Business context and reporting period
TH International Limited (THIL), a Cayman Islands holding company operating Tim Hortons stores in mainland China through subsidiaries, filed this annual report for the fiscal year ended December 31, 2022. The filing is a 20-F, not a standalone fourth-quarter earnings report; it does not provide a clear, complete set of Q4-only financial results.
At year-end, THIL had 617 Tim Hortons stores in 39 mainland China cities: 547 company-operated and 70 franchised. It completed its business combination and began trading on Nasdaq in September 2022.
Financial and operating results
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | RMB1,011.1 million (US$146.6 million) | RMB643.4 million |
| Operating loss | RMB581.2 million | RMB374.5 million |
| Net loss | RMB744.7 million (US$108.0 million) | RMB382.9 million |
| Net cash used in operating activities | RMB286.9 million | RMB245.0 million |
| Net cash used in investing activities | RMB705.2 million | RMB335.3 million |
| Net cash provided by financing activities | RMB827.2 million | RMB798.0 million |
| Cash at year-end | RMB239.1 million (US$34.7 million) | RMB390.8 million |
- Revenue rose 57.2%, mainly as the company-operated store count grew from 373 to 547. Other revenue increased 179.1%, including e-commerce, wholesale and franchise-related revenue.
- Costs and expenses, net, increased to RMB1,592.2 million from RMB1,017.8 million. Company-operated store costs were 110.8% of those stores’ revenue, improving from 117.5% but remaining above revenue.
- Same-store sales growth was negative 0.1% for 2022, versus 15.7% in 2021. Digital orders represented 80.1% of company-operated-store revenue, up from 73.0%.
- Adjusted store EBITDA, a non-GAAP measure, was a loss of RMB40.7 million, compared with positive RMB19.8 million in 2021. The filing reports positive adjusted store EBITDA for Q4 2022 but does not give a clear quarter-specific amount. Fully burdened company-store gross loss was RMB211.6 million.
- Year-end current assets were RMB796.8 million and current liabilities RMB1,318.3 million. These include a restricted short-term investment of RMB372.4 million associated with the equity support agreement. Total liabilities were RMB2,531.7 million and shareholders’ equity RMB110.3 million.
- Bank borrowings totaled RMB416.6 million, including RMB407.8 million current. Convertible notes had a US$50 million unpaid principal balance and a reported fair value of RMB354.1 million. Operating lease liabilities were RMB1,000.7 million.
- Investing cash outflow included purchases of equipment and other assets and investment of funds held in the equity support agreement collateral account. Financing inflows included bank borrowings and equity proceeds.
Material changes and unusual items
- Net loss nearly doubled year over year. The 2022 result included a RMB186.6 million expense from changes in the fair value of ESA derivative liabilities and a RMB45.9 million gain from changes in warrant liabilities; these are fair-value items, not equivalent to operating cash flows.
- General and administrative expense rose to RMB289.5 million, including share-based compensation, Cantor commitment-share costs and ESA offering costs. Share-based compensation expense was RMB74.7 million in the cash-flow reconciliation.
- THIL adopted lease accounting standard ASC 842 in 2022, recognizing lease right-of-use assets and liabilities; comparative periods were not recast.
- In March 2023, after year-end, THIL acquired the exclusive Popeyes China operating and development rights by issuing shares. The transaction included US$30 million of cash in the acquired entity; additional consideration may include shares equal to 3% of future Popeyes revenue, or a share-settled US$35 million buyout.
Outlook, liquidity and principal risks
- THIL provided no formal numerical revenue or earnings guidance. Management described plans to expand stores, localize and innovate products, grow digital ordering and improve operating efficiency. It also said it had evaluated slowing store expansion and reducing discretionary spending to support liquidity.
- The audited statements report recurring losses, RMB1,380.2 million of accumulated losses and 2022 operating cash outflow of RMB286.9 million. Management said external financing and operating measures support its conclusion that substantial doubt about going concern was alleviated as of the financial-statement approval date; it also said additional liquidity is required and cited bank facilities, renewals and financing arrangements.
- Cash declined during 2022. A significant portion of the equity-support collateral was restricted, and future ESA settlement amounts depend on THIL’s share price. The company reported that initial ESA reference-period payments and releases occurred in 2023.
- THIL depends on China operations and faces risks from regulatory discretion, foreign-exchange and cash-transfer restrictions, evolving data and cybersecurity rules, and potential CSRC filing requirements for future offshore offerings. The PCAOB removed mainland China and Hong Kong from its non-inspection list in December 2022, but future access remains subject to reassessment.
- Business risks include COVID-related store disruptions, intense competition, inflation and coffee-bean costs (the reported unit price was 56.4% higher in December 2022 than a year earlier), supply-chain reliance, and Tim Hortons franchise agreement requirements. Seven company stores lacked required business or food-operation licenses, and four lacked fire-safety permits THIL believed were required; applications were pending.
- Disclosure controls were ineffective at year-end. Management and the auditor identified two material weaknesses: insufficient qualified financial-reporting personnel and inadequate period-end closing controls. The company said remediation was underway but the weaknesses had not been remediated. The auditor issued an unqualified opinion on the financial statements.
Important facts for investors to verify
- Whether cash generation and store-level economics improve, particularly given negative 2022 adjusted store EBITDA and negative same-store sales growth.
- How much reported cash and collateral investment is available for operations, and the timing and funding of remaining ESA settlements and note obligations.
- Current bank-facility availability, renewals, maturities and covenants, alongside any further equity issuance or dilution under financing arrangements.
- Progress in remediating financial-reporting weaknesses and whether disclosure controls become effective.
- Status of outstanding store licenses, PRC regulatory filings and cross-border cash-transfer requirements.
- Execution, share dilution and eventual store economics of the Popeyes China expansion and its contingent consideration.