H World Group Limited

Ladies and gentlemen, thank you for standing by, and welcome to What's Your Group Limited 2020 Fourth Quarter and Four-Year Earnings Conference Call. At this time, all participants are in the listen-only mode. There will be a presentation followed by a question-and-answer session, at which time, if you wish to ask a question, you will need to press star and 1 on your telephone. I must advise you that this conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Jason Chen. Thank you. Please go ahead.

Thank you, Rob. Good morning and good evening, everyone. Thanks for joining us today. Welcome to BaZhu Group 2020 Fourth Quarter and Full Year Earnings Conference Call. Joining us today is our founder and CEO, Mr. Ji Qi, our president, Mr. Jing Hui, our Chief Digital Officer, Ms. Liu Xingxin, and our CFO, Mr. Teo Ne Chuan. 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 provisions of the United States Private Decree Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, our results might be materially different from the views expressed today. A number of potential risks and uncertainties are outlined in our public findings with the SEC. Huatu Group does not undertake any obligations to update any forward-looking statements except as required under 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 gap information can be found in our earnings release that was distributed yesterday night. As a reminder, this conference call is being recorded. The webcast of this conference call as well as supplementary slide presentation is available on BaZhou Group's website at ir.bazhou.com. With that, now I will turn the call over to Mr. Xi. Mr. Xi, please.

Good morning and good evening, everyone. Thanks for joining us today. 2020 was a challenging year. COVID-19 pandemic strongly affected both our China and the European business. However, we are very happy to see our China business recover strongly throughout the year, especially in the second half of 2020. Thanks to Chinese government effective prevention measures and cooperation from Chinese people. More importantly, our hotel networks and pipeline continued expanding in 2020. Thanks to our dedicated employees, our powerful brand portfolio and solid execution for our European business also is still being impacted by COVID-19 pandemic. They keep our digitalization plan progressing. Also, we took the opportunity to make some organizational change and prepare for future recovery. Moving to slide two, we believe the COVID-19 pandemic has not changed the long-term growth potential of China's lodging industry. Following China's new circulation, economic development, The Olympic model mentioned by President Xi, Huazhou has set three key strategies for our long-term growth. First, we continue to emphasize our China-focused strategy. We target to open 10,000 hotels in 1,000 cities of China by 2022. Our future expansion will not only focus on speed, but also on quality, just like we did before. Secondly, we continuously focus on innovation. We build our business around the three-in-one super compositor model, combining brand, traffic, and technology. We push for the full digitalization of hotel life circles to provide a better service for customers. to improve hotel efficiency and to make more profits for our franchisees. Last but not least, we think upgrading our organizational capability is key. Our hotel networks are keeping growing. We are penetrating into low-tier cities. Meantime, we are expanding in Europe. We are also speeding up the development of upscale hotels. All these strategic moves require organizational transformation and diversified talents. With that, I will turn the call to Jinghui to present our 2020 strategic review and 2021 strategic focus. Thank you, Jiqi. Before we were established in 2021,

我们先回顾一下我们2020年战略重点的完成情况。 请大家翻到第五页。 Thank you, Juchi. Before we talk about the strategic focus of 2021, I would like to review our achievements in 2020. Please turn to page 5. First of all is the accelerated quality hotel expansion. Although affected by the pandemic, the gross opening of our hotel in 2020 still reached 1,649.

And the pipeline has increased to 2,449 from the 2,262 by the end of 2019. 也从2020年开始,我们更多地关注到油质量的扩张, 对之前的软品牌进行了重新的定义, 将其作为我们标准品牌发展的蓄水池。 From the beginning of 2020, we pay more attention to the quality expansion. We redefine our non-standard hotels and use this as the reservoir of our development of standard brands.

同时,在过去的一年,我们在产品端不断升级, 推出了汉庭3.5,还有6.0, 橘子和水晶2.0等一系列新产品。 Meantime, we have been upgrading our products

We have been launching the new version of Hunting 3.5, High Ink 6.0, and the version 2.0 of Crystal Orange and Orange.

在企业层面,我们持续开发头部的新的企业客户。 企业客户的经业贡献从2019年的8%提升到2020年的10%。 We strengthen the direct sales capability through multi-channels. At the wholesale level, we launch the multi-touch points to attract members, such as Wi-Fi, routine projection, etc.,

and we equip sales staff at the local sales level to push for the local sales. And we keep on developing new corporate customers. The contribution of corporate members' room nights increased to 10% by 2020, from 8% by 2019.

