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4-Traders Homepage  >  Equities  >  Nyse  >  Yum China Holdings Inc    YUMC

YUM CHINA HOLDINGS INC (YUMC)
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Yum China : Reports 6% Same-Store Sales Growth and 10% System Sales Growth; Operating Profit Up 11% YoY; Board Declares Initial Dividend and Expands Share Repurchase Authorization

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10/05/2017 | 10:31pm CET

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.

View original content:http://www.prnewswire.com/news-releases/yum-china-reports-6-same-store-sales-growth-and-10-system-sales-growth-operating-profit-up-11-yoy-board-declares-initial-dividend-and-expands-share-repurchase-authorization-300531621.html

SOURCE Yum China Holdings, Inc


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