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): October 17, 2017

Yum China Holdings, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

(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:

 

 

 

 

 

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. ☐

 

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As previously announced, Yum China Holdings, Inc. will commence its Investor Day on Wednesday, October 18, 2017 (local time) in Shanghai, China.  A copy of the presentations that will be used at the Investor Day is being furnished as Exhibit 99.1, 99.2, 99.3, 99.4, 99.5 and 99.6 to this Current Report on Form 8-K.

 

 

 

 

The following exhibit is attached to this report:

 

 

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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.

 

 

Date: October 17, 2017

Micky Pant | CEO, Yum China

Cautionary Language Regarding Forward-Looking Statements Forward-Looking Statements. Our presentation may contain “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. 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,” “likely,” “will,” “should,” “forecast,” “outlook” 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 business plans, earnings and performance of Yum China including all targets, statements regarding future dividends, anticipated effects of population and macroeconomic trends and the capital structure of Yum China, statement regarding the anticipated effects of our digital and delivery capabilities 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 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 on our presentation are only made as of the date indicated on the relevant materials, and we disclaim any obligation to publicly update any forward-looking statement to reflect subsequent events or circumstances. Numerous factors could cause our actual results 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, 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 “Forward-Looking Statements” in our Annual Report on Form 10-K) for additional detail about factors that could affect our financial and other results. Market and Industry Data. Unless we indicate otherwise, we base the information concerning our industry contained on this presentation on our general knowledge of and expectations concerning the industry. Our market position and market share is based on our estimates using data from various industry sources and assumptions that we believe to be reasonable based on our knowledge of the industry. We have not independently verified the data obtained from these sources and cannot assure you of the data’s accuracy or completeness. Trademarks, logos, service marks, materials, designs and other intellectual property used in this presentation are owned by Yum China Holdings, Inc. and its affiliates, or their use has been officially authorized by their respective owners. This presentation also may refer to brand names, trademarks, service marks and trade names of other companies and organizations, and these brand names, trademarks, service marks and trade names are the property of their respective owners. Non-GAAP Measures. Our presentation includes certain non-GAAP financial measures. Reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures are included on our presentation where indicated. Investors are urged to consider carefully the comparable GAAP measures and reconciliations.

Yum China by the numbers – a powerful business $16.5Bn market cap* #399 Fortune 500 2017** #1 Western QSR & CDR brands in China 7,747 stores in 1,100+ cities ~120mn members between KFC and Pizza Hut 420,000+ employees Strong management #1 restaurant operator In digital & delivery * As of the close of October 12, 2017 ** In terms of sales

World’s top 10 restaurant companies (Ranked by market cap) Rank Company Market Cap (US$ bn) Store Count* 1 McDonalds 132.8 37,011 2 Starbucks 80.8 26,736 3 Yum Brands 26.3 43,992 4 Yum China 16.5 7,747* 5 Restaurant Brands 15.6 23,423 6 Darden 9.8 1,701* 7 Chipotle 9.0 2,339 8 Domino’s 8.8 14,434* 9 Jollibee 5.2 3,570 10 Dunkin' Brands 5.1 20,242 Source: Bloomberg as of October 12, 2017 and latest company reports. *All store counts were as of June 2017, except for Yum China (August 31, 2017) , Darden (August 27, 2017) and Domino’s (September 10, 2017).

One year since listing… Strong financial performance Daojia acquisition Share repurchase authorization Dividend initiation A B C D

Financial highlights for 2017 first three quarters Net income ▲ 19% / +23% ex FX 1 Company sales for 2017 first three quarters were $4,818mn 2 Exclude the impact of foreign currency translation 3 Compared to the end of 2016 System sales1 Restaurant margin $493mn ▲7%2 $6.0bn ▲ 2.3ppt 19.3% Adjusted EBITDA ▲ 12% / 16% ex FX Diluted EPS Net cash ▲ 9% / 13% ex FX $1.24 ▲ $604mn3 $1.6bn $1,004mn

National footprint with deep penetration 5,000+ KFC stores 2,000+ Pizza Hut stores 1,100+ Cities with stores 17 Logistic centers 800+ Cities with delivery service