The last part is about China's usual relatively strong field, which is the construction of global technology sharing service platforms. We are constantly upgrading the technology infrastructure, including the implementation of the entire project of PMS2020 in China, and will carry out comprehensive information and digital transformation and supply.

Lastly, it's the rolling out of global technology-based shared service platform. In China, we have been upgrading our infrastructure. For example, the rollout of PMS 2020. And meantime, we are working on the digitalization of the DH. I'd like to briefly introduce the first quarter performance of 2021. Please turn to page six.

In 2019, the same period, it only decreased by 7%.

Due to the impact of the second wave of COVID-19 in several provinces and cities like Hebei, Shanghai, and Beijing, our occupancy has been declining in January. And also because of the stay-local policy by the government for the spring holiday, the occupancy in Chinese festivals dropped to... the lowest point, but actually the rebound is pretty fast after Chinese holiday, driven by the strong travel demand. The occupancy has been increasing fast, especially after the March 16th. People can travel freely in the low-risk zone through the green code of their health card, so actually the travel limit has been removed mostly. March 13, the occupancy of Huazhou reached 79, only 7% lower than the same period of 2019. Huazhou's performance is actually 21% higher than the national average.

On page 7, it shows the recovery of our Red Park following the same trend of occupancy due to the COVID-19 impact in January and February.

the RERPA is only 70% and 56% of 2019's number. But in March 23rd, the RERPA has returned to 87% of 2019's number. 随着清明五一假期旅游旺季的到来, 以及中国新冠疫苗接种的逐步推广, 在疫情控制得当的情况下, 我们预计全年的RERPA

Anticipating the upcoming holiday seasons, for example, tomb sweeping holiday and labor holiday, and also the gradual rollout of COVID-19 vaccine, we anticipate that

the net rev part of 2021 is going to reach the 90% to 95% of 2019. If we exclude impacts of January and February, the rev part of March to December is actually going to rebound to 95% to 100% of 2019.

The strategic focus of 2021 stay the same as the 2020.

We will continue to focus on the rapid expansion of quality hotel network, multi-dimension direct sales, and global technology platform. Xinxin and I are going to talk about the execution of these three strategic focuses. I will start with rapid expansion of quality hotel network, and Xinxin will follow later.

In 2021, we are going to develop a new definition of a comprehensive hotel. From 2021, we launched a new standard to define the quality hotel from four dimensions.

Only the hotel satisfied the four dimensions can be defined as a quality hotel in Huazhou.

首先当然是客户的满意。 合格门店需要以客户为中心, 基于客户的评分,酒店安全干净为底线, 在品牌和复购以及会员体验等方面达到一定的标准要求。 First of all is satisfied customers.

Quality hotels should center on customer experience based on the rating of customers and, of course, has the minimum standard for safety and cleanliness. That's our bottom line. And also reaches certain standards in brand exposure and also the loyalty members repurchase and et cetera. 要是我们的员工,员工的美好,

The second is happy employees. The quality hotel should pay attention to

workers, welfare, working experiences, provide respect and delegation in the working environment, provide them development and promotion opportunity in the work, incentivize them, and thus to help them to provide a good service to the customers.

Franchisees is the cornerstone of our business. Therefore, profitable franchisees is the third criteria. By using the big data of Huazhou, we choose the right

right locations for hotel and make the right investment decisions. And also, we start to do the GOP management of single store to provide such service and enhance the franchisees' profitability. Last is the central reservation contribution from the members. We are going to continue to recruit new members at a single store level and enlarge the size of the Huazhou loyalty program, which is also very important to the long-term growth of Huazhou.

We have been penetrating into lower tier cities steadily.

From the strong of the hotel breakdown, the hotels located in third tier and below cities contribute to 38% of the fourth quarter of 2020 from the 36% in the first quarter. From the pipeline of hotels, the contribution of hotels from third tier and below cities increased to 52% in the fourth quarter from 45% in the first quarter.

Having said that, while we are pushing to first penetrate into low-tier cities, the absolute hotel numbers in Tier 1, Tier 2 cities

actually also increasing.

第十一页展示了我们酒店城市的覆盖情况。 截止在今年的三月份, 我们在银酒店覆盖了734个城市。 如加上Pipeline酒店这覆盖的城市数量提升至932个。 我们夏天市场的空间依然十分广阔。 根据我们自己对城市的定义, 全国城市数量可不点 On page 11, we share the information of the cities we covered by our hotels. By March 22, we covered 734 cities. And if we add pipeline hotels, the coverage increased to 932 cities.

