8-K
0001673358false00016733582022-11-012022-11-010001673358dei:OtherAddressMember2022-11-012022-11-01

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): November 1, 2022

 

Yum China Holdings, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

 

001-37762

 

81-2421743

(State or other jurisdiction of

incorporation or organization)

 

(Commission

File Number)

 

(I.R.S. Employer

Identification No.)

 

7100 Corporate Drive

Plano, Texas 75024

United States of America

 

Yum China Building

20 Tian Yao Qiao Road

Shanghai 200030

People’s Republic of China

(Address, including zip code, of principal executive offices)

 

(469) 980-2898

(Registrant's telephone number, including area code)

Not Applicable

(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

YUMC

New York Stock Exchange

9987

 The Stock Exchange of Hong Kong Limited

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

 

 


 

Item 2.02.

Results of Operations and Financial Condition.

 

On November 1, 2022, Yum China Holdings, Inc. issued a press release announcing its unaudited results for the third quarter ended September 30, 2022. A copy of the press release is being furnished as Exhibit 99.1 to this Current Report on Form 8-K.

 

Item 9.01.

Financial Statements and Exhibits.

 

(d) Exhibits.

 

The following exhibits are furnished with this report:

 

Exhibit No.

 

Exhibit Description

99.1

 

Press Release of Yum China Holdings, Inc. issued November 1, 2022.

104

 

Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

 


 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

 

YUM CHINA HOLDINGS, INC.

 

 

 

 

 

By:

 

/s/ Joseph Chan

 

 

 

 

Name:

 

Joseph Chan

 

 

 

 

Title:

 

Chief Legal Officer

Date: November 1, 2022

 

 

 

 

 

 

 

 


EX-99.1

Exhibit 99.1

https://cdn.kscope.io/21ac26aa12400300a4c5dea57e8e56cc-img85703795_0.jpg 

Yum China Reports Third Quarter 2022 Results

Total Revenues grew 5%; System Sales grew 5% in constant currency, despite temporary closures

Delivered $316 million Operating Profit, representing 77% growth, through strong execution

Opened 621 net new stores year-to-date, on track to meet full-year net new store target of 1,000 to 1,200

 

Shanghai, China (November 1, 2022) – Yum China Holdings, Inc. (the "Company" or "Yum China") (NYSE: YUMC and HKEX: 9987) today reported unaudited results for the third quarter ended September 30, 2022.

 

Impact of COVID Outbreak and Mitigation Efforts

 

The COVID pandemic continued to impact the Company’s operations and results in the third quarter. COVID-related health measures remained in effect across China, impacting travel and social activities. Despite the volatile environment, the Company grew system sales in the quarter by 5% year over year and outpaced the 2% national restaurant industry average for the period.

 

We captured the growing demand for delivery and takeaway which offset the subdued dine-in volume. Same-store sales for the quarter recovered to the same level a year ago but remain below pre-COVID 2019 levels. From a timing perspective, same-store sales recovered sequentially in July and August, with August exceeding the prior year level. This is primarily due to lapping the Delta variant outbreak in the prior year period. However, same-store sales percentage declined year over year in September as preventive health measures were tightened. In September, on average, approximately 900 of our stores were temporarily closed or offered only takeaway and delivery services, compared to approximately 400 stores on average in July and August.

 

Entering the fourth quarter, new infections continued to increase in October with resurgent outbreaks across China. In October, approximately 1,400 of our stores were either temporarily closed or offered only takeaway and delivery services. Nationwide, consumers are traveling less and reducing expenditures. According to government statistics, for the seven-day National Day holiday starting October 1, the number of travelers and related travel spending was down 18% and 26%, respectively, compared to the same holiday period last year. The COVID situations remain uncertain with regional outbreaks continuing to impact our operations. Against this backdrop, we will stay nimble with our contingency planning, ready to pivot with changing market conditions.

 

Third Quarter Highlights

Total revenues increased 5% year over year to $2.68 billion from $2.55 billion (an 11% increase excluding foreign currency translation (“F/X”)).
Total system sales increased 5% year over year, with increases of 5% at KFC and 7% at Pizza Hut, excluding F/X.
Same-store sales were flat year over year, with flat growth at KFC and an increase of 2% at Pizza Hut, excluding F/X.
Opened 239 net new stores during the quarter; total store count reached 12,409 as of September 30, 2022.
Restaurant margin was 18.8%, compared with 12.2% in the prior year period.
Operating Profit increased 77% year over year to $316 million from $178 million (an 86% increase excluding F/X).
Adjusted Operating Profit increased 89% year over year to $318 million from $168 million (a 99% increase excluding F/X).
Effective tax rate was 29.9%.
Net Income increased 98% to $206 million from $104 million in the prior year period, primarily due to the increase in Operating Profit, partially offset by the net loss from our mark-to-market investment in Meituan Dianping.
Adjusted Net Income increased 117% to $208 million from $96 million in the prior year period (a 72% increase excluding the net losses of $12 million and $32 million in the third quarter of 2022 and 2021, respectively, from our mark-to-market equity investments; an 81% increase if further excluding F/X).
Diluted EPS increased 104% to $0.49 from $0.24 in the prior year period.

Yum China Holdings, Inc. • Shanghai, China • Website http://ir.yumchina.com

 


 

Adjusted Diluted EPS increased 123% to $0.49 from $0.22 in the prior year period (a 79% increase excluding the net losses from our mark-to-market equity investments in the third quarter of 2022 and 2021, respectively, a 90% increase if further excluding F/X).
Results for the current year period include the consolidation of Hangzhou KFC.

 

Key Financial Results

 

Third Quarter 2022

 

 

 

Year to Date Ended 9/30/2022

 

 

 

% Change

 

 

 

% Change

 

 

 

System Sales

 

 

Same-Store Sales

 

 

Net New Units

 

 

Operating Profit

 

 

 

System Sales

 

 

Same-Store Sales

 

 

Net New Units

 

 

Operating Profit

 

 

Yum China

 

+5

 

 

-

 

 

 

+9

 

 

 

+77

 

 

 

 

(5

)

 

 

(8

)

 

 

+9

 

 

 

(22

)

 

   KFC

 

+5

 

 

-

 

 

 

+10

 

 

 

+67

 

 

 

 

(5

)

 

 

(8

)

 

 

+10

 

 

 

(12

)

 

   Pizza Hut

 

+7

 

 

 

+2

 

 

 

+12

 

 

 

+159

 

 

 

 

(3

)

 

 

(6

)

 

 

+12

 

 

 

(23

)

 

 

 

 

Third Quarter

 

 

 

 

Year to Date Ended 9/30

 

(in US$ million, except

 

 

 

 

 

 

 

% Change

 

 

 

 

 

 

 

 

 

 

% Change

 

per share data and percentages)

 

2022

 

 

 

2021

 

Reported

 

 

Ex F/X

 

 

 

 

2022

 

 

 

2021

 

Reported

 

 

Ex F/X

 

Operating Profit

$

 

316

 

 

$

 

178

 

 

+77

 

 

 

+86

 

 

 

$

 

588

 

 

$

 

753

 

 

(22

)

 

 

(20

)

Adjusted Operating Profit(1)

$

 

318

 

 

$

 

168

 

 

+89

 

 

 

+99

 

 

 

$

 

593

 

 

$

 

750

 

 

(21

)

 

 

(19

)

Net Income

$

 

206

 

 

$

 

104

 

 

+98

 

 

 

+109

 

 

 

$

 

389

 

 

$

 

515

 

 

(25

)

 

 

(22

)

Adjusted Net Income(1)

$

 

208

 

 

$

 

96

 

 

+117

 

 

 

+128

 

 

 

$

 

394

 

 

$

 

514

 

 

(23

)

 

 

(21

)

Basic Earnings Per Common Share

$

 

0.49

 

 

$

 

0.25

 

 

+96

 

 

 

+108

 

 

 

$

 

0.92

 

 

$

 

1.23

 

 

(25

)

 

 

(23

)

Adjusted Basic Earnings
  Per Common Share
(1)

$

 

0.49

 

 

$

 

0.23

 

 

+113

 

 

 

+126

 

 

 

$

 

0.93

 

 

$

 

1.22

 

 

(24

)

 

 

(21

)

Diluted Earnings Per Common Share

$

 

0.49

 

 

$

 

0.24

 

 

+104

 

 

 

+113

 

 

 

$

 

0.92

 

 

$

 

1.19

 

 

(23

)

 

 

(21

)

Adjusted Diluted Earnings
  Per Common Share
(1)

$

 

0.49

 

 

$

 

0.22

 

 

+123

 

 

 

+136

 

 

 

$

 

0.93

 

 

$

 

1.18

 

 

(21

)

 

 

(19

)

1 See “Reconciliation of Reported GAAP Results to non-GAAP Adjusted Measures” included in the accompanying tables of this release for further details.

