Mr. Yongchen Lu reports

TIMS CHINA ANNOUNCES SECOND QUARTER 2023 FINANCIAL RESULTS

Restaurant Brands International Inc.'s TH International Ltd. has released its unaudited financial results for the second quarter of 2023.

Second quarter 2023 highlights:

• Total revenues were 411.7 million renminbi ($56.8-million (U.S.)), representing a 129.7-per-cent increase from the same quarter of 2022;
• Net new store openings totalled 52 (20 company-owned-and-operated stores and 32 franchised stores), resulting in 700 systemwide stores at quarter-end;
• 14.7 million registered loyalty club members at quarter-end, representing a 95.4-per-cent year-over-year growth;
• Adjusted store EBITDA (earnings before interest, taxes, depreciation and amortization) was 18.2 million renminbi ($2.5-million (U.S.)), compared with a loss of 43.8 million renminbi in the same quarter in 2022;
• Adjusted store EBITDA margin was 5.0 per cent, representing an increase of 31.6 percentage points from the same quarter in 2022.

Company management statement

Yongchen Lu, chief executive officer and director of Tims China, commented: "In the second quarter, we delivered 129.7-per-cent year-over-year top-line growth, achieving a record quarterly revenue of over 400 million renminbi, driven both by new store openings and continued strong same-store traffic and sales growth. We continued to build density in our existing cities and penetrate new cities such as Yantai, Taizhou, Changzhou. At the same time, we achieved greater capital efficiency via increasing franchise development, notably through the rapid expansion of Tims Express, our most compact store format. The Tims China brand has never been stronger, as evidenced by our rapidly growing loyalty club, which now totals 14.7 million registered members, representing a 95.4-per-cent year-over-year growth."

Mr. Lu added: "By leveraging Tims's infrastructure and operating expertise, we were thrilled to have opened our first Popeyes restaurant in China on Aug. 19, a major milestone in our longer-term strategy to establish a growing presence for this iconic brand across China. Adding Popeyes to the Tims China portfolio will deliver economies of scale and supply chain synergies for both brands, driving further growth and profitability for our company."

Dong (Albert) Li, chief financial officer of Tims China, commented: "As we continue to scale, we have demonstrated meaningful expansion in store and company profitability. Adjusted store EBITDA margin and adjusted corporate EBITDA margin improved by 31.6 percentage points and 56.1 percentage points year over year, respectively. We continue to monitor our cost structure in a prudent manner, particularly expenses relating to new store development, which we are working diligently to optimize further and achieve shorter payback periods. We remain committed and confident in our long-term new store development plan."

Mr. Li continued: "Looking ahead, our top near-term financial priorities are to deliver robust revenue growth, improve profitability at the store and corporate level, and achieve operating cash flow break-even. By leveraging Tims China's strong brand recognition, growing loyalty club members, continuous innovation, expanding store network and disciplined execution, we are confident in our ability to continue improving operational efficiency and achieving profitable growth."

Second quarter 2023 financial results

Total revenues reached 411.7 million renminbi ($56.8-million (U.S.)) for the three months ended June 30, 2023, representing an increase of 129.7 per cent from 179.2 million renminbi in the same quarter of 2022. Total revenues comprise the following:

• Revenues from company-owned-and-operated stores were 362.6 million renminbi ($50-million (U.S.)) for the three months ended June 30, 2023, representing an increase of 120.4 per cent from 164.5 million renminbi in the same quarter of 2022. The growth was primarily driven by an increase in the number of company-owned-and-operated stores from 419 as of June 30, 2022, to 571 as of June 30, 2023, and a 20.4-per-cent same-store sales growth for company-owned-and-operated stores in the second quarter of 2023.
• Other revenues were 49.1 million ($6.8-million (U.S.)) for the three months ended June 30, 2023, representing an increase of 234.5 per cent from 14.7 million renminbi in the same quarter of 2022. The growth was primarily attributable to the rapid expansion of the company's e-commerce business and an increase in franchise fees and revenues from other franchise support activities, which was attributable to an increase in the number of franchised stores from 21 as of June 30, 2022, to 129 as of June 30, 2023.