Potential to triple units over long term Yum China Restaurant Penetration1 (per million people) China Cross-functional expertise supporting unit growth ~ 3X 1We define restaurant penetration as number of Yum China restaurants per million people. It is calculated as follow: Yum China’s total unit count divided by total China population #1 Restaurant development capability in China Deep internal know-how Disciplined decision making and execution Proven record of development City database Market insights One store at a time Cross-functional governance Quick response & adjustment capability

Potential headwinds to our success Macro Geopolitical uncertainties Inflation Food Labor Currency RMB vs USD Tax Effective tax rate US tax reform

Diversified formats to support expansion - KFC

Diversified formats to support expansion – Pizza Hut

National supply chain Unrivalled development capabilities Industry leading marketing scale & coverage Best in class operations Robust IT infrastructure Unparalleled infrastructure

RMB 170mn donated for children in poverty since 2008 Yum China is a responsible partner in communities across China 10-year of One Yuan Donation Leverage digital & membership for charity 3.2 tons of potatoes sold through KFC App to help farmers in need

KFC LITTLE MIGRATORY BIRDS We are a caring company… THE FIRST LIGHT FOUNDATION 2016 Project Hope Contribution Award from China Youth Development Foundation Since 2002 KFC ANGEL RESTAURANT Best CSR Practice Award 2016 2016 CSR Innovation Award from China Enterprise CSR Annual Conference Since 2012 from China International Philanthropic Movie Festival ONE YUAN DONATION PROGRAM CSR Excellence Awards 2016 from CSR & Innovation Forum Since 2008 Since 2015 KFC COMMUNITY CARING PROGRAM 2016 Caring Medal from China Enterprise CSR Medal Conference Since 2016

Four key strategic priorities II. Strengthen Core Business Improve stores, innovate menu, improve quality and value I. Focus on China Invest locally for growth III. Digital and Delivery Invest and maintain lead IV. Innovation Product categories, formats and day parts

Non-GAAP Definitions In an effort to provide investors with additional information regarding the Company's financial results and other financial information as determined by generally accepted accounting principles (GAAP), the company also discusses in these materials, the following Non-GAAP information which management believes provides useful information to investors: Adjusted EBITDA – We define adjusted EBITDA as net income including noncontrolling interests adjusted for income tax, interest income, depreciation, amortization and other items, including store impairment charges. System-Sales – System sales growth reflects the results of all restaurants regardless of ownership, including Company-owned, franchise and unconsolidated affiliate restaurants that operate our 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 a rate of approximately 6% of system sales. Franchise and unconsolidated affiliate restaurant sales are not included in Company sales on the Condensed Consolidated and Combined Summary of Results; 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. Constant Currency (Ex-FX) — We refer to growth rates at constant currency or adjusting for currency so that the business results can be viewed without the impact of fluctuations in foreign currency exchange rates. These amounts are calculated by translating current-year results at prior-year average exchange rates. We believe elimination of the foreign currency translation impact provides better year-to-year comparability of sales trends.

Reconciliations of Reported Results to Non-GAAP Measures Reconciliation of Net Income to Adjusted EBITDA Quarter ended Year to date ended (In US$ million) 8/31/2017 8/31/2016 8/31/2017 8/31/2016 Net income – noncontrolling interests $ 10 $ 10 $ 21 $ 10 Net Income – Yum China Holdings, Inc. 211 192 493 414 Income tax provision 102 87 213 165 Interest income, net (6) (3) (13) (7) Operating Profit 317 286 714 582 Depreciation and amortization 105 101 265 272 Store impairment charges 6 6 28 43 Special Items Income – Operating Profit (3) (3) (3) (2) Adjusted EBITDA $ 425 $ 390 $ 1,004 $ 895 Yum China System Sales Year to date ended (In US$ million) 8/31/2017 Company sales 4,818 Franchisee sales 1,163 Total system sales 5,981

Business Update Joey Wat | President & Chief Operating Officer, Yum China Johnson Huang | General Manager of KFC, Yum China