Note: All comparisons are versus the same period a year ago.

Percentages may not recompute due to rounding.

System sales and same-store sales percentages exclude the impact of F/X. Effective January 1, 2018, temporary store closures are normalized in the same-store sales calculation by excluding the period during which stores are temporarily closed.

 

CEO and CFO Comments

 

Joey Wat, CEO of Yum China, commented, “We achieved outstanding performance in the third quarter with fantastic growth, both top-line and bottom-line. In the past two years, we have learned to navigate through uncertainties and volatilities. During tougher times, our resilient business model and agility has helped us to effectively manage the negative impact of the pandemic. As the market situation became relatively calmer in July and August, we successfully captured the upsides and delivered strong results. By adapting and innovating, we have further strengthened our business fundamentals. Our efforts to improve our cost structure make us more nimble and efficient. This allows us to offer great value to customers without sacrificing profitability. Our in-house and tailor-made supply chain management system empowers us to innovate amazing new products and launch at scale with great speed. In just two years, we established expertise in beef burgers, capturing meaningful market share. Also, our digital capabilities continue to lead the industry. Our loyalty programs now have over 400 million members with great potential to be unleashed.”

 

Wat continued, “I am also excited about our recent Hong Kong primary listing conversion and inclusion in Southbound Stock Connect programs. We believe this new status will provide additional access to investors and broaden our shareholder base. Looking ahead, we are confident about unlocking the long-term opportunities in China. Our innovation in store formats has enabled us to further penetrate and continue to lower upfront investment. The strong performance of our new stores gives us confidence to open new and profitable stores at a robust pace. We will continue to execute our RGM (Resilience-Growth-Moat) strategic framework to capture growth opportunities and bolster our market-leading position amidst rapidly changing conditions.”

 

Andy Yeung, CFO of Yum China, stated, “We expanded restaurant margins and delivered meaningful growth in operating profit in the quarter. This was achieved by our continuous efforts in rebasing the cost structure, improving efficiencies and securing temporary reliefs. Compared to substantial sales deleveraging headwinds in past quarters, we benefited from favorable operating leverage in the third quarter with sequential improvement in sales. Looking into the fourth quarter, we expect the COVID situation to remain uncertain. Conditions in October continued to deteriorate from September. Intermittent outbreaks along with downward pressure on the economy and cautious consumer spending are likely to negatively impact sales momentum. At the same time, we continue to face cost pressures from the inflationary environment. Fourth quarter is seasonally a low quarter in terms of sales and profit, thus profitability could be

2


 

more susceptible to fluctuations in sales and operations. Despite the headwinds, we have strong capabilities to capture sales and proactively manage cost. We remain committed to growing our store portfolio and generating shareholder returns for the long term.”

 

Share Repurchases and Dividends

During the third quarter, we repurchased approximately 0.27 million shares of Yum China common stock for $13 million at an average price of $48.05 per share. As of September 30, 2022, approximately $1.2 billion remained available for future share repurchases under the current authorization.
The Board of Directors declared a cash dividend of $0.12 per share on Yum China’s common stock, payable on December 20, 2022 to shareholders of record as of the close of business on November 29, 2022.
Year to date ended September 30, 2022, the Company has returned approximately $565 million of capital to shareholders in the form of share repurchases and cash dividends. The Company remains committed to a disciplined capital allocation strategy that balances returning capital to the shareholders and investing in the business for continued growth.

 

Digital and Delivery

The KFC and Pizza Hut loyalty programs exceeded 400 million members combined, as of quarter-end. Member sales accounted for approximately 62% of system sales in the third quarter of 2022.
Delivery contributed approximately 38% of KFC and Pizza Hut’s Company sales in the third quarter of 2022, an increase of approximately four percentage points from the prior year period. With the volatile COVID situation, delivery continued to be a popular option while dine-in volumes remained subdued.
Digital orders, including delivery, mobile orders and kiosk orders, accounted for approximately 91% of KFC and Pizza Hut’s Company sales in the third quarter of 2022.

 

KFC and Pizza Hut Total

 

Third Quarter

 

 

Year to Date Ended 9/30

 

 

 

2022

 

2021

 

 

2022

 

2021

 

Member count (as of period-end)

 

400 million+

 

350 million+

 

 

400 million+

 

350 million+

 

Member sales as % of system sales

 

~62%

 

~63%

 

 

~62%

 

~64%

 

Delivery as % of Company sales

 

~38%

 

~34%

 

 

~37%

 

~32%

 

Digital orders as % of Company sales

 

~91%

 

~87%

 

 

~89%

 

~86%

 

 

New-Unit Development and Asset Upgrade

The Company opened 403 gross new stores, or 239 net new stores in the third quarter of 2022, mainly driven by development of the KFC and Pizza Hut brands.
The Company remodeled 99 stores in the third quarter of 2022.

 

 

Net New Units

 

 

 

Restaurant Count

 

 

 

 

Third Quarter

 

 

Year to Date

 

 

 

As of September 30

 

 

 

 

2022

 

 

Ended 9/30/2022

 

 

 

2022

 

 

2021

 

 

Yum China

 

239

 

 

621

 

 

 

 

12,409

 

 

 

11,415

 

 

   KFC

 

165

 

 

507

 

 

 

 

8,675

 

 

 

7,908

 

 

   Pizza Hut

 

95

 

 

216

 

 

 

 

2,806

 

 

 

2,503

 

 

   Others(2)

 

 

(21

)

 

 

(102

)

 

 

 

928

 

 

 

1,004

 

 

2 Others include Taco Bell, Little Sheep, Huang Ji Huang, East Dawning, COFFii & JOY and Lavazza.

 

Restaurant Margin

Restaurant margin was 18.8% in the third quarter of 2022, compared with 12.2% in the prior year period, primarily attributable to higher productivity, temporary relief and sales leveraging, partially offset by inflation in commodity, wage and utility costs, as well as increased rider cost associated with rising delivery volumes.

 

Third Quarter

 

 

 

Year to Date Ended 9/30

 

 

 

 

2022

 

 

2021

 

 

ppts change

 

 

 

2022

 

 

2021

 

 

ppts change

 

 

Yum China

 

 

18.8

%

 

 

12.2

%

 

 

+6.6

 

 

 

 

15.1

%

 

 

15.6

%

 

 

(0.5

)

 

   KFC

 

 

20.6

%

 

 

13.6

%

 

 

+7.0

 

 

 

 

16.6

%

 

 

16.8

%

 

 

(0.2

)

 

   Pizza Hut

 

 

13.4

%

 

 

8.2

%

 

 

+5.2

 

 

 

 

11.1

%

 

 

12.2

%

 

 

(1.1

)

 

 

 

2022 Outlook

3


 

 

Yum China remains focused on capturing long-term opportunities in China. The Company's fiscal year 2022 targets remain unchanged from those originally disclosed on February 8, 2022:

To open approximately 1,000 to 1,200 net new stores.
To make capital expenditures in the range of approximately $800 million to $1 billion.

 

Other Updates

On October 24, 2022, the Company’s voluntary conversion of its secondary listing status to a primary listing status on the Main Board of the Stock Exchange of Hong Kong Limited (“HKEX”) became effective. Yum China is now a dual primary listed company on the HKEX and New York Stock Exchange. The Company’s common stock listed on the two exchanges will continue to be fully fungible. On the same day, the Company’s shares of common stock traded on the HKEX were included in the Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect.

