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Yum China Reports Third Quarter 2023 Results

2023/11/4 19:11:00
Total Revenues grew 9%, or 15% in constant currency; System Sales grew 15% in constant currency; Operating Profit grew 2% to $323 million, or 9% in constant currency, Adjusted Operating Profit of $327 million reached a record;Record year-to-date store openings of 1,155 net new adds, on track for full-year net new store target SHANGHAI, Nov. 1, 2023 /PRNewswire/ -- Yum China Holdings, Inc. (the "Company" or "Yum China") (NYSE: YUMC and HKEX: 9987) today reported unaudited results for the third quarter ended September 30, 2023. Third Quarter Highlights Total revenues increased 9% year over year to $2.91 billion from $2.68 billion (a 15% increase in constant currency). Total system sales increased 15% year over year, with increases of 15% at KFC and 13% at Pizza Hut in constant currency. Growth was mainly attributable to new unit contribution, same-store sales and lapping of temporary closures in the prior year. Same-store sales increased 4% year over year, with increases of 4% at KFC and 2% at Pizza Hut in constant currency. Opened 500 net new stores during the quarter; total store count reached 14,102, as of September 30, 2023. Operating Profit increased 2% year over year to $323 million from $316 million (a 9% increase in constant currency), primarily driven by sales leveraging. Adjusted Operating Profit increased 3% year over year to $327 million from $318 million (a 10% increase in constant currency). Restaurant margin was 17.0%, compared with 18.8% in the prior year period, mainly due to lapping of austerity measures and temporary relief in the prior year. Effective tax rate was 27.5%. Net Income increased 18% to $244 million from $206 million in the prior year period, primarily due to the increase in Operating Profit and higher interest income. Adjusted Net Income increased 19% to $248 million from $208 million in the prior year period (a 27% increase in constant currency). Adjusted Net Income includes the net losses of $3 million and $12 million in the third quarter of 2023 and 2022, respectively, from the mark-to-market equity investment in Meituan. Excluding such losses, Adjusted Net Income increased 14% year over year (a 21% increase in constant currency). Diluted EPS increased 18% to $0.58 from $0.49 in the prior year period. Adjusted Diluted EPS increased 20% to $0.59 from $0.49 in the prior year period (a 29% increase in constant currency). Excluding the net losses from the mark-to-market equity investments in the third quarter of 2023 and 2022, as aforementioned, Adjusted Diluted EPS increased 15% year over year (a 21% increase in constant currency). Key Financial Results Third Quarter 2023 Year to Date Ended 9/30/2023 % Change % Change System Sales Same-Store Sales Net New Units Operating Profit System Sales Same-Store Sales Net New Units Operating Profit Yum China +15 +4 +14 +2 +20 +8 +14 +69    KFC +15 +4 +14 +4 +21 +9 +14 +54    Pizza Hut +13 +2 +14 (5) +19 +7 +14 +52   Third Quarter Year to Date Ended 9/30 (in US$ million, except % Change % Change per share data and percentages) 2023 2022 Reported Ex F/X 2023 2022 Reported Ex F/X Operating Profit $ 323 $ 316 +2 +9 $ 996 $ 588 +69 +79 Adjusted Operating Profit(1) $ 327 $ 318 +3 +10 $ 1,005 $ 593 +69 +79 Net Income $ 244 $ 206 +18 +26 $ 730 $ 389 +88 +98 Adjusted Net Income(1) $ 248 $ 208 +19 +27 $ 739 $ 394 +88 +98 Basic Earnings Per Common Share $ 0.59 $ 0.49 +20 +27 $ 1.75 $ 0.92 +90 +101 Adjusted Basic Earnings   Per Common Share(1) $ 0.60 $ 0.49 +22 +27 $ 1.77 $ 0.93 +90 +101 Diluted Earnings Per Common Share $ 0.58 $ 0.49 +18 +27 $ 1.73 $ 0.92 +88 +99 Adjusted Diluted Earnings   Per Common Share(1) $ 0.59 $ 0.49 +20 +29 $ 1.75 $ 0.93 +88 +99 1 See "Reconciliation of Reported GAAP Results to non-GAAP Adjusted Measures" included in the accompanying tables of this release for further details. Note:  All comparisons are versus the same period a year ago. Percentages may not recompute due to rounding. System sales and same-store sales percentages exclude the impact of F/X. Effective January 1, 2018, temporary store closures are normalized in the same-store sales calculation by excluding the period during which stores are temporarily closed. CEO and CFO Comments  Joey Wat, CEO of Yum China, commented, "We delivered a record third quarter in total revenues, adjusted operating profit and net new store openings. System sales grew 15% and adjusted operating profit excluding temporary reliefs grew 21% in constant currency. For the first nine months of the year, operating profit and adjusted operating profit also set new records, reaching around $1 billion. Our robust supply chain, industry-leading digital ecosystem and strong innovation capabilities have enabled us to stay agile in evolving market conditions. We continued to enrich our core menu offerings and launch targeted, engaging campaigns to drive incremental traffic. Beef burger and whole chicken categories combined make up more than 6% of KFC's sales mix, exceeding that of the Original Recipe Chicken. KFC's collaboration with Honkai: Star Rail, a popular e-game, broadened our customer reach and grew our membership base. Furthermore, we are expanding our price range to appeal to a broader customer base, tapping into underserved consumers. At Pizza Hut, we continue to expand pizza selections priced below RMB 50, to capture this very significant segment of the overall pizza market. At KFC, our offers range from premium products such as Ultra Cheese 2.0 Beef Burger to RMB 19.9 3-item value combos to address diverse customer preferences."  "We accelerated new store openings in the quarter, adding 500 net new stores. With 1,155 net new stores in the first three quarters of this year, we are on track to meet our updated full-year target of 1,400 to 1,600. Importantly, our new store payback periods and unit economics remain healthy. At our Investor Day in September, we shared our views on the vast, untapped potential that China continues to offer, even with moderate economic growth. With our "RGM 2.0" strategy, we are focusing on growth while reinforcing resilience and widening our strategic moats. We have set a clear roadmap and growth targets for 2024 to 2026. These include 20,000 stores by 2026 and a return of $3 billion to shareholders through cash dividends and share repurchases during the same three-year period. We are confident in our capabilities to capture growth opportunities," Wat concluded. Andy Yeung, CFO of Yum China, added, "In the third quarter, we achieved robust results despite macroeconomic headwinds. Same-store sales growth was solid on a year-over-year basis, and maintained at approximately 90% of the 2019 level in the quarter. But we observed softening consumer demand emerged in late September through October. Looking ahead, the fourth quarter is a seasonally small quarter in terms of sales and profits; hence small fluctuations in sales could have a more pronounced impact on our margins. It is important to highlight that during the fourth quarter last year, we received temporary relief of $26 million, which is not expected to repeat this year. Last year, we also experienced staffing shortages due to widespread COVID infections. This year, we are returning to more normalized operations and staffing levels at our restaurants. The post-pandemic economic recovery is shaping up to be a "wave-like" and "non-linear" process. So, we will continue to stay agile and take actions to drive sales and cost-efficiency in these evolving market conditions. However, the overall trend towards recovery is evident this year, and many of our performance metrics are setting new records.  We remain excited about the significant opportunities China presents and confident in delivering sustainable growth and long-term value to our shareholders. We are proud to report that we returned $211 million to shareholders in the third quarter, through cash dividends and share repurchases, and are on track to return $600 to 800 million for the full year." Share Repurchases and Dividends During the third quarter, the Company repurchased approximately 2.9 million shares of Yum China common stock for $157 million at an average price of $54.91 per share. As of September 30, 2023, approximately $870 million remained available for future share repurchases under the current authorization. The Board declared a cash dividend of $0.13 per share on Yum China's common stock, payable on December 19, 2023 to shareholders of record as of the close of business on November 28, 2023. Digital and Delivery KFC and Pizza Hut loyalty programs exceeded 460 million members combined, as of quarter-end. Member sales accounted for approximately 65% of system sales in the third quarter of 2023. Delivery contributed approximately 35% of KFC and Pizza Hut's Company sales in the third quarter of 2023, a decrease of 3% compared with the prior year period. Digital orders, including delivery, mobile orders and kiosk orders, accounted for approximately 89% of KFC and Pizza Hut's Company sales in the third quarter of 2023. KFC and Pizza Hut Total Third Quarter Year to Date Ended 9/30 2023 2022 2023 2022         Member count (as of period-end) 460 million+ 400 million+ 460 million+ 400 million+         Member sales as % of system sales ~65% ~62% ~65% ~62%         Delivery as % of Company sales ~35% ~38% ~36% ~37%         Digital orders as % of Company sales ~89% ~91% ~89% ~89% New-Unit Development and Asset Upgrade The Company opened 500 net new stores in the third quarter of 2023, mainly driven by development of the KFC and Pizza Hut brands. The Company remodeled 194 stores in the third quarter of 2023. Net New Units Restaurant Count Third Quarter Year to Date As of September 30 2023 Ended 9/30/2023 2023 2022 Yum China 500 1,155 14,102 12,409    KFC 355 823 9,917 8,675    Pizza Hut 130 299 3,202 2,806    Others(2) 15 33 983 928 2 Others include Taco Bell, Lavazza, Little Sheep, Huang Ji Huang, and for 2022, COFFii & JOY. Restaurant Margin Restaurant margin was 17.0% in the third quarter of 