Trip.Com Group Ltd annual report, Q4 FY2021

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Trip.com Group Limited — FY2021 Form 20-F

Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a standalone 2021 fourth-quarter filing; the supplied filing text does not provide a clear Q4-only financial breakdown. Financial statements are prepared under U.S. GAAP and reported in RMB.

Business context

Trip.com operates a global one-stop travel platform, with most revenue generated in Greater China. Its principal businesses are accommodation reservations, transportation ticketing, packaged tours, corporate travel and other services. The company operates partly through Chinese variable interest entities (VIEs) controlled by contractual arrangements, rather than direct equity ownership.

Financial results and liquidity

  • Net revenue: RMB20.0 billion, up 9% from RMB18.3 billion in 2020, but still well below RMB35.7 billion in 2019.
  • Revenue mix: Accommodation 41%; transportation ticketing 34%; packaged tours 6%; corporate travel 7%; other businesses 12%.
  • Gross profit and margin: RMB15.4 billion and approximately 77%, compared with RMB14.3 billion and 78% in 2020.
  • Operating result: Operating loss of RMB1.4 billion, broadly unchanged from 2020; operating margin was approximately negative 7%.
  • Net result: Net loss of RMB645 million, improved from RMB3.3 billion in 2020. Net loss attributable to Trip.com shareholders was RMB550 million; basic and diluted loss per share/ADS was RMB0.87.
  • Cash flow: Operating cash flow was positive RMB2.5 billion, versus an outflow of RMB3.8 billion in 2020. Investing activities used RMB4.1 billion and financing activities provided RMB3.9 billion.
  • Cash and investments: At year-end, cash and cash equivalents were RMB19.8 billion, restricted cash RMB1.4 billion, and short-term investments RMB29.6 billion. Current assets were RMB66.1 billion versus current liabilities of RMB66.2 billion, leaving net current liabilities of RMB110 million.
  • Debt: Balance-sheet short-term debt and current maturities were RMB39.9 billion; long-term debt was RMB11.1 billion. The company disclosed debt payments of RMB40.4 billion due within one year and RMB10.3 billion thereafter. It also reported US$2.5 billion outstanding under major loan facilities as of the filing date.
  • Other financial items: Long-term investments totaled RMB45.0 billion, including RMB3.4 billion of Level 3 investments requiring significant valuation estimates. Goodwill was RMB59.4 billion; no goodwill impairment was recorded in 2021.

Changes versus prior periods

  • Revenue rose 9% year over year as China’s domestic travel market recovered, but remained 44% below 2019.
  • Accommodation revenue increased 14%; corporate travel rose 54%; other revenue rose 31%. Transportation ticketing revenue fell 3% and packaged-tour revenue fell 11%.
  • Product development expense increased 17% to RMB9.0 billion, and sales and marketing expense increased 12% to RMB4.9 billion. General and administrative expense fell 20% to RMB2.9 billion, mainly reflecting lower credit-loss provisions.
  • Credit-loss provisions declined to RMB141 million from RMB700 million, while investment impairments declined to RMB96 million from RMB905 million in 2020.
  • Operating cash flow returned to positive territory. Cash and short-term investments increased year over year, while long-term debt declined. The company raised approximately HK$9.6 billion net through its 2021 Hong Kong listing and repurchased US$1.0 billion of Booking and Hillhouse convertible notes.

Outlook, commentary and risks

  • Management expected the economy and travel industry to resume growth in 2022 and beyond, but provided no quantified financial guidance. It said China travel recovered during 2021 while international travel recovered more slowly, and expected overseas business to remain adversely affected in 2022.
  • COVID-19 restrictions, cancellations and refunds continued to pressure demand, revenue and cash flow. Renewed outbreaks and restrictions in China in early 2022 created further uncertainty.
  • The company cited ongoing risks from competition, travel-supplier relationships, economic conditions, investment valuations, receivable collection and substantial debt. It believed existing liquidity and financing would meet anticipated needs for at least 12 months after filing, while noting that additional financing might not be available on acceptable terms.
  • Investors face structural and regulatory risks: the Cayman Islands parent does not own the VIEs’ equity, and the enforceability of the contractual arrangements depends on PRC law and regulatory interpretation. The filing also discusses evolving PRC oversight of data, cybersecurity, anti-monopoly matters and overseas listings.
  • The filing stated that the PCAOB could not inspect the company’s auditor and described potential U.S. trading restrictions under the HFCAA, then potentially in 2024 or 2023 if proposed changes took effect.
  • Unusual or judgment-sensitive items included fair-value changes in investments and exchangeable notes, government subsidies of RMB550 million, and the recovery of earnings and cash flow from pandemic-affected 2020 levels. The auditor identified Level 3 investment valuation as a critical audit matter.

Most important facts for investors to verify

  • Whether domestic and international travel demand continued to recover after year-end, and how subsequent restrictions affected bookings, cancellations and refunds.
  • The debt maturity schedule, refinancing capacity and cash available after accounting for restricted cash, obligations and limits on moving funds out of China.
  • The performance and valuation assumptions for Level 3 investments, equity-method holdings and goodwill.
  • Any changes to PRC rules affecting VIE arrangements, data and cybersecurity compliance, or overseas listings, and developments in PCAOB inspection access and HFCAA exposure.
  • Whether the improvement in operating cash flow and lower credit-loss provisions proved sustainable as travel volumes normalized.