Yum China Reports Fourth Quarter and Full Year 2017 Results
February 7, 2018 at 4:30 PM EST

SHANGHAI, Feb. 7, 2018 /PRNewswire/ -- Yum China Holdings, Inc. (the "Company" or "Yum China") (NYSE: YUMC) today reported unaudited results for the fourth quarter and full year ended December 31, 2017. Reported GAAP results include Special Items, which are excluded from 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 Adjusted Measures" within this release.

Fourth-Quarter Highlights

  • Same-store sales grew 5%, with an increase of 7% at KFC and 1% at Pizza Hut.
  • Total system sales grew 9%, including growth of 11% at KFC and 6% at Pizza Hut, excluding foreign currency translation ("F/X").
  • Total revenues were $2.2 billion, an increase of 13% (9%, excluding F/X).
  • Opened 339 new restaurants during the quarter.
  • Operating Profit was $71 million, an increase of 23%. Excluding Special Items recorded in the fourth quarter of 2016 and F/X, Adjusted Operating Profit decreased 9% due to investment in product upgrades at Pizza Hut during the quarter, partially offset by strong sales leverage at KFC.
  • Recorded an estimated one-time tax charge ("Tax Charge") of $164 million, or $0.42 per share, related to recent US tax reform.
  • Net Loss was $90 million including the above estimated Tax Charge. Excluding this impact, Adjusted Net Income was $74 million, an increase of 12% (18%, excluding F/X).
  • Diluted EPS was negative $0.23 including the above estimated Tax Charge of $0.42. Excluding this impact, Adjusted Diluted EPS was positive $0.19, an increase of 12% (18%, excluding F/X).
  • Growth of digital initiatives continued with over 110 million members of KFC and over 35 million members of Pizza Hut loyalty programs, and mobile payment accounted for about 53% of Company sales in the quarter.

Full-Year Highlights

  • Same-store sales grew 4%, with an increase of 5% at KFC and 1% at Pizza Hut.
  • Total system sales grew 8%, including growth of 9% at KFC and 7% at Pizza Hut, excluding F/X.
  • Total revenues were $7.1 billion, an increase of 6% (8%, excluding F/X).
  • Opened 691 new restaurants during the full year, bringing total store count to 7,983 across more than 1,200 cities.
  • Restaurant margin improved 1.5 percentage points to 16.8%, primarily driven by same-store sales leverage and aided by the impact of retail tax structure reform.
  • Operating Profit was $785 million, an increase of 23%. Excluding Special Items, Adjusted Operating Profit was $782 million, an increase of 20% (23%, excluding F/X) driven by strong sales and margin expansion.
  • Net Income was $403 million, a decrease of 20%. Excluding Special Items, Adjusted Net Income was $564 million, an increase of 20% (24%, excluding F/X).
  • Effective tax rate was 47.0%, or 26.9% excluding Special Items.
  • Diluted EPS was $1.01, a decrease of 26%. Excluding Special Items, Adjusted Diluted EPS was $1.42, an increase of 11% (15%, excluding F/X).

Key Financial Results

     

Fourth Quarter

   

Full Year

 
     

% Change

   

% Change

 
     

System

Sales

 

Same-
Store

Sales

 

Net New

Units

 

Operating

Profit

   

System

Sales

 

Same-
Store

Sales

 

Net New

Units

 

Operating

Profit

 
                                       
 

Yum China

 

+9

 

+5

 

+6

 

+23

   

+8

 

+4

 

+6

 

+23

 
 

KFC

 

+11

 

+7

 

+5

 

+53

   

+9

 

+5

 

+5

 

+26

 
 

Pizza Hut

 

+6

 

+1

 

+5

 

NM

   

+7

 

+1

 

+5

 

+5

 

 

 

     

Fourth Quarter

     

Full Year

   
 

(in US$ million, except

                 

% Change

                     

% Change

   
 

for per share data and percentages)

 

2017

   

2016

   

Reported

 

Ex F/X

     

2017

   

2016

   

Reported

 

Ex F/X

   
 

Operating Profit

 

$

71

   

$

58

   

+23

 

+17

     

$

785

   

$

640

   

