Mr. Yongchen Lu of TH International reports

TIMS CHINA ANNOUNCES FOURTH QUARTER AND FULL YEAR 2023 FINANCIAL RESULTS

TH International Ltd., the exclusive operator of Tim Hortons coffee shops and Popeyes restaurants in China, a subsidiary of Restaurant Brands International Inc., has released its unaudited financial results for the fourth quarter and full year ended Dec. 31, 2023.

Fourth quarter 2023 highlights:

• Total revenues reached 391.2 million renminbi ($55.1-million (U.S.)), representing a 29.8-per-cent increase from the same quarter of 2022.
• Net new store openings totalled 149 (34 company-owned-and-operated stores, and 109 franchised stores for Tims, and six company-owned-and-operated stores for Popeyes).
• Adjusted store EBITDA (earnings before interest, taxes, depreciation and amortization) was 15.9 million renminbi ($2.2-million (U.S.)), representing a 23.9-per-cent year-over-year growth.
• Adjusted store EBITDA margin was 4.6 per cent, approximately unchanged from the same quarter in 2022.

Full year 2023 highlights:

• Total revenues reached 1,575.8 million renminbi ($221.9-million (U.S.)), representing a 55.9-per-cent increase from 2022.
• Net new store openings totalled 295 (72 company-owned-and-operated stores, and 213 franchised stores for Tims, and 10 company-owned-and-operated stores for Popeyes), resulting in 912 system-wide stores at year-end.
• Registered loyalty club members totalled 18.7 million members as of Dec. 31, 2023, representing a 66.3-per-cent increase from 2022.

Company management statement

Yongchen Lu, chief executive officer and director of Tims China, commented: "In 2023, we made progress in a number of the core elements of our strategy. We delivered greater convenience to our guests by building density in existing cities and entering new cities. We expanded our community and our partnerships, growing our strategic franchising relationships with blue-chip partners like Sinopec's Easy Joy. We continued to drive locally relevant innovation, which has always been a strategic focus for us. And we delivered growth in a capital-efficient manner, rolling out stores with more rapid payback periods and accelerating our franchising activities.

"With our systems and infrastructure solidly in place, our focus is now squarely on driving profitability, with a view to achieving corporate EBITDA break-even later this year. We just celebrated the significant milestones of our fifth anniversary in China and the 60th anniversary of the Tim Hortons brand. With those celebrations behind us, we redouble our focus on the future, and, in particular, driving rapid, profitable and capital-efficient growth."

Mr. Lu added: "Our Popeyes business has been demonstrating strong momentum since our record-breaking grand opening of the first flagship store on Aug. 19, 2023. Within 135 days, we successfully launched 10 Popeyes stores, achieving an average pace of one new store every 14 days -- a true testament to the value of the infrastructure we built in Tims -- as well as a positive adjusted store EBITDA in 2023, something our team is excited about and proud of."

Dong (Albert) Li, chief financial officer of Tims China, commented: "During the fourth quarter of 2023, we enhanced our operational efficiency across a number of dimensions. We pared back costs that proved to be redundant at the headquarter level, and we pruned our underperforming stores. These actions allowed us to deliver year-over-year reductions in rental and labour costs (as a percentage of revenues from company-owned-and-operated stores) by 6.9 percentage points and 1.3 percentage points, respectively. Our marketing expenses, and adjusted general and administrative expenses (as a percentage of total revenues) decreased by 2.1 percentage points and 5.8 percentage points year-over-year, respectively."

Mr. Li continued, "Going forward, and with profitability being front and centre of everything we do, we will continue to enhance our supply chain capabilities and efficiencies, roll out our differentiating made-to-order fresh food preparation model to drive traffic, and accelerate the expansion of our successful subfranchising."