In our standard, the target market of China City is actually more than 2,200. The wide space is still very large. The coverage of current Hot Wheels Hotel is only 33%, including pipeline is only 42%. 接下来我将为大家隆重介绍一下DH的监视会主席以及DH新任管理层团队。 请大家翻到第12页。

Andrew is the chairman of DH. He used to be the CEO and chairman of DH.

On page 12, I'd like to introduce the new members of DH, the chairman of supervisory board and also the new management team. First of all, Mr. Andrew Weiqi is the chairman of supervisory board of DH. He used to be the CEO of Accor Germany and also the board member, and he was also the previous CEO of DH.

Marcus is the new CEO of DH.

who joined the company in November last year. He has accumulated more than 24 years' experience in travel industry. He has served in Europe Car, Gulf Air, and also Steigenberger Hotel before.

Europe is DH's new CFO. He joined Huazhou in November last year. Before joining Huazhou, he served in Shenying Airlines as CFO for 11 years.

Ulrich is the new CFO of DH who joined in last November. Before that, he worked as the CFO of Condo. It's a subsidiary of Thomas Cook Airlines.

请大家翻到第13页。 我相信大家都很关心DH品牌在中国落地的情况。 我们正在稳步推进。 截至2020年年底, Pipeline中已經有五家InkCity和三家Matched by Steinberg在中國正在推進。 如同所示,我們在鄭州的InkCity酒店已經在試飲業中。 上海等地的酒店也將陸續營建和開業。 On page 13, we talk about the DH brand development in China, which has been very steady.

By the end of 2020, in our pipeline, there are five intercity hotels and three matched by Steigenberger Hotel. As shown on page 13, our intercity hotel in Zhengzhou, next to Highway Station, is actually in the trial operation stage already. And the other intercity hotels in Shanghai are already under construction.

Besides that, we also have new breakthroughs in the high-end hotels. Also, we also made a very

very big progression in the development of upscale hotels. On March 22, we announced the formation of a JV between Huazhou and Sunag, which is one of the largest real estate developers in China. The joint venture will be focused on the development of Steigenberger and Blossom House brands. The target is to sign up 200 upscale hotels in five years. On March 22nd, we signed up the management contract of Steigenberger and the Steigenberger Icon of Changsha National Exhibition Center hotels. The total room counts are reaching 1,000 rooms and also have the facility of 170,000 square meter conference rooms. We think the cooperation is just a start, and we're going to foresee more and more cooperation later on.

Now let me turn to the microphone to Xinxin, who is going to introduce our strategic focus in source and technology. Thank you, Xinxin. Thanks, Jinghui.

Despite the COVID-19 pandemic impact, we still expanded our membership base from roughly $150 million by the end of 2019 to near $170 million by the end of 2020. Our strong direct sales capability was also one of the critical factors to drive our strong and better line industrial recovery during 2020. Going forward, we would further emphasize on building even stronger multidimensional direct sales capability, measuring from four aspects, including in-store sales, H-word app, corporate customs, and cross-industry alliance, as shown on slide 16. I will discuss one by one. For the in-store sales, the left-hand side of the slide displays our strategy for attracting new member in our hotels with minimum acquisition cost. Customs could scan the QR code we provided to become our member for using various facilities, service, and functions of our hotel, such as room TV projection, laundry service, and invoice service, and so on. However, only attracting new members are not enough. We also need to return them and transfer them to be repeated customs. Therefore, we further empower our offline hotels by providing comprehensive technical tools and systems such as the CRM system and online hotel operation systems for helping them to better understand customs needs and further improve service quality. By doing so, We believe our offline hotels will not only have capacity to attract new members, but also to transfer them into loyal customers with a high repurchasing rate. Moving to our Edgewood app, we will launch our Edgewood new version, we call it Version 3 app, in upcoming few days. Comparing to the old version, The new app will provide more membership privileges, more efficient services through invading innovative functions such as online check-in and more value-added service such as remote room facility control. And those newly added functions in the upcoming new app will be targeting to further improve our user experience and hence higher repurchase rate. Moving to next slide, the corporate custom development was also another area where we put a lot of effort during 2020. We are very happy to see a very good outcome we achieved during the last year. Our penetration rate to the top 3,000 public listed companies reached to 32% by the end of 2020 compared to only 10% in 2019. Right-hand side of the slide are some of corporate customs we signed recently. You may see they're covering all kinds of state-owned enterprise, global companies, and online corporations. We believe that corporate customs will still play a very important role for our direct sales strategy. especially considering we are significantly penetrating into the high-end segment. Although we have nearly 117 million members now, we still think this is still very small as our target is to serve a broader population. Therefore, apart from above-mentioned strategies to increase members organically, We are also attempting to cross-industry alliance with those large traffic aggregator platforms. We name it B2B2X alliance strategy. Also, we call it the force traffic strategy internally. Please move to slide 20. For the B2B2B model, we are attempting to cooperate with those platforms which are often used by corporations we would connect our reservation system with those platforms and enable their corporate customers to easily book our hotels. For the B2B2C model, we will deeply cooperate with those frankly used or large traffic consumer platforms highly relevant to hotel services, such as map, airline business, and car hiring, e-commerce, online videos, to attract the new customers. Moving to DH, despite the COVID-19 pandemic is still affecting our European business, our digitalization project still remains progressing with a final spread for the last 100 days. We expect the whole process to be completed by middle of 2021. We would like to fully utilize Huazhou, China, confidence of high optional efficiency and advanced technology capabilities to further optimize the DH operation for better efficiency and profitability in the future. That would be a very solid basis for next development in European market. In conclusion, as mentioned by Jiqi earlier, innovation is one of the important strategies for Huazhou. Direct sales is an enhancer and technology is an additive and catalyst. Both are critical parts of our three-in-one super composite, winning formula to support Huazhou's long-term sustainable growth. Hence, we will continually reinforce our direct sales efforts and further develop our advanced technology capabilities. With that, now I will turn the call to Teal to discuss our Q4 and 2020 full-year operational financial review. Thanks.