Forward-Looking Statements. Our presentation may contain “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. 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,” “likely,” “will,” “should,” “forecast,” “outlook” 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 business plans, earnings and performance of Yum China including all targets, statements regarding future dividends, anticipated effects of population and macroeconomic trends and the capital structure of Yum China, statement regarding the anticipated effects of our digital and delivery capabilities 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 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 on our presentation are only made as of the date indicated on the relevant materials, and we disclaim any obligation to publicly update any forward-looking statement to reflect subsequent events or circumstances. Numerous factors could cause our actual results 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, 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 “Forward-Looking Statements” in our Annual Report on Form 10-K) for additional detail about factors that could affect our financial and other results. Market and Industry Data. Unless we indicate otherwise, we base the information concerning our industry contained on this presentation on our general knowledge of and expectations concerning the industry. Our market position and market share is based on our estimates using data from various industry sources and assumptions that we believe to be reasonable based on our knowledge of the industry. We have not independently verified the data obtained from these sources and cannot assure you of the data’s accuracy or completeness. Trademarks, logos, service marks, materials, designs and other intellectual property used in this presentation are owned by Yum China Holdings, Inc. and its affiliates, or their use has been officially authorized by their respective owners. This presentation also may refer to brand names, trademarks, service marks and trade names of other companies and organizations, and these brand names, trademarks, service marks and trade names are the property of their respective owners. Non-GAAP Measures. Our presentation includes certain non-GAAP financial measures. Reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures are included on our presentation where indicated. Investors are urged to consider carefully the comparable GAAP measures and reconciliations. Cautionary Language Regarding Forward-Looking Statements

Business Overview by Joey Wat Pizza Hut Update by Joey Wat KFC Update by Johnson Huang Agenda

Food Services Value For Money Understanding evolving consumer needs is fundamental to YUMC’s success

Source: Mckinsey & Company (2012) Urban households annual income growth trend 2000 2010 2020 147 226 328 Women’s share of the labor force (%) High labor force participation rate and women’s share of labor force India Mexico Philippines Argentina South Korea Japan Europe United States Canada Australia Brazil China Total labor force participation rate (%) Year Household Number(Mil.) 20.4 Affluent (>$34k) Mainstream ($16-$34k) Value ($6-16k) Poor (<$6k) 26.6 1.2 -3.8 CAGR % Percent Urban middle class is the fastest growing segment in China. High labor force participation drive consumption growth Source: U.S. Bureau of Labor Statistics (2010)

Catering industry is still growing at double digits in China, driven by O2O food delivery (at >50% CAGR) in the past two years Source: National Bureau of Statistics, iResearch estimates (2016) Catering Industry Annual Sales O2O Food Delivery Sales Market kick-off 2015-18e CAGR =51%

China’s restaurant sector is highly fragmented, and prospects for chain restaurants remain promising Source: Euromonitor (2016), Citi Research

World class shared services Scalability Key success factors for YUMC Food! Food! Food! Lifestyle Culture & talent Attractive unit economics Replicable development model Infrastructure Scale Loyalty Operation

Customer Satisfaction Employee Engagement Shareholder Value + = Employee engagement and customer satisfaction are keys to building shareholder value in the long term

FAIR 公平 CARE 关心 PRIDE 自豪 Employee engagement is centered around three principles 我们遵循三个原则为员工代言

Pizza Hut Business Update Joey Wat | President & COO of Yum China Pizza Hut Update by Joey Wat

Pizza Hut is the largest western CDR in China 1st store opened in Beijing in 1990 Over 80 million pizzas served annually “Most Preferred Western Casual Dining Restaurant” – Nielson (2016)

Successfully expanded to over 2,100 stores in 475 cities Averaging ~80 stores a year over its 27 year history 1,770 373 Pizza Hut Home Service (PHHS) Pizza Hut Casual Dining (PHDI) Note, from 2008 ~ 2013 exclude Pizza Home Express

Sales stabilized in the past few quarters, focus now is on revitalization of the Brand Same-store sales growth (y/y) 1 System sales growth (y/y) 1 1Stated in constant currency basis

Biggest challenge of the brand is being outdated Pizza Hut in 2017 “暖男备胎” “My Reliable Backup Boyfriend”

Four levers to turn strategy into execution I. Fix Fundamentals II. Enhance Digital Capabilities IV. Experiment New Models III. Optimize Delivery Network Product innovation & update Menu rationalization Service and engagement New super APP launch Member privilege upgrade Store image upgrade Bistro model roll-out Pizza Hut delivery platform integration

Series of new products to bring excitement and value I

Thin, Chewy, Trendy, and Flavorful New October menu features innovative & healthy products I Italian Thin Pizza Roasted Vegetables Flavorful and Healthy

