omniture

Yum China Reports Second Quarter 2018 Results

2018-08-02 14:39 1557

SHANGHAI, Aug. 1, 2018 /PRNewswire/ -- Yum China Holdings, Inc. (the "Company" or "Yum China") (NYSE: YUMC) today reported unaudited results for the second quarter ended June 30, 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.

Second Quarter Highlights

  • Total revenues increased 12% year over year to $2.1 billion from $1.8 billion (5% year over year increase excluding foreign currency translation ("F/X")).
  • Total system sales grew 3% year over year, with 5% growth at KFC partially offset by 1% decline at Pizza Hut, excluding F/X.
  • Same-store sales declined 1% year over year, with flat same-store sales at KFC and a 4% decrease at Pizza Hut, excluding F/X.
  • Restaurant margin was 15.1%, as compared with 16.6% in the prior year period.
  • Operating Profit increased 13% year over year to $193 million from $171 million (5% year over year increase excluding F/X).
  • Net Income increased 14% to $143 million from $125 million in the prior year period (6% year over year increase excluding F/X).
  • Effective tax rate was 26.0%.
  • Diluted EPS was $0.36, as compared with $0.31 in the prior year period.
  • Repurchased approximately 1.9 million shares for $73.4 million at an average price of $38.41 per share.
  • Opened 164 new restaurants during the quarter, bringing total store count to 8,198 across more than 1,200 cities.

Digital and Delivery

  • As of June 30, 2018, the KFC loyalty program had more than 135 million members and the Pizza Hut loyalty program had over 45 million members, an increase of 50 million and 20 million, respectively, year over year.
  • Mobile payments accounted for approximately 63% of Company sales in the quarter, an increase of 21 percentage points year over year.
  • Delivery contributed to 16% of Company sales in the second quarter of 2018, an increase of 3 percentage points year over year. Delivery services now available in over 1,000 cities, up from 800 cities in the prior year period.

Key Financial Results



Second Quarter 2018



Year to Date Ended 6/30/2018


% Change



% Change


System


Same-
Store


Net New
Units


Operating


System


Same-
Store


Net New
Units


Operating


Sales

Sales



Profit

Sales

Sales



Profit














Yum China

+3

(1)


+6


+13

+5

+1


+6


+26

     KFC

+5

-


+7


+10

+7

+3


+7


+16

     Pizza Hut

(1)

(4)


+4


(49)

(1)

(5)


+4


(55)















































Second Quarter


Year to Date Ended 6/30

(in US$ million, except








% Change








% Change

for per share data and percentages)


2018


2017


Reported


Ex F/X


2018


2017


Reported


Ex F/X

Operating Profit


$

193


$

171


+13


+5


$

588


$

467


+26


+16

Adjusted Operating Profit1


$

193


$

171


+13


+5


$

490


$

467


+5


(3)

Net Income


$

143


$

125


+14


+6


$

431


$

329


+31


+20

Basic Earnings Per Common Share


$

0.37


$

0.32


+16


+6


$

1.12


$

0.85


+32


+20

Adjusted Basic EPS Per Common Share1


$

0.37


$

0.32


+16


+6


$

0.93


$

0.85


+9


(1)

Diluted Earnings Per Common Share


$

0.36


$

0.31


+16


+6


$

1.08


$

0.83


+30


+19

Adjusted Diluted EPS Per Common Share1


$

0.36


$

0.31


+16


+6


$

0.89


$

0.83


+7


(1)

 

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 second quarter 2018 includes April, May and June 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 the new revenue accounting standard.

CEO and CFO Comments

"KFC achieved 5% system sales growth in the second quarter as a result of solid business fundamentals and accelerated new store development.  We are on track to add 600-650 new stores, led by KFC, by the end of the year.  This growth strategy will set us up for long-term growth in both profitability and market share.  We are confident in the sustainability of KFC's leader position in the QSR market in China.  While Pizza Hut continued to face challenges in China's competitive casual dining space, we added new talent to our team and made progress repositioning the brand with our target customers. We remain dedicated to revitalizing the brand and strongly believe that our initiatives including delivering more innovative products and introducing new store formats will restore the brand to the level of consistent growth that our shareholders expect," said Joey Wat, CEO of Yum China.

