First Quarter 2018 Results Presentation. May 2, 2018

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Transcription:

First Quarter 2018 Results Presentation May 2, 2018 1

Cautionary Statement on Forward-Looking Statements & Non-GAAP Measures This presentation 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, 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, the capital structure 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 presentation are only made as of the date of this presentation, 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. This presentation includes certain non-gaap financial measures. Reconciliation of these non-gaap financial measures to the most directly comparable GAAP measures are included in this presentation where indicated. You are urged to consider carefully the comparable GAAP measures and reconciliations. 2

Agenda Q1 2018 Highlights Financial Results Q&A 3

KFC Grew from Strength to Strength; Pizza Hut Revitalization Journey Continues YUMC Overall Growth in Revenues, Operating Profit and Net Income Accelerated rate of new builds Quarterly cash dividend of $0.10 per share Increased ownership in Wuxi KFC from 47% to 83% KFC Strong growth in sales, innovative products and well-rounded campaigns Double digit operating profit growth Pizza Hut Digital & Delivery Bold trials and lessons learned Committed to the revitalization Delivery drove sales growth, growing double digits Loyalty members increased to over 120mn and 40mn for KFC & PH 4

KFC Delivered Strong Performance Q1 2018 Highlights SSSG +5% YoY 1, System sales +9% YoY 1 Q1 2018: 144 new stores, 118 remodels Q1 2017: 85 new stores, 84 remodels Restaurant Margin at 20.9%, +0.1ppt YoY Operating Profit +11% YoY 1 1 Stated in constant currency basis. 5

Premium Innovative Products Delighting Consumers Jan: Crayfish Burger Feb: CNY Bucket Mar: Spicy chicken burger 6

Well-rounded Marketing Campaign Drove Chinese New Year Sales Well-rounded national campaigns Local marketing Excellent instore execution 7

Digital & Delivery Engines Drove Growth Digital Delivery 120mn+ members (+50mn YoY) +39% Delivery sales YoY Delivery as % of Company sales 11% 14% 38% Members sales (+15ppt YoY) 3,300+ stores (+600 YoY) 8% 20% Pre-order (+18ppt YoY) 970 cities (+260 YoY) 1Q 16 1Q 17 1Q 18 Note: All YoY comparison stated in constant currency basis. Delivery as % of Company sales exclude KFC Wuxi for all period for comparability 8

Grow Dayparts and Categories Breakfast Coffee Dessert / Kiosks 9

Pizza Hut Continues its Revitalization Journey Q1 2018 Highlights SSSG -5% YoY 1, System sales -1% YoY 1 Q1 2018: 41 new stores, 7 remodels Q1 2017: 41 new stores, 11 remodels Restaurant Margin at 10.5%, -9.2pt YoY Operating Profit -61% YoY 1 1 Stated in constant currency basis. 10

Bold Trials on Food, More Work Needed Jan: 9 in 1 Pizza Feb: CNY Abalone Pizza Mar: 4 in 1 Pizza 11

Digital & Delivery Working in Parallel Driving Growth Digital Delivery 40mn+ members (+20mn YoY) +26% Delivery sales YoY Delivery as % of Company sales 18% 23% 46% Members sales (+41ppt YoY) 2,100+ stores (+200 YoY) 13% 9mn+ Brand App Downloads 450+ cities (+90 YoY) 1Q 16 1Q 17 1Q 18 Note: All YoY comparison stated in constant currency basis 12

Remain Confident to Revitalize Pizza Hut Food taste & value for money Labor efficiency Digital user base Online experience I. Fix Fundamentals II. Enhance Digital Own channel Cost efficiency Multiple formats New store design III. Optimize Delivery IV. Experiment New Models 13

