GreenTree Hospitality Group Ltd. American depositary shares, each representing one Class A ordinary share

Ladies and gentlemen, thank you for standing by for Green Tree's second half and fiscal year 2022 earnings conference call. At this time, all participants are in a listen-only mode. After management's prepared remarks, there will be a question and answer session. As a reminder, today's conference call is being recorded. I would now like to turn the meeting over to your host for today's call, Mr. Rene Vangestein, of Christensen, Greentree's investor relations firm. Please proceed, René.

Thank you, Andrea. Hello, everyone, and thank you for joining us. We have posted a PowerPoint presentation that accompanies our comments to our IR website at ir.998.com. On the call today from Greentree, I'm Mr. Alex Hu, Chairman and Chief Executive Officer Ms. Celina Yang, Chief Financial Officer, and Ms. Megan Huang, Vice President of Sales and Marketing. Mr. Xu will present the company's performance overview of the second half and the full year of 2022, followed by Ms. Huang, who will discuss business operations, and Ms. Yang will then discuss financials and guidance. They will be available to answer your questions during the Q&A session that will follow. Before we begin, I'd like to remind you that this conference call contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 as amended and as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as made, will, expects, anticipates, Aims, future, intent, plans, beliefs, estimates, continue, target, is or are likely to, going forward, confident, outlook, and similar statements. Any statements that are not historical facts, including statements about a company and its industry, are forward-looking statements. Such statements are based upon management's current expectations and current and operating conditions and relate to events that involve known and unknown risks, uncertainties, and other factors, all of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results, performance, or achievements to differ materially from those in the forward-looking statements. You should not place undue reliance on these forward-looking statements. Further information regarding these and other risks, uncertainties, or factors is included in the company's findings with the U.S. Securities and Exchange Commission. All information provided, including the forward-looking statements made during this conference call, are current as of today's date. The company does not undertake any obligation to update any COVID booking statement as a result of new information, future events, or otherwise, except as required under applicable law. It is now my pleasure to introduce our Chairman and Chief Executive Officer, Mr. Alex Hsu. Mr. Hsu, please go ahead.