"Yum China reported total revenues and operating profit growth of 12% and 13% respectively in the second quarter. We will continue to invest in strengthening our core competencies as well as building delivery, digital and data capabilities to capture online and offline opportunities and drive future growth," added Ms. Wat.

"In an increasingly competitive environment, we stepped up food investment and promotional activities, which inevitably had some pressure on our margins. This reflects our strategic decision to invest in our brands for long-term market share gain. Our business continues to generate substantial free cash flow, and during the second quarter, we returned over $110 million of cash to our shareholders through share buyback and dividends. We remain committed to creating enduring value for our stockholders," 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 September 19, 2018 to stockholders of record as of the close of business on August 29, 2018.
  • During the second quarter, we repurchased approximately 1.9 million shares of Yum China common stock for $73.4 million at an average price of $38.41 per share.

New-Unit Development and Asset Upgrade

  • The Company opened 164 new restaurants and remodeled 365 restaurants in the second quarter of 2018.

 





New Units

Restaurant Count






Second Quarter
2018

Year to Date
Ended 6/30/2018

As of 6/30






 

2018


2017



Yum China



164



367


8,198


7,704



KFC



128



272


5,696


5,324



Pizza Hut



27



68


 

2,209


2,122



Little Sheep, East Dawning, Taco Bell



9



27


 

293


258


 

Restaurant Margin

  • In the second quarter of 2018, Yum China restaurant margin was 15.1%, as compared with 16.6% in the prior year period, primarily attributable to Pizza Hut sales deleverage and investment in product upgrades and promotions for both KFC and Pizza Hut.

 




Second Quarter




Year to Date Ended 6/30





2018



2017



% pts

change




2018


2017


% pts

change



Yum China



15.1

%



16.6

%



(1.5)




16.6%


18.5%


(1.9)



KFC



16.8

%



17.5

%


(0.7)




18.9%


19.2%


(0.3)



Pizza Hut



11.2

%



14.9

%



(3.7)




10.8%


17.4%


(6.6)



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 Wednesday, August 1, 2018 (8:00 a.m. Beijing/HK time on Thursday, August 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

UK:


+44 20 36214779

International:


+65-6713-5090

Passcode:


Yum China

A replay of the conference call may be accessed by phone at the following numbers until Thursday August 9, 2018:

US:


+1-855-452-5696

International:


+61-2-8199-0299

Passcode:


6146028

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, statements regarding the revitalization of Pizza Hut, 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 California-based restaurant chain serving innovative Mexican-inspired food. Yum China also owns the Little Sheep and East Dawning concepts outright. The Company had more than 8,100 restaurants and more than 460,000 employees in over 1,200 cities at the end of June 2018. For more information, please visit http://ir.yumchina.com  

Investor Relations Contacts:



Tel: +86 21 2407 7556

IR@YumChina.com  

 




Media Contact:



Tel: +86 21 2407 7510

Media@YumChina.com

 

 

 

Yum China Holdings, Inc.

Consolidated Statements of Income

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

(unaudited)




Quarter Ended



% Change


Year to Date Ended



% Change



6/30/2018



6/30/2017



B/(W)


6/30/2018



6/30/2017



B/(W)

Revenues



























Company sales


$

1,888



$

1,664




13




$

3,904



$

3,402




15



Franchise fees and income



34




33




2





74




69




7



Revenues from transactions with

   franchisees and unconsolidated affiliates



141




141








302




288




5



Other revenues



5




3




79





9




8




15



Total revenues



2,068




1,841




12





4,289




3,767




14



Costs and Expenses, Net



























Company restaurants



























Food and paper



571




483




(18)





1,165




969




(20)



Payroll and employee benefits



424




366




(16)





866




734




(18)



Occupancy and other operating expenses



607




539




(13)





1,226




1,069




(15)



Company restaurant expenses



1,602




1,388




(15)





3,257




2,772




(18)



General and administrative expenses



101




118




16





215




216




1



Franchise expenses



17




17








37




35




(6)



Expenses for transactions with

   franchisees and unconsolidated affiliates



138




137




(1)