+23

 

+26

   
 

Adjusted Operating Profit1

 

$

71

   

$

75

   

(5)

 

(9)

     

$

782

   

$

655

   

+20

 

+23

   
 

Net (Loss) Income

 

$

(90)

   

$

88

   

NM

 

NM

     

$

403

   

$

502

   

(20)

 

(15)

   
 

Adjusted Net Income1

 

$

74

   

$

66

   

+12

 

+18

     

$

564

   

$

471

   

+20

 

+24

   
 

Basic Earnings (Loss) Per
Common Share

 

$

(0.23)

   

$

0.23

   

NM

 

NM

     

$

1.04

   

$

1.36

   

(24)

 

(19)

   
 

Adjusted Basic EPS Per Common
Share1

 

$

0.19

   

$

0.18

   

+6

 

+11

     

$

1.46

   

$

1.28

   

+14

 

+19

   
 

Diluted Earnings (Loss) Per
Common Share

 

$

(0.23)

   

$

0.23

   

NM

 

NM

     

$

1.01

   

$

1.36

   

(26)

 

(21)

   
 

Adjusted Diluted EPS Per
Common Share1

 

$

0.19

   

$

0.17

   

+12

 

+18

     

$

1.42

   

$

1.28

   

+11

 

+15

   
                                                           

1 See "Reconciliation of Reported GAAP Results to Adjusted Measures" included in the accompanying tables of this release for further details.
Note: All comparisons are versus the same period a year ago. 
NM refers to changes over 100%, from negative to positive amounts or from zero to an amount. 
Consistent with prior years, Yum China's fiscal fourth quarter includes September, October, November and December results. 
Percentages may not recompute due to rounding.
System sales and same-store sales percentages exclude the impact of F/X.

CEO and COO Comments

"2017 marks the first full year of Yum China as an independently listed company and we are pleased with high single-digit system sales growth and double-digit operating profit growth. Our development team has again exceeded expectations in opening 691 new restaurants in 2017. I am very pleased to hand over the reins to Joey Wat as our new CEO from March 1st; she has demonstrated an excellent track record and is the right person leading Yum China as we head into 2018, with challenging sales and profit laps particularly in the first half of the year" said Micky Pant, CEO of Yum China.

"All of us at Yum China are committed to building leading brands for the long term through innovation. We will focus on our strategic priorities on digital and delivery, while continuing to improve our food and in-store experience. While we finished 2017 with a solid sales momentum, we continue to face challenges of the revitalization of Pizza Hut and lapping of two very successful Chinese New Year promotions. However I remain confident in the growth opportunities and long term prospects of Yum China." remarked Joey Wat, President and COO of Yum China. 

US Tax Reform Impact

  • As a result of the Tax Cuts and Jobs Act (the "Tax Act"), the Company incurred an estimated Tax Charge of $164 million, or $0.42 per share, during the fourth quarter, primarily related to the transition tax on deemed repatriation of unremitted earnings of foreign subsidiaries, and the revaluation of certain deferred tax assets.

Dividend and Share Repurchase

  • The Board of Directors declared a cash dividend of $0.10 per share on Yum China's common stock, payable as of the close of business on March 21, 2018, to stockholders of record as of the close of business on February 28, 2018.
  • In 2017, Yum China repurchased 3.4 million shares totaling $128 million at an average price of $38.18 per share.

New-Unit Development and Asset Upgrade

  • Opened 339 new restaurants in the fourth quarter and 691 new restaurants for the year, driven by development of the KFC brand.
  • Remodeled 359 restaurants in the fourth quarter and 788 restaurants for the full year, focusing on KFC. Over 75% of Yum China's current store portfolio has been remodeled or built in the past five years.
       