Thanks, Rene. Hello, everyone, and thank you for joining us today. First, I do want to make apology to you because of the delays of the posting of the PPT. The meeting was delayed for the 15 minutes. We thank you for your understanding. So 2022 was a year full of change and the challenges. During the first half, COVID-19 outbreaks in many parts of the country resulted in lockdowns in cities, especially in Shanghai. As we entered the third quarter, transportation restrictions were relaxed and rural power recovered. However, October and November brought a fresh wave of outbreaks, slowing down of our recovery once again, and to our relief thanks to the lifting of the anti-pandemic measures earlier December. Royal Power recovered at the end of the year to more than 95% of its pre-pandemic levels. Regardless of these external environmental changes, we continued to execute our long-term strategic growth plan that strives to assist the franchisees in maintaining quality operations, extending our hotel networks, and delivering stable operating profitabilities and maintaining a healthy cash flow. Please turn to slide five. Compared with the second half of 2021, raw power decreased 4.2 percent to 112 RMB. Total revenues decreased 21.1 percent to 487.8 million RMB. The decrease was partially due to the deconsolidation of argyle since June 2022 and the disposal of our interest in urban on November 25, 2022. Excluding these impacts, organic revenues decreased 15.7% compared to one year ago. Income from operations increased to 20 million RMB, a margin of 4.1%. Excluding these, income from purely operating activities decreased 17.6% to 85 million RMB, with a margin of 17.4%. And the net income was negative 48.3 million RMB, with a margin of negative 9.9%. Adjusted EBITDA, that's non-GAAP, decreased 21.2 percent to 118.3 million, with a margin of 24.3 percent. Cash provided by operating activities were 151 million RMB. Slide six shows detailed numbers for total revenues. operating income, net income, and adjusted EBITDA. On slide seven, operating performances was continuously impacted by COVID outbreaks during the second half of 2022. Raw power was at 80.3% and 80.7% of the 2019 levels in the third and the fourth quarter, respectively, exceeding the industry average. Slide 8 shows the weekly raw power performance in 2022 and the first quarter of 2023 compared with 2019. In the second half of 2022, due to the resurgence of COVID-19, raw power fluctuated in the third quarter and was slowing down once again in October and November. Rural power gradually recovered to more than 95% of its pre-pandemic levels in the last week of 2022. Rural power recovery slowed again during the first half of January due to the rapid involvement of pandemic after pandemic control were lifted in China. However, It recovered to around 90% of its pre-pandemic levels over the Chinese New Year, thanks to family reunions. During this festival, according to the Ministry of Culture and Tourism, the number of tourists recovered to 88.6% and the domestic tourism revenues recovered to 73.1% of the levels in the same period of 2019. Such a recovery continued to increase in February, exceeding the levels of 2019. However, it pulled back a little bit in March due to outbreaks of influenza A in certain cities. Now, starting with slide 10, let's talk about the strategy and the execution with the further expansion in the mid-top scale segment and the tier three and the lower cities in South China, as well as recent development in 2023 Q1 regarding the acquisition of Danyang Dumplings and Bellagio, two leading restaurant chains in China from our controlling shareholder. Let's take a look at slide 11. We have been continuously growing our mid-top skill segment over the past few years. For a like-to-like comparison, we have excluded the Argyle and urban hotels in the past few years. By the end of the second half of 2022, we had 426 hotels. That's 10.5% of our total hotel portfolio in this segment. up from only 50 in 2017, as we plan to open more in this year. Please turn to slide 12. Over the past five years, most of our new hotels have been trying to thrive in Tier 3 and the lower cities. In addition, hotels in some lower tier cities are performing well, and we continue to execute our strict strategic plan, 72.6% of the hotels in our current pipelines are in such locations and will further capitalize on the substantial opportunities in such locations. As a testament to the solidness of this strategy, over the past three years, our business in such cities was much more resilient under the impact of COVID than other cities. However, in the first quarter of 2023, with the resumption of trade shows and the government investment promotions and commissions, the recovery in Tier 1 and Tier 2 cities outpaced the recovery in the lower Tier 3 cities. Q4 of 2020, we have been building flagship LO hotels in strategic locations, especially in central China and the southeast and southwest market. During the first quarter of 2023, we opened four LO hotels in Haikou East High-Speed Rail Station, Chongqing North High-Speed Rail Station, Chongqing Jiangbei International Airport, and the Fuzhou High-Speed Rail Station. Our expansion footprints cover Chongqing as well as Hubei, Jiangxi, Shanghai, and other provinces, all well located around transportation hubs, central business districts, or government centers. By showcasing our brand and operating standards, we believe these hotels will also help us to attract more high-quality franchisees, further accelerating our growth in these areas. On slide 13, let me now say a few words about the acquisition of affiliated food and restaurant business. We completed the acquisition of Da Nang Dumplings and Bellagio during the first quarter of 2023. Da Nang Dumplings is a quick service restaurant chain in China with a restaurant covering 236 locations in 35 cities as of December 31st, 2022. The chain had 99 operated self-operated restaurants, and 137 franchised restaurants. Bellagio is a casual dining restaurant chain with restaurants covering 36 locations in more than 14 cities as of December 31, 2022, including mainland China, Macau, and Southeast Asia. At the end of the last year, the chain had 27 self-operated and a nine-franchised restaurant. For the year of 2022, these two brands generated a combined unaudited revenue of about 509 million RMB. Since demand for such healthy and affordable fast food and casual dining services should be more stable and less dependent on discretionary spending compared with our existing hotel services, We expect this acquisition business to provide a more stable revenue stream that may offset cyclical aspects of our hotel businesses. The restaurant and hotel businesses are also complementary in nature as we witness the increasing demand for food-related services in the local communities, and we expect cross-selling opportunities from the two businesses. We also expect the integration to leverage upon synergies between our respective team within our company's unique ecosystem, sharing common resources, achieving economy of skills, and improving company's overall operating performance as demonstrated by our stable profit margin and the cash flow. With the recovery of the industry, We will focus on improving operating management efficiency, launching products with exquisite decoration and higher operating performance, widely and safely upgrade IT systems, and deploy robotic systems, and ultimately, enhancing the profitability of our franchisees. The road to recovery is full of hope and also full of challenges. But with the support of our shareholders, franchisees, and employees, we are confident we'll bring better products and services and create richer value for all. Now, let me turn the phone calls to Megan.