2023 compared with 18.8% in the prior year period, driven primarily by lapping of the austerity measures and temporary relief in the prior year, higher promotion costs and wage inflation, partially offset by sales leveraging and favorable commodity prices. Third Quarter Year to Date Ended 9/30 2023 2022 ppts change 2023 2022 ppts change Yum China 17.0 % 18.8 % (1.8) 17.9 % 15.1 % +2.8    KFC 18.6 % 20.6 % (2.0) 19.4 % 16.6 % +2.8    Pizza Hut 12.7 % 13.4 % (0.7) 13.1 % 11.1 % +2.0 2023 Outlook The Company's fiscal year 2023 targets were updated at Investor Day on September 14, 2023: To open approximately 1,400 to 1,600 net new stores, an increase of 300 stores from the previous target. To make capital expenditures in the range of approximately $700 million to $900 million, unchanged from the previous target. Company Updates On September 14, 2023, the Company announced the following financial and operating targets at its Investor Day. To reach total count of 20,000 stores by 2026. To achieve high-single-to-double-digit CAGR for system sales and operating profit, and double-digit EPS CAGR from 2024 to 2026, compared to base year 2023 and in constant currency. To return approximately $3 billion to shareholders through quarterly dividends and share repurchases from 2024 to 2026. On September 27, 2023, the Company was named to Fortune's 2023 Change the World list, an annual list that recognizes a select group of companies that have had a positive social impact through activities that are part of their core business strategy. Yum China was one of 59 companies worldwide – and the only restaurant company – selected for the recognition. Note on Non-GAAP Measures Reported GAAP results include Special Items, which are excluded from non-GAAP 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 Non-GAAP Adjusted Measures" within this release. In addition, for the non-GAAP measures of Restaurant profit and Restaurant margin, see "Reconciliation of GAAP Operating Profit to Restaurant Profit" under "Segment Results" within this release. Other Information In this release, the Company has also disclosed the change in adjusted operating profit excluding temporary relief. This temporary relief was provided by landlords and government agencies, and consisted of $1 million in the third quarter of 2023 and $30 million in the third quarter of 2022. The temporary relief received primarily related to the COVID-19 pandemic, and is not expected to recur. The Company believes this information is useful to investors because it facilitates greater comparability between periods. Conference Call Yum China's management will hold an earnings conference call at 8:00 p.m. U.S. Eastern Time on Tuesday, October 31, 2023 (8:00 a.m. Beijing/Hong Kong Time on Wednesday, November 1, 2023).   A live webcast of the call may be accessed at https://edge.media-server.com/mmc/p/bpvn2yvj. To join by phone, please register in advance of the conference through the link provided below. Upon registering, you will be provided with participant dial-in numbers, a passcode and a unique access PIN. Pre-registration link: https://s1.c-conf.com/diamondpass/10033304-ahyd6f.html A replay of the conference call will be available one hour after the call ends until Wednesday, November 8, 2023 and may be accessed by phone using the following numbers: U.S.: 1 855 883 1031 Mainland China: 400 1209 216 Hong Kong: 800 930 639 U.K.: 0800 031 4295 Replay access code: 10033304   Additionally, this earnings release, the accompanying slides, as well as the live and archived webcast of this conference call will be available at Yum China's Investor Relations website at http://ir.yumchina.com.  For important news and information regarding Yum China, including our filings with the U.S. Securities and Exchange Commission and the Hong Kong Stock Exchange, visit Yum China's Investor Relations website at http://ir.yumchina.com. Yum China uses this website as a primary channel for disclosing key information to its investors, some of which may contain material and previously non-public information. 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 "2023 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," "commit" 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 strategies, growth, business plans, investment, dividend and share repurchase plans, earnings, performance and returns of Yum China, anticipated effects of population and macroeconomic trends, pace of recovery of Yum China's business, the anticipated effects of our innovation, digital and delivery capabilities and investments 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, changes in public health conditions, including the COVID-19 pandemic, 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 and subsequent Quarterly Reports on Form 10-Q) for additional detail about factors that could affect our financial and other results. About Yum China Holdings, Inc. Yum China is the largest restaurant company in China with a mission to make every life taste beautiful. The Company has over 400,000 employees