With a relaxing ordering experience and simplified menus 14_84 18_84 I

Durian Player, Play with FUN Creative and fun content through diverse channels I

Celebrity endorsements to revamp brand image I

Increasing outreach to other key customer groups Build kids market Interact with students I

Operational focus on improving customer service Enable digital experience Engage with customers Simplify service process Improve management & crew retention I

A win and scale approach to fix fundamentals I “Scale” – Roll-out “Win” – Pilot

上海佛罗伦萨餐厅 Many tests conducted in the pilot stores I

Super App as a platform for a full digital ecosystem. Over 3 million downloads in 2 months K-gold Delivery Member’s Day Exclusive offer Gift Card I I Member count at 30mn by Aug 2017

Pizza Hut is catching up with rapid growth in membership and digital payments I I Members Mobile payment Mobile payment as % of company sales Loyalty member count Member sales Member sales % of system sales

10_85 12_85 20_84 25_85 CRM Digital experience Member exclusive promotions and experiences Launch Super App 2.0 to enhance service experience Membership and digital engagement: Just one more visit I I Aggregator cooperation Joint marketing campaigns on aggregator’s platform

Pizza Hut has expanded delivery stores footprint… >2000 I I I Current business model Over 2,000 stores offering delivery today PHHS PHDI 1696 373 Number of stores offering delivery

Delivery sales as % of company sales … leading to significant sales growth I I I Delivery sales growth (Rmb mn) +45% +46% 2016 2017 2016 2017 +45% Ӡ 900

Pizza Hut delivery integration to provide a seamless consumer experience across multiple channels Short term challenge Unify the brand Strategy for long term I I I One brand with consistent image and message Standardization for high quality execution and efficiency Logo / Menu / Packaging / Marketing / Organization Store network optmization

Accelerate remodels to rejuvenate brand image I V

Target to have ~30 Bistro stores in ~10 cities by the end of 2017 I V

Ph+ model stores in high-end commercial complexes I V

Still in the early stages of laying a solid foundation for future growth OPTIMIZE DELIVERY NETWORK EXPERIMENT NEW MODELS FIX FUNDAMENTALS Rationalize MENU Innovate & upgrade PRODUCT taste Revamp SERVICES ENHANCE DIGITAL CAPABILITIES

KFC Update by Johnson Huang

Shanghai Oriental Tower lit up for KFC CHINA Video 1 (30th anniversary)

Strong sales momentum in the past 4 quarters

Week 1 Week 2 SR 193 110 MX 10.4% 6.1% Introducing several disruptive innovations in 2017

Providing unique and rich products Angry Burger

Upgrading to fresh and premium ingredients Avocado Burger

Successful launch of Cremia and seasonal flavors of ice-cream with good value Cremia Matcha Strawberry Mango

Providing abundant value on top of food innovations

Building a young and unconventional image Video 2 (Lu Han)

Breakfast - one of the key growth drivers in 2017…

KFC delivery maintains strong growth momentum 11% Delivery as % of company sales Current business model

Accelerate Penetration in High-speed Train Delivery In over 20 stations with strong market share

Building a fun and credible coffee image

Building on the latest trends to connect with kids

97 million members 33%* of sales contribution * As percentage of system sales

Exclusive value Free trial Member Tuesday Member life cycle Offering great promotions to members to increase stickiness

Promoting healthy lifestyle through direct engagement K-Run club 3 x 3 basketball

KFC Little Migratory Birds Fund One Yuan Donation Program KFC First Light Fund KFC Angel Restaurant KFC Community Caring Program Communities Youths Children Building upon our socially responsible brand

Enhancing store image through restaurant remodeling 834 Year to date, 378 stores remodeled

Unique store designs capturing local history and vibe

Revamped brand image to Young, Stylish & Trustworthy… 1 7 6 4 2 3 5 Trustworthy Young/ Energetic Stylish Interesting Fashionable Happy Warm hearted

Digital & Delivery Update Joey Wat | President & Chief Operating Officer, Yum China