Company-operated store costs and expenses were 374.1 million renminbi ($51.6-million (U.S.)) for the three months ended June 30, 2023, representing an increase of 56.1 per cent from 239.6 million renminbi in the same quarter of 2022. Company-operated store costs and expenses comprise the following:

• Food and packaging expenses were 123.4 million renminbi ($17-million (U.S.)), representing an increase of 109.5 per cent from 58.9 million renminbi, in line with the company's revenue growth and store network expansion. Food and packaging costs as a percentage of revenues from company-owned-and-operated stores decreased by 1.8 percentage points from 35.8 per cent in the second quarter of 2022 to 34.0 per cent in the same quarter of 2023 as the company continues to benefit from greater economies of scale and higher efficiencies in supply chains.
• Rental and property management fees were 75.3 million renminbi ($10.4-million (U.S.)), representing an increase of 31.3 per cent from 57.4 million renminbi, mainly due to the increase in the number of company-owned-and-operated stores from 419 as of June 30, 2022, to 571 as of June 30, 2023. Rental and property management fees as a percentage of revenues from company-owned-and-operated stores decreased by 14.1 percentage points from 34.9 per cent in the second quarter of 2022 to 20.8 per cent in the same quarter of 2023.
• Payroll and employee benefit expenses were 79.4 million renminbi ($10.9-million (U.S.)), representing an increase of 23.3 per cent from 64.4 million renminbi, in line with the company's revenue growth and store network expansion. Payroll and employee benefit expenses as a percentage of revenues from company-owned-and-operated stores decreased by 17.2 percentage points from 39.1 per cent in the second quarter of 2022 to 21.9 per cent in the same quarter of 2023, primarily due to the refined staffing arrangement of the company's store operation personnel and optimization of the company's labour structure, including hiring more part-time employees.
• Delivery costs were 29.2 million renminbi ($4-million (U.S.)), representing an increase of 120.1 per cent from 13.3 million renminbi, due to increased home delivery orders. Delivery costs as a percentage of revenues from company-owned-and-operated stores remained flat at 8.1 per cent in the second quarters of 2022 and 2023.
• Other operating expenses were 32.3 million renminbi ($4.5-million (U.S.)), representing an increase of 89.2 per cent from 17.1 million renminbi, in line with the company's revenue growth and store network expansion. Other operating expenses as a percentage of revenues from company-owned-and-operated stores decreased by 1.5 percentage points from 10.4 per cent in the second quarter of 2022 to 8.9 per cent in the same quarter of 2023, due to the company's continuous efforts to optimize its cost structure and drive operating leverage through revenue growth and store network expansion.
• Store depreciation and amortization were 34.5 million renminbi ($4.8-million (U.S.)), representing an increase of 27.4 per cent from 28.6 million renminbi, driven by an increase in the number of company-owned-and-operated stores from 419 as of June 30, 2022, to 571 as of June 30, 2023. Store depreciation and amortization as a percentage of revenues from company-owned-and-operated stores decreased by 7.9 percentage points from 17.4 per cent in the second quarter of 2022 to 9.5 per cent in the second quarter of 2023.

Cost of other revenues was 37.8 million renminbi ($5.2-million (U.S.)) for the three months ended June 30, 2023, representing an increase of 360.6 per cent from 8.2 million renminbi in the same quarter of 2022, which was primarily driven by an increase in the number of franchised stores from 21 as of June 30, 2022, to 129 as of June 30, 2023, and the incurrence of higher cost of product sales related to the company's e-commerce business during the second quarter of 2023. Cost of other revenues as a percentage of other revenues increased by 21.1 percentage points from 56.0 per cent in the second quarter of 2022 to 77.1 per cent in the same quarter of 2023.

Marketing expenses were 26 million renminbi ($3.6-million (U.S.)) for the three months ended June 30, 2023, representing an increase of 35.4 per cent from 19.2 million renminbi in the same quarter of 2022, which was primarily attributable to the increase in the number of the company's systemwide stores from 440 as of June 30, 2022, to 700 as of June 30, 2023. Marketing expenses as a percentage of total revenues decreased by 4.4 percentage points from 10.7 per cent in the second quarter of 2022 to 6.3 per cent in the same quarter of 2023.

General and administrative expenses were 133.4 million renminbi ($18.4-million (U.S.)) for the three months ended June 30, 2023, representing an increase of 111.8 per cent from 63 million renminbi in the same quarter of 2022, which was primarily due to: (i) increased payroll and employee benefits as a result of growing head count; (ii) increased share-based compensation expenses recognized; and (iii) incurrence of fees related to warrant exchange and other financing programs. Adjusted general and administrative expenses, which excludes share-based compensation expenses of 55.6 million renminbi ($7.7-million (U.S.)) and fees related to warrant exchange and other financing programs of 23.2 million renminbi ($3.2-million (U.S.)), were 54.7 million renminbi ($7.5-million (U.S.)). Adjusted general and administrative expenses as a percentage of total revenues decreased by 21.9 percentage points from 35.2 per cent in the second quarter of 2022 to 13.3 per cent in the same quarter of 2023.

