Yum China Reports First Quarter 2018 Results
05/01/2018 at 4:30 PM EDT

SHANGHAI, May 1, 2018 /PRNewswire/ -- Yum China Holdings, Inc. (the "Company" or "Yum China") (NYSE: YUMC) today reported unaudited results for the first quarter ended March 31, 2018. 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.

First Quarter Highlights

  • Total revenues increased 15% year over year to $2.2 billion from $1.9 billion (6% year over year increase excluding foreign currency translation ("F/X")).
  • Total system sales grew 6% year over year, with 9% growth at KFC partially offset by 1% decline at Pizza Hut, excluding F/X.
  • Same-store sales grew 3% year over year, with an increase of 5% at KFC partially offset by a 5% decrease at Pizza Hut, excluding F/X.
  • Restaurant margin was 17.9%, as compared with 20.4% in the prior year period.
  • Operating Profit increased 33% year over year to $395 million from $296 million (22% year over year increase excluding F/X). Excluding Special Items, Adjusted Operating Profit was $297 million for the first quarter of 2018, as compared with $296 million in the prior year period (8% year over year decrease excluding F/X).
  • Net Income increased 41% to $288 million from $204 million in the prior year period.  
  • Effective tax rate was 26.6%.
  • Diluted EPS was $0.72, as compared with $0.52 in the prior year period. Excluding Special Items, Adjusted Diluted EPS was $0.53.             
  • Completed the acquisition of an additional 36% equity interest in an unconsolidated affiliate that operates KFC stores in Wuxi, China ("Wuxi KFC"), for cash consideration of approximately $98 million, bringing Yum China's equity interest in Wuxi KFC to 83%. A gain of $98 million was recorded from the re-measurement of our previously held equity interest.
  • Opened 203 new restaurants during the quarter, bringing total store count to 8,112 across more than 1,200 cities.
  • Online delivery contributed 16% to Company sales, up from 13% in the prior year period. Delivery services now available in 970 cities, up from 700 cities in the prior year period.
  • As of March 31, 2018, the KFC loyalty program had more than 120 million members and the Pizza Hut loyalty program had over 40 million members.
  • Mobile payment accounted for approximately 56% of Company sales in the first quarter of 2018, as compared to 31% in the prior year period.

Key Financial Results

     

First Quarter

 
     

% Change

 
     

System

Sales

 

Same-Store

Sales

 

Net New

Units

 

Operating

Profit

 
                     
 

Yum China

 

+6

 

+3

 

+6

 

+33

 
 

KFC

 

+9

 

+5

 

+6

 

+21

 
 

Pizza Hut

 

(1)

 

(5)

 

+5

 

(58)

 

 

     

First Quarter

 
 

(in US$ million, except

                 

% Change

 
 

for per share data and percentages)

 

2018

   

2017

   

Reported

 

Ex F/X

 
 

Operating Profit

 

$

395

   

$

296

   

+33

 

+22

 
 

Adjusted Operating Profit1

 

$

297

   

$

296

   

 

(8)

 
 

Net Income

 

$

288

   

$

204

   

+41

 

+29

 
 

Basic Earnings Per Common Share

 

$

0.75

   

$

0.53

   

+42

 

+28

 
 

Adjusted Basic EPS Per Common Share1

 

$

0.55

   

$

0.53

   

+4

 

(6)

 
 

Diluted Earnings Per Common Share

 

$

0.72

   

$

0.52

   

+38

 

+25

 
 

Adjusted Diluted EPS Per Common Share1

 

$

0.53

   

$

0.52

   

+2

 

(6)

 

 

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.

 

Yum China's fiscal first quarter 2018 includes January, February and March results.

 

Percentages may not recompute due to rounding.

 

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

 

Prior period results have been recast for the change of fiscal quarter, same-store sales growth definition and adoption of new revenue accounting standard.

CEO and CFO Comments

"We are pleased to start 2018 with positive system sales and same-store sales growth for the Company. The strong operational and financial performance of KFC is particularly encouraging as it successfully lapped two strong first quarters in 2017 and 2016. During the quarter, while Pizza Hut had some challenges with same-store sales growth and restaurant margin, we remain committed to our revitalization plan and key focus areas to drive sales growth. We believe our focus on food innovation and customer experience, together with the execution of strategic priorities in digital and delivery, has enabled us, and will continue to enable us, to build a stronger Yum China," said Joey Wat, CEO of Yum China.