Forward-Looking Statements. Our presentation may contain “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. 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,” “likely,” “will,” “should,” “forecast,” “outlook” 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 business plans, earnings and performance of Yum China including all targets, statements regarding future dividends, anticipated effects of population and macroeconomic trends and the capital structure of Yum China, statement regarding the anticipated effects of our digital and delivery capabilities 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 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 on our presentation are only made as of the date indicated on the relevant materials, and we disclaim any obligation to publicly update any forward-looking statement to reflect subsequent events or circumstances. Numerous factors could cause our actual results 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, 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 “Forward-Looking Statements” in our Annual Report on Form 10-K) for additional detail about factors that could affect our financial and other results. Market and Industry Data. Unless we indicate otherwise, we base the information concerning our industry contained on this presentation on our general knowledge of and expectations concerning the industry. Our market position and market share is based on our estimates using data from various industry sources and assumptions that we believe to be reasonable based on our knowledge of the industry. We have not independently verified the data obtained from these sources and cannot assure you of the data’s accuracy or completeness. Trademarks, logos, service marks, materials, designs and other intellectual property used in this presentation are owned by Yum China Holdings, Inc. and its affiliates, or their use has been officially authorized by their respective owners. This presentation also may refer to brand names, trademarks, service marks and trade names of other companies and organizations, and these brand names, trademarks, service marks and trade names are the property of their respective owners. Non-GAAP Measures. Our presentation includes certain non-GAAP financial measures. Reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures are included on our presentation where indicated. Investors are urged to consider carefully the comparable GAAP measures and reconciliations. Cautionary Language Regarding Forward-Looking Statements

Digital

Building a digital ecosystem across all points of the consumer journey Before Store Efficiency and Reach In Store Enhanced Experience After Store Customized Service and Engagement Diversified ordering options Digital menu boards Pick-up Payment Entertainment Customized membership services Real time customer feedback Mobile pre-order Virtual store geo-targeting Membership Program Super App Key Enablers

Before Store Virtual stores Pre-Orders Mobile Payment Mobile Payment Gifting E-gifting Card After Store Membership Entertain Wi-Fi / K-music 4,000+ Stores 97MM+ Members First month songs 570K+ 5,300+ virtual stores Pre-order From 1Q17 45% of sales KFC offers a complete digital consumer journey today In Store Digital ordering Kiosks and Signage Key Focus Areas

Pre-orders increase consumer convenience and transaction efficiency Easy to order Multiple occasions

In-store digitization improves efficiencies and reinforces young and trendy image Kiosk ordering Pick-up board Digital menu board Mobile payment K-music In-store WiFi Mobile ordering

$1.2bn in cashless payments in 3Q Other Cashless Payment ~15% Mobile Payment >45% Mobile & other cashless payments as % of company sales Payment Channels China is the world leader in mobile payment YUMC is one of the leaders in China

KPRO – A full digital experience KPRO Make 100% digital ordering experience possible KPRO Video Here

Further digital evolution to enable ordering across multiple party sizes and occasions

Membership programs are key enabler of the digital experience: 120MN members cultivated in two years Launched in Oct 2015 Launched in Nov 2015

Currently a significant contribution to KFC system sales Member sales as % of system sales

Member exclusive campaigns drive loyalty and frequency 2017 Mar 30th Anniversary 2017 Sept 30th Anniversary 2017 Feb Spring Rising Day 2016 Nov Member Anniversary

Customized offers increase consumer engagement… Member’s day Birthday offering Free trial

Brand Champion Privilege Member Welcome Member Fans/ Customer Brand lovers Enhance Online Brand Image Heavy users Lock Share of Wallet Mass consumer Lower Cost of Reach Frequent users Increase Frequency Objectives …while segmentation enables multiple brand objectives

1 2 3 4 Pilot Product Launch 5 Data Driven Coupon Interaction via K-gold K- Lifestyle Brand Champion Welcome Member And further segmentation driven by differentiated offers Privilege Member Brand Champion KFC rewarded me with K-gold, that’s great! I will continue to support KFC!

Launched on 1st July Next version: November Mobile self-ordering Delivery Pizza Hut Super App launched integrating CRM & delivery >3mn downloads in two months

23_84 26_84 25_84 27_84 28_84 First steps in digital vision Pioneering our digital vision Leveraging KFC experience

Delivery

Curated delivery menu Specific packaging for hot and cold products KFC and Pizza Hut are the #1 delivery brands in their respective categories with key value differentiators Speed, satisfaction, and engagement focus Constant customer feedback 5,100+ delivery units* Over 800 cities Cooperate with all major delivery aggregators >90% delivery sales online Food Service Network *Data as of Q3 2017 No.1 single brand delivery platform No.1 pizza delivery brand

