Yum China Reports Second Quarter 2019 Results
July 30, 2019 at 4:30 PM EDT
Total revenues grew 3% or 10% in constant currency;
Total system sales grew 10% and same-store sales grew 4% in constant currency

SHANGHAI, July 30, 2019 /PRNewswire/ -- Yum China Holdings, Inc. (the "Company" or "Yum China") (NYSE: YUMC) today reported unaudited results for the second quarter ended June 30, 2019. 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.

Second Quarter Highlights

  • Total revenues increased 3% year over year to $2.12 billion from $2.07 billion (10% year over year increase excluding foreign currency translation ("F/X")).
  • Total system sales grew 10% year over year, with growth of 12% at KFC and 4% at Pizza Hut, excluding F/X.
  • Same-store sales grew 4% year over year, with a 5% increase at KFC and a 1% increase at Pizza Hut, excluding F/X.
  • Restaurant margin was 14.7%, as compared with 15.1% in the prior year period.
  • Operating Profit increased 6% year over year to $204 million from $193 million (14% year over year increase excluding F/X).
  • Effective tax rate was 20.0%.
  • Net Income increased 24% to $178 million from $143 million in the prior year period, primarily due to the increase in operating profit and mark to market gain from our equity investment in Meituan Dianping.
  • Diluted EPS increased 28% to $0.46 from $0.36 in the prior year period (14% year over year increase excluding the $0.04 per share mark to market gain from our equity investment in Meituan Dianping).
  • Opened 178 new restaurants during the quarter, bringing total store count to 8,751 across more than 1,300 cities.

Key Financial Results

 

Second Quarter 2019

   

Year to Date Ended 6/30/2019

 
 

% Change

   

% Change

 
 

System Sales

 

Same-Store
Sales

 

Net New
Units

 

Operating
Profit

   

System Sales

 

Same-Store
Sales

 

Net New
Units

 

Operating
Profit

 

Yum China

+10

 

+4

 

+7

 

+6

   

+10

 

+4

 

+7

 

(14)

 

   KFC

+12

 

+5

 

+8

 

+3

   

+12

 

+5

 

+8

 

(1)

 

   Pizza Hut

+4

 

+1

 

+2

 

+50

   

+3

 

+1

 

+2

 

+49

 

 

   

Second Quarter

     

Year to Date Ended 6/30

 

(in US$ million, except

           

% Change

               

% Change

 

per share data and percentages)

 

2019

   

2018

 

Reported

 

Ex F/X

     

2019

   

2018

 

Reported

 

Ex F/X

 

Operating Profit

$

204

 

$

193

 

+6

 

+14

   

$

507

 

$

588

 

(14)

 

(8)

 

Adjusted Operating Profit[1]

$

204

 

$

193

 

+6

 

+14

   

$

507

 

$

490

 

+4

 

+11

 

Net Income

$

178

 

$

143

 

+24

 

+33

   

$

400

 

$

431

 

(7)

 

(1)

 

Adjusted Net Income[1]

$

178

 

$

143

 

+24

 

+33

   

$

408

 

$

357

 

+14

 

+22

 

Basic Earnings Per Common Share

$

0.47

 

$

0.37

 

+27

 

+35

   

$

1.06

 

$

1.12

 

(5)

 

+1

 

Adjusted Basic Earnings Per

                                         

   Common Share[1]

$

0.47

 

$

0.37

 

+27

 

+35

   

$

1.08

 

$

0.93

 

+16

 

+24

 

Diluted Earnings Per Common Share

$

0.46

 

$

0.36

 

+28

 

+36

   

$

1.03

 

$

1.08

 

(5)

 

+2

 

Adjusted Diluted Earnings Per

                                         

   Common Share[1]

$

0.46

 

$

0.36

 

+28

 

+36

   

$

1.05

 

$

0.89

 

+18

 

+26

 
   

[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.

 

Percentages may not recompute due to rounding.

 

System sales and same-store sales percentages exclude the impact of F/X.