"As part of our capital allocation strategy to invest in and grow our core brands, we acquired an additional 36% interest in Wuxi KFC, increasing our total equity interest to 83%. In 2018, we now expect our annual new build to reach 600-650 units, increasing from the previously announced 550-600 units. We will continue to invest in digital and delivery, which we believe will drive long-term growth," remarked Jacky Lo, CFO of Yum China. 

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 June 20, 2018 to stockholders of record as of the close of business on May 30, 2018.
  • Yum China did not repurchase any shares during the first quarter of 2018.

New-Unit Development and Asset Upgrade

  • We opened 203 new restaurants and remodeled 125 restaurants in the first quarter of 2018.

 

       

New Units

   

Restaurant Count

   
       

First

   

As of March 31

   
       

Quarter

   

2018

   

2017

   
 

Yum China

   

203

     

8,112

     

7,653

   
 

KFC

   

144

     

5,602

     

5,277

   
 

Pizza Hut

   

41

     

2,214

     

2,105

   
 

Little Sheep, East Dawning, Taco Bell

   

18

     

296

     

271

   

 

Restaurant Margin

  • In the first quarter of 2018, Yum China restaurant margin was 17.9%, as compared with 20.4% in the prior year period, primarily attributable to the investment in product upgrades and promotions at Pizza Hut and its sales deleveraging.

 

     

First Quarter

   
     

2018

   

2017

   

% ppts

change

   
 

Yum China

   

17.9

%

   

20.4

%

   

(2.5)

   
 

KFC

   

20.9

%

   

20.8

%

 

+0.1

   
 

Pizza Hut

   

10.5

%

   

19.7

%

   

(9.2)

   

 

Digital and Delivery

  • Over 120 million loyalty program members for KFC and over 40 million for Pizza Hut, an increase of 50 million and 20 million year over year, respectively.
  • Mobile payments accounted for approximately 56% of Company sales in the quarter, an increase of 25 percentage points year over year.
  • Delivery contributed to 16% of Company sales in the first quarter of 2018, an increase of 3 percentage points year over year.

Conference Call

Yum China Holdings, Inc. will host a conference call to review the Company's financial performance and strategies at 8:00 p.m. US Eastern Time on Tuesday, May 1, 2018 (8:00 a.m.Beijing/HK time on Wednesday, May 2, 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 May 9, 2018:

US:

 

+1-855-452-5696

International:

 

+61-2-8199-0299

Passcode:

 

6876657

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," "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 and performance of Yum China, anticipated effects of population and macroeconomic trends, statements regarding the capital structure of Yum China, 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 "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. The Company had more than 8,100 restaurants and more than 450,000 employees in over 1,200 cities at the end of March 2018. For more information, please visit http://ir.yumchina.com  

Investor Relations Contacts:

   

Millicent Tu, +86 21 2407 7905

Vice President, Investor Relations

IR@YumChina.com   

 

Florence Lip, +86 21 2407 7678

Director, Investor Relations

   

IR@YumChina.com 

 

Media Contact:

   

Joanna Jiang, +86 21 2407 7510

Director, Financial Media

Media@YumChina.com

 

 

 

Yum China Holdings, Inc.

Consolidated Statements of Income

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

(unaudited)

           
   

Quarter Ended

   

% Change

   

3/31/2018

   

3/31/2017

   

B/(W)

Revenues

                       

Company sales

 

$

2,016

   

$

1,738

     

16

 

Franchise fees and income

   

40

     

36

     

11

 

Revenues from transactions with

   franchisees and unconsolidated affiliates

   

161

     

147

     

9

 

Other revenues

   

4

     

5

     

(23)

 

Total revenues

   

2,221

     

1,926

     

15

 

Costs and Expenses, Net

                       

Company restaurants

                       

Food and paper

   

594

     

486

     

(22)

 

Payroll and employee benefits

   

442

     

368

     

(20)

 

Occupancy and other operating expenses

   

619

     

530

     

(17)

 

Company restaurant expenses

   

1,655

     

1,384

     

(20)

 

General and administrative expenses

   

114

     

98

     

(18)

 

Franchise expenses

   

20

     

18

     

(12)

 

Expenses for transactions with

   franchisees and unconsolidated affiliates

   

160

     

147

     

(9)

 

Other operating costs

   

4

     

3

     

(26)

 

Other income, net

   

(127)

     

(20)

   

NM

 

Total costs and expenses, net

   

1,826

     

1,630

     

(12)

 

Operating Profit

   

395

     

296

     

33

 

Interest income, net

   

8

     

4

     

99

 

Income Before Income Taxes

   

403

     

300

     

34

 

Income tax provision

   

(107)

     

(90)

     

(19)

 

Net income – including noncontrolling interests

   

296

     

210

     

41

 

Net income – noncontrolling interests

   

8

     

6

     

24

 

Net Income – Yum China Holdings, Inc.