Fourth quarter 2023 financial results

Total revenues reached 391.2 million renminbi ($55.1-million (U.S.)) for the three months ended Dec. 31, 2023, representing an increase of 29.8 per cent from 301.5 million renminbi in the same quarter of 2022. Total revenues comprise:

• Revenues from company-owned-and-operated store sales were 341.5 million renminbi ($48.1-million (U.S.)) for the three months ended Dec. 31, 2023, representing an increase of 25.3 per cent from 272.5 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 547 as of Dec. 31, 2022, to 629 as of Dec. 31, 2023, and same-store sales growth for company-owned-and-operated stores of 2.5 per cent in the fourth quarter of 2023.
• Other revenues were 49.7 million renminbi ($7-million (U.S.)) for the three months ended Dec. 31, 2023, representing an increase of 71.4 per cent from 29 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 70 as of Dec. 31, 2022, to 283 as of Dec. 31, 2023.

Company-owned-and-operated store costs and expenses were 366.5 million renminbi ($51.6-million (U.S.)) for the three months ended Dec. 31, 2023, representing an increase of 18 per cent from 310.7 million renminbi in the same quarter of 2022. Company-owned-and-operated store costs and expenses comprise:

• Food and packaging costs were 120.9 million renminbi ($17-million (U.S.)), representing an increase of 35.2 per cent from 89.5 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 increased by 2.6 percentage points from 32.8 per cent in the fourth quarter of 2022 to 35.4 per cent in the same quarter of 2023, driven by offering additional discounts and more promotional activities to attract more customers.
• Rental and property management fee was 71.7 million renminbi ($10.1-million (U.S.)), representing a decrease of 5.6 per cent from 75.9 million renminbi, mainly due to the closure of certain underperforming stores during the fourth quarter 2023. As a result, rental and property management fee as a percentage of revenues from company-owned-and-operated stores decreased by 6.9 percentage points from 27.9 per cent in the fourth quarter of 2022 to 21 per cent in the same quarter of 2023.
• Payroll and employee benefits expenses were 79.1 million renminbi ($11.1-million (U.S.)), representing an increase of 18.6 per cent from 66.7 million renminbi. Payroll and employee benefits as a percentage of revenues from company-owned-and-operated stores decreased by 1.3 percentage points from 24.5 per cent in the fourth quarter of 2022, to 23.2 per cent in the same quarter of 2023, primarily due to the continuous refinement of staffing arrangement and optimization of store managerial efficiencies.
• Delivery costs were 30.8 million renminbi ($4.3-million (U.S.)), representing an increase of 40.5 per cent from 21.9 million renminbi, due to an increased proportion of home-delivery orders. Delivery costs as a percentage of revenues from company-owned-and-operated stores increased by 1 percentage points to 9 per cent in the fourth quarter of 2023, compared with 8 per cent of the same quarter in 2022.
• Other operating expenses were 28.3 million renminbi ($4-million (U.S.)), representing an increase of 22.4 per cent from 23.1 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 0.2 percentage points from 8.5 per cent in the fourth quarter of 2022 to 8.3 per cent in the same quarter of 2023.
• Store depreciation and amortization expenses were 35.7 million renminbi ($5-million (U.S.)), representing an increase of 6.5 per cent from 33.5 million renminbi, driven by an increase in the number of company-owned-and-operated stores from 547 as of Dec. 31, 2022, to 629 as of Dec. 31, 2023. Store depreciation and amortization as a percentage of revenues from company-owned-and-operated stores decreased by 1.8 percentage points from 12.3 per cent in the fourth quarter of 2022 to 10.5 per cent in the same quarter of 2023.

Costs for other revenues were 50.9 million renminbi ($7.2-million (U.S.)) for the three months ended Dec. 31, 2023, representing an increase of 130.2 per cent from 22.1 million renminbi in the same quarter of 2022, which was primarily driven by an increase in the number of franchised stores from 70 as of Dec. 31, 2022, to 283 as of Dec. 31, 2023, and the incurrence of higher cost of product sales related to the company's e-commerce business during the fourth quarter of 2023. Costs for other revenues as a percentage of other revenues increased by 26.2 percentage points from 76.3 per cent in the fourth quarter of 2022 to 102.5 per cent in the same quarter of 2023 due to higher discounts and more promotional activities offered to consumers of TH International's e-commerce business.