Thank you, Xinxin. Good morning or good evening to everyone, wherever you are. Let's move on to our operational and financial review for 2020. As shown on slide 23, at the end of 2020, we had a total number of 6,789 hotels with 652,162 of rooms in operations, an increase of 21% from the end of 2019. Excluding the room inventory from DH, which was consolidated into Huazhou from January 2nd, 2020, legacy Huazhou room inventory would have been 628,135 at the end of 2020, an increase of 18% from the end of 2019. Despite a prolonged lockdown due to the COVID-19 pandemic, we accelerated our hotel openings at the second half of 2020. However, due to the impact of COVID-19 impacting both our China, Chinese, and European business, total hotel turnover at the hotel level declined by 6% to $33 billion. Excluding TH, total turnover would have reduced by 12% to $30 billion from a year ago. Turn to page 24. Legacy Huatru blended rail path for Q4 2020 had recovered to the 97% level of 2019 level. The ADR in Q4 2020 had almost recovered to 2019 level to 231 renminbi, while occupancy in Q4 is one percentage point lower compared to 2019. For the full year of 2020, due to the lockdown and travel restrictions As a result of COVID-19 in China, particularly during the first half of 2020, our RAPA declined by 25% to 149 RMB compared to last year. This was attributable to a drop in ADR by 11% and a drop of occupancy by 13% compared to last year. Please turn to page 25. Our legacy TH business had severely impacted by COVID-19 pandemic in Europe since March 2020. Our European business recovered during the last summer but had since been negatively impacted by the second and third wave of the pandemic since September 2020. Many European countries imposed lockdown in order to contain the pandemic. For example, the German government initially planned to impose a lockdown from November to early December 2020 in 2020, then extended to January in 2021, and then they go on to February and now to April 18, 2021. The German government also recently announced hard travel restrictions during the coming Easter holiday in April. These travel restrictions significantly impacted our rev power. On page 25, legacy DH blended rev power for Q4 2020 declined by more than 74% to €31. compared to Q4 2019. The ADR dropped by 22% to €76, and the occupancy dropped by 45 percentage points compared to Q4 2019. For the full year in 2020, the blended rest part declined by more than 50% to €31, attributed to a lower ADR and significantly lower occupancy. We will provide an update on how we cope with the extended COVID-19 in Europe later in my presentations. Please see our financial results on slide 26. Our net revenue grew by 6% in Q4, but declined by 9% for the full year of 2020. This revenue trend was better than our previous guidance, breaking down the revenue growth in Q4 2020. Net revenues from our leased and operated hotels improved by 5% year-over-year, and net revenues from our managed and franchised hotels was also up by 7% year-over-year. In Q4 2020, as revenue mix of our DH business that we acquired in early 2020 had a higher weighting, of lease and operator hotels revenue contributed by asset-like managed business models accounted for 33% in total revenues, same as 2019. Excluding DH, revenue contributed by asset-like managed models improved by 3.35% in Q4 2020. We expect the contribution from our managed business will continue to increase going forward. Please turn to slide 27. Due to the COVID-19 impact, in 2020, our revenue from mid and upscale hotels decreased by 3% to $6 billion, accounting for 54% of the total net revenue. Excluding revenue from DH, revenue from mid and upscale hotels would have been decreased by 28% to $4.5 billion. Let's now turn to slide 28 on the operating income and margins. The reported loss from operations for Q4 2020 was $134 million compared to a profit of $486 million last year. The loss from operations had already considered a non-cash fixed asset impairment totaling $140 million related to two hotels in DH which we plan to close upon expiry of the leases as well as a couple of hotels in China. Excluding the impact of this fixed asset impairment, we are close or even better than break-even. Excluding DH, which had continually to be affected by the second and third wave of COVID-19 since September 2020, as well as the fixed asset impairment, Legacy Quatu recorded an income from operation of $315 million in Q4 2020. The hotel operating cost and other costs for Q4 2020 was $2.7 billion. As mentioned above, This amount included