Thank you, Alex. Please turn to slide 15, which highlights the growth in the number of hotels and the year-over-year rebound in our operating metrics from the impact of COVID-19. Blended ADR of the fourth quarter in 2022 decreased 2.9% to 165 RMB. Occupancy rate decreased 6.2% to 63%. and the red part decreased 11.6% to 104 RMB. Moving to slide 16, for an apple-to-apple comparison, we have excluded the argyle and the urban hotels and presented the number of the organic hotels only. At the end of the fourth quarter of 2022, we had 4,569 organic hotels in operation, 5.2% more than the year before. 61 of these hotels were leased and operated, or ALO hotels, and 3,998 were franchised and managed, or FM hotels. While the mid-scale segment remains the core of our business with 72.8% of all our hotels, we continued our expansion into the higher-end segments. By the end of the fourth quarter, mid to upscale hotels accounted for 10.5% of our total portfolio, while the economy segment remained stable at 16.8%. We solidified our already dominant position in tier three and lower cities, where 68.2% of our hotels were located at the end of 2022. On slide 17, You can see that we opened 136 organic hotels in China, less than planned due to COVID-19, compared to 265 in the second half of 2021. 16 were in the mid to upscale segment, 88 in the mid-scale segment, and 32 in the economy segment. 12.1% of these new hotels were in the mid to upscale segment of the market. 9 were in Tier 1 cities, 23 in Tier 2 cities, and the remaining 104 in Tier 3 and lower cities. We closed 11 hotels, and we added a net 125 hotels to our portfolio. Slide 18 shows the trend of our quarterly operating performance. In the fourth quarter of 2022, REPA for our LO hotels increased to 130 RMB. REPA for our FM hotels decreased to 103 RMB. ADR for our LO hotels decreased to 208 RMB. And ADR for our FM hotels decreased to 163 RMB. Occupancy at our LO hotels decreased to 62.4%, and occupancy at our FM hotels decreased to Entering the first quarter of 2023, Red Park continued to recover for both LO hotels and FM hotels. Slide 19 highlights the growth in our membership programs, which accounted for most of our direct sales in the first half of the year. Individual membership grew to 78 million, up from 69 million a year ago. and corporate members grew to 1.94 million, up from 1.85 million a year ago. We have one of the highest percentage of room night booked by corporate and individual members in the industry. With that, I'll pass the call over to our CFO, Ximena Yang.

Thank you, Megan. Please turn to slide 20. In the second half of 2022, total revenues decreased 21.1% year-over-year to 487.8 million RMB. The decrease was primarily due to the consolidation of agar and the disposal of our interest in urban, and the impact of COVID-19, which resulted in lower RAPA at RO hotels and FM hotels. Excluding the impact of agar in urban, the total revenues decreased by 15.8%, and total revenues from FM hotels were 315.2 million RMB, down 16.8% year-over-year, while total revenues from LO hotels decreased 23.6% to 167.2 million RMB. Also excluding the impact of Argonne and Urban, Total revenues from FM hotels decreased 16.3, and total revenues from ARO hotels decreased 13.6% year-over-year. On slide 21, you can see that total costs and expenses decreased 3.5% year-over-year to 66.8 million RMB. Excluding the impact from newly opened lease-or-price hotels and other general expenses, the costs and expenses from ordinary costs of our operating business decreased 9.1% year-over-year. Total costs and expenses are composed of hotel operating costs and expenses, selling and marketing expenses, general administrative expenses. Hotel operating costs were 286.3 million RMB down 21.5% year-over-year. The decrease was mainly due to the deconsolidation of Argyle and the disposal of our interest in urban, as well as disposal of least-operated hotels. Selling and marketing expenses were 19.7 million RMB, a year-over-year decrease of 27.4%. The decrease was mainly attributable to lower advertising expenses, and stock-related expenses due to less business travels caused by the pandemic and the consolidation of Argyle and disposal of our interest in urban. General and administrative expenses were 111.2 million RMB in the second half of 2022, down 13.9% compared with second half of last year. The decrease was mainly attributable to the reduction in consulting fees and the consolidation of Argyle and disposal of our interest in urban. Our general expenses were 65 million RMB in the second half of 2022, which included provisions for loan receivables related to franchisee loans and impairments for certain fixed assets. 10 to slide 22, income from operations was 20 million RMB with a margin of 4.1%. Excluding other general expenses mentioned above, income from operating activities was 5 million RMB with a margin of 17.4%. And net income was negative 23.9 million RMB with a margin of negative 0.5%. Adjusted EBITDA decreased 21.2% to 118.3 million RMB, and the margin was the same as last year. Full net income was 67.7 million RMB, with a margin of 39%. The decrease was primarily due to the impact of newly opened hotels. If excluding the impact of newly opened and pipelined hotels, Adjusted EBITDA non-GAAP for the second half of 2022 was 146 million RMB with a margin of 34.6%. And core net income non-GAAP was 422 million RMB with a margin of 30%. Please turn to slide 23. Net income per ADS was RMB negative 48 cents. That's that's negative 7 cents US dollars. And core net income paid as basic and diluted non-GAAP was 1.17 RMB, that is 25 cents US dollars. Let's now take a look at slide 24. As of December 31, 2022, the company had total cash and cash equivalents, restrict cash, short-term investments, investments in equity securities, and time deposits of 1,055.5 million RMB compared to 1,079.5 million RMB as of June 30, 2022. The decrease was primarily attributable to the repayment of bank loans offset by cash from operating activities. On slide 26, Taking into account the recovery in long-term trends and short-term industry fluctuations, we expect total revenues of total hotel business for the full year of 2023 to grow 30% to 35% over the 2022 levels, and that is grow 5% to 9% over the year of 2019 levels. Furthermore, Considering the merger of the restaurant business into the group and their revenue contributions from restaurant business, we expect total revenues of the whole company for the full year of 2023 to go 90% to 95% over the 2022 levels, that is 50% to 55% over the 2019 levels. This concludes our prepared remarks. Operator, we are now ready to begin the Q&A session. Thank you.