New Units

   

Restaurant Count

   
       

Fourth

       

As of Fourth Quarter End

   
       

Quarter

 

Full Year

   

2017

 

2016

   
 

Yum China

   

339

 

691

   

7,983

 

7,562

   
 

KFC

   

193

 

408

   

5,488

 

5,224

   
 

Pizza Hut

   

78

 

180

   

2,195

 

2,081

   
 

Little Sheep, East Dawning, Taco Bell

   

68

 

103

   

300

 

257

   

Restaurant Margin

  • For the quarter, Yum China restaurant margin improved 0.3 percentage points to 11.3%, primarily attributable to the same-store sales leverage and margin expansion at KFC, partially offset by investment in product upgrades at Pizza Hut.
  • For the year, Yum China restaurant margin improved 1.5 percentage points to 16.8%, primarily driven by same-store sales leverage and aided by the impact of retail tax structure reform, partially offset by wage inflation of 7% and promotion costs.
     

Fourth Quarter

     

Full Year

   
     

2017

 

2016

 

% ppts

change

     

2017

 

2016

 

% ppts

change

   
 

Yum China

 

11.3

%

 

11.0

%

 

0.3

     

16.8

%

 

15.3

%

 

1.5

   
 

KFC

 

13.7

%

 

11.7

%

 

2.0

     

18.1

%

 

16.3

%

 

1.8

   
 

Pizza Hut

 

5.6

%

 

9.8

%

 

(4.2)

     

13.9

%

 

13.4

%

 

0.5

   

Digital and Delivery

  • Loyalty program members increased to over 110 million for KFC and over 35 million for Pizza Hut at year end.
  • Mobile payments accounted for about 53% of Company sales during the fourth quarter of 2017.
  • Delivery contributed to 14% of Company sales for 2017.

Conference Call

Yum China Holdings, Inc. will host a conference call to review the Company's financial performance and strategies at 7:00 p.m. US Eastern Time on Wednesday, February 7, 2018 (8:00 a.m. Beijing/HK time on Thursday, February 8, 2018).  A copy of the presentation will be available on the Yum China Holdings, Inc. website, http://ir.yumchina.com

US:

 

+1-845-675-0437

Hong Kong:

 

+852-3018-6771

Mainland China:

 

400-620-8038 or 800-819-0121

International:

 

+65-6713-5090

Passcode:

 

Yum China

A replay of the conference call may be accessed by phone at the following numbers until February 18, 2018:

US:

 

+1-855-452-5696

International:

 

+61-2-8199-0299

Passcode:

 

3685906

The webcast and the playback can be accessed via the internet by visiting the Yum China Holdings, Inc. website, http://ir.yumchina.com  

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. 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, anticipated effects of population and macroeconomic trends, statements regarding the capital structure of Yum China, and the estimated impact of the recent US tax reform. 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 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 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.

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 Mexican-inspired quick-service restaurant brand. Yum China also owns the Little Sheep and East Dawning concepts outright. Yum China is well positioned for growth thanks to its strong competitive position, integration of its brands into Chinese popular culture and consumers' daily lives, expanding geographic footprint in China and existing operational expertise. It has a strong capital position, no external debt and expects to continue growing its system sales and profit by adding new restaurants and through growing same-store sales. Yum China had more than 7,900 restaurants and more than 450,000 employees in over 1,200 cities at 2017 year end. A new generation of younger consumers who are digitally sophisticated and brand driven are fueling growth in consumption in China. The ongoing growth of the middle class and urban population in China is expected to create the world's largest market for restaurant brands, with Yum China poised to be the market leader.

Investor Relations Contacts:

   

Michelle Shen, +86 21 2407 8260

Director, Finance

 

Florence Lip, +86 21 2407 7678

Director, Finance

     

Media Contact

   

Forest Liu, +86 21 2407 7505

Director, Financial Media

 

 

 

Yum China Holdings, Inc.

Consolidated and Combined Summary of Results

(amounts in US$ million, except for number of shares and per share amounts)

(unaudited)

 
   

Quarter ended

   

% Change

 

Year ended

   

% Change

   

12/31/2017

   

12/31/2016

   

B/(W)

 

12/31/2017

   

12/31/2016

   

B/(W)

Revenues

                                           

Company sales

 

$

2,180

   

$

1,938

   

13

   

$

6,998

   

$

6,622

   

6

 

Franchise fees and income

   

48

     

40

   

20

     

146

     

130

   

12

 

Total revenues

   

2,228

     

1,978

   

13

     

7,144

     

6,752

   

6

 

Costs and Expenses, Net

                                           

