Yum China Holdings, Inc. · NYSE:YUMC
Yum China — Q1 2020 Earnings Presentation
38 slides from Yum China's earnings presentation, Apr 29, 2020
Slide 1: First Quarter 2020 Results Presentation
First Quarter 2020 Results Presentation 29 April 2020 1
Slide 2: Cautionary Statement on Forward-Looking Statements & Non-GAAP Measures
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 covere
Slide 3: Overview
Overview Q1 2020 Business Highlights Q1 2020 Financial Results 33
Slide 4: Yum China by the Numbers – a Powerful Business
Yum China by the Numbers – a Powerful Business #1 Western QSR & NYSE listed with CDR brands in China $16bn market cap 9,200+ stores in 1,400+ cities in China #362 Fortune 500 2019 25 logistics centers 250 mn+ digital members of KFC and Pizza Hut Note: Store, logistic center and member counts as of M
Slide 5: Our Long-Term Strategy
Our Long-Term Strategy SUSTAINABLE PLATFORM FOR GROWTH YUM CHINA BRAND PORTFOLIO ENABLED BY THREE PILLARS ACROSS BRANDS DIGITAL DATA DELIVERY AND CROSS FUNCTIONAL CAPABILITIES People Development Supply Chain Operation Marketing IT Finance Legal Public Affairs SUPPORTED BY FOUNDER’S MENTALITY CULTURE
Slide 6: The World's Most Innovative Pioneer In The Restaurant Industry
exeQlliin & an 3c The World's Most Innovative Pioneer In The Restaurant Industry QD vwwvcin | @ @ O ea © & amow
Slide 7: Digital Strategy: Connecting with Our Consumers
Digital Strategy: Connecting with Our Consumers Mobile Pre-order KFC Member Program Mobile Pizza Hut Tableside order Member Program Online Queuing E-gifting Delivery K-Music YUMC Pay K-Run Book Kingdom V-gold & Merchandise Privilege Program 77
Slide 8: Digital Strategy: Driving Efficiency Across the Business
Digital Strategy: Driving Efficiency Across the Business Omni Data & Intelligent Optimising Customer Channel AI Driven Supply Labor Yum China Services Marketing Chain Productivity 88
Slide 9: Yum China Investment Highlights
Yum China Investment Highlights Solid track record Strong balance sheet & Track record of Responsible corporate since spin-off cash flow generation shareholder returns Dividends & Share DJSI: Top 5 in 2.3 $1.66bn new stores Cash and repurchases ($mn) REX4 industry opened per day 3 2 short-term inves
Slide 10: Q1 2020 Business Highlights
Overview Q1 2020 Business Highlights Q1 2020 Financial Results 10 10
Slide 11: Achieved $97mn Operating Profit in Q1; Digital Order 80% of Sales
Achieved $97mn Operating Profit in Q1 Digital Order Contributed to 80% of Sales ● $1.75 bn Revenue ● Opened 179 new stores, reaching a total of 9,295 stores ● System sales declined 20%* ● Maintained new store cash payback ● Same store sales declined 15%* of ~2 years for KFC and ~3-4 SALES & years fo
Slide 12: Our Top Priority is to Ensure the Health and Safety of our Employees and Customers
Our Top Priority is to Ensure the Health and Safety of our Employees and Customers Temperature check for staff Staff wear face masks at all times Temperature check for customers Strengthened cleaning & disinfection Sanitizer and gloves available for customers 12 12
Slide 13: Pioneered Contactless Delivery in Late January
Pioneered Contactless Delivery in Late January Six Key Actions 1. Rider temperature checks 2. Face masks for entire delivery journey 3. Handwashing pre and post deliveries 4. Delivery box disinfected after every delivery 5. Temperature logs for each delivery 6. Safe distance at point of delivery 13
Slide 14: Contactless Takeaway Leveraged Our Digital Capabilities
Contactless Takeaway Leveraged Our Digital Capabilities: Mobile Pre-order and Self Order Kiosks Contactless takeaway: Mobile pre-order or Self order kiosk Pick up 4 steps for safe, Contactless Pre- order and pick up Kiosks disinfected regularly Dedicated counters for takeaway Contactless takeaway (s