We will now begin the question and answer session. To ask a question, you may press the star key followed by the number 1 on your telephone keypad. If you are using a speakerphone, you will need to pick up your handset before pressing the keys. To withdraw your question, please press the star key followed by the number 2. Once again, that was star, then 1 to ask a question. And at this time, we will pause momentarily to assemble the roster. Our first question will come from Jane Wang of UBS. Please go ahead.

Thank you, management, for taking my question. So I have two questions in total. The first is that we've seen the deconsolidation of urban and in ARGO. So do we have further merger and acquisition plans in the future? And what would be the strategic difference And the second question will be, we see that the current pipeline isn't quite high at the moment. And do we receive any pressures for new hotel expansions at the moment from hotel investors? Thank you.

Okay, Jan. Thank you so much for reaching the question. Great questions. I will pick up those questions, Selena. Okay. So with regard to the deconsolidation of the argyle and disposal of the interest in urban. That has not changed our strategy. I think we'll continue to explore new opportunities of merger and acquisitions. And the reason is now we also have many other smaller investment in the local strong operating teams and local companies. And we have gained valuable experience and lessons during the last four years of the growth plan. And so with this kind of valuable experience, I think that will help us to identify more accurately more suitable partners that will further help both companies to grow our business together and to create a value for both of the shareholders. So that is our emerging acquisition plan to supplement our main growth of organic growth. But we'll not lose our focus on the organic growth, which is still the main driver of our business. And we have accumulated a great amount of experience during the challenging time, how to maintain a healthy operation, healthy margin. Just to give you a perspective of our audience, The last three years, especially 2022, was the toughest year for the tourism and hotel industry. Just giving the perspective, the total tourism revenue for the 2019, that's a benchmark year, was six trillion RMB. And by 2020, because the first half of 2020 is a lockdown, So the full year of 2020, the tourism revenue is 2.3 trillion RMB. So that's like a 60% drop. And then 2021, we covered back to 2.8 trillion RMB. And the 2022 dropped back to roughly just a little bit over 2 trillion RMB for the tourism industry. So, and with that amount of, you know, the tourism numbers and tourism revenue drop, we have been able to maintain a healthy, stable cash flow and operations. So, with the organic growth. So, we're focusing on that, leveraging of the healthy and quick recovery of industries. But meanwhile, we'll not forget about M&A market because we still have capitals to be deployed in a more disciplined way to enhance our growth rate and enhance our returns to our shareholders. However, we will be more disciplined and more careful in selecting the right team with truly complementary resources compared with our organic growth and helping us to penetrate into those our, you know, wide space and lower coverage area and the team also to have more financial discipline and have the experience in managing the business in a professional or in a systematic ways. So that's our M&A plan considering the deconsolidation and disposal of the interest of urban. With regard to the second question of the new pipeline and the growth rate for the new year, we have observed the 2023 the recovery in the first three months are very rapid and we're really glad the industry resumed back to a very healthy level but even with the quick recovery we saw the culture and the tourism ministries forecast for this year's for the entire industry's revenues to be 4.5 trillion so that's about 75% of the 2019 levels. And the per capita expenditures is about 900 RMB per person, compared with a little bit close to 1,000 RMB per person in 2019 levels. So the budget for individual and the business and the government traveling are still under a very tight control so this year's our growth is going to be focusing on penetrating to areas where we still having a slower you know we have a lower coverage and also moving into the first second tier cities into the mid to upscale segments and that that We did observe, due to the last three years of pandemic, and there is a lack of adequate capitals for the franchisees, and they are a little bit more cautious than before the 2019 levels. So we will have to provide demonstration of our business models the resiliencies and the operating efficiency and our supporting capabilities to our franchisees to encourage them to open to start upgrading their existing hotel portfolios. And we are confident, I think this year, we'll resume back to close the levels of 2019 and will be substantially higher than that of 2022. So thanks, Jan, for your questions.