Company restaurants

                                           

Food and paper

   

660

     

558

   

(18)

     

2,033

     

1,919

   

(6)

 

Payroll and employee benefits

   

533

     

469

   

(14)

     

1,551

     

1,432

   

(8)

 

Occupancy and other operating expenses

   

744

     

697

   

(7)

     

2,245

     

2,259

   

1

 

Company restaurant expenses

   

1,937

     

1,724

   

(12)

     

5,829

     

5,610

   

(4)

 

General and administrative expenses

   

193

     

153

   

(27)

     

487

     

424

   

(15)

 

Franchise expenses

   

21

     

20

   

(5)

     

69

     

71

   

3

 

Closures and impairment expenses, net

   

27

     

42

   

34

     

47

     

78

   

40

 

Refranchising gain, net

   

(3)

     

(7)

   

(47)

     

(5)

     

(15)

   

(63)

 

Other income, net

   

(18)

     

(12)

   

47

     

(68)

     

(56)

   

21

 

Total costs and expenses, net

   

2,157

     

1,920

   

(12)

     

6,359

     

6,112

   

(4)

 

Operating Profit

   

71

     

58

   

23

     

785

     

640

   

23

 

Interest income, net

   

12

     

4

   

NM

     

25

     

11

   

NM

 

Changes in fair value of financial instruments

   

-

     

21

   

NM

     

-

     

21

   

NM

 

Income Before Income Taxes

   

83

     

83

   

-

     

810

     

672

   

21

 

Income tax (provision) benefit

   

(168)

     

7

   

NM

     

(381)

     

(158)

   

NM

 

Net income (loss) - including noncontrolling
interests

   

(85)

     

90

   

NM

     

429

     

514

   

(16)

 

Net income - noncontrolling interests

   

5

     

2

   

NM

     

26

     

12

   

NM

 

Net Income (Loss) - Yum China Holdings, Inc.

 

$

(90)

   

$

88

   

NM

   

$

403

   

$

502

   

(20)

 

Effective tax rate

   

203.0

%

   

(8.4)%

   

NM

     

47

%

   

23.5

%

 

(23.5)

ppts.

                                             

Basic Earnings (Loss) Per Common Share

 

$

(0.23)

   

$

0.23

   

NM

   

$

1.04

   

$

1.36

   

(24)

 

Weighted average shares outstanding

   

385,548,233

     

375,718,539

   

3

     

386,533,783

     

367,744,992

   

5

 
                                             

Diluted Earnings (Loss) Per Common Share

 

$

(0.23)

   

$

0.23

   

NM

   

$

1.01

   

$

1.36

   

(26)

 

Weighted average shares outstanding

   

399,229,895

     

379,915,075

   

5

     

398,089,606

     

369,143,838

   

8

 
                                             

Company sales

   

100.0

%

   

100.0

%

         

100.0

%

   

100.0

%

     

Food and paper

   

30.2

     

28.8

   

(1.4)

ppts.

   

29.0

     

29.0

   

-

ppts.

Payroll and employee benefits

   

24.5

     

24.2

   

(0.3)

ppts.

   

22.2

     

21.6

   

(0.6)

ppts.

Occupancy and other operating expenses

   

34.0

     

36.0

   

2.0

ppts.

   

32.0

     

34.1

   

2.1

ppts.

Restaurant margin

   

11.3

%

   

11.0

%

 

0.3

ppts.

   

16.8

%

   

15.3

%

 

1.5

ppts.

Operating margin

   

3.2

%

   

3.0

%

 

0.2

ppts.

   

11.2

%

   

9.7

%

 

1.5

ppts.

Percentages may not recompute due to rounding.

 

 

Yum China Holdings, Inc.