Marketing expenses were 23.5 million renminbi ($3.3-million (U.S.)) for the three months ended Dec. 31, 2023, representing a decrease of 3.2 per cent from 24.3 million renminbi in the same quarter of 2022, driven by cost-optimization measures and higher brand influence. Accordingly, marketing expenses as a percentage of total revenues decreased by 2.1 percentage points from 8.1 per cent in the fourth quarter of 2022 to 6 per cent in the same quarter of 2023.

General and administrative expenses were 68.5 million renminbi ($9.6-million (U.S.)) for the three months ended Dec. 31, 2023, representing an increase of 3 per cent from 66.5 million renminbi in the same quarter of 2022, which was primarily due to the impairment losses of rental deposits. Adjusted general and administrative expenses, which excludes share-based compensation expenses of 6.4 million renminbi ($900,000 (U.S.)), professional fees related to warrant exchange and other financing programs of 700,000 renminbi ($100,000 (U.S.)), and impairment losses of rental deposits of 12.5 million renminbi ($1.8-million (U.S.)), were 49 million renminbi ($6.9-million (U.S.)). Adjusted general and administrative expenses as a percentage of total revenues decreased by 5.8 percentage points from 18.3 per cent in the fourth quarter of 2022 to 12.5 per cent in the same quarter of 2023.

Franchise and royalty expenses were 16.1 million renminbi ($2.3-million (U.S.)) for the three months ended Dec. 31, 2023, representing an increase of 56.8 per cent from 10.3 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 its system-wide stores from 617 as of Dec. 31, 2022, to 912 as of Dec. 31, 2023. Franchise and royalty expenses as a percentage of total revenues increased by 0.7 percentage point, from 3.4 per cent in the fourth quarter of 2022 to 4.1 per cent in the same quarter of 2023.

Impairment losses of long-lived assets were 89.6 million renminbi ($12.6-million (U.S.)) for the three months ended Dec. 31, 2023, compared with 1.8 million renminbi in the same quarter of 2022, which was primarily because the company closed and planned to close more underperforming company-owned-and-operated stores during the fourth quarter of 2023.

As a result of the foregoing, operating loss was 232.2 million renminbi ($32.7-million (U.S.)) for the three months ended Dec. 31, 2023, compared with 131.4 million renminbi in the same quarter of 2022.

Adjusted corporate EBITDA was a loss of 52.5 million renminbi ($7.4-million (U.S.)) for the three months ended Dec. 31, 2023, compared with a loss of 54.7 million renminbi in the same quarter of 2022. Adjusted corporate EBITDA margin was negative 13.4 per cent in the fourth quarter of 2023, representing an improvement of 4.7 percentage points from negative 18.1 per cent in the same quarter of 2022.

Net loss was 311.2 million renminbi ($43.8-million (U.S.)) for the three months ended Dec. 31, 2023, compared with 222.9 million renminbi for the same quarter of 2022. Adjusted net loss was 117.8 million renminbi ($16.6-million (U.S.)) for the three months ended Dec. 31, 2023, compared with 100.8 million renminbi for the same quarter of 2022. Adjusted net loss margin was negative 30.1 per cent in the fourth quarter of 2023, representing an improvement of 3.3 percentage points from negative 33.4 per cent in the same quarter of 2022.

Basic and diluted net loss per ordinary share was 1.94 renminbi (27 U.S. cents) in the fourth quarter of 2023, compared with 1.61 renminbi in the same quarter of 2022. Adjusted basic and diluted net loss per ordinary share was 0.74 renminbi (10 U.S. cents) in the fourth quarter of 2023, compared with 0.73 renminbi in the same quarter of 2022.

Liquidity

As of Dec. 31, 2023, the company's total cash and cash equivalents, time deposit, and short-term investments were 220.8 million renminbi ($31.1-million (U.S.)), compared with 611.5 million renminbi as of Dec. 31, 2022. The change was primarily attributable to the settlements with investors that entered into an equity support agreement (ESA) dated March 8, 2022, as amended with the company, and cash disbursements as a result of the rapid expansion of TH International's business and store network nationwide, offset by an increase in bank borrowings.

