Yum China Holdings Inc

Previous wording

Yum China Holdings, Inc. is the largest restaurant company in China in terms of 2023 system sales, with 15,423 restaurants covering over 2,100 cities primarily in China as of June 30, 2024. Our growing restaurant network consists of our flagship KFC and Pizza Hut brands, as well as emerging brands such as Lavazza, Huang Ji Huang, Little Sheep and Taco Bell. We have the exclusive right to operate and sublicense the KFC, Pizza Hut and, subject to achieving certain agreed-upon milestones, Taco Bell brands in China (excluding Hong Kong, Macau and Taiwan), and own the intellectual property of the Little Sheep and Huang Ji Huang concepts outright. We also established a joint venture with Lavazza Group, the world-renowned family-owned Italian coffee company, to explore and develop the Lavazza coffee concept in China. KFC was the first major global restaurant brand to enter China in 1987. With more than 35 years of operations, we have developed extensive operating experience in the China market. We have since grown to become the largest restaurant company in China in terms of 2023 system sales. We believe that there are significant opportunities to further expand within China, and we intend to focus our efforts on increasing our geographic footprint in both existing and new cities.

Current wording

Yum China Holdings, Inc. is the largest restaurant company in China in terms of 2023 system sales, with 15,861 restaurants covering around 2,200 cities primarily in China as of September 30, 2024. Our growing restaurant network consists of our flagship KFC and Pizza Hut brands, as well as emerging brands such as Lavazza, Huang Ji Huang, Little Sheep and Taco Bell. We have the exclusive right to operate and sublicense the KFC, Pizza Hut and, subject to achieving certain agreed-upon milestones, Taco Bell brands in China (excluding Hong Kong, Macau and Taiwan), and own the intellectual property of the Little Sheep and Huang Ji Huang concepts outright. We also established a joint venture with Lavazza Group, the world-renowned family-owned Italian coffee company, to explore and develop the Lavazza coffee concept in China. KFC was the first major global restaurant brand to enter China in 1987. With more than 35 years of operations, we have developed extensive operating experience in the China market. We believe that there are significant opportunities to further expand within China, and we intend to focus our efforts on increasing our geographic footprint in both existing and new cities.

Previous wording

KFC is the leading and the largest quick-service restaurant (“QSR”) brand in China in terms of system sales. As of June 30, 2024, KFC operated 10,931 restaurants in over 2,100 cities across China.

Current wording

KFC is the leading and the largest quick-service restaurant (“QSR”) brand in China in terms of system sales. As of September 30, 2024, KFC operated 11,283 restaurants in around 2,200 cities across China.

Previous wording

Pizza Hut is the leading and the largest casual dining restaurant (“CDR”) brand in China in terms of system sales and number of restaurants. As of June 30, 2024, Pizza Hut operated 3,504 restaurants in over 770 cities.

Current wording

Pizza Hut is the leading and the largest casual dining restaurant (“CDR”) brand in China in terms of system sales and number of restaurants. As of September 30, 2024, Pizza Hut operated 3,606 restaurants in over 800 cities.

Previous wording

As compared to the second quarter of 2023, Total revenues in the second quarter of 2024 increased 1%, or 4% excluding the impact of F/X. Total revenues for the year to date ended June 30, 2024 increased 1%, or 5% excluding the impact of F/X. The increase in Total revenues for the quarter and year to date ended June 30, 2024, excluding the impact of F/X, was driven by 8% net new unit contribution, partially offset by same-store sales decline, resulting from lower ticket average and same-store transaction growth.

Current wording

As compared to the third quarter of 2023, Total revenues in the third quarter of 2024 increased 5%, or 4% excluding the impact of F/X. Total revenues for the year to date ended September 30, 2024 increased 3%, or 5% excluding the impact of F/X. The increase in Total revenues for the quarter and year to date ended September 30, 2024, excluding the impact of F/X, was driven by 7% and 8% net new unit contribution, respectively, partially offset by same-store sales decline, resulting from lower ticket average and same-store transaction growth.

Previous wording

Operating profit for the second quarter increased 4%, or 7% excluding the impact of F/X. Operating profit for the year to date ended June 30, 2024 decreased 5%, or remained flat excluding the impact of F/X. Further excluding the lapping impact from the temporary relief from landlords and government agencies and VAT deductions received in prior year, Operating profit for the quarter and year to date ended June 30, 2024 both increased, primarily driven by the increase in Total revenues, operational efficiency improvement, favorable commodity prices, lower advertising expenses and lower performance-based compensation costs, offset by increased value-for-money offerings and wage inflation in the low single digits.

Current wording

Operating profit for the third quarter increased 15%, or 14% excluding the impact of F/X. Operating profit for the year to date ended September 30, 2024 increased 1%, or 5% excluding the impact of F/X. Further excluding the lapping impact from the VAT deductions and temporary relief from landlords and government agencies received in prior year, the increase in Operating profit for the quarter and year to date ended September 30, 2024 was primarily driven by the increase in Total revenues, operational efficiency improvement, favorable commodity prices, lower advertising expenses and lower performance-based compensation costs, offset by increased value-for-money offerings and wage inflation in the low single digits.