 

 

CEO and CFO Comments

"We are pleased to report another set of strong operating results for the second quarter, reflecting the resilience of our business model and our ability to capitalize on our digital, data and delivery capabilities," said Joey Wat, CEO of Yum China. "We delivered a 10% increase in system sales in constant currency, marking our eleventh consecutive quarter of system sales growth since the spin-off. This strong result was driven by solid second quarter sales performance at both core brands with KFC and Pizza Hut delivering 5% and 1% same-store sales growth, respectively, and an ongoing acceleration of new store openings at KFC. We are also pleased to have delivered a 14% increase in operating profit in constant currency despite margin pressure from ongoing promotions and chicken and wage inflation."

"Looking forward, we expect overall sales growth to moderate as KFC begins to lap several key sales drivers, including successful value campaigns that we initiated in the second half of 2018. However, we remain confident that our strong foundation and commitment to innovation throughout our business will power continued growth for Yum China. We will continue to create new and exciting menu items, and leverage our leadership in digital, data and delivery to meet the evolving needs of our consumers."

Jacky Lo, CFO of Yum China, added, "We continued to capitalize on market opportunities across China with aggressive, KFC-led store expansion and achieved a total store count of 8,751 at the end of the second quarter. With a strong cash payback period for new KFC stores and many untapped opportunities, we intend to continue to rapidly expand our store footprint in the second half of the year. We now expect full year 2019 gross new store openings to be between 800 and 850 units with accelerating development of new units across multiple brands."

"The ongoing expansion and strong operating performance fueled robust free cash flow generation in the second quarter, enabling us to return capital to our shareholders by repurchasing $75 million of shares and paying $45 million in dividends during the period. We are confident that our focus on profitable and sustainable growth will enable us to continue to generate significant value for our shareholders over the long term."

Dividend and Share Repurchase

  • The Board of Directors declared a cash dividend of $0.12 per share on Yum China's common stock, payable as of the close of business on September 17, 2019 to stockholders of record as of the close of business on August 27, 2019.
  • During the second quarter, we repurchased approximately 1.8 million shares of Yum China common stock for $74.9 million at an average price of $42.60 per share.

Digital and Delivery 

  • As of June 30, 2019, the KFC loyalty program had over 185 million members and the Pizza Hut loyalty program had over 60 million members, an increase of 50 million and 15 million, respectively, year over year.
  • Digital payments accounted for 90% of Company sales in the quarter, an increase of 5 percentage points year over year.
  • Delivery contributed to 20% of Company sales in the second quarter of 2019, an increase of 4 percentage points year over year. Delivery services are now available in 1,190 cities, up from 1,010 cities in the prior year period.

New-Unit Development and Asset Upgrade

  • The Company opened 178 new restaurants and remodeled 238 restaurants in the second quarter of 2019.

 

   

New Units

   

Restaurant Count

 
   

Second Quarter

   

Year to Date

   

As of 6/30

 
   

2019

   

Ended 6/30/2019

   

2019

 

2018

 

Yum China

 

178

   

415

   

8,751

 

8,198

 

   KFC

 

136

   

327

   

6,179

 

5,696

 

   Pizza Hut

 

26

   

60

   

2,252

 

2,209

 

   Others[2]

 

16

   

28

   

320

 

293

 
   

[2] Others include Little Sheep, East Dawning, Taco Bell and COFFii & JOY.

 

Restaurant Margin

  • In the second quarter of 2019, Yum China restaurant margin was 14.7%, as compared with 15.1% in the prior year period, primarily attributable to wage and commodity inflation and promotional activities, partially offset by sales leverage and other cost savings.

