EX-99.1 2 yumc-ex991_6.htm EX-99.1 yumc-ex991_6.htm

Exhibit 99.1

Yum China Reports Fourth Quarter and Fiscal Year 2018 Results

 

Fourth quarter total revenues grew 2% or 7% in constant currency;

Fourth quarter total system sales grew 6% and same-store sales grew 2% in constant currency;

Opened 819 gross new stores in 2018

 

Shanghai, China (January 31, 2019) – Yum China Holdings, Inc. (the "Company" or "Yum China") (NYSE: YUMC) today reported unaudited results for the fourth quarter and year ended December 31, 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.

 

Fourth Quarter Highlights

 

Total revenues increased 2% year over year to $1.91 billion from $1.87 billion (7% year over year increase excluding foreign currency translation (“F/X”)).

 

Total system sales grew 6% year over year, with 9% growth at KFC partially offset by a 2% decline at Pizza Hut, excluding F/X.

 

Same-store sales grew 2% year over year, with a 3% increase at KFC and a 4% decrease at Pizza Hut, excluding F/X.

 

Restaurant margin was 11.5%, as compared with 11.6% in the prior year period.

 

Operating Profit increased 77% year over year to $84 million from $47 million (84% year over year increase excluding F/X).

 

Reported an impairment charge of $12 million on intangible assets acquired from DAOJIA.com.cn (“Daojia”). Excluding this special item, Adjusted Operating Profit increased to $96 million from $47 million in the prior year period.

 

Net Income increased to $74 million from a net loss of $107 million in the prior year period.

 

Recognized a tax benefit of $36 million in the fourth quarter 2018 as a result of adjusting the provisional amount of transition tax related to US tax reform previously recorded in fourth quarter 2017. Excluding the one-time tax benefit and the Daojia impairment, Adjusted Net Income decreased 19% to $46 million, primarily driven by the mark to market loss of $27 million on our equity investment in Meituan Dianping.

 

Diluted EPS increased to $0.19 from negative $0.28 in the prior year period. Adjusted Diluted EPS decreased 14% to $0.12 from $0.14 in the prior year period (36% year over year increase excluding the mark to market loss impact of our equity investment in Meituan Dianping).

 

Full Year Highlights

 

Total revenues increased 8% year over year to $8.42 billion from $7.77 billion (6% year over year increase excluding F/X).

 

Total system sales grew 5% year over year, with 7% growth at KFC partially offset by a 1% decline at Pizza Hut, excluding F/X.

 

Same-store sales increased 1% year over year, with a 2% increase at KFC and a 5% decrease at Pizza Hut, excluding F/X.

 

Restaurant margin was 15.7%, as compared with 16.7% in the prior year.

 

Operating Profit increased 21% year over year to $941 million from $778 million (16% year over year increase excluding F/X). Adjusted Operating Profit increased 10% year over year to $855 million from $775 million (6% year over year increase excluding F/X).

 

Net Income increased 78% to $708 million from $398 million in the prior year (70% year over year increase excluding F/X). Adjusted Net Income increased 9% to $606 million from $559 million in the prior year (4% year over year increase excluding F/X).

 

Effective tax rate was 22.6%. Excluding the adjustment made in the fourth quarter 2018 to the provisional amount of transition tax related to US tax reform previously recorded in 2017, the effective tax rate was 26.5%.

 

Diluted EPS increased 79% to $1.79 from $1.00 in the prior year. Adjusted Diluted EPS increased 9% to $1.53 from $1.40 in the prior year (14% year over year increase excluding the mark to market loss impact of our equity investment in Meituan Dianping).

 

Opened 819 new restaurants during the year, bringing total store count to 8,484 across more than 1,200 cities.

Yum China Holdings, Inc. •  Shanghai, China •  Website http://ir.yumchina.com

 


Key Financial Results

 

  

Fourth Quarter 2018

 

 

 

Full Year 2018

 

 

 

% Change

 

 

 

% Change

 

 

 

System Sales

 

 

Same-Store Sales

 

 

Net New Units

 

 

Operating Profit

 

 

 

System Sales

 

 

Same-Store Sales

 

 

Net New Units

 

 

Operating Profit

 

 

Yum China

 

+6

 

 

 

+2

 

 

 

+6

 

 

 

+77

 

 

 

 

+5

 

 

 

+1

 

 

 

+6

 

 

 

+21

 

 

   KFC

 

+9

 

 

 

+3

 

 

 

+8

 

 

 

+13

 

 

 

 

+7

 

 

 

+2

 

 

 

+8

 

 

 

+11

 

 

   Pizza Hut

 

(2

)

 

 

(4

)

 

 

+2

 

 

 

+40

 

 

 

 

(1

)

 

 

(5

)

 

 

+2

 

 

 

(38

)

 

 

  

 

Fourth Quarter

 

 

 

 

Full Year

 

 

(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

$

84

 

 

$

47

 

 

 

+77

 

 

 

+84

 

 

 

$

941

 

 

$

778

 

 

 

+21

 

 

 

+16

 

 

Adjusted Operating Profit1

$

96

 

 

$

47

 

 

 

NM

 

 

 

NM

 

 

 

$

855

 

 

$

775

 

 

 

+10

 

 

 

+6

 

 

Net Income

$

74

 

 

$

(107

)

 

 

NM

 

 

 

NM

 

 

 

$

708

 

 

$

398

 

 

 

+78

 

 

 

+70

 

 

Adjusted Net Income1

$

46

 

 

$

57

 

 

 

(19

)

 

 

(14

)

 

 

$

606

 

 

$

559

 

 

 

+9

 

 

 

+4

 

 

Basic Earnings Per Common Share

$

0.19

 

 

$

(0.28

)

 

 

NM

 

 

 

NM

 

 

 

$

1.84

 

 

$

1.03

 

 

 

+79

 

 

 

+71

 

 

Adjusted Basic Earnings Per

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Common Share1

$

0.12

 

 

$

0.15

 

 

 

(20

)

 

 

(13

)

 

 

$

1.58

 

 

$

1.44

 

 

 

+10

 

 

 

+5

 

 

Diluted Earnings Per Common Share

$

0.19

 

 

$

(0.28

)

 

 

NM

 

 

 

NM

 

 

 

$

1.79

 

 

$

1.00

 

 

 

+79

 

 

 

+71

 

 

Adjusted Diluted Earnings Per

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Common Share1

$

0.12

 

 

$

0.14

 

 

 

(14

)

 

 

(7

)

 

 

$

1.53

 

 

$

1.40

 

 

 

+9

 

 

 

+5

 

 

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 fourth quarter 2018 includes October, November and December 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

 

“We achieved a 6% increase in system sales in constant currency during the fourth quarter, marking our ninth consecutive quarter of system sales growth since the spin-off,” said Joey Wat, CEO of Yum China. “This strong growth was led by accelerated new store openings and a robust performance at KFC, which delivered 3% same-store sales growth and 9% system sales growth during the quarter. Although Pizza Hut’s sales remained soft, we are pleased to see same-store traffic growth of 1% and positive trends in customer feedback.”