and operates over 14,000 restaurants under six brands across 1,900 cities in China. KFC and Pizza Hut are the leading brands in the quick-service and casual dining restaurant spaces in China, respectively. Taco Bell offers innovative Mexican-inspired food. Yum China has also partnered with Lavazza to develop the Lavazza coffee concept in China. Little Sheep and Huang Ji Huang specialize in Chinese cuisine. Yum China has a world-class, digitalized supply chain which includes an extensive network of logistics centers nationwide and an in-house supply chain management system. Its strong digital capabilities and loyalty program enable the Company to reach customers faster and serve them better. Yum China is a Fortune 500 company with the vision to be the world's most innovative pioneer in the restaurant industry. For more information, please visit http://ir.yumchina.com.  Investor Relations Contact: Tel: +86 21 2407 7556 / +852 2267 5801 IR@YumChina.com   Media Contact: Tel: +86 21 2407 7510 Media@YumChina.com   Yum China Holdings, Inc. Condensed Consolidated Statements of Income (in US$ million, except per share data) (unaudited) Quarter Ended % Change Year to Date Ended % Change 9/30/2023 9/30/2022 B/(W) 9/30/2023 9/30/2022 B/(W) Revenues Company sales $ 2,759 $ 2,561 8 $ 8,048 $ 7,135 13 Franchise fees and income 23 22 7 69 65 8 Revenues from transactions with franchisees 100 80 25 282 219 29 Other revenues 32 22 41 86 62 39 Total revenues 2,914 2,685 9 8,485 7,481 13 Costs and Expenses, Net Company restaurants Food and paper 858 787 (9) 2,466 2,206 (12) Payroll and employee benefits 699 603 (16) 2,047 1,819 (12) Occupancy and other operating expenses 732 691 (6) 2,098 2,034 (3) Company restaurant expenses 2,289 2,081 (10) 6,611 6,059 (9) General and administrative expenses 169 157 (8) 485 449 (8) Franchise expenses 9 9 2 28 27 — Expenses for transactions with franchisees 95 76 (24) 270 212 (28) Other operating costs and expenses 29 18 (62) 77 53 (45) Closures and impairment expenses, net — 4 NM 17 20 15 Other expenses, net — 24 100 1 73 98 Total costs and expenses, net 2,591 2,369 (9) 7,489 6,893 (9) Operating Profit 323 316 2 996 588 69 Interest income, net 46 25 86 124 51 145 Investment loss (4) (15) 75 (32) (32) (1) Income Before Income Taxes and   Equity in Net Earnings (Losses) from   Equity Method Investments 365 326 12 1,088 607 79 Income tax provision (100) (97) (3) (296) (183) (62) Equity in net earnings (losses) from   equity method investments 2 (2) NM 2 (4) NM Net income – including noncontrolling interests 267 227 18 794 420 89 Net income – noncontrolling interests 23 21 (14) 64 31 (110) Net Income – Yum China Holdings, Inc. $ 244 $ 206 18 $ 730 $ 389 88 Effective tax rate 27.5 % 29.9 % 2.4 ppts. 27.2 % 30.1 % 2.9 ppts. Basic Earnings Per Common Share $ 0.59 $ 0.49 $ 1.75 $ 0.92 Weighted-average shares outstanding     (in millions) 416 420 417 422 Diluted Earnings Per Common Share $ 0.58 $ 0.49 $ 1.73 $ 0.92 Weighted-average shares outstanding     (in millions) 420 424 421 426 Company sales 100.0 % 100.0 % 100.0 % 100.0 % Food and paper 31.1 30.7 (0.4) ppts. 30.6 30.9 0.3 ppts. Payroll and employee benefits 25.3 23.5 (1.8) ppts. 25.4 25.5 0.1 ppts. Occupancy and other operating expenses 26.6 27.0 0.4 ppts. 26.1 28.5 2.4 ppts. Restaurant margin 17.0 % 18.8 % (1.8) ppts. 17.9 % 15.1 % 2.8 ppts. Operating margin 11.7 % 12.3 % (0.6) ppts. 12.4 % 8.2 % 4.2 ppts. Percentages may not recompute due to rounding. NM refers to not meaningful.     Yum China Holdings, Inc. KFC Operating Results (in US$ million) (unaudited) Quarter Ended % Change Year to Date Ended % Change 9/30/2023 9/30/2022 B/(W) 9/30/2023 9/30/2022 B/(W) Revenues Company sales $ 2,154 $ 1,992 8 $ 6,274 $ 5,554 13 Franchise fees and income 16 15 6 48 44 9 Revenues from transactions with franchisees 12 9 40 33 24 38 Other revenues 4 1 152 13 6 114 Total revenues 2,186 2,017 8 6,368 5,628 13 Costs and Expenses, Net Company restaurants Food and paper 666 607 (10) 1,914 1,712 (12) Payroll and employee benefits 528 449 (18) 1,538 1,363 (13) Occupancy and other operating expenses 560 526 (6) 1,603 1,557 (3) Company restaurant expenses 1,754 1,582 (11) 5,055 4,632 (9) General and administrative expenses 68 63 (10) 203 191 (7) Franchise expenses 8 8 2 24 23 — Expenses for transactions with franchisees 11 8 (35) 29 22 (33) Other operating costs and expenses 3 1 (201) 11 4 (159) Closures and impairment expenses, net — 3 99 9 11 18 Other expenses, net — 24 100 2 75 97 Total costs and expenses, net 1,844 1,689 (9) 5,333 4,958 (8) Operating Profit $ 342 $ 328 4 $ 1,035 $ 670 54 Company sales 100.0 % 100.0 % 100.0 % 100.0 % Food and paper 30.9 30.5 (0.4) ppts. 30.5 30.8 0.3 ppts. Payroll and employee benefits 24.5 22.5 (2.0) ppts. 24.5 24.5 — ppts. Occupancy and other operating expenses 26.0 26.4 0.4 ppts. 25.6 28.1 2.5 ppts. Restaurant margin 18.6 % 20.6 % (2.0) ppts. 19.4 % 16.6 % 2.8 ppts. Operating margin 15.8 % 16.5 % (0.7) ppts. 16.5 % 12.1 % 4.4 ppts. Percentages may not recompute due to rounding.     