 

   

Second Quarter

   

Year to Date Ended 6/30

 
   

2019

 

2018

 

% pts change

   

2019

 

2018

 

% pts change

 

Yum China

 

14.7%

 

15.1%

 

(0.4)

   

16.7%

 

16.6%

 

+0.1

 

   KFC

 

16.1%

 

16.8%

 

(0.7)

   

18.1%

 

18.9%

 

(0.8)

 

   Pizza Hut

 

11.3%

 

11.1%

 

0.2

   

12.9%

 

10.8%

 

+2.1

 

 

2019 Outlook

  • The Company is updating its fiscal year 2019 targets as follows:
    - Between 800 and 850 gross new units. The increased store count reflects the accelerating development of multiple brands with the majority of the incremental new units coming from KFC and the new inclusion of COFFii & JOY.
    - Capital expenditures between $475 million and $525 million.
  • The Company continues to expect a fiscal year 2019 effective tax rate below 28%, excluding any impact from the Company's equity investment in Meituan Dianping.
 

Conference Call

Yum China's management will hold an earnings conference call at 8:00 p.m. U.S. Eastern Time on Tuesday, July 30, 2019 (8:00 a.m.Beijing/Hong Kong Time on Wednesday, July 31, 2019). 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

UK:

 

+44 20 36214779

International:

 

+65 6713 5090

Passcode:

 

Yum China

A replay of the conference call will be available two hours after the call ends until 10:00 a.m. U.S. Eastern Time on Wednesday, August 7, 2019 (10:00 p.m.Beijing/Hong Kong Time on Wednesday, August 7, 2019) and may be accessed by phone at the following numbers:

US:

 

+1 855 452 5696

International:

 

+61 2 9003 4211

Passcode:

 

9567775

Additionally, a live webcast and an archived webcast of this conference call will be available at 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, including under "2019 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" 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, performance and returns of Yum China, anticipated effects of population and macroeconomic trends, the capital structure and effective tax rate of Yum China, 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 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, 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) 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, East Dawning and COFFii & JOY concepts outright. The Company had more than 8,700 restaurants in over 1,300 cities at the end of June 2019. In 2019, Yum China was named to the Bloomberg Gender-Equality Index and was certified as a Top Employer 2019 in China by the Top Employers Institute. For more information, please visit http://ir.yumchina.com.

Investor Relations Contact:

   

Tel: +86 21 2407 7556

IR@YumChina.com  

     

Media Contact:

   

Tel: +86 21 2407 7510

Media@YumChina.com

 

 

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

   

6/30/2019

   

6/30/2018

   

B/(W)

 

6/30/2019

   

6/30/2018

   

B/(W)

Revenues

                                                   

Company sales

 

$

1,926

   

$

1,888

     

2

     

$

4,015

   

$

3,904

     

3

   

Franchise fees and income

   

36

     

34

     

5

       

75

     

74

     

2

   

Revenues from transactions with

   franchisees and unconsolidated affiliates

   

154

     

141

     

10

       

324

     

302

     

7

   

Other revenues

   

8

     

5

     

48

       

14

     

9

     

51

   

Total revenues

   

2,124

     

2,068

     

3

       

4,428

     

4,289

     

3

   

Costs and Expenses, Net

                                                   

Company restaurants

                                                   

Food and paper

   

607

     

571

     

(6)

       

1,245

     

1,165

     

(7)

   

Payroll and employee benefits

   

450

     

424

     

(6)

       

916

     

866

     

(6)

   

Occupancy and other operating expenses

   

586

     

607

     

3

       

1,185

     

1,226

     

3

   

Company restaurant expenses

   

1,643

     

1,602

     

(3)

       

3,346

     

3,257

     

(3)

   

General and administrative expenses

   

109

     

101

     

(9)

       

223

     

215

     

(4)

   

Franchise expenses

   

16

     

17

     

5

       

36

     

37

     

2

   

Expenses for transactions with

   franchisees and unconsolidated affiliates

   

154

     

138

     

(11)

       

321

     

298

     

(8)

   

Other operating costs and expenses

   

6

     

7

     

8

       

11

     

11

     

(1)

   

Closures and impairment expenses, net

   

4

     

17

     

81

       

15

     

16

     

7

   