 

“In 2018, we aggressively expanded our footprint with 819 new stores across all city tiers, further strengthening our market position and laying a solid foundation for growth. While the macro backdrop is relatively soft, with our resilient business model and leadership in digital and delivery, we are confident that we have the right strategy and capabilities to maintain our growth trajectory and capitalize on the long-term potential of the China market,” added Ms. Wat.

 

“Our strong sales growth and diligent cost controls across all aspects of our business led to a significant increase in operating profit during the fourth quarter. We also delivered on our commitment to return capital to shareholders with $473 million of share repurchases and cash dividends in 2018, including $191 million in the fourth quarter.” said Jacky Lo, CFO of Yum China. “Looking into 2019, we are well positioned to face potential market softness while recognizing the first quarter of 2019 will be a tough lap given the excellent performance during the past three Chinese New Year holidays.”

 

2

 


Dividend and Share Repurchase

 

The Board of Directors declared a cash dividend of $0.12 per share on Yum China’s common stock, payable as of the close of business on March 21, 2019 to stockholders of record as of the close of business on February 28, 2019.

 

During the fourth quarter, we repurchased approximately 4.4 million shares of Yum China common stock for $145.3 million at an average price of $32.85 per share.

 

Digital and Delivery

 

As of December 31, 2018, the KFC loyalty program had over 160 million members and the Pizza Hut loyalty program had over 50 million members, an increase of 50 million and 15 million, respectively, year over year.

 

Mobile payments accounted for 65% of Company sales in the fourth quarter of 2018, an increase of 11 percentage points year over year. Digital payments accounted for 86% of Company sales in the quarter, an increase of 14 percentage points year over year.

 

Delivery contributed to 19% of Company sales in the fourth quarter of 2018, an increase of 3 percentage points year over year. Delivery services are now available in 1,118 cities, up from 900 cities in the prior year period.

 

New-Unit Development and Asset Upgrade

 

The Company opened 257 new restaurants in the fourth quarter and 819 new restaurants for the full year 2018, driven by development of the KFC brand.

 

The Company remodeled 232 restaurants in the fourth quarter and 931 restaurants for the full year 2018. Over 80% of Yum China’s current store portfolio has been remodeled or built in the past five years.

 

 

New Units

 

 

 

Restaurant Count

 

 

 

 

Fourth Quarter

 

Full Year

 

 

 

As of Year-End

 

 

 

 

2018

 

2018

 

 

 

2018

 

 

2017

 

 

Yum China

 

257

 

819

 

 

 

 

8,484

 

 

 

7,983

 

 

   KFC

 

155

 

566

 

 

 

 

5,910

 

 

 

5,488

 

 

   Pizza Hut

 

51

 

 

157

 

 

 

 

2,240

 

 

 

2,195

 

 

   Others2

 

51

 

 

96

 

 

 

 

334

 

 

 

300

 

 

2 Others include Little Sheep, East Dawning, Taco Bell and COFFii & JOY.

 

Restaurant Margin

 

In the fourth quarter of 2018, Yum China restaurant margin was 11.5%, as compared with 11.6% in the prior year period, primarily attributable to wage and commodity inflation and investment in product upgrades and promotions, partially offset by sales leverage, productivity improvement, and other cost savings.

 

In the full year 2018, Yum China restaurant margin was 15.7%, as compared with 16.7% in the prior year, primarily attributable to wage and commodity inflation and investment in product upgrades and promotions, partially offset by sales leverage and productivity improvement.

 

Fourth Quarter

 

 

 

Full Year

 

 

 

 

2018

 

 

2017

 

 

% pts change

 

 

 

2018

 

 

2017

 

 

% pts change

 

 

Yum China

 

 

11.5

%

 

 

11.6

%

 

 

(0.1

)

 

 

 

15.7

%

 

 

16.7

%

 

 

(1.0

)

 

   KFC

 

 

14.3

%

 

 

13.9

%

 

 

+0.4

 

 

 

 

17.9

%

 

 

18.0

%

 

 

(0.1

)

 

   Pizza Hut

 

 

4.9

%

 

 

6.4

%

 

 

(1.5

)

 

 

 

10.3

%

 

 

13.9

%

 

 

(3.6

)

 

 

2019 Outlook

The Company provides the following fiscal year 2019 targets:

 

600 to 650 gross new units

 

Capital expenditures between $450 million and $500 million

 

Effective tax rate below 28%

3

 


 

Conference Call

 

Yum China’s management will hold an earnings conference call at 7:00p.m. U.S. Eastern Time on Thursday, January 31, 2019 (8:00a.m. Beijing/Hong Kong Time on Friday, February 1, 2019). 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 will be available two hours after the call ends until 8:00a.m. U.S. Eastern Time on Friday, February 8, 2019 (9:00p.m. Beijing/Hong Kong Time on Friday, February 8, 2019) and may be accessed by phone at the following numbers:

 

US:

 

+1 855 452 5696

International:

 

+61 2 8199 0299

Passcode:

 

1896449

 

Additionally, a live webcast and an archived webcast of this conference call will be available at 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, including under “2019 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” 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 and effective tax rate 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.

 

4

 


 

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, East Dawning and COFFii & JOY concepts outright. The Company had more than 8,400 restaurants in over 1,200 cities at the end of December 2018. For more information, please visit http://ir.yumchina.com  

 

Investor Relations Contact:

 

 

Tel: +86 21 2407 7556

IR@YumChina.com  

 

 

 

  

Media Contact:

 

 

Tel: +86 21 2407 7510

Media@YumChina.com

 

 

5

 


 

Yum China Holdings, Inc.

