7 Days Group (SVN) Updates on Strategy; Approves $25M Common Buyback Plan
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7 Days Group Holdings Limited (NYSE: SVN) announces an update on its business strategy and share repurchase program.
Strategic Update:
As a core element of its strategy to expand its market share within China's economy hotel industry, 7 Days Group has gradually increased its focus on the expansion of its portfolio of managed hotels in recent years. As of the end of the first quarter 2012, the Company had 1,044 hotels in operation, consisting of 417 leased-and-operated hotels and 627 managed hotels, representing a total of 104,191 rooms spanning 162 cities. A key benefit of the managed hotel model is that it allows the Company to maintain a rapid pace of expansion, gain greater operational leverage, expand its brand presence and generate stable fee-based income with a higher return on employed capital. Together, these factors have resulted in increasing profitability and stronger free cash flow generation.
In view of the successful expansion of the Company's managed hotel portfolio to date, and the continuing strong demand from managed hotel partners, the Company has decided to accelerate the shift in its long-term strategic focus from leased-and-operated hotels to managed hotels.
In line with its revised strategic focus, the Company is increasing its guidance for managed hotel openings for the full year 2012 from 240 to 320. Concurrently, the Company is lowering its outlook for new leased-and-operated hotel openings for the full year 2012 to 80 from 120, due to the Company's shift in strategic emphasis towards managed hotels and its decision to focus on capital investments with higher potential returns. This will result in a total of 400 new hotel openings in 2012, an increase from the previously announced target of 360 new hotel openings.
Based on its performance year to date, and the expected revenue contribution from managed hotels targeted to open in 2012, the Company is maintaining its full year revenue guidance of 28%-32% year-over-year growth. Furthermore, as the shift in emphasis towards a higher rate of managed hotel openings will result in a less capital-intensive business model, the Company expects to deliver further margin expansion in 2012 and an overall improvement on a year-over-year basis in net income, EBITDA and free cash flow.
Share Repurchase Program:
In light of the Company's performance to date, its current market valuation and confidence in the long-term growth opportunities of the economy hotel industry in China, the Board of Directors has approved a share repurchase plan. Under the plan, the Company is authorized to repurchase up to US$25M million worth of outstanding American Depositary Shares, or ADSs, over the next 12 months, from time to time, in open-market purchases on the NYSE Euronext at prevailing market prices, in trades pursuant to a Rule 10b5-1 and 10b-18 repurchase plan, or privately negotiated transactions in accordance with applicable federal securities laws. The timing and extent of any purchases will be determined by the Company's management, in its discretion, and will depend upon market conditions, the trading price of 7 Days Group's ADSs and other factors, including customary restrictions on share repurchases. 7 Days Group expects to implement this share repurchase program in a manner consistent with market conditions and the interest of the shareholders. The Company will finance the repurchase with the Company's cash on hand and cash generated from operations.
Strategic Update:
As a core element of its strategy to expand its market share within China's economy hotel industry, 7 Days Group has gradually increased its focus on the expansion of its portfolio of managed hotels in recent years. As of the end of the first quarter 2012, the Company had 1,044 hotels in operation, consisting of 417 leased-and-operated hotels and 627 managed hotels, representing a total of 104,191 rooms spanning 162 cities. A key benefit of the managed hotel model is that it allows the Company to maintain a rapid pace of expansion, gain greater operational leverage, expand its brand presence and generate stable fee-based income with a higher return on employed capital. Together, these factors have resulted in increasing profitability and stronger free cash flow generation.
In view of the successful expansion of the Company's managed hotel portfolio to date, and the continuing strong demand from managed hotel partners, the Company has decided to accelerate the shift in its long-term strategic focus from leased-and-operated hotels to managed hotels.
In line with its revised strategic focus, the Company is increasing its guidance for managed hotel openings for the full year 2012 from 240 to 320. Concurrently, the Company is lowering its outlook for new leased-and-operated hotel openings for the full year 2012 to 80 from 120, due to the Company's shift in strategic emphasis towards managed hotels and its decision to focus on capital investments with higher potential returns. This will result in a total of 400 new hotel openings in 2012, an increase from the previously announced target of 360 new hotel openings.
Based on its performance year to date, and the expected revenue contribution from managed hotels targeted to open in 2012, the Company is maintaining its full year revenue guidance of 28%-32% year-over-year growth. Furthermore, as the shift in emphasis towards a higher rate of managed hotel openings will result in a less capital-intensive business model, the Company expects to deliver further margin expansion in 2012 and an overall improvement on a year-over-year basis in net income, EBITDA and free cash flow.
Share Repurchase Program:
In light of the Company's performance to date, its current market valuation and confidence in the long-term growth opportunities of the economy hotel industry in China, the Board of Directors has approved a share repurchase plan. Under the plan, the Company is authorized to repurchase up to US$25M million worth of outstanding American Depositary Shares, or ADSs, over the next 12 months, from time to time, in open-market purchases on the NYSE Euronext at prevailing market prices, in trades pursuant to a Rule 10b5-1 and 10b-18 repurchase plan, or privately negotiated transactions in accordance with applicable federal securities laws. The timing and extent of any purchases will be determined by the Company's management, in its discretion, and will depend upon market conditions, the trading price of 7 Days Group's ADSs and other factors, including customary restrictions on share repurchases. 7 Days Group expects to implement this share repurchase program in a manner consistent with market conditions and the interest of the shareholders. The Company will finance the repurchase with the Company's cash on hand and cash generated from operations.
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