 

$

288

   

$

204

     

41

 

Effective tax rate

   

26.6

%

   

30.0

%

   

3.4

ppts.

                         

Basic Earnings Per Common Share

 

$

0.75

   

$

0.53

         

Weighted average shares outstanding (in millions)

   

386

     

388

         
                         

Diluted Earnings Per Common Share

 

$

0.72

   

$

0.52

         

Weighted average shares outstanding (in millions)

   

401

     

395

         
                         

Cash Dividends Declared Per Common Share

 

$

0.10

   

$

         
                         

Company sales

   

100.0

%

   

100.0

%

       

Food and paper

   

29.4

     

27.9

     

(1.5)

ppts.

Payroll and employee benefits

   

21.9

     

21.2

     

(0.7)

ppts.

Occupancy and other operating expenses

   

30.8

     

30.5

     

(0.3)

ppts.

Restaurant margin

   

17.9

%

   

20.4

%

   

(2.5)

ppts.

Operating margin

   

19.6

%

   

17.0

%

   

2.6

ppts.

 

Percentages may not recompute due to rounding.

 

 

Yum China Holdings, Inc.

KFC Operating Results

(amounts in US$ million)

(unaudited)

           
   

Quarter Ended

   

% Change

   

3/31/2018

   

3/31/2017

   

B/(W)

Revenues

                       

Company sales

 

$

1,444

   

$

1,199

     

20

 

Franchise fees and income

   

37

     

34

     

10

 

Revenues from transactions with

   franchisees and unconsolidated affiliates

   

17

     

17

     

 

Total revenues

   

1,498

     

1,250

     

20

 

Costs and Expenses, Net

                       

Company restaurants

                       

Food and paper

   

424

     

353

     

(20)

 

Payroll and employee benefits

   

293

     

241

     

(21)

 

Occupancy and other operating expenses

   

426

     

356

     

(20)

 

Company restaurant expenses

   

1,143

     

950

     

(20)

 

General and administrative expenses

   

46

     

39

     

(19)

 

Franchise expenses

   

19

     

17

     

(12)

 

Expenses for transactions with

   franchisees and unconsolidated affiliates

   

17

     

17

     

 

Other income, net

   

(23)

     

(18)

     

27

 

Total costs and expenses, net

   

1,202

     

1,005

     

(20)

 

Operating Profit

 

$

296

   

$

245

     

21

 

Company sales

   

100.0

%

   

100.0

%

       

Food and paper

   

29.3

     

29.4

     

0.1

ppts.

Payroll and employee benefits

   

20.3

     

20.1

     

(0.2)

ppts.

Occupancy and other operating expenses

   

29.5

     

29.7

     

0.2

ppts.

Restaurant margin

   

20.9

%

   

20.8

%

   

0.1

ppts.

Operating margin

   

20.6

%

   

20.5

%

   

0.1

ppts.

                         

Percentages may not recompute due to rounding.

 

 

Yum China Holdings, Inc.

Pizza Hut Operating Results

(amounts in US$ million)

(unaudited)

           
   

Quarter Ended

   

% Change

   

3/31/2018

   

3/31/2017

   

B/(W)

Revenues

                       

Company sales

 

$

564

   

$

527

     

7

 

Franchise fees and income

   

1

     

1

     

25

 

Total revenues

   

565

     

528

     

7

 

Costs and Expenses, Net

                       

Company restaurants

                       

Food and paper

   

167

     

129

     

(29)

 

Payroll and employee benefits

   

147

     

124

     

(19)

 

Occupancy and other operating expenses

   

190

     

170

     

(12)

 

Company restaurant expenses

   

504

     

423

     

(19)

 

General and administrative expenses

   

28

     

25

     

(14)

 

Franchise expenses

   

1

     

1

     

(20)

 

Other income, net

   

(2)

     

(1)

   

NM

 

Total costs and expenses, net

   

531

     

448

     

(18)

 

Operating Profit

 

$

34

   

$

80

     

(58)

 

Company sales

   

100.0

%

   

100.0

%

       

Food and paper

   

29.7

     

24.5

     

(5.2)

ppts.