Yum China Holdings, Inc. Pizza Hut Operating Results (in US$ million) (unaudited) Quarter Ended % Change Year to Date Ended % Change 9/30/2023 9/30/2022 B/(W) 9/30/2023 9/30/2022 B/(W) Revenues Company sales $ 591 $ 556 6 $ 1,728 $ 1,541 12 Franchise fees and income 2 2 15 6 6 5 Revenues from transactions with franchisees 1 1 11 3 3 11 Other revenues 5 2 126 13 6 132 Total revenues 599 561 7 1,750 1,556 13 Costs and Expenses, Net Company restaurants Food and paper 187 176 (7) 537 481 (12) Payroll and employee benefits 167 149 (11) 496 437 (13) Occupancy and other operating expenses 162 156 (4) 469 452 (4) Company restaurant expenses 516 481 (7) 1,502 1,370 (10) General and administrative expenses 30 27 (13) 89 84 (6) Franchise expenses 1 1 (13) 3 3 (7) Expenses for transactions with franchisees 1 1 (12) 3 3 (11) Other operating costs and expenses 4 2 (127) 11 5 (129) Closures and impairment expenses, net — — 19 5 1 NM Total costs and expenses, net 552 512 (8) 1,613 1,466 (10) Operating Profit $ 47 $ 49 (5) $ 137 $ 90 52 Company sales 100.0 % 100.0 % 100.0 % 100.0 % Food and paper 31.7 31.6 (0.1) ppts. 31.1 31.2 0.1 ppts. Payroll and employee benefits 28.1 26.9 (1.2) ppts. 28.7 28.4 (0.3) ppts. Occupancy and other operating expenses 27.5 28.1 0.6 ppts. 27.1 29.3 2.2 ppts. Restaurant margin 12.7 % 13.4 % (0.7) ppts. 13.1 % 11.1 % 2.0 ppts. Operating margin 7.9 % 8.8 % (0.9) ppts. 7.9 % 5.9 % 2.0 ppts. Percentages may not recompute due to rounding. NM refers to not meaningful.     Yum China Holdings, Inc. Condensed Consolidated Balance Sheets (in US$ million) 9/30/2023 12/31/2022 (Unaudited) ASSETS Current Assets Cash and cash equivalents $ 1,131 $ 1,130 Short-term investments 2,001 2,022 Accounts receivable, net 62 64 Inventories, net 419 417 Prepaid expenses and other current assets 310 307 Total Current Assets 3,923 3,940 Property, plant and equipment, net 2,117 2,118 Operating lease right-of-use assets 2,083 2,219 Goodwill 1,879 1,988 Intangible assets, net 147 159 Long-term bank deposits and notes 1,237 680 Equity investments 319 361 Deferred income tax assets 106 113 Other assets 259 248 Total Assets 12,070 11,826 LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND EQUITY Current Liabilities Accounts payable and other current liabilities 2,129 2,096 Short-term borrowings 210 2 Income taxes payable 133 68 Total Current Liabilities 2,472 2,166 Non-current operating lease liabilities 1,787 1,906 Non-current finance lease liabilities 41 42 Deferred income tax liabilities 364 390 Other liabilities 147 162 Total Liabilities 4,811 4,666 Redeemable Noncontrolling Interest 13 12 Equity Common stock,  $0.01 par value; 1,000 million shares authorized;        415 million shares and 419 million shares issued and outstanding        at September 30, 2023 and December 31, 2022, respectively. 4 4 Additional paid-in capital 4,382 4,390 Retained earnings 2,526 2,191 Accumulated other comprehensive loss (341) (103) Total Yum China Holdings, Inc. Stockholders' Equity 6,571 6,482 Noncontrolling interests 675 666 Total Equity 7,246 7,148 Total Liabilities, Redeemable Noncontrolling Interest and Equity $ 12,070 $ 11,826     Yum China Holdings, Inc. Condensed Consolidated Statements of Cash Flows (in US$ million) (unaudited) Year to Date Ended 9/30/2023 9/30/2022  Cash Flows – Operating Activities  Net income – including noncontrolling interests $ 794 $ 420  Depreciation and amortization 339 467  Non-cash operating lease cost 301 333  Closures and impairment expenses 17 20  Investment loss 32 32  Equity in net (earnings) losses from equity method investments (2) 4  Distributions of income received from equity method investments 8 7  Deferred income taxes (6) (7)  Share-based compensation expense 46 31  Changes in accounts receivable (2) (6)  Changes in inventories (25) 71  Changes in prepaid expenses, other current assets and VAT assets (10) 216  Changes in accounts payable and other current liabilities 112 (19)  Changes in income taxes payable 71 70  Changes in non-current operating lease liabilities (295) (299)  Other, net (46) (11)  Net Cash Provided by Operating Activities 1,334 1,329  Cash Flows – Investing Activities  Capital spending (499) (509)  Purchases of short-term investments, long-term bank deposits and notes (3,287) (4,290)  Maturities of short-term investments, long-term bank deposits and notes 2,730 4,226  Acquisition of business, net of cash acquired — (23)  Other, net 4 3  Net Cash Used in Investing Activities (1,052) (593)  Cash Flows – Financing Activities  Proceeds from short-term borrowings 212 —  Repurchase of shares of common stock (280) (411)  Cash dividends paid on common stock (162) (152)  Dividends paid to noncontrolling interests (37) (29)  Contributions from noncontrolling interests 35 18  Payment of acquisition related holdback (3) (7)  Other, net (5) (2)  Net Cash Used in Financing Activities (240) (583)  Effect of Exchange Rates on Cash, Cash Equivalents and Restricted Cash (41) (78)  Net Increase in Cash, Cash Equivalents and Restricted Cash 1 75  Cash, Cash Equivalents, and Restricted Cash - Beginning of Period 1,130 1,136  Cash, Cash Equivalents, and Restricted Cash - End of Period $ 1,131 $ 1,211     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 and franchise 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 restaurants typically generate ongoing franchise fees for the Company at an average rate of approximately 6% of system sales. Franchise restaurant sales are not included in Company sales in the Condensed 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, excluding the period during which stores are temporarily closed. 