YUM CHINA HOLDINGS, INC. SHANGHAI, Oct. 5, 2017 /PRNewswire/ -- Yum China Holdings, Inc. (the "Company" or "Yum China") (NYSE: YUMC) today reported unaudited results for the third quarter ended August 31, 2017.
Third Quarter Highlights
-- Same-store sales grew 6%, including growth of 7% at KFC, flat at Pizza
Hut.
-- Total system sales grew 10%, including growth of 11% at KFC and 7% at
Pizza Hut, excluding foreign currency translation ("F/X").
-- Opened 129 new restaurants during the quarter.
-- Total restaurant margin increased 0.8 percentage points to 20.0%,
primarily driven by same-store sales leverage.
-- Operating profit increased 11%, and 13% excluding F/X, primarily driven
by same-store sales growth. F/X negatively impacted reported operating
profit by $5 million.
-- Basic EPS increased 4% to $0.55 and diluted EPS was flat at $0.53.
-- Effective tax rate was 31.7%, compared to 29.8% in the prior-year
quarter, primarily due to higher costs of repatriating current year
earnings into the U.S.
-- Net income increased 9% to $211 million.
-- Adjusted EBITDA increased 9% to $425 million.
Dividend and Share Repurchase
-- The Board of Directors has approved a regular quarterly cash dividend
program, and declared an initial cash dividend of $0.10 per share on Yum
China's common stock.
-- The Board of Directors has increased Yum China's existing share
repurchase authorization from $300 million to an aggregate of $550
million.
Key Results
Third Quarter Year to Date
------------- ------------
% Change % Change
System Same-Store Net New Operating System Same-Store Net New Operating
Sales Sales Units Profit Sales Sales Units Profit
----- ----- ----- ------ ----- ----- ----- ------
Yum China +10 +6 +6 +11 +7 +4 +6 +23
KFC +11 +7 +5 +20 +8 +4 +5 +20
Pizza Hut +7 - +8 - +7 +1 +8 +37
--------- --- --- --- --- --- --- --- ---
Third Quarter Year to Date
------------- ------------
(in US$ million, except % Change % Change
-------- --------
for per share data and percentages) 2017 2016 Reported Ex F/X 2017 2016 Reported Ex F/X
---- ---- -------- ------ ---- ---- -------- ------
Reported Operating Profit $317 $286 +11 +13 $714 $582 +23 +27
Operating Profit Before Special Items(1) $314 $283 +11 +12 $711 $580 +23 +27
Net income $211 $192 +9 +11 $493 $414 +19 +23
Adjusted EBITDA(1) $425 $390 +9 +11 $1,004 $895 +12 +16
Basic EPS $0.55 $0.53 +4 +6 $1.28 $1.14 +12 +16
Diluted EPS $0.53 $0.53 - +2 $1.24 $1.14 +9 +13
Diluted EPS Before Special Items(1) $0.52 $0.52 - +2 $1.23 $1.11 +11 +15
---------------------------------- ----- ----- --- --- ----- ----- --- ---
(1)See Reconciliation of Reported Results to Non-GAAP Measures included in the accompanying tables of this release for further details.
Note: All comparisons are versus the same period a year ago. Consistent with prior years, Yum China's fiscal third quarter includes June, July and August results. Percentages may not recompute due to rounding.
System sales and same-store sales percentages exclude the impact of F/X.
CEO Comments
"We are pleased to report the third consecutive quarter of delivering positive same-store sales growth. With revenues exceeding $2 billion in the quarter, restaurant margin, operating profit and net income have all improved. We opened 129 new restaurants in the third quarter and we are on track to achieve our development target of 550-600 new stores in the year," said Micky Pant, CEO of Yum China.
"In this quarter, our strategic initiatives on digital and delivery continued to show encouraging development, which we believe will enable our long-term growth. The connection with our over 120 million loyalty members is getting stronger. The growth in mobile payments and cashless settlement methods for sales continued to outperform previous quarters. With over 5,100 restaurants across China offering delivery service, delivery contributed over 14% of company sales in the third quarter.