a non-cash fixed asset impairment of $140 million related to hotels that we planned to close. Excluding DH, the hotel's operating costs amounted to $2 billion compared to $1.9 billion in Q4 last year. Higher hotel operating costs were mainly attributed to higher lease costs. Depreciation and amortization costs, consumables related to our list of operated hotels opened in Q3 and Q4 2020, and also in China, a $20 million fixed asset impairment related to hotels that will be closed in China. As Jin Hui mentioned during his presentation earlier, going forward, we would use asset-like approach to speed up the development of our upscale hotel brands in China. In this connection, we recorded a lower pre-operating expenses in Q4 2020, and we expected this trend to continue going forward. In Q4, we recorded a selling and general administration expenses of $399 million. Excluding DH, our SG&A expenses were $388 million compared to $375 million in Q4 last year. The higher selling expenses in Q4 was mainly due to the several major promotional events, including but not limited to five sessions of the Huazhou World Conference held in Guangzhou, Changsha, Chengdu, Beijing, and Shanghai in Q4, and also a setting up of local area direct sales team to boost our to-be business, as Sing Sing mentioned in her presentation earlier. The highest selling expenses was partially offset by a lower GNX, a general administration expenses, due to headcount reduction exercise since 2020 Q1. Turn to slide 29 on the operating income and margin for the full year. The reported loss from operations was $1.7 billion compared to a profit of $2.1 billion last year, excluding DH again, which has continually been affected by the second wave of COVID-19, Legacy Hua Chiu recorded a loss from operations of $100 million in 2020. The hotel operating costs and other costs for the full year in 2020 was $9.8 billion. Excluding DH, the hotel operating costs amounted to $7.4 billion compared to $7.2 billion for 2019. Higher operator operating costs were mainly attributed to higher lease costs, depreciation, amortization and consumables related to our new lease and operated hotels that has been opened in 2020. As mentioned in earlier page, we will use a new approach to speed up development of our upscale hotel brands, and therefore, we have recorded a lower pre-operating expenses in 2020, totaling $288 million compared to $502 million last year. We expect to record a lower pre-operating expense cost going forward. For the full year in 2020, we recorded a selling and general administration expense of $1.8 billion, Excluding DH, our selling and general administration expenses were $1 billion compared to $1.3 billion last year. The lower SG&A costs were attributable to our aggressive cost-cutting and headcount restructuring taken place during Q1 2020. Turning to page 30, our adjusted EBITDA decreased to $375 million in Q4 2020 compared to $854 million last year, This amount had considered the fixed asset impairment of $140 million mentioned that I mentioned earlier, that had been recorded in both DH and China business. Excluding DH, allegedly Kua Chu existed EBITDA was $764 million, representing an 11% decrease compared to last year, due to the resurgence in pandemic in selected cities within China during November and December in 2020. In Q4, we recorded an adjusted net loss of $8 million. Excluding DH, we recorded an adjusted net income of $300 million representing a 27% decrease in adjusted income due to lower REF PAR. The non-GAAP pro forma adjustment mentioned on this page included the unrealized gain or losses from fair value changes of equity related to our investments such as core shares. turning to page 31 for adjusted EBITDA and net income for the full year of 2020. Our adjusted EBITDA loss was $244 million in 2020. This amount had considered goodwill impairment of $437 million in Q3 and fixed asset impairment of around $272 million, which gave up a total of $700 million in 2020. Excluding these two non-cash impairments, our adjusted EBITDA would have been in the positive territory. Excluding DH, Legacy Hua Chu recorded a positive adjusted EBITDA of $1.1 billion. The chart on the right-hand side shows that we recorded an adjusted net income loss of $1.8 billion in 2020. Excluding DH, Legacy Hua Chu recorded an adjusted loss of $459 million. Coming to page 33 on COVID-19 updates. When we first reported to you on the impact of the COVID-19 back in June 2020, we were experiencing negative operating cash flow and significant cash shortfall. We also had