Aiming to delight customers throughout the whole delivery experience I know Unique delivery brands I love Fun and abundant value to me I can order it anywhere anytime Easy to order Professional packaging Innovative products

Delivery network expansion has been the key driver of growth >5100 Number of stores offering delivery

Own riders are key to maintaining quality, service and control while leveraging aggregator traffic Consumers Own Platform Aggregators KFC stores KFC rider >3,000 delivery stores nationwide KFC delivery business model Pizza Hut delivery business model Consumers Own Platform Aggregators >2,000 delivery stores nationwide Own rider 3rd-party rider

Delivery as % of company sales Quality, service and network sustain sales growth Delivery sales growth

Future delivery growth will be driven through four initiatives Campaign Innovation Digital Innovation Daypart Innovation Network Expansion

Social Bucket to make young consumers “WOW” Campaign Innovation Digital Innovation Daypart Innovation Channel Expansion

Signature Smart Value driving sales during off peak periods and dayparts Joint promotions Everyday One Yuan Campaign Innovation Digital Innovation Daypart Innovation Channel Expansion

Targeted promotions backed by enhanced IT system Enhance IT system Leverage membership program Delivery system Store Rider Consumer Campaign Innovation Digital Innovation Daypart Innovation Channel Expansion

Targeted daypart promotions to build delivery awareness Breakfast Afternoon Tea Coffee Special Occasion Campaign Innovation Digital Innovation Daypart Innovation Channel Expansion

KFC offering in-train delivery at >20 stations across China Station expansion (>20 stations currently) Enhance operational efficiency New consumer-friendly package Optimizing menu according to consumer preferences Campaign Innovation Digital Innovation Daypart Innovation Channel Expansion

STAY TRUE AIM HIGH

Financial Update Jacky Lo | Chief Finance Officer, Yum China

Forward-Looking Statements. Our presentation may contain “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. 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,” “likely,” “will,” “should,” “forecast,” “outlook” 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 business plans, earnings and performance of Yum China including all targets, statements regarding future dividends, anticipated effects of population and macroeconomic trends and the capital structure of Yum China, statement regarding the anticipated effects of our digital and delivery capabilities 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 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 on our presentation are only made as of the date indicated on the relevant materials, and we disclaim any obligation to publicly update any forward-looking statement to reflect subsequent events or circumstances. Numerous factors could cause our actual results 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, 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 “Forward-Looking Statements” in our Annual Report on Form 10-K) for additional detail about factors that could affect our financial and other results. Market and Industry Data. Unless we indicate otherwise, we base the information concerning our industry contained on this presentation on our general knowledge of and expectations concerning the industry. Our market position and market share is based on our estimates using data from various industry sources and assumptions that we believe to be reasonable based on our knowledge of the industry. We have not independently verified the data obtained from these sources and cannot assure you of the data’s accuracy or completeness. Trademarks, logos, service marks, materials, designs and other intellectual property used in this presentation are owned by Yum China Holdings, Inc. and its affiliates, or their use has been officially authorized by their respective owners. This presentation also may refer to brand names, trademarks, service marks and trade names of other companies and organizations, and these brand names, trademarks, service marks and trade names are the property of their respective owners. Non-GAAP Measures. Our presentation includes certain non-GAAP financial measures. Reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures are included on our presentation where indicated. Investors are urged to consider carefully the comparable GAAP measures and reconciliations. Cautionary Language Regarding Forward-Looking Statements

STAY TRUE AIM HIGH

No. 1 Restaurant company in China Top Brands Western Governance Best-in-class Management Nationwide Supply chain Unique Strengths of Yum China

NET NEW UNIT DEVELOPMENT SAME-STORE SALES GROWTH MARGINS & G&A MANAGEMENT STRATEGIC CAPITAL ALLOCATION 1 2 3 4 SHAREHOLDER RETURNS How we create value for shareholders

7,747 Restaurants1 ~1.5 Average no. of restaurants opened daily2 1,220 Remodeled stores (Jan 2016 – Aug 2017) >1,100 No. of cities present1 1As of the end of August 2017. 2Per our previous guidance, Yum China targets to open 550-600 new units on a gross basis.. Average no. of restaurants opened daily = 550 restaurants divided by 365 days Solid development plan to drive system sales growth 1

1 Compelling new unit return <4 ~2 Average Pre-tax Cash Payback Period1 ~RMB 6.1mn Average Unit Volume ~RMB 2.6mn Cash Investment ~22% Cash Margin ~RMB 5.6mn ~RMB 3.3mn ~17% Years Years2 1Includes all units opened from June 2015 to May 2016, after deduction of 3% license fee. 2For Pizza Hut Casual Dining units only.