Given the strength of our business and our confidence in generating strong cash flows long term, our Board of Directors has approved a regular quarterly cash dividend program and authorized additional share repurchases. These demonstrate our strong commitment to increase shareholder returns through disciplined capital allocation while simultaneously driving strong operating performance.
With our strong operating results in this third quarter and our commitment to return capital to shareholders, we believe we are well positioned to continue to increase shareholder value over the long run."
New-Unit Development and Asset Upgrade
-- Opened 129 new restaurants during the third quarter, and 352 year to
date.
-- Remodeled 200 restaurants during the third quarter, and 429 year to
date, led by KFC.
New Units Restaurant Count
--------- ----------------
Third As of Third Quarter End
Quarter Year to Date 2017 2016
------- ------------ ---- ----
Yum China 129 352 7,747 7,330
KFC 81 215 5,347 5,087
Pizza Hut 38 102 2,143 1,993
Little Sheep, East Dawning, Taco Bell 10 35 257 250
------------------------------------- --- --- --- ---
Total Restaurant Count
Restaurant Count
----------------
As of Third Quarter End
2017 2016
---- ----
Restaurants 7,747 7,330
Company-owned 6,149 5,847
Unconsolidated Affiliates 872 812
Franchisees 726 671
----------- --- ---
Restaurant Margin
-- For the third quarter, restaurant margin for Yum China increased 0.8
percentage points to 20.0%, primarily driven by same-store sales
leverage and labor efficiency, partially offset by wage inflation and
promotion costs.
-- Year to date, restaurant margin for Yum China increased 2.3 percentage
points to 19.3%, primarily due to the impact of retail tax structure
reform, and also driven by same-store sales leverage, partially offset
by wage inflation and commodity inflation.
Third Quarter Year to Date
------------- ------------
2017 2016 % ppts 2017 2016 % ppts
change change
------ ------
Yum China 20.0% 19.2% 0.8 19.3% 17.0% 2.3
KFC 21.1% 19.7% 1.4 20.1% 18.2% 1.9
Pizza Hut 17.8% 18.7% (0.9) 17.6% 14.9% 2.7
--------- ---- ---- ---- ---- ---- ---
Digital and Delivery
-- Driven by our digital initiatives, we continued to strengthen our
loyalty membership programs. By the end of the third quarter, total
members in our loyalty programs surpassed 120 million, including 97
million members for KFC and 30 million for Pizza Hut.
-- Mobile payments exceeded 45% of company sales in the third quarter of
2017. Over $1.2 billion in company sales were settled by cashless
payment methods during the quarter.
-- Over 5,100 restaurants across China offered delivery services as of the
end of the third quarter. Delivery contributed over 14% of company sales
in the third quarter.
Share Repurchase Update
-- For the year to date ended August 31, 2017, we repurchased approximately
3.4 million shares for $128 million at an average price of $38.18 per
share.
-- In October 2017, the Board of Directors increased Yum China's existing
share repurchase authorization from $300 million to an aggregate of $550
million.
Dividend
-- The Board of Directors has approved a regular quarterly cash dividend
program, and declared an initial cash dividend of $0.10 per share on Yum
China's common stock, payable as of the close of business on December
21, 2017 to stockholders of record as of the close of business on
November 30, 2017. Future dividends will be subject to review and
approval by the Board of Directors.
Conference Call
Yum China Holdings, Inc. will host a conference call to review the Company's financial performance and strategies at 8:00 p.m. U.S. Eastern Time on Thursday, October 5, 2017 (8:00 a.m. Beijing/Hong Kong Time on Friday, October 6, 2017). A copy of the presentation will be available on the Yum China Holdings, Inc. website, http://ir.yumchina.com.
U.S.: +1-845-675-0437
Hong Kong: +852-3018-6771
Mainland China: 400-6208-038 or 800-8190-121
International: +65-6713-5090
Passcode: Yum China
A live webcast of the call may also be accessed at https://edge.media-server.com/m6/p/62ngn9wc.