Consolidated Statements of Income

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

(unaudited)

 

 

 

Quarter Ended

 

 

% Change

 

Year Ended

 

 

% Change

 

 

12/31/2018

 

 

12/31/2017

 

 

B/(W)

 

12/31/2018

 

 

12/31/2017

 

 

B/(W)

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company sales

 

$

1,721

 

 

$

1,667

 

 

 

3

 

 

 

$

7,633

 

 

$

6,993

 

 

 

9

 

 

Franchise fees and income

 

 

31

 

 

 

34

 

 

 

(5

)

 

 

 

141

 

 

 

141

 

 

 

1

 

 

Revenues from transactions with

   franchisees and unconsolidated affiliates

 

 

142

 

 

 

151

 

 

 

(6

)

 

 

 

603

 

 

 

599

 

 

 

1

 

 

Other revenues

 

 

20

 

 

 

20

 

 

 

(3

)

 

 

 

38

 

 

 

36

 

 

 

4

 

 

Total revenues

 

 

1,914

 

 

 

1,872

 

 

 

2

 

 

 

 

8,415

 

 

 

7,769

 

 

 

8

 

 

Costs and Expenses, Net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company restaurants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Food and paper

 

 

551

 

 

 

505

 

 

 

(9

)

 

 

 

2,326

 

 

 

2,034

 

 

 

(14

)

 

Payroll and employee benefits

 

 

418

 

 

 

406

 

 

 

(3

)

 

 

 

1,714

 

 

 

1,543

 

 

 

(11

)

 

Occupancy and other operating expenses

 

 

553

 

 

 

562

 

 

 

2

 

 

 

 

2,394

 

 

 

2,245

 

 

 

(7

)

 

Company restaurant expenses

 

 

1,522

 

 

 

1,473

 

 

 

(3

)

 

 

 

6,434

 

 

 

5,822

 

 

 

(11

)

 

General and administrative expenses

 

 

122

 

 

 

156

 

 

 

21

 

 

 

 

456

 

 

 

495

 

 

 

8

 

 

Franchise expenses

 

 

16

 

 

 

17

 

 

 

9

 

 

 

 

71

 

 

 

71

 

 

 

1

 

 

Expenses for transactions with

   franchisees and unconsolidated affiliates

 

 

141

 

 

 

149

 

 

 

5

 

 

 

 

595

 

 

 

592

 

 

 

(1

)

 

Other operating costs and expenses

 

 

12

 

 

 

14

 

 

 

11

 

 

 

 

29

 

 

 

28

 

 

 

(5

)

 

Closures and impairment expenses, net

 

 

26

 

 

 

27

 

 

 

7

 

 

 

 

41

 

 

 

47

 

 

 

14

 

 

Other income, net

 

 

(9

)

 

 

(11

)

 

 

(23

)

 

 

 

(152

)

 

 

(64

)

 

NM

 

 

Total costs and expenses, net

 

 

1,830

 

 

 

1,825

 

 

 

 

 

 

 

7,474

 

 

 

6,991

 

 

 

(7

)

 

Operating Profit

 

 

84

 

 

 

47

 

 

 

77

 

 

 

 

941

 

 

 

778

 

 

 

21

 

 

Interest income, net

 

 

8

 

 

 

9

 

 

 

(5

)

 

 

 

36

 

 

 

25

 

 

 

47

 

 

Investment loss

 

 

(27

)

 

 

 

 

NM

 

 

 

 

(27

)

 

 

 

 

NM

 

 

Income Before Income Taxes

 

 

65

 

 

 

56

 

 

 

16

 

 

 

 

950

 

 

 

803

 

 

 

18

 

 

Income tax benefit (provision)

 

 

13

 

 

 

(159

)

 

NM

 

 

 

 

(214

)

 

 

(379

)

 

 

43

 

 

Net income – including noncontrolling interests

 

 

78

 

 

 

(103

)

 

NM

 

 

 

 

736

 

 

 

424

 

 

 

74

 

 

Net income – noncontrolling interests

 

 

4

 

 

 

4

 

 

 

(1

)

 

 

 

28

 

 

 

26

 

 

 

(7

)

 

Net Income – Yum China Holdings, Inc.

 

$

74

 

 

$

(107

)

 

NM

 

 

 

$

708

 

 

$

398

 

 

 

78

 

 

Effective tax rate

 

 

(20.1

)%

 

 

285.2

%

 

NM

 

ppts.

 

 

22.6

%

 

 

47.2

%

 

 

24.6

 

ppts.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic Earnings (Loss) Per Common Share

 

$

0.19

 

 

$

(0.28

)

 

 

 

 

 

 

$

1.84

 

 

$

1.03

 

 

 

 

 

 

Weighted average shares outstanding

    (in millions)

 

 

380

 

 

 

386

 

 

 

 

 

 

 

 

384

 

 

 

387

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted Earnings (Loss) Per Common Share

 

$

0.19

 

 

$

(0.28

)

 

 

 

 

 

 

$

1.79

 

 

$

1.00

 

 

 

 

 

 

Weighted average shares outstanding

    (in millions)

 

 

389

 

 

 

386

 

 

 

 

 

 

 

 

395

 

 

 

398

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash Dividends Declared Per Common Share

 

$

0.12

 

 

$

0.10

 

 

 

 

 

 

 

$

0.42

 

 

$

0.10

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company sales

 

 

100.0

%

 

 

100.0

%

 

 

 

 

 

 

 

100.0

%

 

 

100.0

%

 

 

 

 

 

Food and paper

 

 

32.0

 

 

 

30.3

 

 

 

(1.7

)

ppts.

 

 

30.5

 

 

 

29.1

 

 

 

(1.4

)

ppts.

Payroll and employee benefits

 

 

24.3

 

 

 

24.4

 

 

 

0.1

 

ppts.

 

 

22.5

 

 

 

22.1

 

 

 

(0.4

)

ppts.

Occupancy and other operating expenses

 

 

32.2

 

 

 

33.7

 

 

 

1.5

 

ppts.

 

 

31.3

 

 

 

32.1

 

 

 

0.8

 

ppts.

Restaurant margin

 

 

11.5

%

 

 

11.6

%

 

 

(0.1

)

ppts.