 

 

Note on Non-GAAP Adjusted Measures

Reported GAAP results include Special Items, which are excluded from non-GAAP adjusted measures. Special Items are not allocated to any segment and therefore only impact reported GAAP results of Yum China. See “Reconciliation of Reported GAAP Results to Non-GAAP Adjusted Measures” within this release.

 

Conference Call

Yum China’s management will hold an earnings conference call at 8:00 p.m. U.S. Eastern Time on Tuesday, November 1, 2022 (8:00 a.m. Beijing/Hong Kong Time on Wednesday, November 2, 2022).

 

A live webcast of the call may be accessed at https://edge.media-server.com/mmc/p/ny6cyocx.

 

To join by phone, please register in advance of the conference through the link provided below. Upon registering, you will be provided with participant dial-in numbers, a passcode and a unique access PIN.

 

Pre-registration Link: https://s1.c-conf.com/diamondpass/10025527-ei8ios.html

 

A replay of the conference call will be available one hour after the call ends until Wednesday, November 9, 2022 and may be accessed by phone at the following numbers:

 

U.S.: 1 855 883 1031

Mainland China: 400 1209 216

Hong Kong: 800 930 639

U.K.: 0800 031 4295

 

Replay PIN: 10025527

 

Additionally, this earnings release, the accompanying slides, a live webcast and an archived webcast of this conference call will be available at Yum China’s Investor Relations website at http://ir.yumchina.com.

 

For important news and information regarding Yum China, including our filings with the U.S. Securities and Exchange Commission and the Hong Kong Stock Exchange, visit Yum China's Investor Relations website at http://ir.yumchina.com. Yum China uses this website as a primary channel for disclosing key information to its investors, some of which may contain material and previously non-public information.

4


 

 

Forward-Looking Statements

This press release contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including under “2022 Outlook.” We intend all forward-looking statements to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally can be identified by the fact that they do not relate strictly to historical or current facts and by the use of forward-looking words such as “expect,” “expectation,” “believe,” “anticipate,” “may,” “could,” “intend,” “belief,” “plan,” “estimate,” “target,” “predict,” “project,” “likely,” “will,” “continue,” “should,” “forecast,” “outlook”, “commit” or similar terminology. These statements are based on current estimates and assumptions made by us in light of our experience and perception of historical trends, current conditions and expected future developments, as well as other factors that we believe are appropriate and reasonable under the circumstances, but there can be no assurance that such estimates and assumptions will prove to be correct. Forward-looking statements include, without limitation, statements regarding the future strategies, growth, business plans, investment, dividend and share repurchase plans, liquidity, earnings, performance and returns of Yum China, anticipated effects of population and macroeconomic trends, the expected impact of the COVID-19 pandemic, the anticipated effects of our innovation, digital and delivery capabilities and investments on growth and beliefs regarding the long-term drivers of Yum China’s business. Forward-looking statements are not guarantees of performance and are inherently subject to known and unknown risks and uncertainties that are difficult to predict and could cause our actual results or events to differ materially from those indicated by those statements. We cannot assure you that any of our expectations, estimates or assumptions will be achieved. The forward-looking statements included in this press release are only made as of the date of this press release, and we disclaim any obligation to publicly update any forward-looking statement to reflect subsequent events or circumstances, except as required by law. Numerous factors could cause our actual results or events to differ materially from those expressed or implied by forward-looking statements, including, without limitation: whether we are able to achieve development goals at the times and in the amounts currently anticipated, if at all, the success of our marketing campaigns and product innovation, our ability to maintain food safety and quality control systems, changes in public health conditions, including the COVID-19 pandemic and regional outbreaks caused by existing or new COVID-19 variants, our ability to control costs and expenses, including tax costs, as well as changes in political, economic and regulatory conditions in China. In addition, other risks and uncertainties not presently known to us or that we currently believe to be immaterial could affect the accuracy of any such forward-looking statements. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. You should consult our filings with the Securities and Exchange Commission (including the information set forth under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q) for additional detail about factors that could affect our financial and other results.

 

About Yum China Holdings, Inc.

 

Yum China Holdings, Inc. is a licensee of Yum! Brands in mainland China. It has exclusive rights in mainland China to KFC, China's leading quick-service restaurant brand, Pizza Hut, the leading casual dining restaurant brand in China, and Taco Bell, a California-based restaurant chain serving innovative Mexican-inspired food. Yum China also owns the Little Sheep, Huang Ji Huang and COFFii & JOY concepts outright. In addition, Yum China has partnered with Lavazza to explore and develop the Lavazza coffee shop concept in China. The Company had 12,409 restaurants in over 1,700 cities at the end of September 2022.

 

In 2021, Yum China was selected as a member of both Dow Jones Sustainability Indices (DJSI): World Index and Emerging Market Index. In 2022, Yum China ranked 359th on the Fortune 500 list. The Company was also named to the Bloomberg Gender-Equality Index and was certified as a Top Employer 2022 in China by the Top Employers Institute, both for the fourth consecutive year. For more information, please visit http://ir.yumchina.com.

 

Investor Relations Contact:

 

 

Tel: +86 21 2407 7556 / +852 2267 5801

IR@YumChina.com

 

 

 

 

Media Contact:

 

 

Tel: +86 21 2407 7510

Media@YumChina.com

 

5


 

Yum China Holdings, Inc.

Condensed Consolidated Statements of Income

(in US$ million, except per share data)

(unaudited)

 

 

 

Quarter Ended

 

 

% Change

 

Year to Date Ended

 

 

% Change

 

 

9/30/2022

 

 

9/30/2021

 

 

B/(W)

 

9/30/2022

 

 

9/30/2021

 

 

B/(W)

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company sales

 

$

2,561

 

 

$

2,310

 

 

 

11

 

 

 

$

7,135

 

 

$

6,874

 

 

 

4

 

 

Franchise fees and income

 

 

22

 

 

 

40

 

 

 

(45

)

 

 

 

65

 

 

 

120

 

 

 

(46

)

 

Revenues from transactions with
   franchisees and unconsolidated affiliates

 

 

80

 

 

 

184

 

 

 

(57

)

 

 

 

219

 

 

 

519

 

 

 

(58

)

 

Other revenues

 

 

22

 

 

 

20

 

 

 

11

 

 

 

 

62

 

 

 

49

 

 

 

27

 

 

Total revenues

 

 

2,685

 

 

 

2,554

 

 

 

5

 

 

 

 

7,481

 

 

 

7,562

 

 

 

(1

)

 

Costs and Expenses, Net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company restaurants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Food and paper

 

 

787

 

 

 

743

 

 

 

(6

)

 

 

 

2,206

 

 

 

2,133

 

 

 

(3

)

 

Payroll and employee benefits

 

 

603

 

 

 

591

 

 

 

(2

)

 

 

 

1,819

 

 

 

1,675

 

 

 

(9

)

 

Occupancy and other operating expenses

 

 

691

 

 

 

694

 

 

 

 

 

 

 

2,034

 

 

 

1,995

 

 

 

(2

)

 

Company restaurant expenses

 

 

2,081

 

 

 

2,028

 

 

 

(3

)

 

 

 

6,059

 

 

 

5,803

 

 

 

(4

)

 

General and administrative expenses

 

 

157

 

 

 

142

 

 

 

(10

)

 

 

 

449

 

 

 

408

 

 

 

(10

)

 

Franchise expenses

 

 

9

 

 

 

17

 

 

 

46

 

 

 

 

27

 

 

 

50

 

 

 

45

 

 

Expenses for transactions with
   franchisees and unconsolidated affiliates

 

 

76

 

 

 

180

 

 

 

57

 

 

 

 

212

 

 

 

509

 

 

 

58

 

 

Other operating costs and expenses

 

 

18

 

 

 

17

 

 

 

(4

)

 

 

 

53

 

 

 

41

 

 

 

(28

)

 

Closures and impairment expenses, net

 

 

4

 

 

 

2

 

 

 

(135

)

 

 

 

20

 

 

 

13

 

 

 

(53

)

 

Other expenses (income), net

 

 

24

 

 

 

(10

)

 

NM

 

 

 

 

73

 

 

 

(15

)

 

NM

 

 