Slide 15: Supporting the Medical Staff and Frontline Workers
Supporting the Medical Staff and Frontline Workers Donated RMB 3 million to support hospital workers in Wuhan Yum China provided 170,000+ free meals to 1,450+ hospitals and community health centers 15 15
Slide 16: KFC: Resilient Business Model Supported by Digital, Delivery, Takeaway
KFC: Resilient Business Model Supported by Digital, Delivery, Takeaway and Solid Execution Q1 2020 HIGHLIGHTS Same store sales 165 new Operating profit 13.6% down 11%1 Restaurant margin, store openings of $153mn2 down 6.4ppt y/y down 45%1 System sales down 15%1 Focused on operation, 84% Digital orde
Slide 17: Built on Digital Campaigns and Partnerships
Built on Digital Campaigns and Partnerships New Coffee Privilege Cross-brands Privilege Lunch Privilege Corporate Delivery 38 yuan for 30 days Members enjoy discounts at KFC, 28 yuan for 30 days Big ticket delivery Youku (streaming platform), Eleme 12 combo choices Tailor-made menu (food aggregator)
Slide 18: Launched Great Value to Drive Traffic
Launched Great Value to Drive Traffic Crazy Thursday Value Bucket Value Breakfast Coffee Trial Single bone chicken Save 53 yuan Breakfast combo from 6 yuan Free coffee to 19.9 yuan/15 pieces Rice dumpling with salted egg acquire new coffee users 18 18
Slide 19: Selective New Products as the Situation Stabilized
Selective New Products as the Situation Stabilized Chicken & Mushroom Rice Dumpling Durian Egg-tart Tea-infused Egg Assorted spicy mushrooms Festive food: Rice dumpling filled Egg tart with durian lava and Oolong tea-infused hard boiled & chicken burger with salted egg marshmallow egg 19 19
Slide 20: Pizza Hut: Dine-In Business Severely Impacted
Pizza Hut: Dine-In Business Severely Impacted Q1 2020 HIGHLIGHTS Same store sales 11 new store Operating loss 0.3% Restaurant down 31%1 margin, down openings of $28mn2 14.0ppt y/y System sales 7 remodels down 38%1 Focused on operation, digital marketing and 65% Digital order 70mn+ Members Delivery/t
Slide 21: Launched Great New Products before Chinese New Year
Launched Great New Products before Chinese New Year Cod Fish Pizza Chinese Barbecue Pork Pizza Crayfish Mozzarella Pasta White Wine Ice cream Cod fish with salted egg Barbecue pork with honey sauce Crayfish with mozzarella cheese Maotai ice cream 21 21
Slide 22: Focus on Delivery and Takeaway During Outbreak
Focus on Delivery and Takeaway During Outbreak Delivery BOGO offer Steak Delivery Delivery Privilege Takeaway Offer ¥39 for two shrimp baked rice ¥49 for one steak 2 free deliveries a day (for Valentine’s Day offer: save ¥94 orders over ¥39), can save up on a steak combo to ¥540 a month 22 22
Slide 23: Ready-to-Cook Steak Offered for Takeaway or Delivery
Ready-to-Cook Steak Offered for Takeaway or Delivery
Slide 24: One-Person Set Meal and Privilege
One-Person Set Meal and Privilege One-person set meal from 25 yuan; Privilege for takeaway 24 24 Steak set from 36 yuan 18 yuan for 30 days
Slide 25: Opened Lavazza's First Flagship Store in Asia
Opened Lavazza’s First Flagship Store in Asia Joint venture partnership with the Lavazza Group Opened a new Lavazza flagship store in Shanghai 25 25
Slide 26: Completed the Acquisition of Huang Ji Huang in April
Completed the Acquisition of Huang Ji Huang in April 640+ restaurants in China and internationally, primarily under franchise model Huang Ji Huang – an industry-leading simmer pot brand San Fen Bao – a newly launched Chinese fast food concept 26 26
Slide 27: Q1 2020 Financial Results
Overview Q1 2020 Business Highlights Q1 2020 Financial Results 27 27
Slide 28: Majority of New Stores Opened in January