significantly overhanging risk from the potential default of our US$1 billion syndication loan due to a drop in EBITDA that failed to meet the financial governance. there were also a huge potential redemption risk from our US$475 million convertible bond due to our depressed share price that fell below US$30 then. We came a long way since last June. As mentioned by Jin Hui earlier, our China business has been recovering very strongly from the pandemic, and so did our EBITDA and operating cash flow. In addition, we raised US$500 million from a convertible bond issuance in May 2020, We further raised approximately $900 million from our secondary listings on the Hong Kong Stock Exchange. With this cash, we managed to reduce our net deposition from a close to $10 billion at the end of Q2 to $5 billion at the end of Q4 2020. The overhanging risk of breaching the financial governance in the $1 billion syndication loan had been fully resolved. We had overachieved the financial governance waiver condition that requires Huaju China business to record a minimum of $1 billion adjusted EBITDA during the second half of 2020. We recorded a $1.5 billion adjusted EBITDA for our China business during that period. The risk of comfortable bond redemption had also been resolved following the recovery of Huaju share price. there were almost zero deductions at the put date back in early November 2020. From now on, this $475 million convertible bond will only be redeemed or converted into Huazhou shares at the end of 2022. We are pleased to share that both of our convertible bonds are well in the money. Therefore, the convertible bond investors were more likely to convert their shares into Huazhou shares. At the end of 2020, we had approximately $7 billion of cash on hand. In addition, Legacy Huazhou had unutilized bank facilities totaling $6.5 billion. These cash and bank facilities will allow Huazhou to further pay down Huazhou's bank debts in 2021 and also to be used whether through any unforeseen circumstances. Coming to the financial impact of COVID-19 on Doge Hospitality on page 34. As mentioned in my earlier presentations, our European business has encountered the second and third wave of COVID-19 pandemic. The German government imposed a lockdown, which has initially planned to end at the beginning of December and now extended to April 18, 2021. The German government has also announced strict lockdown during the Easter holiday. This has badly affected our business in Europe. To compensate for the business loss, the German government has extended the scope and the duration of government subsidies. In addition to the salary subsidies on short-time workers that we had been receiving, based on our estimates, the government subsidy to be received will cover the shortfall in EBITDA due to expansion of lockdown in 2021. We will only record the income upon the receipt of such cash. Similar to our action in China, we have been negotiating with the landlords to reduce the rental payments. They have been supportive. In addition, we have also put our staff on temporary furlough and frozen our headcounts, cut and reduced discretionary spending and capital expenditure. We expect the maximum cash flow gap to be in the range of 40 to 50 million euro for our German operation in the full year of 2021. We are also in discussion with our local banks in Germany for banking supports. They have been supportive. Turning to page 32 on guidance, Compared to Q1 2020, we expect our net revenue for 2021 to grow by 8% to 10% or 61% to 63% excluding Dodge Hospitality. For the full year for 2021, comparing to 2020, we expect our revenue to grow by 50% to 54%. To provide a more meaningful comparison, by comparing with 2019, we expect our net revenue for 2021 to decline by 7% to 9% or decline by 12% to 14% excluding Deutsche Hospitality. For the full year of 2021 compared to 2019, we expect our revenue to grow by 36% to 40% or 15% to 19% excluding DH. As mentioned earlier, Chinese government imposed a stay local policy during the Chinese New Year period which has negatively impacted our business in January and February 2021. Excluding the first two months in 2021, we expect our net revenue to grow, to grow by 7% to 9% compared to Q1 2099, or 1% to 3% excluding DH. For the remaining last 10 months in 2021, we expect our revenue to grow by 45% to 49%, or 36 to 40% if excluding GH. We set our gross hotel openings target of 1,800 to 2,000 in 2021. On the other hand, we estimate our hotel closure to be in range of 500 and 550. With that, please open the floor for Q&A.