Payroll and employee benefits

   

26.1

     

23.5

     

(2.6)

ppts.

Occupancy and other operating expenses

   

33.7

     

32.3

     

(1.4)

ppts.

Restaurant margin

   

10.5

%

   

19.7

%

   

(9.2)

ppts.

Operating margin

   

6.0

%

   

15.1

%

   

(9.1)

ppts.

                         

Percentages may not recompute due to rounding.

 

 

Yum China Holdings, Inc.

Consolidated Balance Sheets

(amounts in US$ million)

(unaudited)

             
   

3/31/2018

   

12/31/2017

 

ASSETS

               

Current Assets

               

Cash and cash equivalents

 

$

1,318

   

$

1,059

 

Short-term investments

   

276

     

205

 

Accounts receivable, net

   

63

     

81

 

Inventories, net

   

261

     

297

 

Prepaid expenses and other current assets

   

203

     

160

 

Total Current Assets

   

2,121

     

1,802

 

Property, plant and equipment, net

   

1,755

     

1,691

 

Goodwill

   

291

     

108

 

Intangible assets, net

   

161

     

101

 

Investments in unconsolidated affiliates

   

44

     

95

 

Other assets

   

412

     

385

 

Deferred income taxes

   

110

     

105

 

Total Assets

   

4,894

     

4,287

 

LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND EQUITY

               

Current Liabilities

               

Accounts payable and other current liabilities

   

1,114

     

985

 

Income taxes payable

   

106

     

39

 

Total Current Liabilities

   

1,220

     

1,024

 

Capital lease obligations

   

29

     

28

 

Other liabilities and deferred credits

   

442

     

388

 

Total Liabilities

   

1,691

     

1,440

 

Redeemable Noncontrolling Interest

   

5

     

5

 

Equity

               

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

  390 million shares and 389 million shares issued at March 31, 2018

  and December 31, 2017, respectively; 386 million shares and 385 million shares

  outstanding at March 31, 2018 and December 31, 2017, respectively

   

4

     

4

 

Treasury stock

   

(148)

     

(148)

 

Additional paid-in capital

   

2,381

     

2,375

 

Retained earnings

   

646

     

397

 

Accumulated other comprehensive income

   

224

     

137

 

Total Equity – Yum China Holdings, Inc.

   

3,107

     

2,765

 

Noncontrolling interests

   

91

     

77

 

Total Equity

   

3,198

     

2,842

 

Total Liabilities, Redeemable Noncontrolling Interest and Equity

 

$

4,894

   

$

4,287

 
                 

 

 

Yum China Holdings, Inc.

Consolidated Statements of Cash Flows

(amounts in US$ million)

(unaudited)

       
   

Quarter Ended

 
   

3/31/2018

   

3/31/2017

 

Cash Flows - Operating Activities

               

Net income – including noncontrolling interests

 

$

296

   

$

210

 

Depreciation and amortization

   

118

     

96

 

Gain from re-measurement of equity interest upon acquisition

   

(98)

     

 

Deferred income taxes

   

23

     

(1)

 

Equity income earned from investments in unconsolidated affiliates

   

(23)

     

(21)

 

Distributions received from unconsolidated affiliates

   

36

     

27

 

Share-based compensation

   

6

     

5

 

Changes in accounts receivable

   

11

     

14

 

Changes in inventories

   

48

     

26

 

Changes in prepaid expenses and other current assets

   

(7)

     

4

 

Changes in accounts payable and other current liabilities

   

85

     

(63)

 

Changes in income taxes payable

   

63

     

58

 

Other, net

   

(7)

     

(19)

 

Net Cash Provided by Operating Activities

   

551

     

336

 

Cash Flows - Investing Activities

               

Capital spending

   

(111)

     

(112)

 

Purchases of short-term investments

   

(160)

     

(100)

 

Maturities of short-term investments

   

93

     

 

Proceeds from refranchising of restaurants

   

1

     

2

 

Acquisition of business, net of cash acquired

   

(88)

     

 

Other, net

   

(2)

     

(1)

 

Net Cash Used in Investing Activities

   

(267)

     