Recent business developments

On March 31, 2024, Tims China's registered loyalty club membership exceeded 20 million, serving both as a pivotal catalyst for growth and a testament to the customers' support and embrace of Tims China's program.

On March 7, 2024, and March 20, 2024, Tims China executed junior promissory notes (as borrower) with Pangaea Three Acquisition Holdings IV Ltd., a Cayman Islands limited liability company and the company's existing shareholder (as lender), with principal of $5-million (U.S.) and $15-million (U.S.), respectively. The junior promissory notes bear an interest rate equal to the latest one-month-term secured overnight financing rate (SOFR) reference rate, as published by the CME Group Benchmark Administration, plus 8 per cent.

On Feb. 26, 2024, Tims China celebrated the significant milestones of its fifth anniversary in China and the 60th anniversary of the Tim Hortons brand. To commemorate both remarkable milestones and double celebrations, Tims China launched its limited-edition double anniversary latte series, including double pistachio latte, double hazelnut latte, double matcha latte and double latte. Also making a comeback are three classic doughnut varieties.

On Jan. 16, 2024, Tims China announced the opening of the first seven Tims China stores in Shanghai Metro stations. The partnership is expected to expand into a network of Tims coffee shops along Line 14 stations. The Tims coffee shops are thoughtfully positioned within the metro stations, offering commuters a convenient way to grab a coffee on the go. As Shanghai has one of the world's largest metro systems, transporting approximately 13 million passengers across the city every day, the company anticipates that this partnership will provide great visibility to the Tims China brand and connect it with a larger, diverse customer base.

On Jan. 9, 2024, Tims China announced the grand opening of its 10th Popeyes restaurant in Shanghai, making another milestone. Looking toward the future, Popeyes is poised for extensive growth across China, as the company embarks on an expansion plan to open 500 more stores in the next five years and 1,700 stores over the next decade.

On Dec. 21, 2023, Tims China announced a partnership with DiDi Chuxing, one of China's largest ride-hailing platforms. This new partnership focuses on cross-brand and cross-channel marketing, leveraging DiDi's large customer base to bolster awareness of the Tims China brand. Following a campaign between Nov. 27 and Dec. 10, 2023, Tims China acquired around 20,000 new loyalty club members, generated approximately 1.7 million renminbi in incremental sales and garnered over 11 million views on Xiaohongshu. The partnership extends the customer base of both brands and furthers Tims China's strategic focus on the important market segment of commuting professionals.

Exchange rate information

This press release contains translations of certain renminbi amounts into United States dollars at specified rates, solely for the convenience of the reader. Unless otherwise stated, all translations from renminbi to U.S. dollars were made at the rate of 7.0999 renminbi to $1 (U.S.), the exchange rate in effect on Dec. 29, 2023, set forth in the H.10 statistical release of the Federal Reserve Board. The company makes no representation that the renminbi or U.S. dollar amounts referred could be converted into U.S. dollars or renminbi, as the case may be, at any particular rate or at all.

Conference call

The company will hold a conference call today, on Thursday, April 18, 2024, at 8 a.m. Eastern Time (on Thursday, April 18, 2024, at 8 p.m. Beijing time) to discuss the financial results.

Participants may receive the dial-in information and a unique PIN (personal identification number) or select call me to join the call by registering on-line.

Participants may also view the live webcast by registering on-line.

A live and archived webcast of the conference call will also be available at the company's investor relations website under events and presentations.

Statement regarding preliminary unaudited financial information

The unaudited financial information set out in this earnings release is preliminary and subject to potential adjustments. Adjustments to the consolidated financial statements may be identified when audit work has been performed for the company's year-end audit, which could result in significant differences from this preliminary unaudited financial information. Accordingly, you should not place undue reliance upon these preliminary estimates. The preliminary unaudited financial information included in this press release has been prepared by, and is the responsibility of, the company's management. The company's auditor has not audited, reviewed, compiled or applied agreed-upon procedures with respect to such preliminary financial data. Accordingly, the company's auditor does not express an opinion or any other form of assurance with respect thereto. Upon completion of the year-end audit, the company's audited financial results may differ materially from its preliminary estimates.

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 Inc.

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

We seek Safe Harbor.