KFC Operating Results

(amounts in US$ million)

(unaudited)

 
   

Quarter ended

   

% Change

 

Year ended

   

% Change

   

12/31/2017

   

12/31/2016

   

B/(W)

 

12/31/2017

   

12/31/2016

   

B/(W)

Revenues

                                           

Company sales

 

$

1,522

   

$

1,334

   

14

   

$

4,864

   

$

4,572

   

6

 

Franchise fees and income

   

41

     

37

   

11

     

134

     

124

   

8

 

Total revenues

   

1,563

     

1,371

   

14

     

4,998

     

4,696

   

6

 

Costs and Expenses, Net

                                           

Company restaurants

                                           

Food and paper

   

465

     

402

   

(16)

     

1,454

     

1,372

   

(6)

 

Payroll and employee benefits

   

346

     

308

   

(13)

     

1,012

     

933

   

(9)

 

Occupancy and other operating expenses

   

502

     

468

   

(7)

     

1,518

     

1,522

   

-

 

Company restaurant expenses

   

1,313

     

1,178

   

(12)

     

3,984

     

3,827

   

(4)

 

General and administrative expenses

   

70

     

60

   

(15)

     

176

     

161

   

(9)

 

Franchise expenses

   

21

     

18

   

(12)

     

67

     

68

   

2

 

Closures and impairment expenses, net

   

10

     

16

   

43

     

20

     

41

   

52

 

Other income, net

   

(11)

     

(7)

   

56

     

(56)

     

(45)

   

24

 

Total costs and expenses, net

   

1,403

     

1,265

   

(11)

     

4,191

     

4,052

   

(3)

 

Operating Profit

 

$

160

   

$

106

   

53

   

$

807

   

$

644

   

26

 

Company sales

   

100.0

%

   

100.0

%

         

100.0

%

   

100.0

%

     

Food and paper

   

30.5

     

30.1

   

(0.4)

ppts.

   

29.9

     

30.0

   

0.1

ppts.

Payroll and employee benefits

   

22.8

     

23.1

   

0.3

ppts.

   

20.8

     

20.4

   

(0.4)

ppts.

Occupancy and other operating expenses

   

33.0

     

35.1

   

2.1

ppts.

   

31.2

     

33.3

   

2.1

ppts.

Restaurant margin

   

13.7

%

   

11.7

%

 

2.0

ppts.

   

18.1

%

   

16.3

%

 

1.8

ppts.

Operating margin

   

10.6

%

   

7.9

%

 

2.7

ppts.

   

16.6

%

   

14.1

%

 

2.5

ppts.

Percentages may not recompute due to rounding.

 

 

Yum China Holdings, Inc.

Pizza Hut Operating Results

(amounts in US$ million)

(unaudited)

 
   

Quarter ended

   

% Change

 

Year ended

   

% Change

   

12/31/2017

   

12/31/2016

   

B/(W)

 

12/31/2017

   

12/31/2016

   

B/(W)

Revenues

                                           

Company sales

 

$

641

   

$

588

   

9

   

$

2,090

   

$

1,993

   

5

 

Franchise fees and income

   

-

     

-

   

(7)

     

2

     

2

   

15

 

Total revenues

   

641

     

588

   

9

     

2,092

     

1,995

   

5

 

Costs and Expenses, Net

                                           

Company restaurants

                                           

Food and paper

   

190

     

151

   

(26)

     

566

     

527

   

(7)

 

Payroll and employee benefits

   

178

     

157

   

(14)

     

519

     

483

   

(7)

 

Occupancy and other operating expenses

   

237

     

223

   

(6)

     

713

     

716

   

-

 

Company restaurant expenses

   

605

     

531

   

(14)

     

1,798

     

1,726

   

(4)

 

General and administrative expenses

   

38

     

32

   

(26)

     

108

     

100

   

(8)

 

Franchise expenses

   

-

     

2

   

69

     

2

     

3

   

41

 

Closures and impairment expenses, net

   

18

     

6

   

NM

     

27

     

17

   

(60)

 

Total costs and expenses, net

   

661

     

571

   

(16)

     

1,935

     

1,846

   

(5)

 

Operating Profit (Loss)

 

$

(20)

   

$

17

   

NM

   

$

157

   

$

149

   

5

 

Company sales

   

100.0

%

   

100.0

%

         

100.0

%

   

100.0

%

     

Food and paper

   

29.6

     

25.6

   

(4.0)

ppts.

   

27.1

     

26.4

   

(0.7)

ppts.

Payroll and employee benefits

   

27.9

     

26.8

   

(1.1)

ppts.

