TH International Limited (THCH) — FY2023 Form 20-F
Reporting period: Fiscal year ended December 31, 2023. This is an annual report, not a standalone fourth-quarter filing; the supplied filing does not provide a clear standalone Q4 income statement. Financial statements are prepared under U.S. GAAP and audited by KPMG Huazhen LLP.
Business context
THIL is a Cayman Islands holding company operating principally in mainland China through subsidiaries. It operates Tim Hortons stores and, following its March 2023 acquisition of the Popeyes China business, develops and operates Popeyes there. At year-end, the filing reports 912 system-wide stores across 68 cities, with 629 company-operated stores. Store-count disclosures elsewhere in the filing differ; see investor verification items below.
Financial performance and liquidity
| Metric | FY2023 | FY2022 |
|---|---|---|
| Revenue | RMB1,575.8 million (US$221.9 million) | RMB1,011.1 million |
| Operating loss | RMB701.2 million | RMB581.2 million |
| Net loss | RMB872.9 million (US$122.9 million) | RMB744.7 million |
| Net cash used in operating activities | RMB196.1 million (US$27.6 million) | RMB286.9 million |
| Cash and cash equivalents at year-end | RMB203.6 million | RMB239.1 million |
- Revenue rose 55.9%. Company-operated store sales increased to RMB1,405.4 million; other revenue more than doubled to RMB170.4 million, reflecting franchise expansion and e-commerce/wholesale growth. Company-operated same-store sales grew 7.6%.
- Operating loss widened, although operating loss as a share of revenue improved to 44.5% from 57.5%. Management-reported adjusted store EBITDA turned positive at RMB69.4 million (4.9% margin), versus a RMB40.7 million loss (negative 4.3% margin) in 2022. This non-GAAP measure excludes specified costs; fully burdened company-store gross loss remained RMB117.5 million.
- Adjusted corporate EBITDA remained negative at RMB245.1 million, improving from RMB307.1 million negative in 2022. Adjusted net loss was RMB434.0 million versus RMB458.9 million; both are non-GAAP measures.
- Cash used in operations improved year over year but remained negative. Investing activities provided RMB60.0 million, largely reflecting release of ESA-related investments; financing activities provided RMB80.8 million.
- At year-end, current assets were RMB458.6 million against current liabilities of RMB1,395.8 million, producing net current liabilities of approximately RMB937 million. Total liabilities were RMB2,637.9 million and shareholders’ equity was negative RMB422.4 million.
- Bank borrowings totaled RMB543.5 million, mostly current. Convertible notes had a year-end fair value of RMB420.7 million and unpaid principal of US$50 million, maturing December 2026. Operating lease liabilities were RMB908.6 million.
Material changes and unusual items
- Store network expanded from 617 system-wide stores at year-end 2022 to a reported 912 at year-end 2023; franchised stores increased from 70 to 283 under one disclosed count.
- RMB111.4 million of long-lived asset impairment was recorded, primarily associated with underperforming or planned store closures. The company also incurred RMB16.4 million in property and equipment disposal losses and RMB28.9 million in other operating costs, including store closure costs.
- Non-operating results included fair-value losses on convertible notes (RMB58.3 million), warrant liabilities (RMB84.0 million) and Popeyes deferred contingent consideration (RMB26.1 million), partly offset by a RMB19.7 million gain on ESA derivative liabilities. The ESA collateral arrangement was settled during 2023, and all warrants were exchanged for shares, leaving none outstanding.
- The Popeyes acquisition was accounted for as an asset acquisition. Consideration included issued shares and a deferred contingent payment tied to 3% of future Popeyes revenue, with a stated $35 million share-settled buyout option.
Outlook, risks and contingencies
- Management provided no specific FY2024 revenue or earnings guidance. It said previously published long-term projections are outdated and investors should not rely on them. Management is considering slower store expansion, cost reductions, renewed or additional bank facilities, related-party support and further equity or equity-linked financing.
- The auditor’s report and management disclosures state that substantial doubt about the company’s ability to continue as a going concern remains unalleviated. The company says it needs additional liquidity for the next 12 months; its plans depend partly on factors outside its control.
- After year-end, the company borrowed $20 million in two related-party junior promissory notes at one-month SOFR plus 8%. The notes were subsequently extended to August 31, 2024.
- Two material weaknesses in internal control over financial reporting were identified: insufficient qualified U.S. GAAP/SEC reporting personnel and inadequate period-end closing controls. Disclosure controls were deemed ineffective; the weaknesses had not been remediated as of the report date. The auditor did not attest to internal-control effectiveness.
- Key risks include intense competition and pricing pressure, rising coffee and other input costs, store-level profitability and closures, franchise execution, and dependence on third-party suppliers and delivery platforms. The company also highlights PRC regulatory, cybersecurity, data, foreign-exchange and cash-transfer risks associated with its China-based operations and offshore holding-company structure.
- PRC subsidiaries cannot freely transfer all funds offshore; dividends are constrained by accumulated profits, reserve requirements and foreign-exchange procedures. No dividends or distributions had been made to the parent or U.S. investors.
- Eight company-operated stores lacked required business or food-operation licenses, and six lacked fire-safety permits that the company believes are required. Applications were in process. The filing reports no material legal proceedings.
Most important facts for investors to verify
- Reconcile reported store totals: the filing describes 912 system-wide stores including 629 company-operated and 283 franchised, but elsewhere reports 912 Tim Hortons stores plus 10 Popeyes and 291 franchised stores.
- Reconcile year-end share counts: the cover page reports 165,917,880 shares outstanding, while the balance sheet reports 166,217,880 issued and 158,248,149 outstanding.
- Assess near-term liquidity, covenant headroom and refinancing needs, including the post-year-end related-party loans, current bank debt and 2025 noteholder repurchase rights.
- Track whether management secures funding and remediates the disclosed control weaknesses, and whether impairment, closure and store-level economics improve.
- Review the assumptions and potential dilution associated with the Popeyes deferred consideration and any future equity financing.