Total costs and expenses, net

 

 

2,369

 

 

 

2,376

 

 

 

 

 

 

 

6,893

 

 

 

6,809

 

 

 

(1

)

 

Operating Profit

 

 

316

 

 

 

178

 

 

 

77

 

 

 

 

588

 

 

 

753

 

 

 

(22

)

 

Interest income, net

 

 

25

 

 

 

16

 

 

 

51

 

 

 

 

51

 

 

 

47

 

 

 

8

 

 

Investment loss

 

 

(15

)

 

 

(39

)

 

 

61

 

 

 

 

(32

)

 

 

(43

)

 

 

26

 

 

Income Before Income Taxes and
  Equity in Net Earnings (Losses) from
  Equity Method Investments

 

 

326

 

 

 

155

 

 

 

110

 

 

 

 

607

 

 

 

757

 

 

 

(20

)

 

Income tax provision

 

 

(97

)

 

 

(44

)

 

 

(121

)

 

 

 

(183

)

 

 

(210

)

 

 

13

 

 

Equity in net earnings (losses) from
   equity method investments

 

 

(2

)

 

 

 

 

NM

 

 

 

 

(4

)

 

 

 

 

NM

 

 

Net income – including noncontrolling interests

 

 

227

 

 

 

111

 

 

 

103

 

 

 

 

420

 

 

 

547

 

 

 

(23

)

 

Net income – noncontrolling interests

 

 

21

 

 

 

7

 

 

 

(171

)

 

 

 

31

 

 

 

32

 

 

 

5

 

 

Net Income – Yum China Holdings, Inc.

 

$

206

 

 

$

104

 

 

 

98

 

 

 

$

389

 

 

$

515

 

 

 

(25

)

 

Effective tax rate

 

 

29.9

%

 

 

28.3

%

 

 

(1.6

)

ppts.

 

 

30.1

%

 

 

27.7

%

 

 

(2.4

)

ppts.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic Earnings Per Common Share

 

$

0.49

 

 

$

0.25

 

 

 

 

 

 

$

0.92

 

 

$

1.23

 

 

 

 

 

Weighted-average shares outstanding
    (in millions)

 

 

420

 

 

 

422

 

 

 

 

 

 

 

422

 

 

 

421

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted Earnings Per Common Share

 

$

0.49

 

 

$

0.24

 

 

 

 

 

 

$

0.92

 

 

$

1.19

 

 

 

 

 

Weighted-average shares outstanding
    (in millions)

 

 

424

 

 

 

435

 

 

 

 

 

 

 

426

 

 

 

435

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash Dividends Declared Per Common Share

 

$

0.12

 

 

$

0.12

 

 

 

 

 

 

$

0.36

 

 

$

0.36

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company sales

 

 

100.0

%

 

 

100.0

%

 

 

 

 

 

 

100.0

%

 

 

100.0

%

 

 

 

 

Food and paper

 

 

30.7

 

 

 

32.2

 

 

 

1.5

 

ppts.

 

 

30.9

 

 

 

31.0

 

 

 

0.1

 

ppts.

Payroll and employee benefits

 

 

23.5

 

 

 

25.6

 

 

 

2.1

 

ppts.

 

 

25.5

 

 

 

24.4

 

 

 

(1.1

)

ppts.

Occupancy and other operating expenses

 

 

27.0

 

 

 

30.0

 

 

 

3.0

 

ppts.

 

 

28.5

 

 

 

29.0

 

 

 

0.5

 

ppts.

Restaurant margin

 

 

18.8

%

 

 

12.2

%

 

 

6.6

 

ppts.

 

 

15.1

%

 

 

15.6

%

 

 

(0.5

)

ppts.

Operating margin

 

 

12.3

%

 

 

7.7

%

 

 

4.6

 

ppts.

 

 

8.2

%

 

 

11.0

%

 

 

(2.8

)

ppts.

 

Percentages may not recompute due to rounding. NM refers to not meaningful.

 

6


 

Yum China Holdings, Inc.

KFC Operating Results

(in US$ million)

(unaudited)

 

 

 

Quarter Ended

 

 

% Change

 

Year to Date Ended

 

 

% Change

 

 

9/30/2022

 

 

9/30/2021

 

 

B/(W)

 

9/30/2022

 

 

9/30/2021

 

 

B/(W)

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company sales

 

$

1,992

 

 

$

1,750

 

 

 

14

 

 

 

$

5,554

 

 

$

5,220

 

 

 

6

 

 

Franchise fees and income

 

 

15

 

 

 

32

 

 

 

(52

)

 

 

 

44

 

 

 

95

 

 

 

(53

)

 

Revenues from transactions with
   franchisees and unconsolidated affiliates

 

 

9

 

 

 

17

 

 

 

(47

)

 

 

 

24

 

 

 

46

 

 

 

(48

)

 

Other revenues

 

 

1

 

 

 

2

 

 

 

(33

)

 

 

 

6

 

 

 

6

 

 

 

(1

)

 

Total revenues

 

 

2,017

 

 

 

1,801

 

 

 

12

 

 

 

 

5,628

 

 

 

5,367

 

 

 

5

 

 

Costs and Expenses, Net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company restaurants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Food and paper

 

 

607

 

 

 

567

 

 

 

(7

)

 

 

 

1,712

 

 

 

1,629

 

 

 

(5

)

 

Payroll and employee benefits

 

 

449

 

 

 

425

 

 

 

(5

)

 

 

 

1,363

 

 

 

1,214

 

 

 

(12

)

 

Occupancy and other operating expenses

 

 

526

 

 

 

520

 

 

 

(1

)

 

 

 

1,557

 

 

 

1,500

 

 

 

(4

)

 

Company restaurant expenses

 

 

1,582

 

 

 

1,512

 

 

 

(5

)

 

 

 

4,632

 

 

 

4,343

 

 

 

(7

)

 

General and administrative expenses

 

 

63

 

 

 

62

 

 

 

(1

)

 

 

 

191

 

 

 

175

 

 

 

(9

)

 

Franchise expenses

 

 

8

 

 

 

16

 

 

 

49

 

 

 

 

23

 

 

 

47

 

 

 

50

 

 

Expenses for transactions with
   franchisees and unconsolidated affiliates

 

 

8

 

 

 

16

 

 

 

49

 

 

 

 

22

 

 

 

45

 

 

 

51

 

 

Other operating costs and expenses

 

 

1

 

 

 

2

 

 

 

5

 

 

 

 

4

 

 

 

3

 

 

 

(22

)

 

Closures and impairment expenses, net

 

 

3

 

 

 

1

 

 

 

(114

)

 

 

 

11

 

 

 

7

 

 

 

(40

)

 

Other expenses (income), net

 

 

24

 

 

 

(4

)

 

NM

 

 

 

 

75

 

 

 

(16

)

 

NM

 

 

Total costs and expenses, net

 

 

1,689

 

 

 

1,605

 

 

 

(5

)

 

 

 

4,958

 

 

 

4,604

 

 

 

(8

)

 

Operating Profit

 

$

328

 

 

$

196

 

 

 

67

 

 

 

$

670

 

 

$

763

 

 

 

(12

)

 

Company sales

 

 

100.0

%

 

 

100.0

%

 

 

 

 

 

 

100.0

%

 

 

100.0

%

 

 

 

 

Food and paper

 

 

30.5

 

 

 

32.4

 

 

 

1.9

 

ppts.

 

 

30.8

 

 

 

31.2

 

 

 

0.4

 

ppts.

Payroll and employee benefits

 

 

22.5

 

 

 

24.3

 

 

 

1.8

 

ppts.

 

 

24.5

 

 

 

23.3

 

 

 

(1.2

)

ppts.

Occupancy and other operating expenses

 

 

26.4

 

 

 

29.7

 

 

 

3.3

 

ppts.

 

 

28.1

 

 

 

28.7

 

 

 

0.6

 

ppts.

Restaurant margin

 

 

20.6

%

 

 

13.6

%

 

 

7.0

 

ppts.

 

 

16.6

%

 

 

16.8

%

 

 

(0.2

)

ppts.

Operating margin

 

 

16.5

%

 

 

11.2

%

 

 

5.3

 

ppts.