   

24.9

     

24.3

   

(0.6)

ppts.

Occupancy and other operating expenses

   

36.9

     

37.8

   

0.9

ppts.

   

34.1

     

35.9

   

1.8

ppts.

Restaurant margin

   

5.6

%

   

9.8

%

 

(4.2)

ppts.

   

13.9

%

   

13.4

%

 

0.5

ppts.

Operating margin

   

(3.2)

%

   

3.4

%

 

(6.7)

ppts.

   

7.5

%

   

7.5

%

 

-

ppts.

Percentages may not recompute due to rounding.

 

 

Yum China Holdings, Inc.

Consolidated Balance Sheets

(amounts in US$ million, except for number of shares)

(unaudited)

 
   

12/31/2017

 

12/31/2016

ASSETS

           

Current Assets

           

Cash and cash equivalents

 

$

1,059

 

$

885

Short-term investments

   

205

   

79

Accounts receivable, net

   

81

   

74

Inventories, net

   

297

   

268

Prepaid expenses and other current assets

   

160

   

120

Total Current Assets

   

1,802

   

1,426

Property, plant and equipment, net

   

1,691

   

1,647

Goodwill

   

108

   

79

Intangible assets, net

   

101

   

88

Investments in unconsolidated affiliates

   

89

   

71

Other assets

   

373

   

254

Deferred income taxes

   

99

   

162

Total Assets

   

4,263

   

3,727

LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND EQUITY

           

Current Liabilities

           

Accounts payable and other current liabilities

   

978

   

971

Income taxes payable

   

39

   

33

Total Current Liabilities

   

1,017

   

1,004

Capital lease obligations

   

28

   

28

Other liabilities and deferred credits

   

354

   

252

Total Liabilities

   

1,399

   

1,284

Redeemable Noncontrolling Interest

   

5

   

-

Equity

           

Common stock,  $0.01 par value; 1,000,000,000 shares authorized;
388,860,534.42 shares and 383,344,835.42 shares issued at December 31, 2017 and
December 31, 2016, respectively; 384,720,152 shares and 383,344,835.42 shares 
outstanding at December 31, 2017 and December 31, 2016, respectively

   

4

   

4

Treasury stock

   

(148)

   

(20)

Additional paid-in capital

   

2,383

   

2,352

Retained earnings

   

405

   

40

Accumulated other comprehensive income

   

138

   

1

Total Equity - Yum China Holdings, Inc.

   

2,782

   

2,377

Noncontrolling interests

   

77

   

66

Total Equity

   

2,859

   

2,443

Total Liabilities, Redeemable Noncontrolling Interest and Equity

 

$

4,263

 

$

3,727

 

 

Yum China Holdings, Inc.

Consolidated and Combined Statements of Cash Flows

(amounts in US$ million)

(unaudited)

 
 

Year ended

 

12/31/2017

 

12/31/2016

Cash Flows - Operating Activities

         

Net income - including noncontrolling interests

$

429

 

$

514

Depreciation and amortization

 

409

   

402

Closures and impairment expenses

 

47

   

78

Refranchising gain

 

(5)

   

(15)

Deferred income taxes

 

64

   

(40)

Equity income from investments in unconsolidated affiliates

 

(65)

   

(54)

Distributions of income received from unconsolidated affiliates

 

45

   

35

Share-based compensation expense

 

26

   

16

Changes in fair value of financial instruments

 

-

   

(21)

Changes in accounts receivable

 

(1)

   

(54)

Changes in inventories

 

(11)

   

(96)

Changes in prepaid expenses and other current assets

 

(13)

   

7

Changes in accounts payable and other current liabilities

 

(58)

   

123

Changes in income taxes payable

 

3

   

6

Other, net

 

14

   

(35)

Net Cash Provided by Operating Activities

 

884

   

866

Cash Flows - Investing Activities

         

Capital spending

 

(415)

   

(436)

Purchase of short-term investments

 

(596)

   

(136)

Maturities of short-term investments

 

479

   

53

Proceeds from refranchising of restaurants

 

7

   

32

Proceeds from disposal of aircraft

 

-

   

19

Acquisition of business, net of cash acquired

 