298




284




(5)



Other operating costs



7




3



NM





11




6




(67)



Closures and impairment expenses, net



17




18




7





16




18




15



Other income, net



(7)




(11)




44





(133)




(31)



NM



Total costs and expenses, net



1,875




1,670




(12)





3,701




3,300




(12)



Operating Profit



193




171




13





588




467




26



Interest income, net



10




4



NM





18




8



NM



Income Before Income Taxes



203




175




16





606




475




28



Income tax provision



(53)




(43)




(24)





(160)




(133)




(21)



Net income – including noncontrolling interests



150




132




13





446




342




30



Net income – noncontrolling interests



7




7




(2)





15




13




10



Net Income – Yum China Holdings, Inc.


$

143



$

125




14




$

431



$

329




31



Effective tax rate



26.0

%



24.3

%



(1.7)


ppts.



26.4

%



27.9

%



1.5


ppts.




























Basic Earnings Per Common Share


$

0.37



$

0.32








$

1.12



0.85







Weighted average shares outstanding (in millions)



386




387









386




387


































Diluted Earnings Per Common Share


$

0.36



$

0.31








$

1.08



0.83







Weighted average shares outstanding (in millions)



398




399









400




397


































Cash Dividends Declared Per Common Share


$

0.10



$








$

0.20



$


































Company sales



100.0

%



100.0

%








100.0

%



100.0

%






Food and paper



30.3




29.0




(1.3)


ppts.



29.8




28.5




(1.3)


ppts.

Payroll and employee benefits



22.5




22.0




(0.5)


ppts.



22.2




21.6




(0.6)


ppts.

Occupancy and other operating expenses



32.1




32.4




0.3


ppts.



31.4




31.4





ppts.

Restaurant margin



15.1

%



16.6

%



(1.5)


ppts.



16.6

%



18.5

%



(1.9)


ppts.

Operating margin



10.2

%



10.3

%



(0.1)


ppts.



15.1

%



13.7

%



1.4


ppts.

Percentages may not recompute due to rounding.

 

 

Yum China Holdings, Inc.

KFC Operating Results

(amounts in US$ million)

(unaudited)




Quarter Ended



% Change


Year to Date Ended



% Change



6/30/2018



6/30/2017



B/(W)


6/30/2018



6/30/2017



B/(W)

Revenues



























Company sales


$

1,352



$

1,159




17




$

2,796



$

2,358




19



Franchise fees and income



33




32




1





70




66




5



Revenues from transactions with

   franchisees and unconsolidated affiliates



15




15




(1)





32




32






Total revenues



1,400




1,206




16





2,898




2,456




18



Costs and Expenses, Net



























Company restaurants



























Food and paper



413




348




(19)





837




701




(19)



Payroll and employee benefits



289




241




(20)





582




482




(21)



Occupancy and other operating expenses



423




367




(15)





849




723




(17)



Company restaurant expenses



1,125




956




(18)





2,268




1,906




(19)



General and administrative expenses



45




38




(13)





91




77




(16)



Franchise expenses



17




17




2





36




34




(5)



Expenses for transactions with

   franchisees and unconsolidated affiliates



15




15




1





32




32






Closures and impairment expenses, net



6




9




43





6




10




44



Other income, net



(7)




(11)




(40)





(30)




(30)




(2)



Total costs and expenses, net



1,201




1,024




(17)





2,403




2,029




(18)



Operating Profit


$

199



$

182




10




$

495



$

427




16



Company sales



100.0

%



100.0

%








100.0

%



100.0

%






Food and paper



30.5




30.1




(0.4)


ppts.



29.9




29.7




(0.2)


ppts.

Payroll and employee benefits



21.4




20.8




(0.6)


ppts.



20.8




20.4




(0.4)


ppts.

Occupancy and other operating expenses



31.3




31.6




0.3


ppts.



30.4




30.7




0.3


ppts.

Restaurant margin



16.8

%



17.5

%



(0.7)


ppts.



18.9

%



19.2

%



(0.3)


ppts.

Operating margin



14.7

%



15.6

%



(0.9)


ppts.



17.7

%



18.1

%



(0.4)


ppts.