(211)

 

Cash Flows - Financing Activities

               

Payment of capital lease obligation

   

     

(1)

 

Payment of short-term borrowings assumed from acquisition

   

(10)

     

 

Cash dividends paid

   

(39)

     

 

Other, net

   

(2)

     

(10)

 

Net Cash Used in Financing Activities

   

(51)

     

(11)

 

Effect of Exchange Rates on Cash and Cash Equivalents

   

26

     

4

 

Net Increase in Cash and Cash Equivalents

   

259

     

118

 

Cash and Cash Equivalents – Beginning of Period

   

1,059

     

885

 

Cash and Cash Equivalents – End of Period

 

$

1,318

   

$

1,003

 

 

 

Reconciliation of Reported GAAP Results to Adjusted Measures
(amounts in US$ million, except for 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 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 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 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. Prior period results have been recast accordingly.
  • 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.

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 Diluted Earnings Per Common Share, Adjusted Effective Tax Rate and Adjusted EBITDA, which we define as net income including noncontrolling interests adjusted for income tax, interest income, depreciation, amortization and other items, including store impairment charges. The Special Item for the quarter ended March 31, 2018 represents a gain recognized from the re-measurement of our previously held equity interest 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. 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 its 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 Statements of Income and other information presented herein. A reconciliation of the most directly comparable GAAP measures to adjusted measures follows.

 

   

Quarter Ended

   
   

3/31/2018

   

3/31/2017

   

Detail of Special Items

                 

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

   

98

     

   

Special Items Income - Operating Profit

   

98

     

   

Tax Expenses on Special Items(c)

   

(24)

     

   

Special Items Income, net of tax – including noncontrolling interests

   

74

     

   

Special Items Income, net of tax – noncontrolling interests

   

     

   

Special Items Income, net of tax –Yum China Holdings, Inc.

   

74

     

   

Weighted Average Diluted Shares Outstanding

   

401

     

395

   

Special Items Diluted Earnings Per Common Share

   

0.19

     

   

Reconciliation of Operating Profit to Adjusted Operating Profit

                 

Operating Profit

   

395

     

296

   

Special Items Income - Operating Profit

   

98

     

   

Adjusted Operating Profit

   

297

     

296

   

Reconciliation of EPS to Adjusted EPS

                 

Diluted Earnings Per Common Share

   

0.72

     

0.52

   

Special Items Diluted Earnings Per Common Share

   

0.19

     

   

Adjusted Diluted Earnings Per Common Share

   

0.53

     

0.52

   

Reconciliation of Effective Tax Rate to Adjusted Effective Tax Rate

                 

Effective Tax Rate

   

26.6

%

   

30.0

%

 

Impact on Effective Tax Rate as a result of Special Items

   

(0.5)

%

   

(0.0)

%

 

Adjusted Effective Tax Rate

   

27.1

%

   

30.0

%

 

 

 

Reconciliation of Net Income to Adjusted EBITDA

(amounts in US$ million)

(unaudited)

 

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

         
   

Quarter Ended

   
   

3/31/2018

   

3/31/2017

   

Reconciliation of Net Income to Adjusted EBITDA

                 

Net Income – Yum China Holdings, Inc.

   

288

     

204

   

Net income – noncontrolling interests

 

$

8

   

$

6

   

Income tax provision

   

107

     

90

   

Interest income, net

   

(8)

     

(4)

   

Operating Profit

   

395

     

296

   

Depreciation and amortization

   

118

     

96

   

Store impairment charges

   

2

     

4

   

Special Items Income - Operating Profit

   

(98)

     

   

Adjusted EBITDA

 

$

417

   

$

396

   

 

 

Unit Count by Brand

                                     

KFC

                                   
   

2017

   

New Builds

   

Closures

   

Refranchised

   

Others

   

2018

 

Company-owned

   

4,112

     

108

     

(22)

     

(2)

     

157

     

4,353

 

Unconsolidated affiliates

   

891

     

33

     

(5)

     

     

(157)

     

762

 

Franchise

   

485

     

3

     

(3)

     

2

     

     

487

 

Total

   

5,488

     

144

     

(30)

     

     

     

5,602

 
                                                 
                                       

Pizza Hut

                                     
           

2017

   

New Builds

   

Closures

   

Refranchised

   

2018

 

Company-owned

           

2,166

     

40

     

(22)

     

(1)

     

2,183

 

Franchise

           

29

     

1

     

     

1

     

31

 

Total

           

2,195

     

41

     

(22)

     

     

2,214

 
                                                 
                                                 

All Other Segments

                                               
                   

2017

   

New Builds

   

Closures

   

2018

 

Company-owned

                   

29

     

1

     

(3)

     

27

 

Franchise

                   

271

     

17

     

(19)

     

269

 

Total

                   

300

     

18

     

(22)

     

296

 

 

 

Yum China Holdings, Inc.