Thank you so much. Ladies and gentlemen, we will now begin the question and answer session. As a reminder, if you wish to ask a question, you will need to press star and one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press the hash key. Again, it's star and one if you wish to ask a question. And our first question comes from the line of Justin Cook from Goldman Sachs. Justin, your line is now open.

Hi, Morning Management. Thanks for taking my question and Glad to hear about the strong recovery for March to date since the more likely further reopening of the country. I got two kind of top-down questions I want to check in. The first one is on the expansion plan, and the other one is on the high-end segment. So on the first one, it's with Ji Huizhong mentioning about the progress. It seems that you guys are very well on track to achieve 1,000 cities and 10,000 hotels sometime in next year. So can I check in as to what do you think will be the next milestone for the company going beyond into the next like three, four, five years in terms of number of cities, in terms of the size of the portfolio. And with that in mind, what would be the split of the segments and also the split of the cities by then as a check. Perhaps I'll throw on the other question as well, which is on the high-end side. I'm glad to see that you're making progress with the transaction with Zunec. But can you also share a bit on what you're seeing on aggregate on your high-end segment expansion plan? Because you still have some of your own brands now, like Joya and also InterCity, which are not in the joint venture. What are you seeing on the growth and the trajectory for these brands as well? Thank you.

The first question is about the city-wide plan.

He wants to know the future three to five years. In the three to five years, what kind of level hotels are included in the development plan? For example, high-end, medium-end, and economy. This is the main question. Yes.

Let me answer the first question first. We have been working on the deployment and organization of thousands of stores around 2020. In the future, we can see that the entire Chinese market has a very wide range of opportunities for such a development in the economic middle and high-end sectors. As I mentioned earlier, Huazhou and Rongchang's development in the middle and high-end markets uh uh Okay. So we foresee there are promising growth potential in all segments, Justin, not just the upscale, but also economy and meat scale. We think as we penetrate into lower tier cities,

The majority of the development will be focused on mid-scale and economy, and we will add more upscale hotels in the Tier 1 and Tier 2 cities. Our target is to reach 15,000 hotels in the next five years, and we believe the majority will continue to be a mid-scale and economy hotel. 其实华族在中国接下去的发展面临着多层次多维度的增长战略,

So Huazhou targets of all segments growth, not only economy mid-scale, but also upscale and result hotels. Therefore, I wanted to echo Chairman Ji's point on the

organizational capability, we require all kinds of organization transformation and also the talent tools. 第二个问题是,你在融创的合资公司谈到花间堂和石伯格,那么请问其他高端品,比如说喜悦和Intercity的发展计划。 确实在高端华驻布了非常多的品牌,因为

So in the upscale segment, we see more and more diversified demand from various customers. Therefore, we deploy a multi-brand strategy in the upscale segment. Yes. For example, Inc.City, we have been developing the construction of high-speed railways in China's first and second-tier markets. Zoya is carrying the rise of a Chinese cultural confidence, such as a brand of the East. It should be said that Huazhou's high-end development is a strategy of flowering.

For example, Intercity will follow the deployment of a high-speed train network in China to facilitate the transportation. And Joyai represents more about the confidence, the new style of Oriental culture. So in short, there will be different kinds of hotels catering to different kinds of customer needs. Next question, please.

Yeah, all right. Thank you.

Thank you so much. Once again, ladies and gentlemen, it's starting 1 if you wish to ask a question. And our next question comes from the line of Billy Nguyen from Bank of America. Billy, your line is now open.

Thank you. Good morning. I also have two questions. My first question related to the revenue assumption the revenue guidance for 2021. Can you tell us a little bit more in detail? I know you guys mentioned about excluding January, February, the RASPA growth assumption should be somewhere about like, or RASPA assumption is based on 95 to 100% of 2019 level. If we looked at the revenue growth assumption of 50 to 54%, growth in 2021, what will be the assumption for the same-store RAFPA growth compared to 2019 for the China portfolio and also for the DH portfolio? And that's my first question.

Okay. I would say that for the Chinese portfolio is that for the same-hotel RAFPA, I think our reptile assumption will be in the range of 95% to 100%. 95% to 100%. And then for the Doge's hospitality, we have actually revised downwards. So in fact, I won't give you a specific one, but because this is for the German operations, because the timing and the completion of lockdown is still very uncertain, but we have put in appropriate range to cover any potential shortfall.

Okay, I see. And for the 95 to 100, that's the same store number, same store lifestyle assumption, right?

Right.

Okay. And how about the recent trend? Like you just mentioned the recovery was quite strong in March. Is this recovery somewhat different from the last one? Meaning like was that led by Tier 3, Tier 4 city and Also, in terms of specifically Shanghai recovery, are there anything that you notice that worth sharing?

Okay. In March, I think our recovery has, our occupancy has reached approximately like 87% already. And this has already been considering the climb, the ramp up. Particularly before the meeting of, before the Lianghui, right, the party conferences started. before the end of the January, on the 10th of March, and subsequent to that, there was a big rebound. So considering that, we think that for the March, we estimated the occupancy to be around in the range of like 87%.

I see. And my second question actually related to the cost side, and also I think if I listened correctly, the company has about $140 million right down. And so like If we take that out, how should we think about the 4Q cost structure? Because it seems like there's still some increase compared to 3Q. And if we think about 2021 cost structure, is the fourth quarter the right place to start? And just based on that, to kind of extrapolate for the 2021 number?