Percentages may not recompute due to rounding.

 

 

Yum China Holdings, Inc.

Pizza Hut Operating Results

(amounts in US$ million)

(unaudited)




Quarter Ended



% Change


Year to Date Ended



% Change



6/30/2018



6/30/2017



B/(W)


6/30/2018



6/30/2017



B/(W)

Revenues



























Company sales


$

528



$

497




6




$

1,092



$

1,024




7



Franchise fees and income









23





1




1




24



Revenues from transactions with

   franchisees and unconsolidated affiliates






1




5








1




(1)



Total revenues



528




498




6





1,093




1,026




7



Costs and Expenses, Net



























Company restaurants



























Food and paper



156




132




(18)





323




261




(24)



Payroll and employee benefits



133




122




(9)





280




246




(14)



Occupancy and other operating expenses



181




169




(7)





371




339




(9)



Company restaurant expenses



470




423




(11)





974




846




(15)



General and administrative expenses



28




26




(6)





56




51




(10)



Franchise expenses









(65)





1




1




(42)



Expenses for transactions with

   franchisees and unconsolidated affiliates






1




(5)








1




1



Closures and impairment expenses, net



11




9




(34)





10




8




(22)



Other income, net



(1)






NM





(2)






NM



Total costs and expenses, net



508




459




(11)





1,039




907




(15)



Operating Profit


$

20



$

39




(49)




$

54



$

119




(55)



Company sales



100.0

%



100.0

%








100.0

%



100.0

%






Food and paper



29.5




26.5




(3.0)


ppts.



29.6




25.5




(4.1)


ppts.

Payroll and employee benefits



25.2




24.5




(0.7)


ppts.



25.7




24.0




(1.7)


ppts.

Occupancy and other operating expenses



34.1




34.1





ppts.



33.9




33.1




(0.8)


ppts.

Restaurant margin



11.2

%



14.9

%



(3.7)


ppts.



10.8

%



17.4

%



(6.6)


ppts.

Operating margin



3.9

%



8.0

%



(4.1)


ppts.



4.9

%



11.7

%



(6.8)


ppts.

Percentages may not recompute due to rounding.

 

 

Yum China Holdings, Inc.

Consolidated Balance Sheets

(amounts in US$ million)

(unaudited)




6/30/2018



12/31/2017


ASSETS









Current Assets









Cash and cash equivalents


$

1,261



$

1,059


Short-term investments



278




205


Accounts receivable, net



73




81


Inventories, net



276




297


Prepaid expenses and other current assets



205




160


Total Current Assets



2,093




1,802


Property, plant and equipment, net



1,657




1,691


Goodwill



276




108


Intangible assets, net



145




101


Investments in unconsolidated affiliates



53




95


Other assets



421




385


Deferred income taxes



85




105


Total Assets



4,730




4,287


LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND EQUITY









Current Liabilities









Accounts payable and other current liabilities



1,147




985


Income taxes payable



59




39


Total Current Liabilities



1,206




1,024


Capital lease obligations



27




28


Other liabilities and deferred credits



396




388


Total Liabilities



1,629




1,440


Redeemable Noncontrolling Interest



5




5


Equity









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

   391 million shares and 389 million shares issued at June 30, 2018

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

   outstanding at June 30, 2018 and December 31, 2017, respectively



4




4


Treasury stock



(221)




(148)


Additional paid-in capital



2,388




2,375


Retained earnings



751




397


Accumulated other comprehensive income



81




137


Total Equity – Yum China Holdings, Inc.



3,003




2,765


Noncontrolling interests



93




77


Total Equity



3,096




2,842


Total Liabilities, Redeemable Noncontrolling Interest and Equity


$

4,730



$

4,287











 

 

Yum China Holdings, Inc.