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, including stores temporarily closed, 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. Company sales represent revenues from Company-owned restaurants. Company Restaurant profit ("Restaurant profit") is defined as Company sales less expenses incurred directly by our Company-owned restaurants in generating Company sales, including cost of food and paper, restaurant-level payroll and employee benefits, rent, depreciation and amortization of restaurant-level assets, advertising expenses, and other operating expenses. Company restaurant margin percentage is defined as Restaurant profit divided by Company sales. Certain comparative items in the Condensed Consolidated Financial Statements have been reclassified to conform to the current period's presentation to facilitate comparison Reconciliation of Reported GAAP Results to Non-GAAP Adjusted Measures(in millions, except per share data)(unaudited) In addition to the results provided in accordance with U.S. Generally Accepted Accounting Principles ("GAAP") in this press release, the Company provides non-GAAP measures adjusted for Special Items, which include Adjusted Operating Profit, Adjusted Net Income, Adjusted Earnings Per Common Share ("EPS"), Adjusted Effective Tax Rate and Adjusted EBITDA, which we define as net income including noncontrolling interests adjusted for equity in net earnings (losses) from equity method investments, income tax, interest income, net, investment gain or loss, certain non-cash expenses, consisting of depreciation and amortization as well as store impairment charges, and Special Items. We also use Restaurant profit and Restaurant margin (as defined above) for the purposes of internally evaluating the performance of our Company-owned restaurants and we believe Restaurant profit and Restaurant margin provide useful information to investors as to the profitability of our Company-owned restaurants. The following table set forth the reconciliation of the most directly comparable GAAP financial measures to the non-GAAP adjusted financial measures. The reconciliation of GAAP Operating Profit to Restaurant Profit is presented in Segment Results within this release. Quarter Ended Year to Date Ended 9/30/2023 9/30/2022 9/30/2023 9/30/2022 Non-GAAP Reconciliations Reconciliation of Operating Profit to Adjusted Operating Profit Operating Profit $ 323 $ 316 $ 996 $ 588 Special Items, Operating Profit (4) (2) (9) (5) Adjusted Operating Profit $ 327 $ 318 $ 1,005 $ 593 Reconciliation of Net Income to Adjusted Net Income Net Income – Yum China Holdings, Inc. $ 244 $ 206 $ 730 $ 389 Special Items, Net Income –Yum China Holdings, Inc. (4) (2) (9) (5) Adjusted Net Income – Yum China Holdings, Inc. $ 248 $ 208 $ 739 $ 394 Reconciliation of EPS to Adjusted EPS Basic Earnings Per Common Share $ 0.59 $ 0.49 $ 1.75 $ 0.92 Special Items, Basic Earnings Per Common Share (0.01) — (0.02) (0.01) Adjusted Basic Earnings Per Common Share $ 0.60 $ 0.49 $ 1.77 $ 0.93 Diluted Earnings Per Common Share $ 0.58 $ 0.49 $ 1.73 $ 0.92 Special Items, Diluted Earnings Per Common Share (0.01) — (0.02) (0.01) Adjusted Diluted Earnings Per Common Share $ 0.59 $ 0.49 $ 1.75 $ 0.93 Reconciliation of Effective Tax Rate to Adjusted Effective Tax Rate Effective tax rate 27.5 % 29.9 % 27.2 % 30.1 % Impact on effective tax rate as a result of Special Items 0.3 % 0.2 % 0.2 % 0.2 % Adjusted effective tax rate 27.2 % 29.7 % 27.0 % 29.9 %   Net income, along with the reconciliation to Adjusted EBITDA, is presented below: Quarter Ended Year to Date Ended 9/30/2023 9/30/2022 9/30/2023 9/30/2022 Reconciliation of Net Income to Adjusted EBITDA Net Income – Yum China Holdings, Inc. $ 244 $ 206 $ 730 $ 389 Net income – noncontrolling interests 23 21 64 31 Equity in net (earnings) losses from equity method investments (2) 2 (2) 4 Income tax provision 100 97 296 183 Interest income, net (46) (25) (124) (51) Investment loss 4 15 32 32 Operating Profit 323 316 996 588 Special Items, Operating Profit 4 2 9 5 Adjusted Operating Profit 327 318 1,005 593 Depreciation and amortization 111 150 339 467 Store impairment charges 3 7 24 37 Adjusted EBITDA $ 441 $ 475 $ 1,368 $ 1,097   Details of Special Items are presented below: Quarter Ended Year to Date Ended 9/30/2023 9/30/2022 9/30/2023 9/30/2022 Share-based compensation expense for Partner PSU Awards(1) $ (4) $ (2) $ (9) $ (5) Special Items, Operating Profit (4) (2) (9) (5) Tax effect on Special Items(2) — — — — Special