A replay of the conference call may be accessed by phone at the following numbers two hours after the call ends until 9:00 a.m. U.S. Eastern Time on Friday, October 13, 2017 (9:00 p.m. Beijing/Hong Kong Time on Friday, October 13, 2017):
U.S.: +1-855-452-5696
International: +61-2-8199-0299
Passcode: 82128278
The webcast and the playback can be accessed via the internet by visiting the Yum China Holdings, Inc. website, http://ir.yumchina.com
Forward-Looking Statements
This press release contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We intend all forward-looking statements to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally can be identified by the fact that they do not relate strictly to historical or current facts and by the use of forward-looking words such as "expect," "expectation," "believe," "anticipate," "may," "could," "intend," "belief," "plan," "estimate," "target," "predict," "likely," "will," "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 and performance of Yum China, future dividends, anticipated effects of population and macroeconomic trends, the capital structure of Yum China and beliefs regarding the long-term drivers of Yum China's business. Forward-looking statements are not guarantees of performance and are inherently subject to known and unknown risks and uncertainties that are difficult to predict and could cause our actual results 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 to differ materially from those expressed or implied by forward-looking statements, including, without limitation: whether we are able to achieve development goals at the times and in the amounts currently anticipated, if at all, the success of our marketing campaigns and product innovation, our ability to maintain food safety and quality control systems, our ability to control costs and expenses, including tax costs, as well as changes in political, economic and regulatory conditions in China. In addition, other risks and uncertainties not presently known to us or that we currently believe to be immaterial could affect the accuracy of any such forward-looking statements. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. You should consult our filings with the Securities and Exchange Commission (including the information set forth under the captions "Risk Factors" and "Forward-Looking Statements" in our Annual Report on Form 10-K) for additional detail about factors that could affect our financial and other results.
About Yum China Holdings, Inc.
Yum China Holdings, Inc. is a licensee of Yum! Brands in mainland China. It has exclusive rights in mainland China to KFC, China's leading quick-service restaurant brand, Pizza Hut, the leading casual dining restaurant brand in China, and Taco Bell, which opened its first restaurant in China at the end of 2016. Yum China also owns the Little Sheep and East Dawning concepts outright. Yum China is well positioned for growth thanks to its strong competitive position, integration of its brands into Chinese popular culture and consumers' daily lives, expanding geographic footprint in China and existing operational expertise. It has a strong capital position, no external debt and expects to continue growing its system sales and profit by adding new restaurants and through growing same-store sales. Yum China had more than 7,700 restaurants and more than 420,000 employees in over 1,100 cities at the end of August 2017. A new generation of younger consumers who are digitally sophisticated and brand driven are fueling growth in consumption in China. The ongoing growth of the middle class and urban population in China is expected to create the world's largest market for restaurant brands, with Yum China poised to be the market leader.
Analysts are invited to contact:
Christie Ju, Vice President
- Finance, Investor
Relations, at +86 21 2407
8090
Elaine Lai, Director -
Finance, Investor
Relations, at +86 21 2407
8278
Members of the media are invited to
contact:
Forest Liu, Director,
Public Affairs, at +86 21
2407 7505
Yum China Holdings, Inc.