(25)

   

-

Other, net

 

(7)

   

(3)

Net Cash Used in Investing Activities

 

(557)

   

(471)

Cash Flows - Financing Activities

         

Net transfers to Parent

 

-

   

(357)

Payment of capital lease obligations

 

(2)

   

(3)

Repurchase of shares of common stock

 

(128)

   

-

Proceeds from exercise of stock options

 

5

   

-

Dividends paid on common stock

 

(38)

   

-

Proceeds from issuance of common stock and warrants

 

-

   

460

Other, net

 

(22)

   

(7)

Net Cash (Used in) Provided by Financing Activities

 

(185)

   

93

Effect of Exchange Rates on Cash and Cash Equivalents

 

32

   

(28)

Net Increase in Cash and Cash Equivalents

 

174

   

460

Cash and Cash Equivalents - Beginning of Period

 

885

   

425

Cash and Cash Equivalents - End of Period

$

1,059

 

$

885

 

Reconciliation of Reported GAAP Results to Adjusted Measures
(amounts in US$ million, except for number of shares and per share amounts)
(unaudited)

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 foreign currency translation impact provides better year-to-year comparability without the distortion of foreign currency fluctuations.
  • System sales growth includes 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 Consolidated and Combined 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.
  • Same-store sales growth is the estimated percentage change in sales of all restaurants that have been open and in the Company system one year or more.
  • 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 as a percentage of sales is defined as Restaurant profit divided by Company sales.

In addition to the results provided in accordance with US Generally Accepted Accounting Principles ("GAAP") in this press release, the Company provides measures adjusted for Special Items which present Adjusted Operating Profit, Adjusted Net Income, Adjusted Diluted Earnings Per Common Share, Adjusted Effective Tax Rate and Adjusted EBITDA. Included in Special Items are reversal of  losses associated with sales of aircraft, incremental restaurant-level impairment upon separation, income from the reversal of contingent consideration previously recorded for a business combination, changes in fair value of financial instruments, an estimated one-time tax charge as a result of the US Tax Cuts and Jobs Act (the "Tax Act") and impact of the redemption of the Little Sheep noncontrolling interest. These amounts are described in (b), (c), (d), (e), (f), (g) and (h) in the accompanying notes. 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. 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. These adjusted measures should not be considered in isolation or as a substitute for GAAP financial results, but should be read in conjunction with the unaudited Consolidated and Combined Summary of Results and other information presented herein. A reconciliation of the most directly comparable GAAP measures to adjusted measures follows.

 

Quarter ended

   

Year ended

 
 

12/31/2017

 

12/31/2016

   

12/31/2017

 

12/31/2016

 

Detail of Special Items

                             

Reversal of loss associated with sale of aircraft(b)

 

-

     

-

     

-

     

2

 

Incremental restaurant-level impairment upon separation(c)

 

-

     

(17)

     

-

     

(17)

 

Income from the reversal of contingent consideration (d)

 

-

     

-

     

3

     

-

 

Special Items Income (Expense) - Operating Profit

 

-

     

(17)

     

3

     

(15)

 

Changes in fair value of financial instruments(e)

 

-

     

21

     

-

     

21

 

Tax benefit on Special Items(f)

 

-

     

17

     

-

     

16

 

Impact from the Tax Act(g)

 

(164)

     

-

     

(164)

     

-

 

Special items income (expense), net of tax - including

   noncontrolling interests

 

(164)

     

21

     

(161)

     

22

 

Special items income, net of tax -

  noncontrolling interests(h)

 

-

     

-

     

-

     

(8)

 

Special Items Income (Expense), net of tax -

   Yum China Holdings, Inc.