Segment Results

(amounts in US$ million)

(unaudited)

                               

Quarter Ended 3/31/18

 

KFC

   

Pizza Hut

   

All Other
Segments

   

Corporate

and

Unallocated(1)

   

Total

 

Company sales

 

$

1,444

   

$

564

   

$

8

   

$

   

$

2,016

 

Franchise fees and income

   

37

     

1

     

2

     

     

40

 

Revenues from transactions with

   franchisees and unconsolidated affiliates

   

17

     

     

7

     

137

     

161

 

Other revenues

   

     

     

3

     

1

     

4

 

Total revenues

 

$

1,498

   

$

565

   

$

20

   

$

138

   

$

2,221

 

Company restaurant expenses

   

1,143

     

504

     

8

     

     

1,655

 

General and administrative expenses

   

46

     

28

     

7

     

33

     

114

 

Franchise expenses

   

19

     

1

     

     

     

20

 

Expenses for transactions with

  franchisees and unconsolidated affiliates

   

17

     

     

6

     

137

     

160

 

Other operating costs

   

     

     

3

     

1

     

4

 

Other income, net

   

(23)

     

(2)

     

     

(102)

     

(127)

 
     

1,202

     

531

     

24

     

69

     

1,826

 

Operating Profit (Loss)

 

$

296

   

$

34

   

$

(4)

   

$

69

   

$

395

 
                               

Quarter Ended 3/31/17

 

KFC

   

Pizza Hut

   

All Other
Segments

   

Corporate

and

Unallocated(1)

   

Total

 

Company sales

 

$

1,199

   

$

527

   

$

12

   

$

   

$

1,738

 

Franchise fees and income

   

34

     

1

     

1

     

     

36

 

Revenues from transactions with

   franchisees and unconsolidated affiliates

   

17

     

     

5

     

125

     

147

 

Other revenues

   

     

     

5

     

     

5

 

Total revenues

 

$

1,250

   

$

528

   

$

23

   

$

125

   

$

1,926

 

Company restaurant expenses

   

950

     

423

     

11

     

     

1,384

 

General and administrative expenses

   

39

     

25

     

3

     

31

     

98

 

Franchise expenses

   

17

     

1

     

     

     

18

 

Expenses for transactions with

  franchisees and unconsolidated affiliates

   

17

     

     

5

     

125

     

147

 

Other operating costs

   

     

     

3

     

     

3

 

Other income, net

   

(18)

     

(1)

     

     

(1)

     

(20)

 

Total costs and expenses, net

   

1,005

     

448

     

22

     

155

     

1,630

 

Operating Profit (Loss)

 

$

245

   

$

80

   

$

1

   

$

(30)

   

$

296

 

 

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

(1)

Corporate and unallocated expenses comprise items that are not allocated to segments for performance reporting purposes. Amount includes revenues and expenses associated with transactions with franchisees and unconsolidated affiliates such as inventory procurement and other services provided to franchisees and unconsolidated affiliates. The Corporate and Unallocated column in the above tables includes, among other amounts, all amounts that we have deemed Special Items. See "Reconciliation of Reported GAAP Results to Adjusted Measures".

 

Notes to the Consolidated Statements of Income, Consolidated Balance Sheets
and Consolidated Statements of Cash Flows
(amounts in US$ million)
(unaudited)

(a)

Amounts presented as of and for the quarter ended March 31, 2018 are unaudited.

   

(b)

As a result of the acquisition of Wuxi KFC, the Company recognized a gain of $98 million from the re-measurement of our previously held 47% equity interest at fair value, which was not allocated to any segment for performance reporting purposes.

   

(c)

The tax expense was determined based upon the nature as well as the jurisdiction of each Special Item at the applicable tax rate.

Cision View original content:http://www.prnewswire.com/news-releases/yum-china-reports-first-quarter-2018-results-300639915.html

SOURCE Yum China Holdings, Inc