Condensed Consolidated and Combined Summary of Results
(amounts in US$ million, except for number of shares and per share amounts)
(unaudited)
Quarter ended % Change Year to date ended % Change
------------- ------------------
8/31/2017 8/31/2016 B/(W) 8/31/2017 8/31/2016 B/(W)
--------- --------- --------- ---------
Revenues
Company sales $1,998 $1,848 8 $4,818 $4,684 3
Franchise fees and income 40 35 14 98 90 9
--- --- --- ---
Total revenues 2,038 1,883 8 4,916 4,774 3
----- ----- ----- -----
Costs and Expenses, Net
Company restaurants
Food and paper 575 514 (12) 1,373 1,361 (1)
Payroll and employee benefits 403 376 (7) 1,018 963 (6)
Occupancy and other operating expenses 622 602 (3) 1,501 1,562 4
--- --- ----- -----
Company restaurant expenses 1,600 1,492 (7) 3,892 3,886 -
General and administrative expenses 120 101 (18) 294 271 (8)
Franchise expenses 20 20 (2) 48 51 6
Closures and impairment expenses, net 3 5 43 20 36 46
Refranchising gain, net - (4) (87) (2) (8) (74)
Other income, net (22) (17) 25 (50) (44) 14
--- --- --- ---
Total costs and expenses, net 1,721 1,597 (8) 4,202 4,192 -
----- ----- ----- -----
Operating Profit 317 286 11 714 582 23
Interest income, net 6 3 NM 13 7 77
Income Before Income Taxes 323 289 12 727 589 23
Income tax provision (102) (87) (19) (213) (165) (29)
---- --- ---- ----
Net income - including noncontrolling interests 221 202 9 514 424 21
Net income - noncontrolling interests 10 10 6 21 10 NM
--- --- --- ---
Net Income - Yum China Holdings, Inc. $211 $192 9 $493 $414 19
==== ==== ==== ====
Effective tax rate 31.7% 29.8% (1.9) ppts. 29.3% 28.0% (1.3) ppts.
==== ==== ==== ====
Basic Earnings Per Common Share $0.55 $0.53 4 $1.28 $1.14 12
===== ===== ===== =====
Weighted average shares outstanding 385,836,842 363,758,219 NM 387,028,586 363,758,219 NM
=========== =========== =========== ===========
Diluted Earnings Per Common Share $0.53 $0.53 - $1.24 $1.14 9
===== ===== ===== =====
Weighted average shares outstanding 398,497,353 363,758,219 NM 397,385,512 363,758,219 NM
=========== =========== =========== ===========
Company sales 100.0% 100.0% 100.0% 100.0%
Food and paper 28.8 27.8 (1.0) ppts. 28.5 29.1 0.6 ppts.
Payroll and employee benefits 20.1 20.4 0.3 ppts. 21.1 20.6 (0.5) ppts.
Occupancy and other operating expenses 31.1 32.6 1.5 ppts. 31.1 33.3 2.2 ppts.
---- ---- ---- ----
Restaurant margin 20.0% 19.2% 0.8 ppts. 19.3% 17.0% 2.3 ppts.
==== ==== ==== ====
Operating margin 15.9% 15.5% 0.4 ppts. 14.8% 12.4% 2.4 ppts.
==== ==== ==== ====
Percentages may not recompute due to rounding.
Yum China Holdings, Inc.
KFC Operating Results
(amounts in US$ million)
(unaudited)
Quarter ended % Change Year to date ended % Change
------------- ------------------
8/31/2017 8/31/2016 B/(W) 8/31/2017 8/31/2016 B/(W)
--------- --------- ----- --------- --------- -----
Revenues
Company sales $1,385 $1,263 10 $3,342 $3,238 3
Franchise fees and income 38 34 13 93 87 7
--- --- --- ---
Total revenues 1,423 1,297 10 3,435 3,325 3
----- ----- ----- -----
Costs and Expenses, Net
Company restaurants
Food and paper 408 365 (11) 989 970 (2)
Payroll and employee benefits 263 243 (8) 666 625 (7)
Occupancy and other operating expenses 422 405 (4) 1,016 1,054 4
--- --- ----- -----
Company restaurant expenses 1,093 1,013 (8) 2,671 2,649 (1)
General and administrative expenses 42 39 (7) 106 101 (6)
Franchise expenses 19 19 (1) 46 50 7
Closures and impairment expenses, net 1 4 40 10 25 58
Other income, net (18) (16) 14 (45) (38) 18
--- --- --- ---
Total costs and expenses, net 1,137 1,059 (7) 2,788 2,787 -
----- ----- ----- -----
Operating Profit $286 $238 20 $647 $538 20
==== ==== ==== ====
Company sales 100.0% 100.0% 100.0% 100.0%
Food and paper 29.5 29.0 (0.5) ppts. 29.6 30.0 0.4 ppts.