Thank you. Thank you, very clear.

The next question comes from Dan Chi of Morgan Stanley. Please go ahead.

Good morning, Alex, Megan, and Selena. Thanks very much for your presentation. I have two questions. The first question is regarding your guidance for full year 2023. May I get some more guidance on the on the rep part that you are assuming for the total revenue of hotel business of 30 to 35% year-on-year growth, your rep part assumption. And secondly, on the assumption of hotel opening, because after the deconsolidation and also the disposal of urban, I think our hotel number dropped to around 4,000 hotels. So what are our plans for 2023's hotel number as well? Thank you. That's my first question.

Do you want to take that, or do you want to? All right. Thanks, Dan. We discussed thoroughly internally of our rural power recovery of 2023 and also comparing the first quarter increase. And we believe, we estimated, we forecast this year our rural power, we hope, will be the same as of 2019. So we're back to normal levels. And for several reasons, the total tourism industry's revenue, as we just reported to you, shared with you by the ministry, is 75%. of the 2019 level. So in theory, the raw power should not be higher. They should be lower than that of 2019 level. However, I think the branded operator, especially the nationwide, such as Green Tree, have a much higher capture rate of the demand. And therefore, I think that our recovery has always been much better than that of the industry. So the first quarter, we observed the first-year, second-year city, we recovered more than the pre-pandemic levels. We believe that's due to the many, many travel needs accumulated for the past three years. For instance, family reunions. Many people have not seen their family for three years. And then government have a great initiative for investment promotion. So many trade shows and investment promotion programs are spread in the countries, especially going to Shanghai, Beijing, Guangzhou, and Shenzhen area. And the recovery for the first, second tier cities is much quicker, and we believe that's the main driver. And that driver will gradually, I think, back to normal. And the third or fourth tier cities, because the... the evolvement of the pandemic was a slower, was trailing to the first and second tier cities. So during the first quarter of 2023, we also see the impact by the third, fourth tier city by the pandemic. as well as the influenza and also the driving forces. The convention facilities in those third and fourth-tier cities are not as many. So the third and fourth-tier cities' recovery is not as quick as the first and second tier. But we believe that during the pandemic, Second quarter, third quarter, especially during the travel seasons, and many, many of those cities will recover much quicker. So overall, we do expect a stronger second, third quarter from accumulated demand from the past three years. So overall, our projection of the recovery of the Royal Park is 100% at 2019 levels. And we hope with this year's transition of the economy, many, many businesses are starting to reposition themselves So the 2024 would be a much stable for business travelers and for the leisure travelers. And with regard to the hotel openings, we have a conservative estimate depending on the second, third, and fourth quarters recovery. The first quarter, The first one, you know, January, February, was still impacted by the, you know, the rapid transition from the pre-COVID and from the, sorry, from, you know, pandemic control period to the policy and the control policy being lifted period and there is a transition. So being impacted a little bit. And our assigning speed right now is about 600 to 800 levels per year of the new hotel contracting speed. So we are also adding teams for the development, and we are able to travel a lot more. And comparing with the last year, many, many cities are locked down and prevented our business developers traveling, helping our franchisees. and that we think that we're having recover the new hotel contract and opening speed to close to pre-pandemic levels. And meanwhile, we are also going to enhance our existing portfolios renovations. We have slowed down quite a bit in the last three years we initially had a renovation plan for the 2019 and the 2020 and 2021 but the reality is those two those three years are much tougher for front for the franchisees to renovate renovate hotels and for lack of the adequate confidence and the picture are not clear in terms of when the pandemic will be lifted. Secondly, the lack of the travels and the period of quarantine made it difficult for the hotel to be upgraded. Thirdly, we also have many hotels periodically under the government demand for being used at the quarantine hotels. So for those reasons, we really have not had very strict policies for our existing hotel to be upgraded, to be renovated. But with the lifting of the pandemic measures, we are right now aggressively, proactively working with our franchisees and have a widespread products renovation and upgrade programs. With that in place, I think we will have many, many more new, fresh hotels, both on the newly opened as well as the existing hotels upgrade. I think this and next year will give us a great boost in the... in the growth and our planned revenue, both from the new hotels and from the existing hotels. So thanks, Dan.

Thank you. Thank you, Alex. Just one last quick question for me. With the disposal of urban and also the consolidation of Argyle, Do we expect any disposal gain or loss or any impairment that might occur later in the future after the first half impairment already being impacted? Thank you.