Other income, net

   

(12)

     

(7)

     

77

       

(31)

     

(133)

     

(77)

   

Total costs and expenses, net

   

1,920

     

1,875

     

(2)

       

3,921

     

3,701

     

(6)

   

Operating Profit

   

204

     

193

     

6

       

507

     

588

     

(14)

   

Interest income, net

   

10

     

10

     

(8)

       

19

     

18

     

3

   

Investment gain

   

17

     

   

NM

       

27

     

   

NM

   

Income Before Income Taxes

   

231

     

203

     

14

       

553

     

606

     

(9)

   

Income tax provision

   

(46)

     

(53)

     

13

       

(139)

     

(160)

     

13

   

Net income – including noncontrolling interests

   

185

     

150

     

23

       

414

     

446

     

(7)

   

Net income – noncontrolling interests

   

7

     

7

     

       

14

     

15

     

7

   

Net Income – Yum China Holdings, Inc.

 

$

178

   

$

143

     

24

     

$

400

   

$

431

     

(7)

   

Effective tax rate

   

20.0

%

   

26.0

%

   

6.0

 

ppts.

   

25.2

%

   

26.4

%

   

1.2

 

ppts.

                                                     

Basic Earnings Per Common Share

 

$

0.47

   

$

0.37

             

$

1.06

   

$

1.12

           

Weighted average shares outstanding

    (in millions)

   

378

     

386

               

378

     

386

           
                                                     

Diluted Earnings Per Common Share

 

$

0.46

   

$

0.36

             

$

1.03

   

$

1.08

           

Weighted average shares outstanding

    (in millions)

   

389

     

398

               

389

     

400

           
                                                     

Cash Dividends Declared Per Common Share

 

$

0.12

   

$

0.10

             

$

0.24

   

$

0.20

           
                                                     

Company sales

   

100.0

%

   

100.0

%

             

100.0

%

   

100.0

%

         

Food and paper

   

31.5

     

30.3

     

(1.2)

 

ppts.

   

31.0

     

29.8

     

(1.2)

 

ppts.

Payroll and employee benefits

   

23.4

     

22.5

     

(0.9)

 

ppts.

   

22.8

     

22.2

     

(0.6)

 

ppts.

Occupancy and other operating expenses

   

30.4

     

32.1

     

1.7

 

ppts.

   

29.5

     

31.4

     

1.9

 

ppts.

Restaurant margin

   

14.7

%

   

15.1

%

   

(0.4)

 

ppts.

   

16.7

%

   

16.6

%

   

0.1

 

ppts.

Operating margin

   

10.6

%

   

10.2

%

   

0.4

 

ppts.

   

12.6

%

   

15.1

%

   

(2.5)

 

ppts.

Percentages may not recompute due to rounding.

 

 

Yum China Holdings, Inc.

KFC Operating Results

(in US$ million)

(unaudited)

 
   

Quarter Ended

   

% Change

 

Year to Date Ended

   

% Change

   

6/30/2019

   

6/30/2018

   

B/(W)

 

6/30/2019

   

6/30/2018

   

B/(W)

Revenues

                                                   

Company sales

 

$

1,410

   

$

1,352

     

4

     

$

2,949

   

$

2,796

     

5

   

Franchise fees and income

   

33

     

33

     

2

       

69

     

70

     

   

Revenues from transactions with

   franchisees and unconsolidated affiliates

   

15

     

15

     

2

       

32

     

32

     

1

   

Total revenues

   

1,458

     

1,400

     

4

       

3,050

     

2,898

     

5

   

Costs and Expenses, Net

                                                   

Company restaurants

                                                   

Food and paper

   

450

     

413

     

(9)

       

926

     

837

     

(11)

   

Payroll and employee benefits

   

311

     

289

     

(7)

       

631

     

582

     

(8)

   

Occupancy and other operating expenses

   

424

     

423

     

       

858

     

849

     

(1)

   

Company restaurant expenses

   