Payroll and employee benefits 19.0 19.2 0.2 ppts. 19.9 19.3 (0.6) ppts.
Occupancy and other operating expenses 30.4 32.1 1.7 ppts. 30.4 32.5 2.1 ppts.
---- ---- ---- ----
Restaurant margin 21.1% 19.7% 1.4 ppts. 20.1% 18.2% 1.9 ppts.
==== ==== ==== ====
Operating margin 20.7% 18.8% 1.8 ppts. 19.3% 16.6% 2.7 ppts.
==== ==== ==== ====
Percentages may not recompute due to rounding.
Yum China Holdings, Inc.
Pizza Hut Operating Results
(amounts in US$ million)
(unaudited)
Quarter ended % Change Year to date ended % Change
------------- ------------------
8/31/2017 8/31/2016 B/(W) 8/31/2017 8/31/2016 B/(W)
--------- --------- ----- --------- --------- -----
Revenues
Company sales $603 $573 5 $1,449 $1,405 3
Franchise fees and income 1 1 37 2 2 31
--- --- --- ---
Total revenues 604 574 5 1,451 1,407 3
--- --- ----- -----
Costs and Expenses, Net
Company restaurants
Food and paper 164 144 (15) 376 376 -
Payroll and employee benefits 134 129 (3) 341 326 (4)
Occupancy and other operating expenses 197 192 (2) 476 493 3
--- --- --- ---
Company restaurant expenses 495 465 (6) 1,193 1,195 -
General and administrative expenses 27 25 (4) 70 68 (1)
Franchise expenses 1 1 (6) 2 1 (10)
Closures and impairment expenses, net 1 1 54 9 11 23
Total costs and expenses, net 524 492 (6) 1,274 1,275 -
--- --- ----- -----
Operating Profit $80 $82 - $177 $132 37
=== === ==== ====
Company sales 100.0% 100.0% 100.0% 100.0%
Food and paper 27.3 25.1 (2.2) ppts. 26.0 26.8 0.8 ppts.
Payroll and employee benefits 22.2 22.6 0.4 ppts. 23.5 23.2 (0.3) ppts.
Occupancy and other operating expenses 32.7 33.6 0.9 ppts. 32.9 35.1 2.2 ppts.
---- ---- ---- ----
Restaurant margin 17.8% 18.7% (0.9) ppts. 17.6% 14.9% 2.7 ppts.
==== ==== ==== ====
Operating margin 13.3% 13.9% (0.7) ppts. 12.3% 9.3% 3.0 ppts.
==== ==== ==== ===
Percentages may not recompute due to rounding.
Yum China Holdings, Inc.
Condensed Consolidated Balance Sheets
(amounts in US$ million, except for number of shares)
8/31/2017 12/31/2016
--------- ----------
ASSETS (Unaudited)
Current Assets
Cash and cash equivalents $1,477 $885
Short-term investments 91 79
Accounts receivable, net 81 74
Inventories, net 246 268
Prepaid expenses and other current assets 159 120
--- ---
Total Current Assets 2,054 1,426
Property, plant and equipment, net 1,652 1,647
Goodwill 107 79
Intangible assets, net 104 88
Investments in unconsolidated affiliates 74 71
Other assets 301 254
Deferred income taxes 168 162
--- ---
Total Assets 4,460 3,727
===== =====
LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND EQUITY
Current Liabilities
Accounts payable and other current liabilities 1,120 971
Income taxes payable 92 33
--- ---
Total Current Liabilities 1,212 1,004
Capital lease obligations 28 28
Other liabilities and deferred credits 274 252
--- ---
Total Liabilities 1,514 1,284
----- -----
Redeemable Noncontrolling Interest 5 -
Equity
Common stock, $0.01 par value; 1,000,000,000 shares authorized; 4 4
388,196,025.42 shares and 383,344,835.42 shares issued at August 31, 2017
and December 31, 2016, respectively; 384,055,643 shares and 383,344,835.42 shares
outstanding at August 31, 2017 and December 31, 2016, respectively
Treasury stock (148) (20)
Additional paid-in capital 2,373 2,352
Retained earnings 533 40
Accumulated other comprehensive income 109 1
--- ---
Total Equity - Yum China Holdings, Inc. 2,871 2,377
Noncontrolling interests 70 66
--- ---
Total Equity 2,941 2,443
----- -----
Total Liabilities, Redeemable Noncontrolling Interest and Equity $4,460 $3,727
====== ======
Yum China Holdings, Inc.