I will elaborate a little bit, then Celina will add. The disposal of the interest in urban, that is completely wrong, and there will be no more impairment on that end. But with Argyle, because we're still the majority of the shareholders, So we have the numbers in the book, but because of the performance in 2022, we expected them lower. So we had, I believe, a significant impairment in the second half of 2022 because of the argyle portion. But I'll leave the balance to Selena.

Thank you, Alex. Yeah, Alex, what do you think? is correct. For urban, because urban has purchased the interest back totally, so there is no further impairment in the future for urban. For Argyle, actually, we recorded in the long-term investment both in PL and balance sheet. So there is very, very little data in the future. Thank you.

Thank you both. Very helpful.

Thank you. My understanding is the amount of the residual value in those long-term investments is insignificant. Got it. Thank you. Yeah. And with that, I think we'll be able to completely, you know, really focus on our core and organic growth. That gives us, you know, resources. and instead of focusing on some of the problem-solving products, so give our team time and energy and just focus on the new core organic growth plan. Thanks, Dan.

The next question comes from Ma Yan of Crystal. Please go ahead.

Hello, management. I have one more question. What are the company's future plans for food and beverage acquisitions? Thank you.

Okay, thanks, Mayan. Let me elaborate on that. As you just hear the numbers, our two distinguished brands in the restaurant side, many, many people sometimes think that legacy brand over 20-something years, but the history of the food and the restaurant services indicated that there are not too many brands in China that can survive and grow in a 20-year period. So this really demonstrated both brands' resiliency and their management capabilities. So we have the locations in the past of those two restaurants in high-speed train stations and in supermarket centers. and in shopping malls. Those are primary locations of these restaurants. You just heard the numbers. The traffic to those areas gets reduced dramatically because of the pandemic. Also some often because of the online shifting consumption trend. So In the future, with the resumption of the travels, so both the traffic to the high-speed train stations, to the local supermarket centers, and to the shopping malls will resume, especially the high-speed train stations. We think those hubs will recover the quickest and the fullest. Supermarket centers and the local shopping malls still are under a lot of pressures because there are many new malls opening. and therefore cutting back on the traffic to the existing malls. And the supermarket centers, many demands are moved to online, and the... many alternative formats in supermarket deliveries. So as a result of that, I believe we still are managing to have a good and healthy operations for the past three years. And again, just showing to our people the capabilities we have over there. So in light of that, So the new trend, our new focus of the growth plan is going to be focusing on opening more restaurants in the community centers, servicing the local communities and the retirement communities in more efficient ways. And also on the product side, we want to develop called affordable luxury and great products and great service at affordable cost. And we also will enhance our delivery capabilities to increase the percentage of the delivery revenues. And fourthly, we're also leveraging our hotel facilities and hotel resources. One of the reasons, Maya, we have a healthy hotel operating margin is because we are able to manage all aspects of the hotel service segment well, including breakfast, restaurant service, room revenues. And as a result, on the companies of these, and we have a healthier margin than most of our competitors or than the industry average. And so we'll continue to leveraging that and to increase the food quality and services for both on the breakfast. And in certain hotels, we started providing full-day dining, we're talking about the mid-scale hotels, not mid- to high-end due to upskills. Upskills, most of the hotels, we have or plan to have the full dining service component because that's very much needed by the guests So we believe with these initiatives and also we will continue to focus on franchised restaurants and we have seen demand for our two brands by other restaurants operators. and by our own hotel franchisees. So with the recovery of the economy and the lift of the pandemic measures and the increased traffic to those regions, we do expect our food and restaurants business will be benefited greatly from those, as well as our growth plan. Thanks.

Thank you. Thank you.

The next question comes from Peter Yang of Goldman Sachs. Please go ahead.

Hi, Alex. Thanks for giving me the chance to take questions. So I have two questions. The first is on the EBITDA margin. Could you give us guidance of what kind of epidemiology we're expecting in this year and maybe next year after the top line is fully normalized? And the second question is regarding the coffee strategy, strategic focus. So among maybe various strategies companies are looking at in terms of expanding in mid-scale or mid-upscale segments or after acquiring the restaurant. So what are the priorities? for the company's strategies and how we're going to focus or make progress on those areas. Thank you.