Majority of New Stores Opened in January 237 203 179 191 Gross 165 144 new 41 34 stores 11 18 Q1 19 Q1 20 Q1 18 Q1 19 Q1 20 Q1 18 Q1 19 Q1 20 Q1 9,295 8,653 6,661 8,112 Total 6,078 stores 2,214 2,249 2,271 5,602 18 Q1 19 Q1 20 Q1 18 Q1 19 Q1 20 Q1 18 Q1 19 Q1 20 Q1 28 28
Slide 29: Q1 Financials Impacted by COVID-19 Outbreak
Q1 Financials Impacted by COVID-19 Outbreak Sales Growth1 Profit Margin Net Income & EPS System sales growth (%) Restaurant Margin (%) Net Income (NI) ($ mn) 17.9% 18.5% 6% 9% 288 10.7% 222 62 -20% 18 Q1 19 Q1 20 Q1 18 Q1 19 Q1 20 Q1 18 Q1 19 Q1 20 Q1 Same-store sales growth (%) Operating Profit (OP
Slide 30: Sales Deleverage is the Main Factors of OP Decline
Sales Deleverage is the Main Factors of OP Decline Operating Profit ($ mn) 2019 2020 Key Factors for Q1 Year-Over-Year Movement Q1 303 303 • Sales deleverage impact from same-store sales decline and temporary store closure • Wage and commodity inflation • Increased proportion of sales to delivery th
Slide 31: KFC Sales Down 15%, Remained Profitable
KFC Sales Down 15%1, Remained Profitable Sales Growth1 (%) Restaurant Margin (%) Operating Profit ($ mn)2 System sales growth 9% 11% 20.9% 296 288 20.0% -15% 18 Q1 19 Q1 20 Q1 13.6% Same-store sales growth 153 5% 5% 18 Q1 19 Q1 20 Q1 18 Q1 19 Q1 20 Q1 -11% 18 Q1 19 Q1 20 Q1 1 Stated in constant curr
Slide 32: Pizza Hut Sales Down 38%, Operating Losses
Pizza Hut Sales Down 38%1, Operating Losses Sales Growth1 (%) Restaurant Margin (%) Operating Profit ($ mn)2 System sales growth 3% -1% 14.3% 50 -38% 34 10.5% 18 Q1 19 Q1 20 Q1 Same-store sales growth 1% -5% 0.3% -28 18 Q1 19 Q1 20 Q1 18 Q1 19 Q1 20 Q1 -31% 18 Q1 19 Q1 20 Q1 1 Stated in constant cur
Slide 33: Digital Order Increased Substantially in 2020 Q1
Digital Order Increased Substantially in 2020 Q1 Members (mn) Member Sales Digital Order 84% 225+ 62% 215+ 49% 160+ 55% 38% 110+ 24% 17 YE 18 YE 19 YE 20 Q1 17 Q1 18 Q1 19 Q1 20 Q1 19 Q1 20 Q1 70+ 70+ 46% 44% 65% 50+ 40% 35+ 29% 5% 17 YE 18 YE 19 YE 20 Q1 17 Q1 18 Q1 19 Q1 20 Q1 19 Q1 20 Q1 33 33
Slide 34: Strong Increases in Delivery and Takeaway
Strong Increases in Delivery and Takeaway Delivery Store Delivery City Takeaway Delivery Sales Coverage Coverage Sales 93% 96% 32% 79% 75% 82% ~40% 66% 63% ~30% 18% 14% 57% 11% 17 Q1 18 Q1 19 Q1 20 Q1 17 Q1 18 Q1 19 Q1 20 Q1 17 Q1 18 Q1 19 Q1 20 Q1 19 Q1 20 Q1 48% 97% 98% 98% 99% 93% 92% 92% 82% 22%
Slide 35: Penetrating into Lower Tiers with Healthy Return
Penetrating into Lower Tiers with Healthy Return Lower Tier Penetration Drive New Unit Return1 Remodel Store Mix in Tier 3-6 KFC Pizza Hut All Stores YTD Gross New Openings YUMC: 96 31 Tier 1-2 Tier 3-6 67% 28 55% KFC ~2 yrs ~2 yrs 45% 41% Pizza Hut ~3-4 yrs ~3-4 yrs 67 7 23 19 Q1 20 Q1 KFC Pizza Hu
Slide 36: Temporarily Suspend Share Repurchases and Dividends as Cautious Actions
Despite Strong Balance Sheet, Temporarily Suspend Share Repurchases and Dividends as Cautious Actions 2020 Q1 2019 Q1 Cash and Dividends Share Repurchases short-term $1.54 bn $1.53 bn Since spin-off: $426 mn investments Since spin-off: $708 mn As of Mar 31 20 Q1: $45 mn 20 Q1: $7 mn Quarterly Cash D
Slide 37: 2020 Outlook and Strategic Priorities
2020 Outlook and Strategic Priorities 2020 • 800-850 gross new units, excluding Huang Ji Huang FINANCIAL • $500-550 million Capex TARGETS • Targets subject to revision based on the impact from COVID-19 • Top priority is to safeguard the health and safety of our employees and customers • Restore rest
Slide 38: Appendix: Reconciliation of Reported Results to Non-GAAP Measures
Appendix: Reconciliation of Reported Results to Non-GAAP Measures Quarter Ended 3/31/2020 3/31/2019 Detail of Special Items Partner PSU awards(b) (1 ) — Special Items, Operating Profit (1 ) — Tax effect on Special Items — — Impact from the Tax Act(c) — (8 ) Special Items, net income – including nonc