1,185

     

1,125

     

(5)

       

2,415

     

2,268

     

(6)

   

General and administrative expenses

   

49

     

45

     

(11)

       

98

     

91

     

(8)

   

Franchise expenses

   

16

     

17

     

2

       

35

     

36

     

2

   

Expenses for transactions with

   franchisees and unconsolidated affiliates

   

15

     

15

     

(1)

       

32

     

32

     

   

Closures and impairment expenses, net

   

     

6

   

NM

       

7

     

6

     

(23)

   

Other income, net

   

(12)

     

(7)

     

61

       

(30)

     

(30)

     

(4)

   

Total costs and expenses, net

   

1,253

     

1,201

     

(4)

       

2,557

     

2,403

     

(7)

   

Operating Profit

 

$

205

   

$

199

     

3

     

$

493

   

$

495

     

(1)

   

Company sales

   

100.0

%

   

100.0

%

             

100.0

%

   

100.0

%

         

Food and paper

   

31.9

     

30.5

     

(1.4)

 

ppts.

   

31.4

     

29.9

     

(1.5)

 

ppts.

Payroll and employee benefits

   

22.0

     

21.4

     

(0.6)

 

ppts.

   

21.4

     

20.8

     

(0.6)

 

ppts.

Occupancy and other operating expenses

   

30.0

     

31.3

     

1.3

 

ppts.

   

29.1

     

30.4

     

1.3

 

ppts.

Restaurant margin

   

16.1

%

   

16.8

%

   

(0.7)

 

ppts.

   

18.1

%

   

18.9

%

   

(0.8)

 

ppts.

Operating margin

   

14.5

%

   

14.7

%

   

(0.2)

 

ppts.

   

16.7

%

   

17.7

%

   

(1.0)

 

ppts.

Percentages may not recompute due to rounding.

 

 

Yum China Holdings, Inc.

Pizza Hut Operating Results

(in US$ million)

(unaudited)

 
   

Quarter Ended

   

% Change

 

Year to Date Ended

   

% Change

   

6/30/2019

   

6/30/2018

   

B/(W)

 

6/30/2019

   

6/30/2018

   

B/(W)

Revenues

                                                   

Company sales

 

$

507

   

$

528

     

(4)

     

$

1,048

   

$

1,092

     

(4)

   

Franchise fees and income

   

1

     

     

52

       

2

     

1

     

48

   

Revenues from transactions with

   franchisees and unconsolidated affiliates

   

1

     

   

NM

       

2

     

   

NM

   

Other revenues

   

1

     

   

NM

       

1

     

   

NM

   

Total revenues

   

510

     

528

     

(4)

       

1,053

     

1,093

     

(4)

   

Costs and Expenses, Net

                                                   

Company restaurants

                                                   

Food and paper

   

155

     

156

     

       

314

     

323

     

3

   

Payroll and employee benefits

   

137

     

133

     

(3)

       

280

     

280

     

   

Occupancy and other operating expenses

   

157

     

182

     

13

       

319

     

372

     

14

   

Company restaurant expenses

   

449

     

471

     

4

       

913

     

975

     

6

   

General and administrative expenses

   

27

     

28

     

4

       

51

     

56

     

9

   

Franchise expenses

   

     

     

       

1

     

1

     

(21)

   

Expenses for transactions with

   franchisees and unconsolidated affiliates

   

1

     

   

NM

       

2

     

   

NM

   

Other operating costs and expenses

   

1

     

   

NM

       

1

     

   

NM

   

Closures and impairment expenses, net

   

3

     

11

     

82

       

6

     

10

     

43

   

Other income, net

   

     

(1)

     

(93)

       

     

(2)

   

NM

   

Total costs and expenses, net

   

481

     

509

     

6

       

974

     

1,040

     

7

   

Operating Profit

 

$

29

   

$

19

     

50

     

$

79

   

$

53

     

49

   

Company sales

   

100.0

%

   

100.0

%

             

100.0

%

   

100.0

%

         

Food and paper

   

30.7

     

29.5

     

(1.2)

 

ppts.