Thanks, Peter. I will take the second question, just talk about the strategy and our focus, and then Selena will talk to you about our projected 2023 or the margin discussion, EBITDA margin 2023 and 2024. So as we mentioned earlier, Peter, Gaining the experience in the past three years made our team, I think, stronger in operating in the tough environment. We do believe the 2023-2024 recovery period, there are still going to be a lot of challenges, meanwhile, with a lot of opportunities. And with the rapid recovery, we are still not back to the 2019 levels in terms of the entire tourism industry. So with that, we are clearly focusing our core and organic growth on the hotel side. Each business unit has its existing management team. So our groups of management focuses on going to be on the hotel core organic growth. So the organic growth consists of probably three parts. First is the existing hotel portfolios renovation and upgrade. That's our key. area of focus because we have been behind for the last three years and that we need to completely upgrade and renovate many, many hotel products, some of them being used at the quarantine facilities and the volunteers are, you know, are more than the other types of usage. So then the second area The second focus is to develop and opening more new hotels with especially the mid-scale to upscale levels, and by showcasing these new hotels and will further influence our lower coverage area. Then the third focus is to improve, continue to improve our overall operating efficiencies. I'm talking about overall operating efficiencies and there are many, again, sub-area with folks, for instance, community outreach and local sales and marketing programs. And they enhance our service to our guests and deploy robotic technology to lower our labor costs because the labor shortage, the labor cost are a challenge for the next many years, I think, to come. And then to improve our information technology and to mining the data and to increase our system efficiencies and to further also deploy some of the AI newly used, for instance, where even our teams are starting to experiment some AI tools for customer service, for sales and marketing, and for new media. And so those are the folks to improve the overall hotels operating margin and efficiencies. So those are our core focus. And then On the other side, if there are local, strong, focused hotel management companies, operators, that we have a common share, common value, common goal, and financially disciplined, and then we may continue to explore this M&A. And then lastly, the food and restaurants, And for that, I just mentioned to you our management team in the food and services, you find affordable luxury. You light up the new economy, and we want to use a lot more. We want to use a lot more local ingredients, create customer-preferred meals at affordable price, and service in the local communities, and buy food. by diversifying from the supermarket centers and also shopping malls directly into the local communities and become a part of the habitual and hardcore demand for the local communities, we believe that sectors will grow very healthily and are generating healthy a cash flow and return to our investors. So with the overall focused approach and with the recovery of the economy, we think 2023, we really plan to generate a margin and a close to that of a pre-pandemic level. So with that, I'm passing the rest of the questions to Kalina.

Thank you, Alex. Also, before I answer the question, what's the EBITDA margin for the next two years, I would like to share what affects the actual impact on our EBITDA margin. Actually, before COVID-19, our EBITDA margin was as high as about 50%. And for the past three years, our EBITDA margin average that the lowest prime set about a 25% for a series of quarters. So there are three material factors that reduce the lower margin. The first one is the consolidation of the joint ventures. And the second reason is due to the COVID-19, the lower revenues and the higher stable costs, especially the rental costs and our human resources costs. And the third reason is that we opened more least-operated hotels, especially of the middle-tier scale segment in the Tier 1 and the Tier 2 cities. For the first reason, the consolidation of joint ventures affected about 10% of our EBITDA margin. And for the least operated hotels nearly open in the past two or three years, another 10% EBITDA margin was reduced. And the remaining amount of the margin decrease was due to COVID-19. So we'll be looking forward to the year of 2023 and the next year. First, we have to consolidate our joint venture, and we tend to normal business activities. when the COVID-19 passed away. And also for the newly opened hotels, well, they passed the ramp up period and gradually returned back to the normal operation. So we expected the EBITDA margin to recover about 10 to 15% in the year of 2013. So that means from the 25% past, another 10% to 15%. So for the year of 2024, it's a little hard for us to think how many better numbers right now. But we believe the operation and the industry will recover better and better. So following this, we may gradually return to the normal level of the margin. That is above 50% in the next three years. Thank you.

Thank you.

The next question comes from Don Lau of Oriental Value. Please go ahead.

Hi, management. Thanks for taking my call. Just two quick questions. The first question is that Can you share about the current profitability of the rational business? And the second question is that what's the current business outlook for the upcoming year? Thank you.

Excuse me, Don. We could not hear you very clearly. Could you repeat your question again?

Is it better now? Yes, better. My first question is that can you share about the current profitability of your restaurant business? That's the first question. And the second question is that what's the current dividend outlook for the upcoming year? Thank you. Hello?

So, Don, we're trying to understand. The first question is that what's the profitability level for the restaurants? Yes.

Am I correct?

Okay. What's the second question?

The second question is the dividend outlook of the company. The dividend.