 

 

15.7

%

 

 

16.7

%

 

 

(1.0

)

ppts.

Operating margin

 

 

4.8

%

 

 

2.8

%

 

 

2.0

 

ppts.

 

 

12.3

%

 

 

11.1

%

 

 

1.2

 

ppts.

 

Percentages may not recompute due to rounding.

6

 


 

Yum China Holdings, Inc.

KFC Operating Results

(amounts in US$ million)

(unaudited)

 

 

 

Quarter Ended

 

 

% Change

 

Year Ended

 

 

% Change

 

 

12/31/2018

 

 

12/31/2017

 

 

B/(W)

 

12/31/2018

 

 

12/31/2017

 

 

B/(W)

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company sales

 

$

1,247

 

 

$

1,158

 

 

 

8

 

 

 

$

5,495

 

 

$

4,863

 

 

 

13

 

 

Franchise fees and income

 

 

28

 

 

 

32

 

 

 

(6

)

 

 

 

132

 

 

 

134

 

 

 

(1

)

 

Revenues from transactions with

   franchisees and unconsolidated affiliates

 

 

15

 

 

 

18

 

 

 

(17

)

 

 

 

63

 

 

 

69

 

 

 

(10

)

 

Total revenues

 

 

1,290

 

 

 

1,208

 

 

 

7

 

 

 

 

5,690

 

 

 

5,066

 

 

 

12

 

 

Costs and Expenses, Net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company restaurants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Food and paper

 

 

398

 

 

 

354

 

 

 

(12

)

 

 

 

1,679

 

 

 

1,455

 

 

 

(15

)

 

Payroll and employee benefits

 

 

288

 

 

 

265

 

 

 

(9

)

 

 

 

1,167

 

 

 

1,013

 

 

 

(15

)

 

Occupancy and other operating expenses

 

 

384

 

 

 

379

 

 

 

(1

)

 

 

 

1,665

 

 

 

1,518

 

 

 

(10

)

 

Company restaurant expenses

 

 

1,070

 

 

 

998

 

 

 

(7

)

 

 

 

4,511

 

 

 

3,986

 

 

 

(13

)

 

General and administrative expenses

 

 

58

 

 

 

55

 

 

 

(7

)

 

 

 

193

 

 

 

176

 

 

 

(10

)

 

Franchise expenses

 

 

16

 

 

 

16

 

 

 

8

 

 

 

 

69

 

 

 

69

 

 

 

2

 

 

Expenses for transactions with

   franchisees and unconsolidated affiliates

 

 

14

 

 

 

19

 

 

 

16

 

 

 

 

62

 

 

 

70

 

 

 

8

 

 

Closures and impairment expenses, net

 

 

4

 

 

 

10

 

 

 

54

 

 

 

 

10

 

 

 

20

 

 

 

48

 

 

Other income, net

 

 

(8

)

 

 

(9

)

 

 

(9

)

 

 

 

(50

)

 

 

(57

)

 

 

(11

)

 

Total costs and expenses, net

 

 

1,154

 

 

 

1,089

 

 

 

(6

)

 

 

 

4,795

 

 

 

4,264

 

 

 

(12

)

 

Operating Profit

 

$

136

 

 

$

119

 

 

 

13

 

 

 

$

895

 

 

$

802

 

 

 

11

 

 

Company sales

 

 

100.0

%

 

 

100.0

%

 

 

 

 

 

 

 

100.0

%

 

 

100.0

%

 

 

 

 

 

Food and paper

 

 

31.8

 

 

 

30.6

 

 

 

(1.2

)

ppts.

 

 

30.5

 

 

 

29.9

 

 

 

(0.6

)

ppts.

Payroll and employee benefits

 

 

23.1

 

 

 

22.9

 

 

 

(0.2

)

ppts.

 

 

21.2

 

 

 

20.8

 

 

 

(0.4

)

ppts.

Occupancy and other operating expenses

 

 

30.8

 

 

 

32.6

 

 

 

1.8

 

ppts.

 

 

30.4

 

 

 

31.3

 

 

 

0.9

 

ppts.

Restaurant margin

 

 

14.3

%

 

 

13.9

%

 

 

0.4

 

ppts.

 

 

17.9

%

 

 

18.0

%

 

 

(0.1

)

ppts.

Operating margin

 

 

11.0

%

 

 

10.5

%

 

 

0.5

 

ppts.

 

 

16.3

%

 

 

16.5

%

 

 

(0.2

)

ppts.

 

Percentages may not recompute due to rounding.

7

 


 

Yum China Holdings, Inc.

Pizza Hut Operating Results

(amounts in US$ million)

(unaudited)

 

 

 

Quarter Ended

 

 

% Change

 

Year Ended

 

 

% Change

 

 

12/31/2018

 

 

12/31/2017

 

 

B/(W)

 

12/31/2018

 

 

12/31/2017

 

 

B/(W)

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company sales

 

$

466

 

 

$

498

 

 

 

(6

)

 

 

$

2,106

 

 

$

2,090

 

 

 

1

 

 

Franchise fees and income

 

 

1

 

 

 

 

 

 

21

 

 

 

 

3

 

 

 

2

 

 

 

18

 

 

Revenues from transactions with

   franchisees and unconsolidated affiliates

 

 

1

 

 

 

 

 

 

62

 

 

 

 

2

 

 

 

1

 

 

 

12

 

 

Total revenues

 

 

468

 

 

 

498

 

 

 

(6

)

 

 

 

2,111

 

 

 

2,093

 

 

 

1

 

 

Costs and Expenses, Net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company restaurants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Food and paper

 

 

151

 

 

 

148

 

 

 

(2

)

 

 

 

637

 

 

 

566

 

 

 

(12

)

 

Payroll and employee benefits

 

 

128

 

 

 

138

 

 

 

8

 

 

 

 

538

 

 

 

519

 

 

 

(4

)

 

Occupancy and other operating expenses

 

 

165

 

 

 

179

 

 

 

8

 

 

 

 

715

 

 

 

713

 

 

 

 

 

Company restaurant expenses

 

 

444

 

 

 

465

 

 

 

5

 

 

 

 

1,890

 

 

 

1,798

 

 

 

(5

)

 

General and administrative expenses

 

 

22

 

 

 

30

 

 

 