Condensed Consolidated and Combined Statements of Cash Flows
(amounts in US$ million)
(unaudited)
Year to date ended
------------------
8/31/2017 8/31/2016
--------- ---------
Cash Flows - Operating Activities
Net income - including noncontrolling interests $514 $424
Depreciation and amortization 265 272
Closures and impairment expenses 20 36
Refranchising gain (2) (8)
Deferred income taxes (3) (26)
Equity income from investments in unconsolidated affiliates (51) (44)
Distributions of income received from unconsolidated affiliates 36 18
Share-based compensation expense 16 9
Changes in accounts receivable (2) (37)
Changes in inventories 35 (35)
Changes in prepaid expenses and other current assets (7) 34
Changes in accounts payable and other current liabilities 132 149
Changes in income taxes payable 57 54
Other, net (23) (22)
--- ---
Net Cash Provided by Operating Activities 987 824
--- ---
Cash Flows - Investing Activities
Capital spending (262) (268)
Purchase of short-term investments (318) (53)
Maturities of short-term investments 312 53
Proceeds from refranchising of restaurants 3 19
Proceeds from disposal of aircraft - 19
Acquisition of business, net of cash acquired (25) -
Other, net (4) (2)
--- ---
Net Cash Used in Investing Activities (294) (232)
---- ----
Cash Flows - Financing Activities
Net transfers to Parent - (243)
Payment of capital lease obligations (2) (3)
Repurchase of shares of common stock (128) -
Employee stock option proceeds 5 -
Other, net (17) (3)
--- ---
Net Cash Used in Financing Activities (142) (249)
---- ----
Effect of Exchange Rates on Cash and Cash Equivalents 41 (18)
--- ---
Net Increase in Cash and Cash Equivalents 592 325
Cash and Cash Equivalents - Beginning of Period 885 425
--- ---
Cash and Cash Equivalents - End of Period $1,477 $750
====== ====
Reconciliation of Reported Results to Non-GAAP Measures
(amounts in US$ million)
(unaudited)
In this press release:
-- The Company provides certain percentage changes excluding the impact of
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 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 Condensed
Consolidated and Combined Summary of Results; 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.
-- Same-store sales growth is the estimated percentage change in sales of
all restaurants that have been open and in the Company system one year
or more.
-- Company Restaurant profit ("Restaurant profit") is defined as Company
sales less expenses incurred directly by our Company-owned restaurants
in generating Company sales. Company restaurant margin percentage is
defined as Restaurant profit divided by Company sales.
In addition to the results provided in accordance with US Generally Accepted Accounting Principles ("GAAP") in this press release, the Company provides non-GAAP measures which present Operating Profit before Special Items, Diluted Earnings Per Common Share before Special Items, Effective tax rate before Special Items and Adjusted EBITDA, which we define as net income including noncontrolling interests adjusted for income tax, interest income, depreciation, amortization and other items, including store impairment charges. Special Items consist of reversal of loss associated with sale of the aircraft, income from the reversal of contingent consideration previously recorded for a business combination and impact of the redemption of the Little Sheep noncontrolling interest which are described in (a), (b), (c) and (d) 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. These non-GAAP 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 non-GAAP measures provides additional information to investors to facilitate the comparison of past and present results, excluding those items that we do not believe are indicative of our ongoing operations due to their nature. These non-GAAP measures should not be considered in isolation or as a substitute for GAAP financial results, but should be read in conjunction with the unaudited Condensed Consolidated and Combined Summary of Results and other information presented herein. A reconciliation of these non-GAAP measures to the most directly comparable GAAP measures follows.