Consolidated Statements of Cash Flows

(amounts in US$ million)

(unaudited)



Year to Date Ended



6/30/2018


6/30/2017

Cash Flows – Operating Activities











Net income – including noncontrolling interests


$

446




$

342



Depreciation and amortization



235





196



Closures and impairment expenses



16





18



Gain from re-measurement of equity interest upon acquisition



(98)







Deferred income taxes



42





(3)



Equity income from investments in unconsolidated affiliates



(35)





(35)



Distributions received from unconsolidated affiliates



41





31



Share-based compensation



13





11



Changes in accounts receivable



(2)





12



Changes in inventories



18





(3)



Changes in prepaid expenses and other current assets



(28)





(1)



Changes in accounts payable and other current liabilities



182





46



Changes in income taxes payable



20





20



Other, net



(31)





(30)



Net Cash Provided by Operating Activities



819





604



Cash Flows – Investing Activities











Capital spending



(230)





(204)



Purchases of short-term investments



(370)





(318)



Maturities of short-term investments



295





81



Proceeds from refranchising of restaurants



3





3



Acquisition of business, net of cash acquired



(88)





(25)



Other, net



(16)





(2)



Net Cash Used in Investing Activities



(406)





(465)



Cash Flows – Financing Activities











Payment of capital lease obligation



(1)





(1)



Repayment of short-term borrowings assumed from acquisition



(10)







Repurchase of shares of common stock



(70)





(96)



Proceeds from exercise of stock options







4



Cash dividends paid



(77)







Dividends paid to noncontrolling interests



(27)





(17)



Other, net



(1)







Net Cash Used in Financing Activities



(186)





(110)



Effect of Exchange Rates on Cash and Cash Equivalents



(25)





12



Net Increase in Cash and Cash Equivalents



202





41



Cash and Cash Equivalents - Beginning of Period



1,059





885



Cash and Cash Equivalents - End of Period


$

1,261




$

926



 

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 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 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 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, depreciation, amortization and other items, including store impairment charges. 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



Year to Date Ended




6/30/2018



6/30/2017



6/30/2018



6/30/2017


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



398




399




400




397


Special Items Diluted Earnings Per Common Share


$



$



$

0.19



$


Reconciliation of Operating Profit to Adjusted Operating Profit

















Operating Profit


$

193



$

171



$

588



$

467


Special Items Income - Operating Profit









98





Adjusted Operating Profit


$

193



$

171



$

490



$

467


Reconciliation of EPS to Adjusted EPS

















Diluted Earnings Per Common Share


$

0.36



$

0.31



$

1.08



$

0.83


Special Items Diluted Earnings Per Common Share









0.19





Adjusted Diluted Earnings Per Common Share


$

0.36



$

0.31



$

0.89



$

0.83


Reconciliation of Effective Tax Rate to Adjusted Effective Tax Rate

















Effective Tax Rate



26.0

%



24.3

%



26.4

%



27.9

%

Impact on Effective Tax Rate as a result of Special Items



%



%



(0.2)

%



%

Adjusted Effective Tax Rate



26.0

%



24.3

%



26.6

%



27.9

%

 

 

 

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



Year to Date Ended




6/30/2018



6/30/2017



6/30/2018



6/30/2017


Reconciliation of Net Income to Adjusted EBITDA

















Net Income – Yum China Holdings, Inc.


$

143



$

125



$

431



$

329


Net income – noncontrolling interests



7




7




15




13


Income tax provision



53




43




160




133


Interest income, net



(10)




(4)




(18)




(8)


Operating Profit



193




171




588




467


Depreciation and amortization



117




100




235




196


Store impairment charges



19




19




21




23


Special Items Income - Operating Profit









(98)





Adjusted EBITDA


$

329



$

290



$

746



$

686


 

Unit Count by Brand















KFC















12/31/2017


New Builds


Acquired


Closures


Refranchised


Others


6/30/2018

Company-owned

4,112


205


1


(48)


(6)


157


4,421

Unconsolidated affiliates

891


61



(11)



(157)


784

Franchise

485


6


(1)


(5)


6



491

Total

5,488


272



(64)




5,696















Pizza Hut















12/31/2017


New Builds




Closures


Refranchised




6/30/2018

Company-owned

2,166


67




(53)


(1)




2,179

Franchise

29


1




(1)


1




30

Total

2,195


68




(54)





2,209















All Other Segments















12/31/2017


New Builds




Closures


Refranchised




6/30/2018

Company-owned

29


1




(3)


(1)




26

Franchise

271


26




(31)


1




267

Total

300


27




(34)





293

 

 

 

Yum China Holdings, Inc.

