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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): July 30, 2019

 

Yum China Holdings, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware		001-37762		81-2421743
(State or other jurisdiction of incorporation or organization)		(Commission File Number)		(I.R.S. Employer Identification No.)

 

7100 Corporate Drive Plano, Texas 75024 United States of America		Yum China Building 20 Tian Yao Qiao Road Shanghai 200030 People’s Republic of China
(Address, including zip code, of principal executive offices)

 

(469) 980-2898

(Registrant's telephone number, including area code)

Not Applicable

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

 

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

 

☐	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

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

 

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	YUMC	New York Stock Exchange

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

Emerging growth company ☐

 

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

 

 

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Item 2.02.

Results of Operations and Financial Condition.

 

On July 30, 2019, Yum China Holdings, Inc. issued a press release announcing its unaudited results for the second quarter ended June 30, 2019. A copy of the press release is being furnished as Exhibit 99.1 to this Current Report on Form 8-K.

 

 

Item 9.01.

Financial Statements and Exhibits.

 

(d)    Exhibits.

 

The following exhibits are furnished with this report:

 

Exhibit No.		Exhibit Description
99.1		Press Release of Yum China Holdings, Inc. issued July 30, 2019.

 

 

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SIGNATURES

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

 

		YUM CHINA HOLDINGS, INC.
		By:		/s/ Joseph Chan
				Name:		Joseph Chan
				Title:		Chief Legal Officer
Date: July 30, 2019

 

 

Exhibit 99.1

Yum China Reports Second Quarter 2019 Results

 

Total revenues grew 3% or 10% in constant currency;

Total system sales grew 10% and same-store sales grew 4% in constant currency

 

Shanghai, China (July 30, 2019) – 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

 

Key Financial Results

 

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

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

 

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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

 

Digital and Delivery

 

 

2

 

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New-Unit Development and Asset Upgrade

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

 

Restaurant Margin

 

2019 Outlook

3

 

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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.

 

 

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:

 

 

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.

 

4

 

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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.

 

 

5

 

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Yum China Holdings, Inc.

Condensed Consolidated Statements of Income

(in US$ million, except per share data)

(unaudited)

 

 

Percentages may not recompute due to rounding.

6

 

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Yum China Holdings, Inc.

KFC Operating Results

(in US$ million)

(unaudited)

 

 

Percentages may not recompute due to rounding.

7

 

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Yum China Holdings, Inc.

Pizza Hut Operating Results

(in US$ million)

(unaudited)

 

 

Percentages may not recompute due to rounding.

8

 

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Yum China Holdings, Inc.

Condensed Consolidated Balance Sheets

(in US$ million)

 

9

 

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Yum China Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

(in US$ million)

(unaudited)

 

 

10

 

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In this press release:

 

11

 

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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.

 

 

12

 

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Notes to the Condensed Consolidated Statements of Income, Condensed Consolidated Balance Sheets,

Condensed Consolidated Statements of Cash Flows and Reconciliation of Reported GAAP Results to Adjusted Measures

(in US$ million)

(unaudited)

 

 

13

 

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Reconciliation of Net Income to Adjusted EBITDA

(in US$ million)

(unaudited)

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

 

14

 

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Unit Count by Brand

 

KFC

 

 

Pizza Hut

 

 

Others

 

15

 

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Yum China Holdings, Inc.

Segment Results

(in US$ million)

(unaudited)

 

 

 

16

 

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

 

 

 

17