Reconciliation of Reported Results to Non-GAAP Measures (continued)
(amounts in US$ million)
(unaudited)
Quarter ended Year to date ended
------------- ------------------
Detail of Special Items 8/31/2017 8/31/2016 8/31/2017 8/31/2016
----------------------- --------- --------- --------- ---------
Reversal of loss associated with sale of aircraft(a) $ - $3 $ - $2
Income from the reversal of contingent consideration(b) 3 - 3 -
--- --- --- ---
Special Items Income - Operating Profit 3 3 3 2
Tax Expense on Special Items(c) - (1) - (1)
--- --- --- ---
Special Items Income, net of tax 3 2 3 1
- including noncontrolling interests
Special Items Income, net of tax of nil - - - (8)
- noncontrolling interests(d)
Special Items Income, net of tax of nil $3 $2 $3 $9
- Yum China Holdings, Inc.
Weighted average diluted shares outstanding 398,497,353 363,758,219 397,385,512 363,758,219
Special Items Diluted Earnings Per Common Share $0.01 $0.01 $0.01 $0.03
Reconciliation of Reported Operating Profit to
Operating Profit Before Special Items
Reported Operating Profit $317 $286 $714 $582
Special Items Income - Operating Profit 3 3 3 2
--- --- --- ---
Operating Profit before Special Items $314 $283 $711 $580
==== ==== ==== ====
Reconciliation of Reported EPS to EPS Before
Special Items
Reported Diluted Earnings Per Common Share $0.53 $0.53 $1.24 $1.14
Special Items Diluted Earnings Per Common Share 0.01 0.01 0.01 0.03
---- ---- ---- ----
Diluted Earnings Per Common Share before Special Items $0.52 $0.52 $1.23 $1.11
===== ===== ===== =====
Reconciliation of Reported Effective Tax Rate to
Effective Tax Rate Before Special Items
Reported effective tax rate 31.7% 29.8% 29.3% 28.0%
Impact on tax rate as a result of Special Items(c) (0.3)% (0.1)% (0.1)% (-) %
----- ----- ----- --- ---
Effective tax rate before Special Items 32.0% 29.9% 29.4% 28.0%
==== ==== ==== ====
(a) During the quarter ended August 31, 2016, we completed the sale of a corporate aircraft and recorded the reversal of a portion of the loss previously recognized within Special Items in 2015 to reflect the final proceeds of the sale.
(b) During the quarter ended August 31, 2017, we recognized income from the reversal of contingent consideration previously recorded for a business combination as the likelihood of making payment becomes remote.
(c) The tax expense was determined based upon the nature, as well as the jurisdiction, of each Special Item at the applicable tax rate.
(d) During the quarter ended May 31, 2016, the Little Sheep founding shareholders sold their remaining 7% Little Sheep ownership interest to the Company pursuant to their redemption rights. The difference between the purchase price of less than $1 million, which was determined using a non-fair value based formula pursuant to the agreement governing the redemption rights, and the carrying
value of their redeemable noncontrolling interests was recorded as an $8 million loss attributable to noncontrolling interests.
Reconciliation of Net Income to Adjusted EBITDA
(amounts in US$ million)
(unaudited)
Net income, along with the reconciliation to Adjusted EBITDA, is presented below.