   

30.0

     

29.6

     

(0.4)

 

ppts.

Payroll and employee benefits

   

27.0

     

25.2

     

(1.8)

 

ppts.

   

26.7

     

25.7

     

(1.0)

 

ppts.

Occupancy and other operating expenses

   

31.0

     

34.2

     

3.2

 

ppts.

   

30.4

     

33.9

     

3.5

 

ppts.

Restaurant margin

   

11.3

%

   

11.1

%

   

0.2

 

ppts.

   

12.9

%

   

10.8

%

   

2.1

 

ppts.

Operating margin

   

5.8

%

   

3.7

%

   

2.1

 

ppts.

   

7.6

%

   

4.9

%

   

2.7

 

ppts.

Percentages may not recompute due to rounding.

 

 

Yum China Holdings, Inc.

Condensed Consolidated Balance Sheets

(in US$ million)

 
   

6/30/2019

   

12/31/2018

 
   

(Unaudited)

         

ASSETS

               

Current Assets

               

Cash and cash equivalents

 

$

1,296

   

$

1,266

 

Short-term investments

   

284

     

122

 

Accounts receivable, net

   

85

     

80

 

Inventories, net

   

309

     

307

 

Prepaid expenses and other current assets

   

163

     

177

 

Total Current Assets

   

2,137

     

1,952

 

Property, plant and equipment, net

   

1,571

     

1,615

 

Operating lease right-of-use assets

   

1,954

     

 

Goodwill

   

266

     

266

 

Intangible assets, net

   

105

     

116

 

Deferred income taxes

   

99

     

89

 

Investments in unconsolidated affiliates

   

58

     

81

 

Other assets

   

535

     

491

 

Total Assets

   

6,725

     

4,610

 

LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND EQUITY

               

Current Liabilities

               

Accounts payable and other current liabilities

   

1,569

     

1,199

 

Income taxes payable

   

57

     

54

 

Total Current Liabilities

   

1,626

     

1,253

 

Non-current operating lease liabilities

   

1,795

     

 

Capital lease obligations

   

24

     

25

 

Other liabilities

   

201

     

355

 

Total Liabilities

   

3,646

     

1,633

 

Redeemable Noncontrolling Interest

   

1

     

1

 

Equity

               

Common stock,  $0.01 par value; 1,000 million shares authorized;

  394 million shares and 392 million shares issued at June 30, 2019 and December 31,

  2018, respectively; 377 million shares and 379 million shares outstanding at June 30,

  2019 and December 31, 2018, respectively

   

4

     

4

 

Treasury stock

   

(600)

     

(460)

 

Additional paid-in capital

   

2,417

     

2,402

 

Retained earnings

   

1,193

     

944

 

Accumulated other comprehensive loss

   

(17)

     

(17)

 

Total Equity – Yum China Holdings, Inc.

   

2,997

     

2,873

 

Noncontrolling interests

   

81

     

103

 

Total Equity

   

3,078

     

2,976

 

Total Liabilities, Redeemable Noncontrolling Interest and Equity

 

$

6,725

   

$

4,610

 
                 

 

 

Yum China Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

(in US$ million)

(unaudited)

 
   

Year to Date Ended

   

6/30/2019

 

6/30/2018

Cash Flows – Operating Activities

                   

Net income – including noncontrolling interests

 

$

414

     

$

446

   

Depreciation and amortization

   

217

       

235

   

Amortization of operating lease right-of-use assets

   

167

       

   

Closures and impairment expenses

   

15

       

16

   

Gain from re-measurement of equity interest upon acquisition

   

       

(98)

   

Investment gain

   

(27)

       

   

Equity income from investments in unconsolidated affiliates

   

(37)

       

(35)

   

Distributions of income received from unconsolidated affiliates

   

38

       

41

   

Deferred income taxes

   

6

       