23

 

 

 

 

102

 

 

 

108

 

 

 

5

 

 

Franchise expenses

 

 

 

 

 

1

 

 

 

(21

)

 

 

 

2

 

 

 

2

 

 

 

(22

)

 

Expenses for transactions with

   franchisees and unconsolidated affiliates

 

 

1

 

 

 

 

 

 

(53

)

 

 

 

2

 

 

 

1

 

 

 

(10

)

 

Closures and impairment expenses, net

 

 

10

 

 

 

18

 

 

 

46

 

 

 

 

19

 

 

 

27

 

 

 

31

 

 

Other income, net

 

 

 

 

 

 

 

NM

 

 

 

 

(2

)

 

 

 

 

NM

 

 

Total costs and expenses, net

 

 

477

 

 

 

514

 

 

 

7

 

 

 

 

2,013

 

 

 

1,936

 

 

 

(4

)

 

Operating (Loss) Profit

 

$

(9

)

 

$

(16

)

 

 

40

 

 

 

$

98

 

 

$

157

 

 

 

(38

)

 

Company sales

 

 

100.0

%

 

 

100.0

%

 

 

 

 

 

 

 

100.0

%

 

 

100.0

%

 

 

 

 

 

Food and paper

 

 

32.4

 

 

 

29.8

 

 

 

(2.6

)

ppts.

 

 

30.2

 

 

 

27.1

 

 

 

(3.1

)

ppts.

Payroll and employee benefits

 

 

27.3

 

 

 

27.9

 

 

 

0.6

 

ppts.

 

 

25.5

 

 

 

24.9

 

 

 

(0.6

)

ppts.

Occupancy and other operating expenses

 

 

35.4

 

 

 

35.9

 

 

 

0.5

 

ppts.

 

 

34.0

 

 

 

34.1

 

 

 

0.1

 

ppts.

Restaurant margin

 

 

4.9

%

 

 

6.4

%

 

 

(1.5

)

ppts.

 

 

10.3

%

 

 

13.9

%

 

 

(3.6

)

ppts.

Operating margin

 

 

(2.0

)%

 

 

(3.2

)%

 

 

1.1

 

ppts.

 

 

4.7

%

 

 

7.5

%

 

 

(2.8

)

ppts.

 

Percentages may not recompute due to rounding.

8

 


 

Yum China Holdings, Inc.

Consolidated Balance Sheets

(amounts in US$ million)

(unaudited)

 

 

 

12/31/2018

 

 

12/31/2017

 

ASSETS

 

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,266

 

 

$

1,059

 

Short-term investments

 

 

122

 

 

 

205

 

Accounts receivable, net

 

 

80

 

 

 

79

 

Inventories, net

 

 

307

 

 

 

297

 

Prepaid expenses and other current assets

 

 

177

 

 

 

162

 

Total Current Assets

 

 

1,952

 

 

 

1,802

 

Property, plant and equipment, net

 

 

1,615

 

 

 

1,691

 

Goodwill

 

 

266

 

 

 

108

 

Intangible assets, net

 

 

116

 

 

 

101

 

Deferred income taxes

 

 

89

 

 

 

105

 

Investments in unconsolidated affiliates

 

 

81

 

 

 

95

 

Other assets

 

 

491

 

 

 

385

 

Total Assets

 

 

4,610

 

 

 

4,287

 

LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND EQUITY

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

Accounts payable and other current liabilities

 

 

1,199

 

 

 

985

 

Income taxes payable

 

 

54

 

 

 

39

 

Total Current Liabilities

 

 

1,253

 

 

 

1,024

 

Capital lease obligations

 

 

25

 

 

 

28

 

Other liabilities

 

 

355

 

 

 

388

 

Total Liabilities

 

 

1,633

 

 

 

1,440

 

Redeemable Noncontrolling Interest

 

 

1

 

 

 

5

 

Equity

 

 

 

 

 

 

 

 

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

  392 million shares and 389 million shares issued at December 31, 2018 and 2017,

  respectively; 379 million shares and 385 million shares outstanding at

  December 31, 2018 and 2017, respectively

 

 

4

 

 

 

4

 

Treasury stock

 

 

(460

)

 

 

(148

)

Additional paid-in capital

 

 

2,402

 

 

 

2,375

 

Retained earnings

 

 

944

 

 

 

397

 

Accumulated other comprehensive (loss) income

 

 

(17

)

 

 

137

 

Total Equity – Yum China Holdings, Inc.

 

 

2,873

 

 

 

2,765

 

Noncontrolling interests

 

 

103

 

 

 

77

 

Total Equity

 

 

2,976

 

 

 

2,842

 

Total Liabilities, Redeemable Noncontrolling Interest and Equity

 

$

4,610

 

 

$

4,287

 

 

 

 

 

 

 

 

 

 

9

 


 

Yum China Holdings, Inc.

Consolidated Statements of Cash Flows

(amounts in US$ million)

(unaudited)

 

 

 

Year Ended

 

 

12/31/2018

 

12/31/2017

Cash Flows – Operating Activities

 

 

 

 

 

 

 

 

 

 

Net income – including noncontrolling interests

 

$

736

 

 

 

$

424

 

 

Depreciation and amortization

 

 

445

 

 

 

 

409

 

 

Closures and impairment expenses

 

 

41

 

 

 

 

47

 

 

Gain from re-measurement of equity interest upon acquisition

 

 

(98

)

 

 

 

 

 

Investment loss

 

 

27

 

 

 

 

 

 

Equity income from investments in unconsolidated affiliates

 

 

(65

)

 

 

 

(65

)

 

Distributions of income received from unconsolidated affiliates

 

 

63

 

 

 

 

45

 

 

Deferred income taxes

 

 

33

 

 

 

 

62

 

 

Share-based compensation expense

 

 

24

 

 

 

 

26

 

 

Changes in accounts receivable

 

 

(13

)

 

 

 

1

 

 

Changes in inventories

 

 

(23

)

 

 

 

(11

)

 

Changes in prepaid expenses and other current assets

 

 

(22

)

 

 

 

(15

)

 

Changes in accounts payable and other current liabilities

 

 

254

 

 

 

 

(56

)

 

Changes in income taxes payable

 

 

17

 

 

 

 

3

 

 

Other, net

 

 

(86

)

 

 

 

