Yum China Holdings, Inc. · NYSE:YUMC
Yum China — Q4 2018 Earnings Presentation
23 slides from Yum China's earnings presentation, Jan 31, 2019
Slide 1: Fourth Quarter 2018 Results Presentation
Fourth Quarter 2018 Results Presentation January 31, 2019 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, including under “2019 Outlook.” We intend all forward
Slide 3: Contents
Contents Business Highlights Financial Results 3
Slide 4: Yum China by the Numbers – a Powerful Business
Yum China by the Numbers – a Powerful Business NYSE listed with #1 Western QSR & $12.7bn market cap CDR brands in China #397 Fortune 500 2018 8,400+ stores in 160mn+ members of KFC 1,200+ cities in China 50mn+ members of Pizza Hut #1 restaurant operator ~450,000 employees in China in digital & deliv
Slide 5: Long-term YUMC Strategy: Dynamic Brands Built on a Sustainable Platform for Growth
Long-term YUMC Strategy: Dynamic Brands Built on a Sustainable Platform for Growth SUSTAINABLE PLATFORM FOR GROWTH YUMC PORTFOLIO OF BRANDS: ENABLED BY 3D’s ACROSS BRANDS: DIGITAL DATA DELIVERY CROSS FUNCTIONAL CAPABILITIES: HR Finance Supply Chain Legal Operation IT PA Development Marketing FOUNDER
Slide 6: 2018 Q4: Strong Sales and Profit Growth
2018 Q4: Strong Sales and Profit Growth Sales & Profit • Strong system sales growth of 6%, ninth consecutive quarter of positive growth since spin off, led by the accelerated new store openings and a robust performance at KFC - KFC: 3% same-store sales growth and 9% system sales growth - Pizza Hut:
Slide 7: KFC Value Offerings Continue to Drive Sales
KFC Value Offerings Continue to Drive Sales Traditional Crazy Online Festival Thursday Campaign 7
Slide 8: Innovation in Dayparts and Product Categories Continues to Drive SSSG
Innovation in Dayparts and Product Categories Continues to Drive SSSG Breakfast Coffee Dessert Delivery 8
Slide 9: Pizza Hut Focuses on Innovation and Smart Value
Pizza Hut Focuses on Innovation and Smart Value Value for Food Family Money Innovation Privilege
Slide 10: Keep Driving 4 Levers of Revitalization Plan
Keep Driving 4 Levers of Revitalization Plan Fix fundamentals Drive digital Optimize delivery Enhance asset portfolio 10
Slide 11: Recognition of Our “People First” HR Approach
Recognition of Our “People First” HR Approach Yum China Certified Top Employer China 2019 by the Top Employers Institute Yum China among the first Chinese companies named to 2019 Bloomberg Gender Equality Index 11
Slide 12: Contents
Contents Business Highlights Financial Results 12
Slide 13: Yum China Reported 6% System Sales Growth in Q4
Yum China Reported 6% System Sales Growth in Q4 Stores Sales Growth1 Profit Margin Net Income & EPS Gross new stores System sales growth (%) Restaurant Margin (%) Net Income ($ mn) 16.7% 15.7% 708 819 9% 691 8% 398 6% 11.6%11.5% 5% 74 258 257 -107 4Q Full Year 4Q Full Year 4Q Full Year 4Q Full Year
Slide 14: Operating Profit Up by 77% in Q4 and 21% in Full Year
Operating Profit Up by 77% in Q4 and 21% in Full Year Operating Profit ($ mn) Key factors for Q4’18 year-over-year movement 2017 2018 941 778 • Same-store sales leverage 728 • Net new unit growth • G&A expense optimization 84 • Wage and commodity inflation 47 • Product upgrade & promotion costs 4Q F