Quarter ended Year to date ended
------------- ------------------
8/31/2017 8/31/2016 8/31/2017 8/31/2016
--------- --------- --------- ---------
Reconciliation of Net Income to Adjusted EBITDA
-----------------------------------------------
Net income - noncontrolling interests $10 $10 $21 $10
Net Income - Yum China Holdings, Inc. 211 192 493 414
Income tax provision 102 87 213 165
Interest income, net (6) (3) (13) (7)
Operating Profit 317 286 714 582
Depreciation and amortization 105 101 265 272
Store impairment charges 6 6 28 43
Special Items Income - Operating Profit (3) (3) (3) (2)
--- --- --- ---
Adjusted EBITDA $425 $390 $1,004 $895
==== ==== ====== ====
Yum China Holdings, Inc.
Segment Results
(amounts in US$ million)
(unaudited)
Quarter Ended 8/31/2017 KFC Pizza Hut Others Corporate Total
and
Unallocated
-----------
Total revenues $1,423 $604 $11 $ - $2,038
------ ---- --- --- --- ------
Company restaurant expenses 1,093 495 12 - 1,600
General and administrative expenses 42 27 6 45 120
Franchise expenses 19 1 - - 20
Closures and impairment expenses, net 1 1 1 - 3
Other income, net (18) - - (4) (22)
--- --- --- --- ---
1,137 524 19 41 1,721
----- --- --- --- -----
Operating Profit (Loss) $286 $80 $(8) $(41) $317
==== === === ==== ====
Quarter Ended 8/31/2016 KFC Pizza Hut Others Corporate Total
and
Unallocated
-----------
Total revenues $1,297 $574 $12 $ - $1,883
------ ---- --- --- --- ------
Company restaurant expenses 1,013 465 15 (1) 1,492
General and administrative expenses 39 25 2 35 101
Franchise expenses 19 1 - - 20
Closures and impairment expenses, net 4 1 - - 5
Refranchising gain, net - - - (4) (4)
Other income, net (16) - - (1) (17)
--- --- --- --- ---
1,059 492 17 29 1,597
----- --- --- --- -----
Operating Profit (Loss) $238 $82 $(5) $(29) $286
==== === === ==== ====
The above tables reconcile segment information with our Condensed Consolidated and Combined Summary of Results. Corporate and unallocated expenses comprise items that are not allocated to segments for performance reporting purposes.
The Corporate and Unallocated column in the above tables includes, among other amounts, all amounts that we have deemed Special Items. See Reconciliation of Reported Results to Non-GAAP Measures.
Yum China Holdings, Inc.
Segment Results
(amounts in US$ million)
(unaudited)
Year to date ended 8/31/2017 KFC Pizza Hut Others Corporate Total
and
Unallocated
-----------
Total revenues $3,435 $1,451 $30 $ - $4,916
------ ------ --- --- --- ------
Company restaurant expenses 2,671 1,193 28 - 3,892
General and administrative expenses 106 70 10 108 294
Franchise expenses 46 2 - - 48
Closures and impairment expenses, net 10 9 1 - 20
Refranchising gain, net - - - (2) (2)
Other income, net (45) - (1) (4) (50)
--- --- --- --- ---
2,788 1,274 38 102 4,202
----- ----- --- --- -----
Operating Profit (Loss) $647 $177 $(8) $(102) $714
---- ---- --- ----- ----
Year to date ended 8/31/2016 KFC Pizza Hut Others Corporate Total
and
Unallocated
-----------
Total revenues $3,325 $1,407 $42 $ - $4,774
------ ------ --- --- --- ------
Company restaurant expenses 2,649 1,195 43 (1) 3,886
General and administrative expenses 101 68 6 96 271
Franchise expenses 50 1 - - 51
Closures and impairment expenses, net 25 11 - - 36
Refranchising gain, net - - - (8) (8)
Other income, net (38) - (1) (5) (44)
--- --- --- --- ---
2,787 1,275 48 82 4,192
----- ----- --- --- -----
Operating Profit (Loss) $538 $132 $(6) $(82) $582
==== ==== === ==== ====
The above tables reconcile segment information with our Condensed Consolidated and Combined Summary of Results. Corporate and unallocated expenses comprise items that are not allocated to segments for performance reporting purposes.
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 Results to Non-GAAP Measures.
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SOURCE Yum China Holdings, Inc