Agenda Q1 2018 Highlights Financial Results Q&A 14

2018 First Quarter Financial Highlights Revenue System sales +6% YoY 1, SSSG +3% YoY 1 Total revenue reached $2.2bn, +6% YoY 1 Stores 203 new stores, total stores reached 8,112 Profit Restaurant margin at 17.9%, -2.5ppt YoY Operating Profit at $395mn +22% YoY 1 Adjusted Operating Profit $297mn, -8% YoY 1 Net Income $288mn, +29% YoY 1 Diluted EPS $0.72, +25% YoY 1 Effective tax rate 26.6% Capital Allocation Dividend $0.10/share paid in Q1 and to be paid in Q2 Increased interest in Wuxi KFC from 47% to 83% 1 Stated in constant currency basis. Note: Yum China s fiscal first quarter includes January to March results; Adjusted Operating Profit is non-gaap financial measure. See the appendix for a reconciliation to the GAAP equivalent. 15

Double Digit Operating Profit Growth Operating Profit ($ mn) 395 296 $98mn gain resulting from the acquisition of Wuxi KFC Q1 2017 Same-store sales leverage Net new unit growth Wage & commodity inflation Product upgrade & promotion cost G&A increase F/X impact Special Item Q1 2018 Operating Profit +22% YoY ex F/X Adjusted Operating Profit 1-8% YoY ex F/X 1 Adjusted Operating Profit is non-gaap financial measures. See the appendix for a reconciliation to the GAAP equivalent. 16

KFC Solid Performance on Key Financial Metrics System Sales Growth (%) 1 Same Store Sales Growth (%) Restaurant Margin (%) Operating Profit ($ mn) 2 14% 10% 20.8% 20.9% 296 11% 245 8% 9% 4% 6% 5% 3% 1% 1Q 172Q 173Q 174Q 171Q 18 1Q 172Q 173Q 174Q 171Q 18 1Q 17 1Q 18 1Q 17 1Q 18 1 Stated in constant currency basis. 2 Segment Operating Profit before unallocated shared service costs 17

Pizza Hut Experienced A Bumpy Quarter System Sales Growth (%) 1 Same Store Sales Growth (%) Restaurant Margin (%) Operating Profit ($mn) 2 9% 6% 7% 6% 3% 0% 1% 1% 19.7% 80 10.5% 34-1% 1Q 172Q 173Q 174Q 171Q 18-5% 1Q 172Q 173Q 174Q 171Q 18 1Q 17 1Q 18 1Q 17 1Q 18 1 Stated in constant currency basis. 2 Segment Operating Profit before unallocated shared service costs 18

Accelerated New Restaurant Openings New New Build Build by Tier New Build Tier Mix New Unit Return 1 1Q 16 1Q 17 1Q 18 Tier 1-2 Tier 3-6 203 144 41 Tier 1-2 Tier 3-6 149 129 67% 37% KFC ~2 yrs ~2 yrs 82 91 Pizza Hut <3 yrs <4 yrs 30 33% 63% Gross New Net New KFC Pizza Hut Target to open 600-650 new stores in 2018, up from 550-600 1 Refers to Average Pre-tax Cash Payback Period; Includes all units opened in 2016, after deduction of 3% license fee. 19

Strong Cash Position G&A Net cash from operating activities Free cash flow Cash and shortterm investments Q1 2018 Q1 2018 As of Mar 2018 $551 mn $440 mn $1.59 bn Cash Dividend of $0.10 per share Acquired additional 36% interest in Wuxi KFC Note: Free cash flow for Q1 2018 is net operating cash flow of $551 mn less capital spending of $111 mn. 20

Strategic Priorities Remain Unchanged Focus on China Invest locally for growth Digital and Delivery Invest and maintain lead Strengthen Core Business Improve stores, innovate menu, improve quality and value Innovation Product categories, formats and day parts The World s Most Innovative Pioneer in Restaurant Industry 21

Family Care Program for Restaurant General Managers RGM #1 Culture Additional supplemental insurance coverage for family members of eligible RGMs Benefit around 17,000 children, spouses and parents of our RGMs Available from 2H 2018 餐厅经理全家福健康关怀计划 22

Agenda Q1 2018 Highlights Brand Performance Q&A 23

Appendix: Reconciliation of Reported Results to Non-GAAP Measures 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 (a) Amounts presented as of and for the quarter ended March 31 in 2017 and 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 Adjusted purposes Diluted Earnings Per Common Share 0.53 0.52 (c) The tax expense was determined based upon the nature as well as the jurisdiction of each Special Item at the applicable tax rate 24