 

(164)

     

21

     

(161)

     

30

 

Weighted average diluted shares outstanding

 

399,229,895

     

379,915,075

     

398,089,606

     

369,143,838

 

Special Items Diluted Earnings (Loss) Per Common Share

 

(0.42)

     

0.06

     

(0.41)

     

0.08

 

Reconciliation of Operating Profit to Adjusted Operating Profit

                             

Operating Profit

 

71

     

58

     

785

     

640

 

Special Items Income (Expense) - Operating Profit

 

-

     

(17)

     

3

     

(15)

 

Adjusted Operating Profit

 

71

     

75

     

782

     

655

 

Reconciliation of Net Income (Loss) to Adjusted Net Income (Loss)

                             

Net Income (Loss)

 

(90)

     

88

     

403

     

502

 

Special Items Income (Expense) - Net Income (Loss)

 

(164)

     

21

     

(161)

     

30

 

Adjusted Net Income

 

74

     

67

     

564

     

472

 

Reconciliation of EPS to Adjusted EPS

                             

Diluted (Loss) Earnings Per Common Share

 

(0.23)

     

0.23

     

1.01

     

1.36

 

Special Items Diluted (Loss) Earnings Per Common Share

 

(0.42)

     

0.06

     

(0.41)

     

0.08

 

Adjusted Diluted Earnings Per Common Share

 

0.19

     

0.17

     

1.42

     

1.28

 

Reconciliation of Effective Tax Rate to Adjusted Effective Tax Rate

                             

Effective Tax Rate

 

203.0

%

   

(8.4)%

     

47.0

%

   

23.5

%

Impact on Effective Tax Rate as a result of Special Items

 

198.6

%

   

(20.6)%

     

20.1

%

   

(2.7)

%

Adjusted Effective Tax Rate

 

4.4

%

   

12.2

%

   

26.9

%

   

26.2

%

 

 

Reconciliation of Net Income (Loss) to Adjusted EBITDA

(amounts in US$ million, except per share amounts)

(unaudited)

 

Net income (loss), along with the reconciliation to Adjusted EBITDA, is presented below.

 
 

Quarter ended

 

Year ended

 

12/31/2017

   

12/31/2016

 

12/31/2017

   

12/31/2016

Reconciliation of Net Income (Loss) to Adjusted EBITDA

                         

Net income - noncontrolling interests

$

5

   

$

2

 

$

26

   

$

12

Net Income (Loss) - Yum China Holdings, Inc.

 

(90)

     

88

   

403

     

502

Income tax provision (benefit)

 

168

     

(7)

   

381

     

158

Interest income, net

 

(12)

     

(4)

   

(25)

     

(11)

Changes in fair value of financial instruments

 

-

     

(21)

   

-

     

(21)

Operating Profit

 

71

     

58

   

785

     

640

Depreciation and amortization

 

144

     

130

   

409

     

402

Store impairment charges

 

30

     

27

   

58

     

70

Special Items Income (Expense) - Operating Profit

 

-

     

17

   

(3)

     

15

Adjusted EBITDA

$

245

   

$

232

 

$

1,249

   

$

1,127

 

 

Unit Count by Brand

 

KFC

 
 

2016

 

New Builds

 

Closures

 

Refranchised

 

2017

Company-owned

 

3,913

   

320

   

(111)

   

(10)

   

4,112

Unconsolidated affiliates

 

836

   

73

   

(16)

   

(2)

   

891

Franchise

 

475

   

15

   

(17)

   

12

   

485

Total

 

5,224

   

408

   

(144)

   

-

   

5,488

 

Pizza Hut

 
 

2016

 

New Builds

 

Closures

 

Refranchised

 

2017

Company-owned

 

2,057

   

180

   

(66)

   

(5)

   

2,166

Franchise

 

24

   

-

   

-

   

5

   

29

Total

 

2,081

   

180

   

(66)

   

-

   

2,195

 

All Other Segments

 
 

2016

 

New Builds

 

Closures

 

Refranchised

 

2017

Company-owned

 

38

   

3

   

(7)

   

(5)

   

29

Franchise

 

219

   

100

   

(53)

   

5

   

271

Total

 

257

   

103

   

(60)

   

-

   

300

 

 

Yum China Holdings, Inc.

Segment Results

(amounts in US$ million)

(unaudited)

 

Quarter Ended 12/31/17

KFC

 

Pizza Hut

 

All Other
Segments

 

Corporate

and

Unallocated

 

Total

Total revenues

$

1,563

 

$

641

 

$

24

 

$

-

 

$

2,228

Company restaurant expenses

 

1,313

   

605

   

19