Previous wording

Reconciliation of GAAP Operating Profit to Restaurant Profit

Current wording

Reconciliation of GAAP Operating Profit to Restaurant Profit is as follows:

Previous wording

Reconciliation of GAAP Operating Profit to Core Operating Profit

Current wording

Reconciliation of GAAP Operating Profit to Core Operating Profit is as follows:

Previous wording

The increase in Company sales for the year to date ended June 30, 2024, excluding the impact of F/X, was primarily driven by net unit growth, partially offset by same-store sales decline. Restaurant profit decreased for the year to date, excluding the impact of F/X. Further excluding the lapping impact from the temporary relief from landlords and government agencies and VAT deductions received in prior year, Restaurant profit decreased for the year to date, primarily driven by increased value-for-money offerings and wage inflation in the low single digits, offset by the increase in Company sales, favorable commodity prices, operational efficiency improvement and lower advertising expenses.

Current wording

The increase in Company sales for the year to date ended September 30, 2024, excluding the impact of F/X, was primarily driven by net unit growth, partially offset by same-store sales decline. Restaurant profit decreased for the year to date, excluding the impact of F/X. Further excluding the lapping impact from the VAT deductions and temporary relief from landlords and government agencies received in prior year, Restaurant profit increased for the year to date, primarily driven by the increase in Company sales, favorable commodity prices, operational efficiency improvement and lower advertising expenses, offset by increased value-for-money offerings and wage inflation in the low single digits.

Previous wording

The quarter and year to date increase in Franchise fees and income and Revenues from transactions with franchisees, excluding the impact of F/X, was primarily driven by net unit growth.

Current wording

The quarter and year to date increase in Franchise fees and income and Revenues from transactions with franchisees, excluding the impact of F/X, was primarily driven by acceleration of franchise store openings.

Previous wording

The increase in Company sales for the year to date ended June 30, 2024, excluding the impact of F/X, was primarily driven by net unit growth, partially offset by same-store sales decline. Restaurant profit decreased for the year to date, excluding the impact of F/X. Further excluding the lapping impact from the temporary relief from landlords and government agencies and VAT deductions received in prior year, Restaurant profit increased for the year to date, primarily driven by the increase in Company sales, operational efficiency improvement, lower advertising expenses, lower performance-based compensation and favorable commodity prices, offset by increased value-for-money offerings and wage inflation in the low single digits.

Current wording

The increase in Company sales for the year to date ended September 30, 2024, excluding the impact of F/X, was primarily driven by net unit growth, partially offset by same-store sales decline. Restaurant profit remained flat for the year to date, excluding the impact of F/X. Further excluding the lapping impact from the VAT deductions and temporary relief from landlords and government agencies received in prior year, Restaurant profit increased for the year to date, primarily driven by the increase in Company sales, operational efficiency improvement, favorable commodity prices, lower advertising expenses and lower performance-based compensation, offset by increased value-for-money offerings and wage inflation in the low single digits.

Previous wording

The year to date increase in Operating profit, excluding the impact of F/X, was primarily driven by lower G&A expenses, partially offset by the decrease in Restaurant profit.

Current wording

The year to date increase in Operating profit, excluding the impact of F/X, was primarily driven by lower G&A expenses.

Previous wording

Excluding the impact of F/X, Total revenues of All other segments for the quarter remained flat and increased for the year to date ended June 30, 2024, primarily driven by inter-segment revenue generated by our delivery team for services provided to Company-owned restaurants as a result of increased delivery sales, partially offset by same-store sales decline.

Current wording

The quarter and year to date increase in Total revenues of All other segments, excluding the impact of F/X, was primarily driven by inter-segment revenue generated by our delivery team for services provided to Company-owned restaurants as a result of increased delivery sales, partially offset by same-store sales decline.

Previous wording

Revenues from transactions with franchisees primarily include revenues derived from the Company’s central procurement model, whereby food and paper products are centrally purchased and then mainly sold to KFC and Pizza Hut franchisees. The quarter and year to date increase, excluding the impact of F/X, was mainly due to the increase in system sales for franchisees.

Current wording

Revenues from transactions with franchisees primarily include revenues derived from the Company’s central procurement model, whereby food and paper products are centrally purchased and then mainly sold to KFC and Pizza Hut franchisees. The quarter and year to date increase, excluding the impact of F/X, was mainly due to the increase in system sales for franchisees primarily driven by acceleration of franchise store openings.

Previous wording

The quarter and year to date decrease in Corporate G&A expenses, excluding the impact of F/X, was primarily due to lower performance-based compensation costs.

Current wording

The quarter and year to date decrease in Corporate G&A expenses, excluding the impact of F/X, was primarily due to lower performance-based compensation costs and improvement in operational efficiency.