14

 

 

Net Cash Provided by Operating Activities

 

 

1,333

 

 

 

 

884

 

 

Cash Flows – Investing Activities

 

 

 

 

 

 

 

 

 

 

Capital spending

 

 

(470

)

 

 

 

(415

)

 

Purchases of short-term investments

 

 

(604

)

 

 

 

(596

)

 

Maturities of short-term investments

 

 

680

 

 

 

 

479

 

 

Acquisition of business, net of cash acquired

 

 

(91

)

 

 

 

(25

)

 

Investment in equity securities

 

 

(74

)

 

 

 

 

 

Other, net

 

 

7

 

 

 

 

 

 

Net Cash Used in Investing Activities

 

 

(552

)

 

 

 

(557

)

 

Cash Flows – Financing Activities

 

 

 

 

 

 

 

 

 

 

Repurchase of shares of common stock

 

 

(307

)

 

 

 

(128

)

 

Cash dividends paid on common stock

 

 

(161

)

 

 

 

(38

)

 

Dividends paid to noncontrolling interests

 

 

(36

)

 

 

 

(22

)

 

Other, net

 

 

(14

)

 

 

 

3

 

 

Net Cash Used in Financing Activities

 

 

(518

)

 

 

 

(185

)

 

Effect of Exchange Rates on Cash and Cash Equivalents

 

 

(56

)

 

 

 

32

 

 

Net Increase in Cash and Cash Equivalents

 

 

207

 

 

 

 

174

 

 

Cash and Cash Equivalents – Beginning of Year

 

 

1,059

 

 

 

 

885

 

 

Cash and Cash Equivalents – End of Year

 

$

1,266

 

 

 

$

1,059

 

 

 


10

 


 

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 adjusted 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.

 

11

 


 

Reconciliation of Reported GAAP Results to Adjusted Measures

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

(unaudited)

 

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 Net Income, 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, net, investment loss, depreciation, amortization and other items, including store impairment charges and Special Items. The Special Items consist of impairment on assets acquired from Daojia, gain recognized from the re-measurement of our previously held equity interest in Wuxi KFC at fair value upon acquisition, income from the reversal of contingent consideration previously recorded for a business combination and tax impact from the Tax Cuts and Jobs Act of 2017 (“the Tax Act”), 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, net, investment loss, 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 their 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 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 reversal of contingent consideration(d)

 

 

 

 

 

 

 

 

 

 

 

3

 

Special Items, Operating Profit

 

 

(12

)

 

 

 

 

 

86

 

 

 

3

 

Tax effect on Special Items(e)

 

 

3

 

 

 

 

 

 

(21

)

 

 

 

Impact from the Tax Act(f)

 

 

36

 

 

 

(164

)

 

 

36

 

 

 

(164

)

Special Items, net income – including noncontrolling interests

 

 

27

 

 

 

(164

)

 

 

101

 

 

 

(161

)

Special Items, net income – noncontrolling interests

 

 

(1

)

 

 

 

 

 

(1

)

 

 

 

Special Items, Net Income –Yum China Holdings, Inc.

 

$

28

 

 

$

(164

)

 

$

102

 

 

$

(161

)

Weighted Average Diluted Shares Outstanding

 

 

389

 

 

 

400

 

 

 

395

 

 

 

398

 

Special Items Diluted Earnings Per Common Share

 

$

0.07

 

 

$

(0.41

)

 

$

0.26

 

 

$

(0.40

)

Reconciliation of Operating Profit to Adjusted Operating Profit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Profit

 

$

84

 

 

$

47

 

 

$

941

 

 

$

778

 

Special Items, Operating Profit

 

 

(12

)

 

 

 

 

 

86

 

 

 

3

 

Adjusted Operating Profit

 

$

96

 

 

$

47

 

 

$

855

 

 

$

775

 

Reconciliation of Net Income (Loss) to Adjusted Net Income (Loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income (Loss) – Yum China Holdings, Inc.

 

$

74

 

 

$

(107

)

 

$

708

 

 

$

398

 

Special Items, Net Income –Yum China Holdings, Inc.

 

 

28

 

 

 

(164

)

 

 

102

 

 

 

(161

)

Adjusted Net Income – Yum China Holdings, Inc.

 

$

46

 

 

$

57

 

 

$

606

 

 

$

559

 

Reconciliation of EPS to Adjusted EPS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted Earnings (Loss) Per Common Share

 

$

0.19

 

 

$

(0.28

)

 

$

1.79

 

 

$

1.00

 

Special Items Diluted Earnings Per Common Share

 

 

0.07

 

 

 

(0.41

)

 

 

0.26

 

 

 

(0.40

)

Adjusted Diluted Earnings Per Common Share

 

$

0.12

 

 

$

0.14

 

 

$

1.53

 

 

$

1.40

 

Reconciliation of Effective Tax Rate to Adjusted Effective Tax Rate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effective tax rate

 

 

(20.1

)%

 

 

285.2

%

 

 

22.6

%

 

 

47.2

%

Impact on effective tax rate as a result of Special Items

 

 

(53.6

)%

 

 

293.3

%

 

 

(3.9

)%

 

 

20.3

%

Adjusted effective tax rate

 

 

33.5

%

 

 

(8.2

)%

 

 

26.5

%

 

 

26.9

%

 

 

12

 


 

Reconciliation of Net Income (Loss) to Adjusted EBITDA

(amounts in US$ million)

(unaudited)

Net income (loss), along with the reconciliation to Adjusted EBITDA, is presented below.

 

 

 

Quarter Ended

 

 

Year Ended

 

 

 

12/31/2018

 

 

12/31/2017

 

 

12/31/2018

 

 

12/31/2017

 

Reconciliation of Net Income (Loss) to Adjusted EBITDA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income (Loss) – Yum China Holdings, Inc.