Significant lead over competitors 1 >2x More units than nearest competitor 1Includes both Pizza Hut Casual Dining and Pizza Hut Home Service units. 2We define restaurant penetration as number of Yum China restaurants per million people. It is calculated as follow: Yum China’s total unit count divided by total China population. >5x More units than nearest competitor1 Yum China Restaurant Penetration2 ~3x

Encouraging trend in same-store sales growth 2 2017 2017 2017

Focusing on SSSG to drive sales leverage 2 Innovation Great value SSS Growth Digital capability Delivery network

Restaurant margin management 3 Restaurant Margin Commodity Inflation Labor Inflation Efficiency Key Factors Affecting Restaurant Margin (Aug YTD 2017) No longer a tailwind from Q3 onwards

G&A costs optimization 3 G&A Change YoY G&A Costs Low-teens percentage increase in 2017 Cost structure optimization Aim to keep G&A increase below total revenues growth

Generating robust free cash flow 4 $987mn $1.6bn Zero Operating cash flow (Jan-Aug 2017) Debt2 Cash and short-term investment2 1Free cash flow is net operating cash flow less capital expenditure. 2As of the end of August 2017. 26% Free cash flow CAGR1 (2014-2016)

Recap of capital allocation 4 $128mn ~$39mn Share repurchase completed2 First quarterly dividend announced1 $61.7mn Acquisition3 $550mn Total share repurchase authorization1 1As of October 5, 2017. 2As of the end of August 2017. 3Yum China agreed to pay a cash consideration of $36.7mn to the sellers and made a concurrent capital contribution of $25.0mn to Daojia.

Strategic capital allocation 4 Repurchase Dividend More shares Increase on per share basis Strategic Growth initiatives Invest Into the core business

STAY TRUE AIM HIGH

High Single Digit System sales growth, ex FX ~17% Restaurant margin Double Digit Operating profit growth, ex FX Ongoing financial targets

Effective tax rate Diluted share count 29.3% August YTD 2017 August YTD 2016 28.0% 397mn 364mn Factors impacting EPS growth

Thank You

Non-GAAP Definitions In an effort to provide investors with additional information regarding the Company's financial results and other financial information as determined by generally accepted accounting principles (GAAP), the company also discusses in these materials, the following Non-GAAP information which management believes provides useful information to investors: Adjusted EBITDA – We define adjusted EBITDA as net income including noncontrolling interests adjusted for income tax, interest income, depreciation, amortization and other items, including store impairment charges. System-Sales – System sales growth reflects the results of all restaurants regardless of ownership, including Company-owned, franchise and unconsolidated affiliate restaurants that operate our 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 a rate of approximately 6% of system sales. Franchise and unconsolidated affiliate restaurant sales are not included in Company sales on the Condensed Consolidated and Combined Summary of Results; 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. Constant Currency (Ex-FX) — We refer to growth rates at constant currency or adjusting for currency so that the business results can be viewed without the impact of fluctuations in foreign currency exchange rates. These amounts are calculated by translating current-year results at prior-year average exchange rates. We believe elimination of the foreign currency translation impact provides better year-to-year comparability of sales trends.

Reconciliations of Reported Results to Non-GAAP Measures Reconciliation of Net Income to Adjusted EBITDA Quarter ended Year to date ended (In US$ million) 8/31/2017 8/31/2016 8/31/2017 8/31/2016 Net income – noncontrolling interests $ 10 $ 10 $ 21 $ 10 Net Income – Yum China Holdings, Inc. 211 192 493 414 Income tax provision 102 87 213 165 Interest income, net (6) (3) (13) (7) Operating Profit 317 286 714 582 Depreciation and amortization 105 101 265 272 Store impairment charges 6 6 28 43 Special Items Income – Operating Profit (3) (3) (3) (2) Adjusted EBITDA $ 425 $ 390 $ 1,004 $ 895 Yum China System Sales Year to date ended (In US$ million) 8/31/2017 Company sales 4,818 Franchisee sales 1,163 Total system sales 5,981