effects of interest income and expense, provision for income taxes, depreciation and amortization  Adjusted EBITDA represents EBITDA, excluding share-based compensation expense, loss on debt extinguishment and change in fair value of ordinary share purchase warrants 7 Days Group believes that both management and investors benefit from referring to these non-GAAP financial measures in assessing 7 Days Group’s financial performance and liquidity and when planning and forecasting future periods. Readers are cautioned not to view non- GAAP results on a stand-alone basis or as a substitute for results under GAAP, or as being comparable to results reported or forecasted by other companies, and should refer to the reconciliation of GAAP results with non-GAAP results for the periods set forth in the tables at the end of this release 29

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