 

$

74

 

 

$

(107

)

 

$

708

 

 

$

398

 

Net income – noncontrolling interests

 

 

4

 

 

 

4

 

 

 

28

 

 

 

26

 

Income tax (benefit) provision

 

 

(13

)

 

 

159

 

 

 

214

 

 

 

379

 

Interest income, net

 

 

(8

)

 

 

(9

)

 

 

(36

)

 

 

(25

)

Investment loss

 

 

27

 

 

 

 

 

 

27

 

 

 

 

Operating Profit

 

 

84

 

 

 

47

 

 

 

941

 

 

 

778

 

Special Items, Operating Profit

 

 

12

 

 

 

 

 

 

(86

)

 

 

(3

)

Adjusted Operating Profit

 

 

96

 

 

 

47

 

 

 

855

 

 

 

775

 

Depreciation and amortization

 

 

102

 

 

 

108

 

 

 

445

 

 

 

409

 

Store impairment charges

 

 

17

 

 

 

30

 

 

 

40

 

 

 

58

 

Adjusted EBITDA

 

$

215

 

 

$

185

 

 

$

1,340

 

 

$

1,242

 

13

 


 

Unit Count by Brand

 

KFC

 

 

 

12/31/2017

 

 

New Builds

 

 

Acquired

 

 

Closures

 

 

Refranchised

 

 

Others

 

 

12/31/2018

 

Company-owned

 

 

4,112

 

 

 

443

 

 

 

2

 

 

 

(108

)

 

 

(9

)

 

 

157

 

 

 

4,597

 

Unconsolidated affiliates

 

 

891

 

 

 

98

 

 

 

 

 

 

(21

)

 

 

 

 

 

(157

)

 

 

811

 

Franchise

 

 

485

 

 

 

25

 

 

 

(2

)

 

 

(15

)

 

 

9

 

 

 

 

 

 

502

 

Total

 

 

5,488

 

 

 

566

 

 

 

 

 

 

(144

)

 

 

 

 

 

 

 

 

5,910

 

 

Pizza Hut

 

 

 

 

 

12/31/2017

 

 

New Builds

 

 

Closures

 

 

Refranchised

 

 

12/31/2018

 

Company-owned

 

 

 

 

2,166

 

 

 

140

 

 

 

(110

)

 

 

(8

)

 

 

2,188

 

Franchise

 

 

 

 

29

 

 

 

17

 

 

 

(2

)

 

 

8

 

 

 

52

 

Total

 

 

 

 

2,195

 

 

 

157

 

 

 

(112

)

 

 

 

 

 

2,240

 

 

Others

 

 

 

 

 

12/31/2017

 

 

New Builds

 

 

Closures

 

 

Refranchised

 

 

12/31/2018

 

Company-owned

 

 

 

 

29

 

 

 

23

 

 

 

(3

)

 

 

(2

)

 

 

47

 

Franchise

 

 

 

 

271

 

 

 

73

 

 

 

(59

)

 

 

2

 

 

 

287

 

Total

 

 

 

 

300

 

 

 

96

 

 

 

(62

)

 

 

 

 

 

334

 

14

 


 

Yum China Holdings, Inc.

Segment Results

(amounts in US$ million)

(unaudited)

 

Quarter Ended 12/31/2018

 

KFC

 

 

Pizza Hut

 

 

All Other Segments

 

 

Corporate

and

Unallocated(1)

 

 

Elimination

 

 

Total

 

Company sales

 

$

1,247

 

 

$

466

 

 

$

7

 

 

$

1

 

 

$

 

 

$

1,721

 

Franchise fees and income

 

 

28

 

 

 

1

 

 

 

2

 

 

 

 

 

 

 

 

 

31

 

Revenues from transactions with

   franchisees and unconsolidated affiliates

 

 

15

 

 

 

1

 

 

 

7

 

 

 

119

 

 

 

 

 

 

142

 

Other revenues

 

 

 

 

 

 

 

 

21

 

 

 

3

 

 

 

(4

)

 

 

20

 

Total revenues

 

$

1,290

 

 

$

468

 

 

$

37

 

 

$

123

 

 

$

(4

)

 

$

1,914

 

Company restaurant expenses

 

 

1,070

 

 

 

444

 

 

 

7

 

 

 

1

 

 

 

 

 

 

1,522

 

General and administrative expenses

 

 

58

 

 

 

22

 

 

 

7

 

 

 

35

 

 

 

 

 

 

122

 

Franchise expenses

 

 

16

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16

 

Expenses for transactions with

  franchisees and unconsolidated affiliates

 

 

14

 

 

 

1

 

 

 

6

 

 

 

120

 

 

 

 

 

 

141

 

Other operating costs and expenses

 

 

 

 

 

 

 

 

13

 

 

 

3

 

 

 

(4

)

 

 

12

 

Closures and impairment expenses, net

 

 

4

 

 

 

10

 

 

 

 

 

 

12

 

 

 

 

 

 

26

 

Other income, net

 

 

(8

)

 

 

 

 

 

(1

)

 

 

 

 

 

 

 

 

(9

)

 

 

 

1,154

 

 

 

477

 

 

 

32

 

 

 

171

 

 

 

(4

)

 

 

1,830

 

Operating Profit (Loss)

 

$

136

 

 

$

(9

)

 

$

5

 

 

$

(48

)

 

$

 

 

$

84

 

 

Quarter Ended 12/31/2017

 

KFC

 

 

Pizza Hut

 

 

All Other Segments

 

 

Corporate

and

Unallocated(1)

 

 

Total

 

Company sales

 

$

1,158

 

 

$

498

 

 

$

11

 

 

$

 

 

$

1,667

 

Franchise fees and income

 

 

32

 

 

 

 

 

 

2

 

 

 

 

 

 

34

 

Revenues from transactions with

   franchisees and unconsolidated affiliates

 

 

18

 

 

 

 

 

 

11

 

 

 

122

 

 

 

151

 

Other revenues

 

 

 

 

 

 

 

 

20

 

 

 

 

 

 

20

 

Total revenues

 

$

1,208

 

 

$

498

 

 

$

44

 

 

$

122

 

 

$

1,872

 

Company restaurant expenses

 

 

998

 

 

 

465

 

 

 

10

 

 

 

 

 

 

1,473

 

General and administrative expenses

 

 

55

 

 

 

30

 

 

 

10

 

 

 

61

 

 

 

156

 

Franchise expenses

 

 

16

 

 

 

1

 

 

 

 

 

 

 

 

 

17

 

Expenses for transactions with

  franchisees and unconsolidated affiliates

 

 

19

 

 

 

 

 

 

9

 

 

 

121

 

 

 

149

 

Other operating costs and expenses

 

 

 

 

 

 

 

 

14

 

 

 

 

 

 

14

 