It's a good place to start, but on the other hand, we will share more of some of our programs because in 2021, we are not only in the recovery stage, but we are also in an aggressive mode in expansion in both our development and also our sales efforts. So we will share more during the Q1 conference.

Okay. And quickly, Florida.

Yeah, it's a good guy. Sorry. Sorry.

Yeah, and for the $140 million write-off, what's the split between Deutsche Hospitality and our China portfolio?

The $140 million, all of that is the $120 million is related to Deutsche Hospitality, related to two hotels, and $20 million is related to the China business.

Okay, thank you. Thanks a lot.

Thank you so much. And your next question comes from the line of Cici Lin from CICC. Your line is now open.

Thank you, management. I have two questions. The first is on upscale business. So for the GB with Sunac, we target to sign up like 200 hotels in pipeline five years. So how many could we expect to open in this year and next year? And how should we evaluate the impact on P&L? And also, could we see cooperation with other real estate companies in the near future, or we may wait until the cooperation with Zunex to achieve some progress and success? This is my first question. Thanks.

How many stores have you opened this year? Second, will you have similar cooperation with other stores?

Yes, cooperation with Rongchang is a breakthrough starting point for Huazhou. Of course, we will... and more asset holders in China to work together, including the government, developers, and other asset financial institutions. We and Rongchang have already planned 26 high-end hotels to sign contracts this year. Next year, we expect to have close to 50 high-end hotels to sign contracts, because Rongchang's entire asset size and hotel size is a very large number. Okay.

Our collaboration with SUNAC is the first breakthrough of our upscale hotel segment. Up to today, we plan there will be 26 hotels signed up in this year and another 50 hotels to be signed up next year because it's actually, you know, it's a good leverage on launching vast majority, vast, you know, hotels. asset ownership in different kind of hotels and also its network in the real estate workforce, we expect this JV not only work on their current portfolio of Rongchang, Sunac, there will also be more collaboration with other real estate developers. But having said that, the estimation of... Opening of a luxury hotel, upscale hotel, is a little bit hard to estimate right now because it takes longer time to finish the construction and the ramp up. So we'll provide more detailed and accurate estimation later on. And the collaboration of SUNAC, between SUNAC and Huaju, is just a first step. you know, first, you know, breakthrough. And we expect to have more similar kind of a cooperation with the different kinds of asset owners, not just the real asset developer, also government-related entities and also financial institutions, etc.

We hope to have a faster and more innovative development process.

Okay. I wanted to provide some background data to all of you about the development of upscale segments. By looking at our peers like Intercontinental, Marriott, and Hilton, they've been in China for a long time. Take Intercom, for example. They have been entering into China more than 36 years. They have 266 hotels in operation, meaning they open seven hotels per year. upscale per year. Marriott opens 11 upscale hotels per year. So I think we are going to accelerate our expansion in upscale hotel segments and use a more innovative structure and approach.

Thank you so much. So my second question is that in the longer future, So when the market share of the top players in hotel industry grow a lot and the computation become increasingly intense, would we see a decreasing franchise fee? 我可以自己翻译一下,就是说更长远一起来看的话,就是到时候几家这个酒店的头部企业可能市场份额都增长很多了,然后竞争可能也越来越激烈嘛,那么就是会不会导致这个加盟费率的一个下降,咱们对这个远期加盟费率的一个展望是怎么样的? Thank you so much.

The coverage of the entire market share rate is still a long way away from what you said. We still have a lot of development to do, and we don't rule out the possibility of market growth in the future. So based on these points, one is that as a leading enterprise, the capacity of the industry is getting stronger and stronger. Second, based on our coverage of the entire market, I think our tick rate will maintain a very good growth.

So actually, we think the franchisee resembles the value a top player can provide to the industry. Klaju has been, you know, make significant efforts to increasing our empowerment to the industry through the innovation in business model and also organization power. Therefore, we think Considering our enhanced capability to provide value to the industry and considering the still low penetration of the top players in the market, especially Huazhou in the upscale segment, and also considering the further consolidation opportunities available there, we think there's still a very healthy track for the tick rate increase in the franchise business.

For example, you know,

Look at the contribution of our central reservation system. We provide more and more booking through our system compared to outside channel, which is going to generate more fee to us.

Thank you. Thank you so much. There are no further questions at this time. Speakers, you may continue.

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

This concludes the call today. Thank you. Bye-bye.

That is the end of the conference for today. Thank you for participating.