Items, net income – including noncontrolling interests (4) (2) (9) (5) Special Items, net income – noncontrolling interests — — — — Special Items, Net Income –Yum China Holdings, Inc. $ (4) $ (2) $ (9) $ (5) Weighted-average Diluted Shares Outstanding (in millions) 420 424 421 426 Special Items, Diluted Earnings Per Common Share $ (0.01) $ — $ (0.02) $ (0.01) (1)  In February 2020, the Company granted Partner PSU Awards to select employees who were deemed critical to the Company's execution of its strategic operating plan. These PSU awards will only vest if threshold performance goals are achieved over a four-year performance period, with the payout ranging from 0% to 200% of the target number of shares subject to the PSU awards. Partner PSU Awards were granted to address increased competition for executive talent, motivate transformational performance and encourage management retention. Given the unique nature of these grants, the Compensation Committee does not intend to grant similar, special grants to the same employees during the performance period. The impact from these special awards is excluded from metrics that management uses to assess the Company's performance. (2)  The tax expense was determined based upon the nature, as well as the jurisdiction, of each Special Item at the applicable tax rate. 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 equity in net earnings (losses) from equity method investments, income tax, interest income, net, investment gain or loss, depreciation and amortization, store impairment charges, and Special Items. Store impairment charges included as an adjustment item in Adjusted EBITDA primarily resulted from our semi-annual impairment evaluation of long-lived assets of individual restaurants, and additional impairment evaluation whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. If these restaurant-level assets were not impaired, depreciation of the assets would have been recorded and included in EBITDA. Therefore, store impairment charges were a non-cash item similar to depreciation and amortization of our long-lived assets of restaurants. The Company believes that investors and analyst may find it useful in measuring operating performance without regard to such non-cash item. 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 provides 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.                                                    Unit Count by Brand KFC 12/31/2022 New Builds Closures Refranchised 9/30/2023 Company-owned 8,214 868 (164) (3) 8,915 Franchisees 880 131 (12) 3 1,002 Total 9,094 999 (176) — 9,917 Pizza Hut 12/31/2022 New Builds Closures Refranchised 9/30/2023 Company-owned 2,760 366 (77) (2) 3,047 Franchisees 143 12 (2) 2 155 Total 2,903 378 (79) — 3,202 Others 12/31/2022 New Builds Closures 9/30/2023 Company-owned 187 59 (16) 230 Franchisees 763 84 (94) 753 Total 950 143 (110) 983     Yum China Holdings, Inc. Segment Results (in US$ million) (unaudited) Quarter Ended 9/30/2023 KFC Pizza Hut All Other Segments CorporateandUnallocated(1) Elimination Total Company sales $ 2,154 $ 591 $ 14 $ — $ — $ 2,759 Franchise fees and income 16 2 5 — — 23 Revenues from transactions with franchisees(2) 12 1 20 67 — 100 Other revenues 4 5 162 12 (151) 32 Total revenues $ 2,186 $ 599 $ 201 $ 79 $ (151) $ 2,914 Company restaurant expenses 1,754 516 20 — (1) 2,289 General and administrative expenses 68 30 11 60 — 169 Franchise expenses 8 1 — — — 9 Expenses for transactions with franchisees(2) 11 1 17 66 — 95 Other operating costs and expenses 3 4 160 12 (150) 29 Total costs and expenses, net 1,844 552 208 138 (151) 2,591 Operating Profit (Loss) $ 342 $ 47 $ (7) $ (59) $ — $ 323   Reconciliation of GAAP Operating Profit to Restaurant Profit Quarter Ended 9/30/2023 KFC Pizza Hut All OtherSegments CorporateandUnallocated Elimination Total GAAP Operating Profit (Loss) $ 342 $ 47 $ (7) $ (59) $ — $ 323 Less: Franchise fees and income 16 2 5 — — 23 Revenues from transactions with franchisees 12 1 20 67 — 100 Other revenues 4 5 162 12 (151) 32 Add: General and administrative expenses 68 30 11 60 — 169 Franchise expenses 8 1 — — — 9 Expenses for transactions with franchisees 11 1 17 66 — 95 Other operating costs and expenses 3 4 160 12 (150) 29 Restaurant profit (loss) $ 400 $ 75 $ (6) $ — $ 1 $ 470 Company sales 2,154 591 14 — — 2,759 Restaurant margin % 18.6 % 12.7 % (36.1) % N/A N/A 17.0 %   Quarter Ended 9/30/2022 KFC Pizza Hut All Other Segments CorporateandUnallocated(1) Elimination Total Company sales $ 1,992 $ 556 $ 13 $ — $ — $ 2,561 Franchise fees and income 15 2 5 — — 22 Revenues from transactions with franchisees(2) 9 1 11 59 — 80 Other revenues 1 2 157 12 (150) 22 Total revenues $ 2,017 $ 561 $ 186 $ 71 $ (150) $ 2,685 Company restaurant expenses 1,582 481 18 — — 2,081 General and administrative expenses 63 27 12 55 — 157 Franchise expenses 8 1 — — — 9 Expenses for transactions with franchisees(2) 8 1 9 58 — 76 Other operating costs and expenses 1 2 155 10 (150) 18 Closures and impairment expenses, net 3 — 1 — — 4 Other