Got it. Thanks, Don. We don't have the fully audit numbers of the restaurant for the 2022, but I do believe that we have a Montana healthy, I think, cash flow for the restaurants. So we will get to the, we'll publish the number as soon as we have, as soon as we have them, okay? So with regard to the dividend, as soon as possible, and our current focus are still growing the, the business, and that with a little bit uncertain transition period, that we are a little bit uncertain about impact for impact. But as soon as I think the picture is clear and more stable, that we'll plan to resume our previous dividend practice.

Okay, okay. I understand. So for the rational margin, I understand that the audit number for last year is not finalized yet, but then how about for this year, for 2023, what's your projection?

So when we made the acquisition and we have a full valuation by a rep, you know, the, uh, I think the most reputable valuation firm and that there is a number of assumptions and projections for the restaurant business. Do you have the numbers with you on the, um, and I, I, I think that, uh, we projected them the 2023. I think that, uh, um, uh, 20 to 30% gross profit margin and not with too high of the revenue because at that time we were not very clear with where the pandemic is going to be. And so we will report to the numbers I think in a separate phone call once I have both assets.

Okay, understood. Thank you, management. Yeah, thank you.

Thanks, Tom.

The next question is a follow-up from Dan Chee of Morgan Stanley. Please go ahead.

Thank you, thank you so much for the queue. Hi Alex, regarding the F&B business, can I have one follow-up question? Can you elaborate a little bit more on the synergies between the F&B business and the hotel business? For example, I think you explained to us very clearly about organically, each business, how would they perform, grow organically. is there any synergy between the business? For example, by having Da Liang Shui Jiao or Bellagio, you can channel the customers to your hotel. Or by branding your Da Liang Shui Jiao green tree brand, it will help to bring more clients to Da Liang Shui Jiao. Or maybe you can have a Da Liang Shui Jiao in a green tree hotel lobby, for example. So just trying to understand is there any synergy Or maybe it's because of the membership sharing. For example, you can combine the members and you can have more target customers for your hotel or your F&B business. Just trying to understand if there's any. Okay, Alex, thank you.

Okay, Dan, that's a great question. So let me share a little bit of background. The original acquisition of these brands, that's the intent of the original acquisition. The objective is to create synergies between the two segments of the businesses that in the past three or four years, the past three years, I think each unit is really trying to do their best to weather the storm and to face the challenges and to conquer the challenge. So the team have not synergized in a widespread way. We did perform many, many experiments, a few experiments, not many experiments, that we find there are great synergies between Bellagio and hotels. For instance, in one of our hotels, we have adopted a new concept of this branded restaurant inside the hotels, and the restaurant revenue increased 500% and so the breakfast and the meals revenues, the restaurant revenues, food service revenues, uh became roughly 70 of the room revenues so in other words the room revenue is uh in the last year was um six million and then the food and the beverage side close to three million so we did And we do have some great success stories in that end. However, I think the team needs to be trained. And because the last three years, we have not added the team members to drive that synergies. And now with the COVID measurement lifted, and we have, we are right now in the process of building a dedicated team to bridge the two resources together and to expand, to replicate the success in those hotels. And without substantial numbers, then the impact at this moment on the book is still not significant. But we do think in the near future there's a substantial really synergies over there. But we do not, you know, well, questions sometimes. The last piece, how come we have not done many of them? When the management team of each group are dedicated to focusing to improve their own operations to face the challenge, then sometimes we do not have a lot more resources to experiment those new concepts and to create new business units. And right now, we are building that. to offer not only the food services, we're also trying to see whether we can have other services by combining the food and the rooms and some of the facilities in the hotels really to create a better customer service experience. Meanwhile, increase our revenue in that end. Then we'll report to you as we make the progress. I think that this year we'll see many more. As I said, we already have a few of those prototypes, but this year we'll have many more with the ability to travel. with ability to expand in some key locations. We hope to gain a lot more experience in that end and to further to help the two businesses to grow. In terms of memberships, we just integrated our systems. I think that will be in deployment to use in the first, I'm sorry, in the second quarter of this year.

Thank you. Thank you, Alex. We hope to see more prototypes and more synergies coming up in the future. Thank you.

Great. We'd like to invite you to visit that place because we find it quite, you know, I think good for the guests and good for the restaurants and good for the local community. So basically everybody benefits from that.

Looking forward to it. Thank you. Thank you, Alex.

Thanks, Diane.

This concludes our question and answer session. I would like to turn the conference back over to Selena Yang for any closing remarks.

Thank you, Operator. In closing, on behalf of the entire Green Tree Management Team, we thank you for your interest and participation in today's call. If you require any further information or have plans to visit us, please feel free to contact us. Thank you all.

Thank you.

The conference is now concluded. Thank you for attending today's presentation and you may now disconnect.