 

 

12.1

%

 

 

14.6

%

 

 

(2.5

)

ppts.

 

Percentages may not recompute due to rounding. NM refers to not meaningful.

 

 

7


 

Yum China Holdings, Inc.

Pizza Hut Operating Results

(in US$ million)

(unaudited)

 

 

 

Quarter Ended

 

 

% Change

 

Year to Date Ended

 

 

% Change

 

 

 

9/30/2022

 

 

9/30/2021

 

 

B/(W)

 

9/30/2022

 

 

9/30/2021

 

 

B/(W)

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company sales

 

$

556

 

 

$

546

 

 

 

2

 

 

 

$

1,541

 

 

$

1,617

 

 

 

(5

)

 

 

Franchise fees and income

 

 

2

 

 

 

2

 

 

 

(9

)

 

 

 

6

 

 

 

6

 

 

 

(1

)

 

 

Revenues from transactions with
   franchisees and unconsolidated affiliates

 

 

1

 

 

 

2

 

 

 

(33

)

 

 

 

3

 

 

 

5

 

 

 

(35

)

 

 

Other revenues

 

 

2

 

 

 

1

 

 

 

158

 

 

 

 

6

 

 

 

2

 

 

NM

 

 

 

Total revenues

 

 

561

 

 

 

551

 

 

 

2

 

 

 

 

1,556

 

 

 

1,630

 

 

 

(4

)

 

 

Costs and Expenses, Net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company restaurants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Food and paper

 

 

176

 

 

 

173

 

 

 

(2

)

 

 

 

481

 

 

 

493

 

 

 

3

 

 

 

Payroll and employee benefits

 

 

149

 

 

 

161

 

 

 

7

 

 

 

 

437

 

 

 

450

 

 

 

3

 

 

 

Occupancy and other operating expenses

 

 

156

 

 

 

168

 

 

 

7

 

 

 

 

452

 

 

 

478

 

 

 

5

 

 

 

Company restaurant expenses

 

 

481

 

 

 

502

 

 

 

4

 

 

 

 

1,370

 

 

 

1,421

 

 

 

4

 

 

 

General and administrative expenses

 

 

27

 

 

 

27

 

 

 

1

 

 

 

 

84

 

 

 

80

 

 

 

(5

)

 

 

Franchise expenses

 

 

1

 

 

 

1

 

 

 

10

 

 

 

 

3

 

 

 

3

 

 

 

6

 

 

 

Expenses for transactions with
   franchisees and unconsolidated affiliates

 

 

1

 

 

 

2

 

 

 

30

 

 

 

 

3

 

 

 

5

 

 

 

34

 

 

 

Other operating costs and expenses

 

 

2

 

 

 

1

 

 

 

(199

)

 

 

 

5

 

 

 

1

 

 

NM

 

 

 

Closures and impairment expenses, net

 

 

 

 

 

 

 

 

(36

)

 

 

 

1

 

 

 

3

 

 

 

85

 

 

 

Total costs and expenses, net

 

 

512

 

 

 

533

 

 

 

4

 

 

 

 

1,466

 

 

 

1,513

 

 

 

3

 

 

 

Operating Profit

 

$

49

 

 

$

18

 

 

 

159

 

 

 

$

90

 

 

$

117

 

 

 

(23

)

 

 

Company sales

 

 

100.0

%

 

 

100.0

%

 

 

 

 

 

 

100.0

%

 

 

100.0

%

 

 

 

 

 

Food and paper

 

 

31.6

 

 

 

31.5

 

 

 

(0.1

)

ppts.

 

 

31.2

 

 

 

30.5

 

 

 

(0.7

)

ppts.

 

Payroll and employee benefits

 

 

26.9

 

 

 

29.5

 

 

 

2.6

 

ppts.

 

 

28.4

 

 

 

27.8

 

 

 

(0.6

)

ppts.

 

Occupancy and other operating expenses

 

 

28.1

 

 

 

30.8

 

 

 

2.7

 

ppts.

 

 

29.3

 

 

 

29.5

 

 

 

0.2

 

ppts.

 

Restaurant margin

 

 

13.4

%

 

 

8.2

%

 

 

5.2

 

ppts.

 

 

11.1

%

 

 

12.2

%

 

 

(1.1

)

ppts.

 

Operating margin

 

 

8.8

%

 

 

3.5

%

 

 

5.3

 

ppts.

 

 

5.9

%

 

 

7.2

%

 

 

(1.3

)

ppts.

 

 

Percentages may not recompute due to rounding. NM refers to not meaningful.

 

8


 

Yum China Holdings, Inc.

Condensed Consolidated Balance Sheets

(in US$ million)

 

 

 

9/30/2022

 

 

12/31/2021

 

 

 

(Unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,211

 

 

$

1,136

 

Short-term investments

 

 

2,826

 

 

 

2,860

 

Accounts receivable, net

 

 

66

 

 

 

67

 

Inventories, net

 

 

321

 

 

 

432

 

Prepaid expenses and other current assets

 

 

286

 

 

 

221

 

Total Current Assets

 

 

4,710

 

 

 

4,716

 

Property, plant and equipment, net

 

 

1,965

 

 

 

2,251

 

Operating lease right-of-use assets

 

 

2,154

 

 

 

2,612

 

Goodwill

 

 

1,927

 

 

 

2,142

 

Intangible assets, net

 

 

176

 

 

 

272

 

Investments in unconsolidated affiliates

 

 

256

 

 

 

292

 

Deferred income tax assets

 

 

89

 

 

 

106

 

Other assets

 

 

419

 

 

 

832

 

Total Assets

 

 

11,696

 

 

 

13,223

 

 

 

 

 

 

 

 

LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND EQUITY

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

Accounts payable and other current liabilities

 

 

1,992

 

 

 

2,332

 

Income taxes payable

 

 

112

 

 

 

51

 

Total Current Liabilities

 

 

2,104

 

 

 

2,383

 

Non-current operating lease liabilities

 

 

1,862

 

 

 

2,286

 

Non-current finance lease liabilities

 

 

36

 

 

 

40

 

Deferred income tax liabilities

 

 

370

 

 

 

425

 

Other liabilities

 

 

156

 

 

 

167

 

Total Liabilities

 

 

4,528

 

 

 

5,301

 

 

 

 

 

 

 

 

Redeemable Noncontrolling Interest

 

 

13

 

 

 

14

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

Common stock, $0.01 par value; 1,000 million shares authorized; 419 million shares and
     449 million shares issued at September 30, 2022 and December 31, 2021, respectively; 419
     million shares and 428 million shares outstanding at September 30, 2022 and December 31,
    2021, respectively

 

 

4

 

 

 

4

 

Treasury stock

 

 

 

 

 

(803

)

Additional paid-in capital

 

 

4,408

 

 

 

4,695

 

Retained earnings

 

 

2,228

 

 

 

2,892

 

Accumulated other comprehensive (loss) income

 

 

(222

)

 

 

268

 

Total Yum China Holdings, Inc. Stockholders' Equity

 

 

6,418

 

 

 

7,056

 

Noncontrolling interests

 

 

737

 

 

 

852

 

Total Equity

 

 

7,155

 

 

 

7,908

 

Total Liabilities, Redeemable Noncontrolling Interest and Equity

 

$

11,696

 

 

$

13,223

 

 

 

 

 

 

 

 

 

9


 

Yum China Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

(in US$ million)

(unaudited)

 

 

 

Year to Date Ended

 

 

9/30/2022

 

9/30/2021

 Cash Flows – Operating Activities

 

 

 

 

 

 

 

 

 Net income – including noncontrolling interests

 

$

420

 

 

 

$

547

 

 

 Depreciation and amortization

 

 

467

 

 

 

 

380

 

 

 Non-cash operating lease cost

 

 

333

 

 

 

 

310

 

 

 Closures and impairment expenses

 

 

20

 

 

 

 

13

 

 

 Gain from re-measurement of equity interest upon acquisition

 

 

 

 

 

 

(10

)

 

 Investment loss

 

 

32

 

 

 

 

43

 

 

 Equity income from investments in unconsolidated affiliates

 