expenses, net 24 — — — — 24 Total costs and expenses, net 1,689 512 195 123 (150) 2,369 Operating Profit (Loss) $ 328 $ 49 $ (9) $ (52) $ — $ 316   Reconciliation of GAAP Operating Profit to Restaurant Profit Quarter Ended 9/30/2022 KFC Pizza Hut All Other Segments CorporateandUnallocated Elimination Total GAAP Operating Profit (Loss) $ 328 $ 49 $ (9) $ (52) $ — $ 316 Less: Franchise fees and income 15 2 5 — — 22 Revenues from transactions with franchisees 9 1 11 59 — 80 Other revenues 1 2 157 12 (150) 22 Add: General and administrative expenses 63 27 12 55 — 157 Franchise expenses 8 1 — — — 9 Expenses for transactions with franchisees 8 1 9 58 — 76 Other operating costs and expenses 1 2 155 10 (150) 18 Closures and impairment expenses, net 3 — 1 — — 4 Other expenses, net 24 — — — — 24 Restaurant profit (loss) $ 410 $ 75 $ (5) $ — $ — $ 480 Company sales 1,992 556 13 — — 2,561 Restaurant margin % 20.6 % 13.4 % (30.6) % N/A N/A 18.8 %   Year to Date Ended 9/30/2023 KFC Pizza Hut All Other Segments CorporateandUnallocated(1) Elimination Total Company sales $ 6,274 $ 1,728 $ 46 $ — $ — $ 8,048 Franchise fees and income 48 6 15 — — 69 Revenues from transactions with franchisees(2) 33 3 56 190 — 282 Other revenues 13 13 468 32 (440) 86 Total revenues $ 6,368 $ 1,750 $ 585 $ 222 $ (440) $ 8,485 Company restaurant expenses 5,055 1,502 56 — (2) 6,611 General and administrative expenses 203 89 32 161 — 485 Franchise expenses 24 3 1 — — 28 Expenses for transactions with franchisees(2) 29 3 50 188 — 270 Other operating costs and expenses 11 11 463 30 (438) 77 Closures and impairment expenses, net 9 5 3 — — 17 Other expenses (income), net 2 — — (1) — 1 Total costs and expenses, net 5,333 1,613 605 378 (440) 7,489 Operating Profit (Loss) $ 1,035 $ 137 $ (20) $ (156) $ — $ 996   Reconciliation of GAAP Operating Profit to Restaurant Profit Year to Date Ended 9/30/2023 KFC Pizza Hut All Other Segments CorporateandUnallocated Elimination Total GAAP Operating Profit (Loss) $ 1,035 $ 137 $ (20) $ (156) $ — $ 996 Less: Franchise fees and income 48 6 15 — — 69 Revenues from transactions with franchisees 33 3 56 190 — 282 Other revenues 13 13 468 32 (440) 86 Add: General and administrative expenses 203 89 32 161 — 485 Franchise expenses 24 3 1 — — 28 Expenses for transactions with franchisees 29 3 50 188 — 270 Other operating costs and expenses 11 11 463 30 (438) 77 Closures and impairment expenses, net 9 5 3 — — 17 Other expenses (income), net 2 — — (1) — 1 Restaurant profit (loss) $ 1,219 $ 226 $ (10) $ — $ 2 $ 1,437 Company sales 6,274 1,728 46 — — 8,048 Restaurant margin % 19.4 % 13.1 % (21.6) % N/A N/A 17.9 %   Year to Date Ended 9/30/2022 KFC Pizza Hut All Other Segments CorporateandUnallocated(1) Elimination Total Company sales $ 5,554 $ 1,541 $ 40 $ — $ — $ 7,135 Franchise fees and income 44 6 15 — — 65 Revenues from transactions with franchisees(2) 24 3 29 163 — 219 Other revenues 6 6 407 31 (388) 62 Total revenues $ 5,628 $ 1,556 $ 491 $ 194 $ (388) $ 7,481 Company restaurant expenses 4,632 1,370 55 — 2 6,059 General and administrative expenses 191 84 36 138 — 449 Franchise expenses 23 3 1 — — 27 Expenses for transactions with franchisees(2) 22 3 24 163 — 212 Other operating costs and expenses 4 5 406 28 (390) 53 Closures and impairment expenses, net 11 1 8 — — 20 Other expenses (income), net 75 — — (2) — 73 Total costs and expenses, net 4,958 1,466 530 327 (388) 6,893 Operating Profit (Loss) $ 670 $ 90 $ (39) $ (133) $ — $ 588   Reconciliation of GAAP Operating Profit to Restaurant Profit Year to Date Ended 9/30/2022 KFC Pizza Hut All Other Segments CorporateandUnallocated Elimination Total GAAP Operating Profit (Loss) $ 670 $ 90 $ (39) $ (133) $ — $ 588 Less: Franchise fees and income 44 6 15 — — 65 Revenues from transactions with franchisees 24 3 29 163 — 219 Other revenues 6 6 407 31 (388) 62 Add: General and administrative expenses 191 84 36 138 — 449 Franchise expenses 23 3 1 — — 27 Expenses for transactions with franchisees 22 3 24 163 — 212 Other operating costs and expenses 4 5 406 28 (390) 53 Closures and impairment expenses, net 11 1 8 — — 20 Other expenses (income), net 75 — — (2) — 73 Restaurant profit (loss) $ 922 $ 171 $ (15) $ — $ (2) $ 1,076 Company sales 5,554 1,541 40 — — 7,135 Restaurant margin % 16.6 % 11.1 % (36.3) % N/A N/A 15.1 % The above tables reconcile segment information, which is based on management responsibility, with our Condensed Consolidated Statements of Income.  (1)  Amounts have not been allocated to any segment for purpose of making operating decision or assessing financial performance as the transactions are deemed corporate revenues and expenses in nature. (2)  Primarily includes revenues and associated expenses of transactions with franchisees derived from the Company's central procurement model whereby the Company centrally purchases substantially all food and paper products from suppliers and then sells and delivers to KFC and Pizza Hut restaurants, including franchisees.

JW Marriott Hotel Zhejiang Anji

No. 1 South Raocheng Road, Dipu Town,Anji,An_ji,Zhejiang