42

   

Share-based compensation expense

   

15

       

13

   

Changes in accounts receivable

   

(5)

       

(2)

   

Changes in inventories

   

(1)

       

18

   

Changes in prepaid expenses and other current assets

   

       

(28)

   

Changes in accounts payable and other current liabilities

   

70

       

182

   

Changes in income taxes payable

   

3

       

20

   

Changes in non-current operating lease liabilities

   

(188)

       

   

Other, net

   

(30)

       

(31)

   

Net Cash Provided by Operating Activities

   

657

       

819

   

Cash Flows – Investing Activities

                   

Capital spending

   

(212)

       

(230)

   

Purchases of short-term investments

   

(409)

       

(370)

   

Maturities of short-term investments

   

248

       

295

   

Acquisition of business, net of cash acquired

   

       

(88)

   

Other, net

   

5

       

(13)

   

Net Cash Used in Investing Activities

   

(368)

       

(406)

   

Cash Flows – Financing Activities

                   

Repayment of short-term borrowings assumed from acquisition

   

       

(10)

   

Repurchase of shares of common stock

   

(143)

       

(70)

   

Cash dividends paid on common stock

   

(91)

       

(77)

   

Dividends paid to noncontrolling interests

   

(25)

       

(27)

   

Other, net

   

       

(2)

   

Net Cash Used in Financing Activities

   

(259)

       

(186)

   

Effect of Exchange Rates on Cash and Cash Equivalents

   

       

(25)

   

Net Increase in Cash and Cash Equivalents

   

30

       

202

   

Cash and Cash Equivalents - Beginning of Period

   

1,266

       

1,059

   

Cash and Cash Equivalents - End of Period

 

$

1,296

     

$

1,261

   

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 a 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. 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, 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 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.

Reconciliation of Reported GAAP Results to Adjusted Measures
(in millions, except per share data)
(unaudited)

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 include Adjusted Operating Profit, Adjusted Net Income, Adjusted EPS, Adjusted Effective Tax Rate and Adjusted EBITDA, which we define as net income including noncontrolling interests adjusted for income tax, interest income, net, investment gain or loss, depreciation, amortization and other items, including store impairment charges and Special Items. The Special Item for the year to date ended June 30, 2019 represents the impact from the US Tax Cuts and Jobs Act (the "Tax Act"), as described in the accompanying notes. The Special Item for the year to date ended June 30, 2018 represents a gain recognized from the re-measurement of our previously held equity interest in Wuxi KFC at fair value upon acquisition, as described 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. 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 income tax, interest income, net, investment gain or loss, depreciation, amortization and other items, including store impairment charges and Special Items. 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 provide 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 Condensed Consolidated Statements of Income and other information presented herein. A reconciliation of the most directly comparable GAAP measures to adjusted measures follows.

   

Quarter Ended

   

Year to Date Ended

 
   

6/30/2019

   

6/30/2018

   

6/30/2019

   

6/30/2018

 

Detail of Special Items

                               
                                 

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

 

$

   

$

   

$

   

$

98

 

Special Items, Operating Profit

   

     

     

     

98

 

Tax effect on Special Items(c)

   

     

     

     

(24)

 

Impact from the Tax Act(d)

   

     

     

(8)

     

 

Special Items, net income – including noncontrolling interests

   

     

     

(8)

     

74

 

Special Items, net income – noncontrolling interests

   

     

     

     

 

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

 

$

   

$

   

$

(8)

   

$

74

 

Weighted Average Diluted Shares Outstanding

   

389

     

398

     

389

     

400

 

Special Items, Diluted Earnings Per Common Share

 

$

   

$

   

$

(0.02)

   

$

0.19

 

Reconciliation of Operating Profit to Adjusted Operating Profit

                               

Operating Profit

 

$

204

   

$

193

   

$

507

   

$

588

 

Special Items, Operating Profit

   

     

     

     

98

 

Adjusted Operating Profit

 

$

204

   

$

193