Slide 15: KFC Achieved 3% SSSG & 9% System Sales Growth in Q4
KFC Achieved 3% SSSG & 9% System Sales Growth in Q4 Restaurant Margin Operating Profit Stores Sales Growth1 (%) (%) ($ mn)2 New stores System sales growth +19% +8% 566 YoY ex FX 408 11% 895 9% 9% 18.0%17.9% 7% 802 139 155 4Q Full Year 4Q Full Year 14.3% 13.9% Total stores Same-store sales growth 5,9
Slide 16: Pizza Hut Reduced Operating Loss in Q4
Pizza Hut Reduced Operating Loss in Q4 Restaurant Margin Operating Profit Stores Sales Growth1 (%) (%) ($ mn)2 New stores System sales growth +32% -41% YoY ex FX 180 157 7% 13.9% 157 6% 60 51 10.3% 98 -2% -1% 4Q Full Year 4Q Full Year Total stores Same-store sales growth 6.4% 2,195 2,240 4.9% 2,081
Slide 17: Digital KPIs Continue to Improve
Digital KPIs Continue to Improve Members Member Sales Digital Payment % 160+ 48% 85% 38% 69% 110+ 20% 39% 60+ 2016 YE 2017 YE 2018 YE 2016 Q4 2017 Q4 2018 Q4 2016 Q4 2017 Q4 2018 Q4 90% 79% 50+ 55% 42% 35+ 36% 20+ 6% 2016 YE 2017 YE 2018 YE 2016 Q4 2017 Q4 2018 Q4 2016 Q4 2017 Q4 2018 Q4 17
Slide 18: Delivery Continues to Grow
Delivery Continues to Grow Delivery Store Delivery City Delivery Sales Coverage Coverage 73% 92% 16% 65% 78% 13% 54% 11% 56% 2016 Q4 2017 Q4 2018 Q4 2016 2017 2018 2016 2017 2018 97% 93% 25% 88% 22% 96% 18% 87% 70% 2016 Q4 2017 Q4 2018 Q4 2016 2017 2018 2016 2017 2018 Note: Delivery as % of Company
Slide 19: Accelerate New Store Openings with Healthy Return
Accelerate New Store Openings with Healthy Return Lower Tier Penetration Drive New Unit Return1 Remodel Store Mix in Tier 3-6 KFC Pizza Hut Others All Stores 2018 New Stores 931 YUMC: 788 61% Tier 1-2 Tier 3-6 225 54% 144 43% KFC ~2 yrs ~2 yrs 40% Pizza Hut ~3 yrs <4 yrs 644 705 KFC Pizza Hut 2017 2
Slide 20: Strong Cash Flow Generation Funds Growth and Shareholder Returns
Strong Cash Flow Generation Funds Growth and Shareholder Returns Net cash from Dividends Share Repurchases operating $1.33 bn activities 2018 Q4: $46 mn 2018 Q4: $145 mn Jan-Dec 2018 2018 Full Year: $161 mn 2018 Full Year: $312 mn Quarterly Cash Dividend ($) Total Program ($ mn) Free cash flow $863
Slide 21: Reporting Change in 2019
Reporting Change in 2019 • US GAAP new lease standard effective from Jan 1, 2019 • Material amount of lease liabilities and Right of Use (ROU) assets will be added to the balance sheet for leases with fixed payment component and with terms over 12 months – ~$2.0 billion increase in ROU lease asset –
Slide 22: Outlook
Outlook 2019 600-650 gross new stores Financial $450-500 million Capex Targets Effective Tax Rate below 28% Long Term High single digit system sales growth ex FX Financial ~17% restaurant margin Targets Double digit operating profit growth ex FX 22
Slide 23: Appendix: Reconciliation of Reported Results to Non-GAAP Measures
Appendix: Reconciliation of Reported Results to Non-GAAP Measures Quarter Ended Year Ended 12/31/2018 12/31/2017 12/31/2018 12/31/2017 Detail of Special Items Daojia impairment(b) $ (12 ) $ — $ (12 ) $ — Gain from re-measurement of equity interest upon acquisition(c) — — 98 — Income from the reversa