Franchise and royalty expenses were 15.4 million renminbi ($2.1-million (U.S.)) for the three months ended June 30, 2023, representing an increase of 138.6 per cent from 6.5 million renminbi in the same quarter of 2022, which was in line with the company's top-line growth and was primarily driven by the increase in the number of the company's systemwide stores from 440 as of June 30, 2022, to 700 as of June 30, 2023. Franchise and royalty expenses as a percentage of total revenues remained flat at 3.6 per cent in the second quarters of 2022 and 2023.

As a result of the foregoing, operating loss was 178.9 million renminbi ($24.7-million (U.S.)) for the three months ended June 30, 2023, compared with 164.4 million renminbi in the same quarter of 2022.

Adjusted corporate EBITDA was a loss of 47.8 million renminbi ($6.6-million (U.S.)) for the three months ended June 30, 2023, compared with a loss of 121.4 million renminbi in the same quarter of 2022. Adjusted corporate EBITDA margin was negative 11.6 per cent in the second quarter of 2023, representing an improvement of 56.1 percentage points from negative 67.7 per cent in the second quarter of 2022.

Net loss was 227.7 million renminbi ($31.4-million (U.S.)) for the three months ended June 30, 2023, compared with 175.6 million renminbi for the same quarter of 2022. Adjusted net loss was 91.2 million renminbi ($12.6-million (U.S.)) for the three months ended June 30, 2023, compared with 153.9 million renminbi for the same quarter of 2022. Adjusted net loss margin was negative 22.2 per cent in the second quarter of 2023, representing an improvement of 63.7 percentage points from negative 85.9 per cent in the same quarter of 2022.

Basic and diluted net loss per ordinary share was 1.50 renminbi (21 U.S. cents) in the second quarter of 2023, compared with 1.40 renminbi in the same quarter of 2022. Adjusted basic and diluted net loss per ordinary share was 0.61 renminbi (eight U.S. cents) in the second quarter of 2023, compared with 1.22 renminbi in the same quarter of 2022.

Liquidity

As of June 30, 2023, the company's total cash and cash equivalents and short-term investments were 392 million renminbi ($54.1-million (U.S.)), compared with 611.5 million renminbi as of Dec. 31, 2022. The change was primarily attributable to the settlements with investors who entered into an equity support agreement dated March 8, 2022, as amended, with the company and cash disbursements as a result of the rapid expansion of the company's business and store network nationwide.

Recent business developments

On June 20, 2023, Tims China announced a partnership with Oatly Group AB, the world's original and largest oat drink company. The partners have launched a new dairy-free ready-to-drink (RTD) oat milk latte product line, the latest addition to Tims China's growing portfolio of convenient and tasty RTD beverages. The co-branded RTD products strengthen Tims China's out-of-store product portfolio.

On June 27, 2023, Tims China successfully completed its previously announced warrant exchange offer and postoffer exchange relating to its outstanding warrants. Pursuant to the warrant exchange offer and the postoffer exchange, the company issued 5,419,770 ordinary shares in exchange for all of its outstanding warrants, increasing the ordinary shares outstanding from 160,348,112 to 165,767,882. As a result of the completion of the warrant exchange offer and the postoffer exchange, no warrants remain outstanding. Accordingly, the public warrants were suspended from trading on the Nasdaq Stock Market and were delisted. The ordinary shares will continue to be listed and trade on Nasdaq under the symbol THCH. The purpose of the warrant exchange offer and postoffer exchange is to simplify the company's capital structure and reduce the potential dilutive impact of the warrants.

On July 6, 2023, Tims China announced that it opened its 700th coffee shop in Yinchuan and expanded into China's Northwest as part of its broader growth plans.

On Aug. 19, 2023, Tims China opened its first Popeyes flagship restaurant in the heart of Shanghai's Huaihai commercial district. The grand opening set a new global Popeyes record for most guest orders on an opening day, with 1,761 orders. Tims China is committed to building Popeyes into a leading fried chicken brand in China, with plans to open at least 10 Popeyes restaurants in Shanghai this year and 1,700 across China over the next 10 years.

Prerecorded presentation

The company will host a prerecorded presentation that will be available beginning at Tuesday, Aug. 29, 2023, at 8 a.m. Eastern Time (or Tuesday, Aug. 29, 2023, at 8 p.m. Beijing Time) from the investor relations website under events and presentations.

About TH International Ltd.

TH International (Tims China) is the parent company of the exclusive master franchisees of Tim Hortons coffee shops in China, Hong Kong and Macau and Popeyes restaurants in China and Macau. Tims China was founded by Cartesian Capital Group and Tim Hortons Restaurants International, a subsidiary of Restaurant Brands International.

The company's philosophy is rooted in world-class execution and data-driven decision making and centred on true local relevance, continuous innovation, genuine community and absolute convenience.

We seek Safe Harbor.