 

 

 

 

 

(38

)

 

 Distributions of income received from unconsolidated affiliates

 

 

7

 

 

 

 

21

 

 

 Deferred income taxes

 

 

(7

)

 

 

 

17

 

 

 Share-based compensation expense

 

 

31

 

 

 

 

32

 

 

 Changes in accounts receivable

 

 

(6

)

 

 

 

2

 

 

 Changes in inventories

 

 

71

 

 

 

 

13

 

 

 Changes in prepaid expenses, other current assets and VAT assets

 

 

216

 

 

 

 

 

 

 Changes in accounts payable and other current liabilities

 

 

(19

)

 

 

 

82

 

 

 Changes in income taxes payable

 

 

70

 

 

 

 

(5

)

 

 Changes in non-current operating lease liabilities

 

 

(299

)

 

 

 

(309

)

 

 Other, net

 

 

(7

)

 

 

 

(24

)

 

 Net Cash Provided by Operating Activities

 

 

1,329

 

 

 

 

1,074

 

 

 Cash Flows – Investing Activities

 

 

 

 

 

 

 

 

 Capital spending

 

 

(509

)

 

 

 

(482

)

 

 Purchases of short-term investments

 

 

(4,290

)

 

 

 

(4,524

)

 

 Purchase of long-term time deposits

 

 

 

 

 

 

(25

)

 

 Maturities of short-term investments

 

 

4,226

 

 

 

 

4,544

 

 

 Acquisition of business, net of cash acquired

 

 

(23

)

 

 

 

 

 

 Acquisition of equity investment

 

 

 

 

 

 

(261

)

 

 Other, net

 

 

3

 

 

 

 

5

 

 

 Net Cash Used in Investing Activities

 

 

(593

)

 

 

 

(743

)

 

 Cash Flows – Financing Activities

 

 

 

 

 

 

 

 

 Repurchase of shares of common stock

 

 

(411

)

 

 

 

(32

)

 

 Cash dividends paid on common stock

 

 

(152

)

 

 

 

(152

)

 

 Dividends paid to noncontrolling interests

 

 

(29

)

 

 

 

(22

)

 

 Contribution from noncontrolling interests

 

 

18

 

 

 

 

 

 

 Payment of acquisition related holdback

 

 

(7

)

 

 

 

(8

)

 

 Other, net

 

 

(2

)

 

 

 

(6

)

 

 Net Cash Used in Financing Activities

 

 

(583

)

 

 

 

(220

)

 

 Effect of Exchange Rates on Cash, Cash Equivalents and Restricted Cash

 

 

(78

)

 

 

 

9

 

 

 Net Increase in Cash, Cash Equivalents and Restricted Cash

 

 

75

 

 

 

 

120

 

 

 Cash, Cash Equivalents, and Restricted Cash - Beginning of Period

 

 

1,136

 

 

 

 

1,158

 

 

 Cash, Cash Equivalents, and Restricted Cash - End of Period

 

$

1,211

 

 

 

$

1,278

 

 

 

 

10


 

 

In this press release:

The Company provides certain percentage changes excluding the impact of foreign currency translation (“F/X”). These amounts are derived by translating current year results at prior year average exchange rates. We believe the elimination of the F/X impact provides better year-to-year comparability without the distortion of foreign currency fluctuations.
System sales growth reflects the results of all restaurants regardless of ownership, including Company-owned, franchise and unconsolidated affiliate restaurants that operate our restaurant concepts, except for non-Company-owned restaurants for which we do not receive a sales-based royalty. Sales of franchise and unconsolidated affiliate restaurants typically generate ongoing franchise fees for the Company at an average rate of approximately 6% of system sales. Franchise and unconsolidated affiliate restaurant sales are not included in Company sales in the Condensed Consolidated Statements of Income; however, the franchise fees are included in the Company’s revenues. We believe system sales growth is useful to investors as a significant indicator of the overall strength of our business as it incorporates all of our revenue drivers, Company and franchise same-store sales as well as net unit growth.
Effective January 1, 2018, the Company revised its definition of same-store sales growth to represent the estimated percentage change in sales of food of all restaurants in the Company system that have been open prior to the first day of our prior fiscal year, excluding the period during which stores are temporarily closed. We refer to these as our "base" stores. Previously, same-store sales growth represented the estimated percentage change in sales of all restaurants in the Company system that have been open for one year or more, including stores temporarily closed, and the base stores changed on a rolling basis from month to month. This revision was made to align with how management measures performance internally and focuses on trends of a more stable base of stores.
Company sales represent revenues from Company-owned restaurants. Company Restaurant profit (“Restaurant profit”) is defined as Company sales less expenses incurred directly by our Company-owned restaurants in generating Company sales. Company restaurant margin percentage is defined as Restaurant profit divided by Company sales.

 

11


 

Reconciliation of Reported GAAP Results to Non-GAAP Adjusted Measures

(in millions, except per share data)

(unaudited)

 

In addition to the results provided in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) in this press release, the Company provides non-GAAP measures adjusted for Special Items, which include Adjusted Operating Profit, Adjusted Net Income, Adjusted Earnings Per Common Share ("EPS"), Adjusted Effective Tax Rate and Adjusted EBITDA, which we define as net income including noncontrolling interests adjusted for equity in net earnings (losses) from equity method investments, income tax, interest income, net, investment gain or loss, certain non-cash expenses, consisting of depreciation and amortization as well as store impairment charges, and Special Items.

The following table set forth the reconciliation of the most directly comparable GAAP financial measures to the non-GAAP adjusted financial measures.

 

 

 

Quarter Ended

 

 

Year to Date Ended

 

 

 

 

9/30/2022

 

 

9/30/2021

 

 

9/30/2022

 

 

9/30/2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP Reconciliations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of Operating Profit to Adjusted Operating Profit

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Profit

 

$

316

 

 

$

178

 

 

$

588

 

 

$

753

 

 

Special Items, Operating Profit

 

 

(2

)

 

 

10

 

 

 

(5

)

 

 

3

 

 

Adjusted Operating Profit

 

$

318

 

 

$

168

 

 

$

593

 

 

$

750

 

 

Reconciliation of Net Income to Adjusted Net Income

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income – Yum China Holdings, Inc.

 

$

206

 

 

$

104

 

 

$

389

 

 

$

515

 

 

Special Items, Net Income –Yum China Holdings, Inc.

 

 

(2

)

 

 

8

 

 

 

(5

)

 

 

1

 

 

Adjusted Net Income – Yum China Holdings, Inc.

 

$

208

 

 

$

96

 

 

$

394

 

 

$

514

 

 

Reconciliation of EPS to Adjusted EPS

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic Earnings Per Common Share

 

$

0.49

 

 

$

0.25

 

 

$

0.92

 

 

$

1.23

 

 

Special Items, Basic Earnings Per Common Share

 

 

 

 

 

0.02

 

 

 

(0.01

)

 

 

0.01

 

 

Adjusted Basic Earnings Per Common Share

 

$

0.49

 

 

$

0.23

 

 

$

0.93

 

 

$

1.22

 

 

Diluted Earnings Per Common Share

 

$

0.49

 

 

$

0.24

 

 

$

0.92

 

 

$

1.19

 

 

Special Items, Diluted Earnings Per Common Share

 

 

 

 

 

0.02

 

 

 

(0.01

)

 

 

0.01

 

 

Adjusted Diluted Earnings Per Common Share

 

$

0.49

 

 

$

0.22

 

 

$

0.93

 

 

$

1.18

 

 

Reconciliation of Effective Tax Rate to Adjusted Effective Tax Rate

 

 

 

 

 

 

 

 

 

 

 

 

 

Effective tax rate

 

 

29.9

%

 

 

28.3

%

 

 

30.1

%

 

 

27.7

%

 

Impact on effective tax rate as a result of Special Items

 

 

0.2

%

 

 

(0.5

)%

 

 

0.2

%

 

 

0.1

%

 

Adjusted effective tax rate

 

 

29.7

%

 

 

28.8

%

 

 

29.9

%

 

 

27.6

%

 

 

Net income, along with the reconciliation to Adjusted EBITDA, is presented below:

 

 

 

Quarter Ended

 

 

Year to Date Ended

 

 

 

 

9/30/2022

 

 

9/30/2021

 

 

9/30/2022

 

 

9/30/2021

 

 

Reconciliation of Net Income to Adjusted EBITDA

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income – Yum China Holdings, Inc.