Closures and impairment expenses (income), net

 

 

10

 

 

 

18

 

 

 

(1

)

 

 

 

 

 

27

 

Other (income) expenses, net

 

 

(9

)

 

 

 

 

 

2

 

 

 

(4

)

 

 

(11

)

Total costs and expenses, net

 

 

1,089

 

 

 

514

 

 

 

44

 

 

 

178

 

 

 

1,825

 

Operating Profit (Loss)

 

$

119

 

 

$

(16

)

 

$

 

 

$

(56

)

 

$

47

 

 

15

 


 

Year Ended 12/31/2018

 

KFC

 

 

Pizza Hut

 

 

All Other Segments

 

 

Corporate

and

Unallocated(1)

 

 

Elimination

 

 

Total

 

Company sales

 

$

5,495

 

 

$

2,106

 

 

$

31

 

 

$

1

 

 

$

 

 

$

7,633

 

Franchise fees and income

 

 

132

 

 

 

3

 

 

 

6

 

 

 

 

 

 

 

 

 

141

 

Revenues from transactions with

   franchisees and unconsolidated affiliates

 

 

63

 

 

 

2

 

 

 

24

 

 

 

514

 

 

 

 

 

 

603

 

Other revenues

 

 

 

 

 

 

 

 

39

 

 

 

7

 

 

 

(8

)

 

 

38

 

Total revenues

 

$

5,690

 

 

$

2,111

 

 

$

100

 

 

$

522

 

 

$

(8

)

 

$

8,415

 

Company restaurant expenses

 

 

4,511

 

 

 

1,890

 

 

 

32

 

 

 

1

 

 

 

 

 

 

6,434

 

General and administrative expenses

 

 

193

 

 

 

102

 

 

 

32

 

 

 

129

 

 

 

 

 

 

456

 

Franchise expenses

 

 

69

 

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

71

 

Expenses for transactions with

  franchisees and unconsolidated affiliates

 

 

62

 

 

 

2

 

 

 

19

 

 

 

512

 

 

 

 

 

 

595

 

Other operating costs and expenses

 

 

 

 

 

 

 

 

31

 

 

 

6

 

 

 

(8

)

 

 

29

 

Closures and impairment expenses, net

 

 

10

 

 

 

19

 

 

 

 

 

 

12

 

 

 

 

 

 

41

 

Other income, net

 

 

(50

)

 

 

(2

)

 

 

(2

)

 

 

(98

)

 

 

 

 

 

(152

)

 

 

 

4,795

 

 

 

2,013

 

 

 

112

 

 

 

562

 

 

 

(8

)

 

 

7,474

 

Operating Profit (Loss)

 

$

895

 

 

$

98

 

 

$

(12

)

 

$

(40

)

 

$

 

 

$

941

 

 

Year Ended 12/31/2017

 

KFC

 

 

Pizza Hut

 

 

All Other Segments

 

 

Corporate

and

Unallocated(1)

 

 

Total

 

Company sales

 

$

4,863

 

 

$

2,090

 

 

$

40

 

 

$

 

 

$

6,993

 

Franchise fees and income

 

 

134

 

 

 

2

 

 

 

5

 

 

 

 

 

 

141

 

Revenues from transactions with

   franchisees and unconsolidated affiliates

 

 

69

 

 

 

1

 

 

 

25

 

 

 

504

 

 

 

599

 

Other revenues

 

 

 

 

 

 

 

 

36

 

 

 

 

 

 

36

 

Total revenues

 

$

5,066

 

 

$

2,093

 

 

$

106

 

 

$

504

 

 

$

7,769

 

Company restaurant expenses

 

 

3,986

 

 

 

1,798

 

 

 

38

 

 

 

 

 

 

5,822

 

General and administrative expenses

 

 

176

 

 

 

108

 

 

 

26

 

 

 

185

 

 

 

495

 

Franchise expenses

 

 

69

 

 

 

2

 

 

 

 

 

 

 

 

 

71

 

Expenses for transactions with

  franchisees and unconsolidated affiliates

 

 

70

 

 

 

1

 

 

 

21

 

 

 

500

 

 

 

592

 

Other operating costs and expenses

 

 

 

 

 

 

 

 

28

 

 

 

 

 

 

28

 

Closures and impairment expenses, net

 

 

20

 

 

 

27

 

 

 

 

 

 

 

 

 

47

 

Other income (expenses), net

 

 

(57

)

 

 

 

 

 

2

 

 

 

(9

)

 

 

(64

)

 

 

 

4,264

 

 

 

1,936

 

 

 

115

 

 

 

676

 

 

 

6,991

 

Operating Profit (Loss)

 

$

802

 

 

$

157

 

 

$

(9

)

 

$

(172

)

 

$

778

 

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”.

 

16

 


 

Notes to the Consolidated Statements of Income, Consolidated Balance Sheets,

Consolidated Statements of Cash Flows and Reconciliation of Reported GAAP Results to Adjusted Measures

(amounts in US$ million)

(unaudited)

 

(a)

Amounts presented as of and for the quarter and year ended December 31, 2018 are unaudited, and the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 may contain updates to the information disclosed in this press release.

 

(b)

During the year ended December 31, 2018, we recorded an impairment charge of $12 million on intangible assets of the Daojia business. It was included in Closures and impairment expenses in our Consolidated Statement of Income, but was not allocated to any segment for performance reporting purposes. We recorded a tax benefit of $3 million associated with the impairment and allocated $1 million of the after-tax impairment charge to noncontrolling interests.

 

(c)

As a result of the acquisition of Wuxi KFC in the first quarter of 2018, 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.

 

(d)

During the year ended December 31, 2017, we recognized income from the reversal of contingent consideration previously recorded for a business combination as the likelihood of making payment became remote.

 

(e)

The tax expense was determined based upon the nature, as well as the jurisdiction, of each Special Item at the applicable tax rate.

 

(f)

The Company incurred an estimated one-time income tax charge of $164 million in the fourth quarter of 2017, as a result of the Tax Act, due to the transition tax on deemed repatriation of accumulated undistributed earnings of foreign subsidiaries, and additional tax related to the revaluation of certain deferred tax assets. In the fourth quarter of 2018, we recognized a tax benefit of $36 million as a result of adjusting the provisional amount of transition tax previously recorded.

 

17