Segment Results

(amounts in US$ million)

(unaudited)


Quarter Ended 6/30/18


KFC



Pizza Hut



All Other
Segments



Corporate

and

Unallocated(1)



Elimination



Total


Company sales


$

1,352



$

528



$

8



$



$



$

1,888


Franchise fees and income



33







1










34


Revenues from transactions with

   franchisees and unconsolidated affiliates



15







4




122







141


Other revenues









5




1




(1)




5


Total revenues


$

1,400



$

528



$

18



$

123



$

(1)



$

2,068


Company restaurant expenses



1,125




470




8







(1)




1,602


General and administrative expenses



45




28




9




19







101


Franchise expenses



17
















17


Expenses for transactions with

  franchisees and unconsolidated affiliates



15







3




120







138


Other operating costs









6




1







7


Closures and impairment expenses, net



6




11













17


Other (income) expense, net



(7)




(1)




(1)




2







(7)





1,201




508




25




142




(1)




1,875


Operating Profit (Loss)


$

199



$

20



$

(7)



$

(19)



$



$

193


 

Quarter Ended 6/30/17


KFC



Pizza Hut



All Other
Segments



Corporate

and

Unallocated(1)



Total


Company sales


$

1,159



$

497



$

8



$



$

1,664


Franchise fees and income



32







1







33


Revenues from transactions with

   franchisees and unconsolidated affiliates



15




1




4




121




141


Other revenues









3







3


Total revenues


$

1,206



$

498



$

16



$

121



$

1,841


Company restaurant expenses



956




423




9







1,388


General and administrative expenses



38




26




4




50




118


Franchise expenses



17













17


Expenses for transactions with

  franchisees and unconsolidated affiliates



15




1




3




118




137


Other operating costs









3







3


Closures and impairment expenses, net



9




9










18


Other income, net



(11)













(11)


Total costs and expenses, net



1,024




459




19




168




1,670


Operating Profit (Loss)


$

182



$

39



$

(3)



$

(47)



$

171


 

Year to Date Ended 6/30/18


KFC



Pizza Hut



All Other
Segments



Corporate

and

Unallocated(1)



Elimination



Total


Company sales


$

2,796



$

1,092



$

16



$



$



$

3,904


Franchise fees and income



70




1




3










74


Revenues from transactions with

   franchisees and unconsolidated affiliates



32







11




259







302


Other revenues









8




2




(1)




9


Total revenues


$

2,898



$

1,093



$

38



$

261



$

(1)



$

4,289


Company restaurant expenses



2,268




974




16







(1)




3,257


General and administrative expenses



91




56




16




52







215


Franchise expenses



36




1













37


Expenses for transactions with

  franchisees and unconsolidated affiliates



32







9




257







298


Other operating costs









9




2







11


Closures and impairment expenses, net



6




10













16


Other income, net



(30)




(2)




(1)




(100)







(133)





2,403




1,039




49




211




(1)




3,701


Operating Profit (Loss)


$

495



$

54



$

(11)



$

50



$



$

588


 

Year to Date Ended 6/30/17


KFC



Pizza Hut



All Other
Segments



Corporate

and

Unallocated(1)



Total


Company sales


$

2,358



$

1,024



$

20



$



$

3,402


Franchise fees and income



66




1




2







69


Revenues from transactions with

   franchisees and unconsolidated affiliates



32




1




9




246




288


Other revenues









8







8


Total revenues


$

2,456



$

1,026



$

39



$

246



$

3,767


Company restaurant expenses



1,906




846




20







2,772


General and administrative expenses



77




51




7




81




216


Franchise expenses



34




1










35


Expenses for transactions with

  franchisees and unconsolidated affiliates



32




1




8




243




284


Other operating costs









6







6


Closures and impairment expenses, net



10




8










18


Other income, net



(30)










(1)




(31)





2,029




907




41




323




3,300


Operating Profit (Loss)


$

427



$

119



$

(2)



$

(77)



$

467


 

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 and year to date ended June 30, 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.

 

Source: Yum China Holdings, Inc
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