 

$

206

 

 

$

104

 

 

$

389

 

 

$

515

 

 

Net income – noncontrolling interests

 

 

21

 

 

 

7

 

 

 

31

 

 

 

32

 

 

Equity in net (earnings) losses from equity method investments

 

 

2

 

 

 

 

 

 

4

 

 

 

 

 

Income tax provision

 

 

97

 

 

 

44

 

 

 

183

 

 

 

210

 

 

Interest income, net

 

 

(25

)

 

 

(16

)

 

 

(51

)

 

 

(47

)

 

Investment loss

 

 

15

 

 

 

39

 

 

 

32

 

 

 

43

 

 

Operating Profit

 

 

316

 

 

 

178

 

 

 

588

 

 

 

753

 

 

Special Items, Operating Profit

 

 

2

 

 

 

(10

)

 

 

5

 

 

 

(3

)

 

Adjusted Operating Profit

 

 

318

 

 

 

168

 

 

 

593

 

 

 

750

 

 

Depreciation and amortization

 

 

150

 

 

 

128

 

 

 

467

 

 

 

380

 

 

Store impairment charges

 

 

7

 

 

 

4

 

 

 

37

 

 

 

23

 

 

Adjusted EBITDA

 

$

475

 

 

$

300

 

 

$

1,097

 

 

$

1,153

 

 

 

12


 

 

Details of Special Items are presented below:

 

 

Quarter Ended

 

 

Year to Date Ended

 

 

 

 

9/30/2022

 

 

9/30/2021

 

 

9/30/2022

 

 

9/30/2021

 

 

Gain from re-measurement of equity interest upon acquisition(1)

 

$

 

 

$

10

 

 

$

 

 

$

10

 

 

Share-based compensation expense for Partner PSU awards(2)

 

 

(2

)

 

 

 

 

 

(5

)

 

 

(7

)

 

Special Items, Operating Profit

 

 

(2

)

 

 

10

 

 

 

(5

)

 

 

3

 

 

Tax effect on Special Items(3)

 

 

 

 

 

(2

)

 

 

 

 

 

(2

)

 

Special Items, net income – including noncontrolling interests

 

 

(2

)

 

 

8

 

 

 

(5

)

 

 

1

 

 

Special Items, net income – noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

Special Items, Net Income –Yum China Holdings, Inc.

 

$

(2

)

 

$

8

 

 

$

(5

)

 

$

1

 

 

Weighted-average Diluted Shares Outstanding (in millions)

 

 

424

 

 

 

435

 

 

 

426

 

 

 

435

 

 

Special Items, Diluted Earnings Per Common Share

 

$

 

 

$

0.02

 

 

$

(0.01

)

 

$

0.01

 

 

 

(1)
In the quarters ended September 30, 2021, as a result of the consolidation of the Lavazza joint venture, the Company recognized a gain of $10 million from the re-measurement of our previously held equity interest at fair value, which was not allocated to any segment for performance reporting purposes.
(2)
In February 2020, the Company granted Partner PSU Awards to select employees who were deemed critical to the Company’s execution of its strategic operating plan. These PSU awards will only vest if threshold performance goals are achieved over a four-year performance period, with the payout ranging from 0% to 200% of the target number of shares subject to the PSU awards. Partner PSU Awards were granted to address increased competition for executive talent, motivate transformational performance and encourage management retention. Given the unique nature of these grants, the Compensation Committee does not intend to grant similar, special grants to the same employees during the performance period. The impact from these special awards is excluded from metrics that management uses to assess the Company’s performance. The Company recognized share-based compensation expense of $2 million and $5 million associated with the Partner PSU Awards for the quarter and year to date ended September 30, 2022, respectively, and nil and $7 million for the quarter and year to date ended September 30, 2021.
(3)
The tax expense was determined based upon the nature, as well as the jurisdiction, of each Special Item at the applicable tax rate.

The Company excludes impact from Special Items for the purpose of evaluating performance internally. Special Items are not included in any of our segment results. In addition, the Company provides Adjusted EBITDA because we believe that investors and analysts may find it useful in measuring operating performance without regard to items such as equity in net earnings (losses) from equity method investments, income tax, interest income, net, investment gain or loss, depreciation and amortization, store impairment charges, and Special Items. Store impairment charges included as an adjustment item in Adjusted EBITDA primarily resulted from our semi-annual impairment evaluation of long-lived assets of individual restaurants, and additional impairment evaluation whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. If these restaurant-level assets were not impaired, depreciation of the assets would have been recorded and included in EBITDA. Therefore, store impairment charges were a non-cash item similar to depreciation and amortization of our long-lived assets of restaurants. The Company believes that investors and analyst may find it useful in measuring operating performance without regard to such non-cash item.

These adjusted measures are not intended to replace the presentation of our financial results in accordance with GAAP. Rather, the Company believes that the presentation of these adjusted measures provides additional information to investors to facilitate the comparison of past and present results, excluding those items that the Company does not believe are indicative of our ongoing operations due to their nature.

 

13


 

Unit Count by Brand

 

KFC

 

 

 

12/31/2021

 

 

New Builds

 

 

Closures

 

 

Acquired

 

 

9/30/2022

 

Company-owned

 

 

7,437

 

 

 

661

 

 

 

(251

)

 

 

5

 

 

 

7,852

 

Franchisees

 

 

731

 

 

 

115

 

 

 

(18

)

 

 

(5

)

 

 

823

 

Total

 

 

8,168

 

 

 

776

 

 

 

(269

)

 

 

 

 

 

8,675

 

 

Pizza Hut

 

 

 

12/31/2021

 

 

New Builds

 

 

Closures

 

 

Acquired

 

 

9/30/2022

 

Company-owned

 

 

2,452

 

 

 

282

 

 

 

(73

)

 

 

5

 

 

 

2,666

 

Franchisees

 

 

138

 

 

 

10

 

 

 

(3

)

 

 

(5

)

 

 

140

 

Total

 

 

2,590

 

 

 

292

 

 

 

(76

)

 

 

 

 

 

2,806

 

 

Others

 

 

 

12/31/2021

 

 

New Builds

 

 

Closures

 

 

Acquired

 

 

9/30/2022

 

Company-owned

 

 

162

 

 

 

49

 

 

 

(51

)

 

 

1

 

 

 

161

 

Franchisees

 

 

868

 

 

 

54

 

 

 

(154

)

 

 

(1

)

 

 

767

 

Total

 

 

1,030

 

 

 

103

 

 

 

(205

)

 

 

 

 

 

928

 

 

 

14


 

Yum China Holdings, Inc.

Segment Results

(in US$ million)

(unaudited)

 

Quarter Ended 9/30/2022

 

KFC

 

 

Pizza Hut

 

 

All Other Segments

 

 

Corporate
and
Unallocated
(1)

 

 

Elimination

 

 

Total

 

Company sales

 

$

1,992

 

 

$

556

 

 

$

13

 

 

$

 

 

$

 

 

$

2,561

 

Franchise fees and income

 

 

15

 

 

 

2

 

 

 

5

 

 

 

 

 

 

 

 

 

22

 

Revenues from transactions with
   franchisees and unconsolidated affiliates
(2)

 

 

9

 

 

 

1

 

 

 

11

 

 

 

59

 

 

 

 

 

 

80

 

Other revenues

 

 

1

 

 

 

2

 

 

 

157

 

 

 

12

 

 

 

(150

)

 

 

22

 

Total revenues

 

$

2,017

 

 

$

561

 

 

$

186

 

 

$

71

 

 

$

(150

)

 

$

2,685

 

Company restaurant expenses

 

 

1,582

 

 

 

481

 

 

 

18

 

 

 

 

 

 

 

 

 

2,081

 

General and administrative expenses

 

 

63

 

 

 

27

 

 

 

12

 

 

 

55

 

 

 

 

 

 

157

 

Franchise expenses

 

 

8

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

9

 

Expenses for transactions with
  franchisees and unconsolidated affiliates
(2)

 

 

8

 

 

 

1

 

 

 

9

 

 

 

58

 

 

 

 

 

 

76

 

Other operating costs and expenses

 

 

1

 

 

 

2

 

 

 

155

 

 

 

10

 

 

 

(150

)

 

 

18

 

Closures and impairment expenses, net

 

 

3

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

4

 

Other expenses, net

 

 

24

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

24

 

Total costs and expenses, net

 

 

1,689

 

 

 

512

 

 

 

195

 

 

 

123

 

 

 

(150

)

 

 

2,369

 

Operating Profit (Loss)

 

$

328

 

 

$

49

 

 

$

(9

)

 

$

(52

)

 

$

 

 

$

316

 

 

Quarter Ended 9/30/2021

 

KFC

 

 

Pizza Hut

 

 

All Other Segments

 

 

Corporate
and
Unallocated
(1)

 

 

Elimination

 

 

Total

 

Company sales

 

$

1,750

 

 

$

546

 

 

$

14

 

 

$

 

 

$

 

 

$

2,310

 

Franchise fees and income

 

 

32

 

 

 

2

 

 

 

6

 

 

 

 

 

 

 

 

 

40

 

Revenues from transactions with
   franchisees and unconsolidated affiliates
(2)

 

 

17

 

 

 

2

 

 

 

26

 

 

 

139

 

 

 

 

 

 

184

 

Other revenues

 

 

2

 

 

 

1

 

 

 

88

 

 

 

7

 

 

 

(78

)

 

 

20

 

Total revenues

 

$

1,801

 

 

$

551

 

 

$

134

 

 

$

146

 

 

$

(78

)

 

$

2,554

 

Company restaurant expenses

 

 

1,512

 

 

 

502

 

 

 

14

 

 

 

 

 

 

 

 

 

2,028

 

General and administrative expenses

 

 

62

 

 

 

27

 

 

 

11

 

 

 

42

 

 

 

 

 

 

142

 

Franchise expenses

 

 

16

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

17

 

Expenses for transactions with
  franchisees and unconsolidated affiliates
(2)

 

 

16

 

 

 

2

 

 

 

24

 

 

 

138

 

 

 

 

 

 

180

 

Other operating costs and expenses

 

 

2

 

 

 

1

 

 

 

87

 

 

 

5

 

 

 

(78

)

 

 

17

 

Closures and impairment expenses, net

 

 

1

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

2

 

Other (income) expenses, net

 

 

(4

)

 

 

 

 

 

3

 

 

 

(9

)

 

 

 

 

 

(10

)

Total costs and expenses, net

 

 

1,605

 

 

 

533

 

 

 

140

 

 

 

176

 

 

 

(78

)

 

 

2,376

 

Operating Profit (Loss)

 

$

196

 

 

$

18

 

 

$

(6

)

 

$

(30

)

 

$

 

 

$

178

 

 

15


 

 

Year to Date Ended 9/30/2022

 

KFC

 

 

Pizza Hut

 

 

All Other Segments

 

 

Corporate
and
Unallocated
(1)

 

 

Elimination

 

 

Total

 

Company sales

 

$

5,554

 

 

$

1,541

 

 

$

40

 

 

$

 

 

$

 

 

$

7,135

 

Franchise fees and income

 

 

44

 

 

 

6

 

 

 

15

 

 

 

 

 

 

 

 

 

65

 

Revenues from transactions with
   franchisees and unconsolidated affiliates
(2)

 

 

24

 

 

 

3

 

 

 

29

 

 

 

163

 

 

 

 

 

 

219

 

Other revenues

 

 

6

 

 

 

6

 

 

 

407

 

 

 

31

 

 

 

(388

)

 

 

62

 

Total revenues

 

$

5,628

 

 

$

1,556

 

 

$

491

 

 

$

194

 

 

$

(388

)

 

$

7,481

 

Company restaurant expenses

 

 

4,632

 

 

 

1,370

 

 

 

55

 

 

 

 

 

 

2

 

 

 

6,059

 

General and administrative expenses

 

 

191

 

 

 

84

 

 

 

36

 

 

 

138

 

 

 

 

 

 

449

 

Franchise expenses

 

 

23

 

 

 

3

 

 

 

1

 

 

 

 

 

 

 

 

 

27

 

Expenses for transactions with
  franchisees and unconsolidated affiliates
(2)

 

 

22

 

 

 

3

 

 

 

24

 

 

 

163

 

 

 

 

 

 

212

 

Other operating costs and expenses

 

 

4

 

 

 

5

 

 

 

406

 

 

 

28

 

 

 

(390

)

 

 

53

 

Closures and impairment expenses, net

 

 

11

 

 

 

1

 

 

 

8

 

 

 

 

 

 

 

 

 

20

 

Other expenses (income), net

 

 

75

 

 

 

 

 

 

 

 

 

(2

)

 

 

 

 

 

73

 

Total costs and expenses, net

 

 

4,958

 

 

 

1,466

 

 

 

530

 

 

 

327

 

 

 

(388

)

 

 

6,893

 

Operating Profit (Loss)

 

$

670

 

 

$

90

 

 

$

(39

)

 

$

(133

)

 

$

 

 

$

588

 

 

Year to Date Ended 9/30/2021

 

KFC

 

 

Pizza Hut

 

 

All Other Segments

 

 

Corporate
and
Unallocated
(1)

 

 

Elimination

 

 

Total

 

Company sales

 

$

5,220

 

 

$

1,617

 

 

$

37

 

 

$

 

 

$

 

 

$

6,874

 

Franchise fees and income

 

 

95

 

 

 

6

 

 

 

19

 

 

 

 

 

 

 

 

 

120

 

Revenues from transactions with
   franchisees and unconsolidated affiliates
(2)

 

 

46

 

 

 

5

 

 

 

75

 

 

 

393

 

 

 

 

 

 

519

 

Other revenues

 

 

6

 

 

 

2

 

 

 

187

 

 

 

11

 

 

 

(157

)

 

 

49

 

Total revenues

 

$

5,367

 

 

$

1,630

 

 

$

318

 

 

$

404

 

 

$

(157

)

 

$

7,562

 

Company restaurant expenses

 

 

4,343

 

 

 

1,421

 

 

 

40

 

 

 

 

 

 

(1

)

 

 

5,803

 

General and administrative expenses

 

 

175

 

 

 

80

 

 

 

30

 

 

 

123

 

 

 

 

 

 

408

 

Franchise expenses

 

 

47

 

 

 

3

 

 

 

 

 

 

 

 

 

 

 

 

50

 

Expenses for transactions with
  franchisees and unconsolidated affiliates
(2)

 

 

45

 

 

 

5

 

 

 

69

 

 

 

390

 

 

 

 

 

 

509

 

Other operating costs and expenses

 

 

3

 

 

 

1

 

 

 

183

 

 

 

10

 

 

 

(156

)

 

 

41

 

Closures and impairment expenses, net

 

 

7

 

 

 

3

 

 

 

3

 

 

 

 

 

 

 

 

 

13

 

Other (income) expenses, net

 

 

(16

)

 

 

 

 

 

8

 

 

 

(7

)

 

 

 

 

 

(15

)

Total costs and expenses, net

 

 

4,604

 

 

 

1,513

 

 

 

333

 

 

 

516

 

 

 

(157

)

 

 

6,809

 

Operating Profit (Loss)

 

$

763

 

 

$

117

 

 

$

(15

)

 

$

(112

)

 

$

 

 

$

753

 

 

The above tables reconcile segment information, which is based on management responsibility, with our Condensed Consolidated Statements of Income.

 

(1)
Amounts have not been allocated to any segment for purpose of making operating decision or assessing financial performance as the transactions are deemed corporate revenues and expenses in nature.
(2)
Primarily includes revenues and associated expenses of transactions with franchisees and unconsolidated affiliates derived from the Company’s central procurement model whereby the Company centrally purchases substantially all food and paper products from suppliers and then sells and delivers to KFC and Pizza Hut restaurants, including franchisees and unconsolidated affiliates that operate our concepts.

16