Previous wording

Our income tax provision primarily includes tax on our earnings generally at the Chinese statutory tax rate of 25% with certain Chinese subsidiaries qualified for preferential tax rates, withholding tax on planned or actual repatriation of earnings outside of China, Hong Kong profits tax, and U.S. corporate income tax, if any. The higher effective tax rate for the quarter ended June 30, 2024 was primarily due to less benefits from preferential tax rates at qualified subsidiaries recognized in the second quarter of 2024. The lower effective tax rate for the year to date ended June 30, 2024 was primarily due to the favorable impact from the reduction of certain non-deductible items and the impact from fair value change of our investment in Meituan.

Current wording

Our income tax provision primarily includes tax on our earnings generally at the Chinese statutory tax rate of 25% with certain Chinese subsidiaries qualified for preferential tax rates, withholding tax on planned or actual repatriation of earnings outside of China, Hong Kong profits tax, and U.S. corporate income tax, if any. The lower effective tax rate for the quarter ended September 30, 2024 was primarily due to the impact from fair value change of our investment in Meituan. The lower effective tax rate for the year to date ended September 30, 2024 was primarily due to the favorable impact from the reduction of certain non-deductible items and the impact from fair value change of our investment in Meituan.

Previous wording

As of June 30, 2024, VAT assets of $99 million, VAT assets of $8 million and net VAT payable of $13 million were recorded in Prepaid expenses and other current assets, Other assets and Accounts payable and other current liabilities, respectively, in the Condensed Consolidated Balance Sheets.

Current wording

As of September 30, 2024, VAT assets of $110 million, VAT assets of $7 million and net VAT payable of $7 million were recorded in Prepaid expenses and other current assets, Other assets and Accounts payable and other current liabilities, respectively, in the Condensed Consolidated Balance Sheets.

Previous wording

Pursuant to Circular [2019] No. 39, Circular [2019] No. 87 and Circular [2022] No. 11 jointly issued by relevant government authorities, including the MOF and the STA, from April 1, 2019 to December 31, 2022, general VAT taxpayers in certain industries that meet certain criteria were allowed to claim an additional 10% or 15% input VAT, which were used to offset their VAT payables. Pursuant to Circular [2023] No. 1 jointly issued by the MOF and the STA in January 2023, such VAT policy was further extended to December 31, 2023 but the additional deduction was reduced to 5% or 10% respectively. Accordingly, we recognized such VAT deductions of $28 million in the year to date ended June 30, 2023. The VAT deductions were recorded as a reduction to the related expense item, primarily in Company restaurant expenses included in the Condensed Consolidated Statements of Income. Such preferential VAT policy was not extended in 2024.

Current wording

Pursuant to Circular [2019] No. 39, Circular [2019] No. 87 and Circular [2022] No. 11 jointly issued by relevant government authorities, including the MOF and the STA, from April 1, 2019 to December 31, 2022, general VAT taxpayers in certain industries that meet certain criteria were allowed to claim an additional 10% or 15% input VAT, which were used to offset their VAT payables. Pursuant to Circular [2023] No. 1 jointly issued by the MOF and the STA in January 2023, such VAT policy was further extended to December 31, 2023 but the additional deduction was reduced to 5% or 10% respectively. Accordingly, we recognized such VAT deductions of $42 million in the year to date ended September 30, 2023. The VAT deductions were recorded as a reduction to the related expense item, primarily in Company restaurant expenses included in the Condensed Consolidated Statements of Income. Such preferential VAT policy was not extended in 2024.

Previous wording

Net cash provided by operating activities was $843 million in 2024 as compared to $924 million in 2023. The decrease was primarily driven by working capital changes.

Current wording

Net cash provided by operating activities was $1,252 million in 2024 as compared to $1,334 million in 2023. The decrease was primarily driven by working capital changes.

Previous wording

Net cash used in investing activities was $132 million in 2024 as compared to $598 million in 2023. The decrease was mainly due to less purchase of short-term investments, and long-term bank deposits and notes.

Current wording

Net cash used in investing activities was $28 million in 2024 as compared to $1,052 million in 2023. The decrease was mainly due to the net impact on cash flows resulting from purchases and maturities of short-term investments, and long-term bank deposits and notes.

Previous wording

Net cash used in financing activities was $785 million in 2024 as compared to $230 million in 2023. The increase was primarily driven by the increase in share repurchases, partially offset by the net proceeds from short-term bank borrowings.

Current wording

Net cash used in financing activities was $1,159 million in 2024 as compared to $240 million in 2023. The increase was primarily driven by the increase in share repurchases and repayment of short-term bank borrowings.

Previous wording

On November 2, 2023, our Board of Directors increased the share repurchase authorization by $1 billion to an aggregate of $3.4 billion. Yum China may repurchase shares under this program from time to time in the open market or, subject to applicable regulatory requirements, through privately negotiated transactions, block trades, accelerated share repurchase transactions and the use of Rule 10b5-1 trading plans. During the years to date ended June 30, 2024 and 2023, the Company repurchased 21.7 million shares of common stock for $868 million and 2.1 million shares of common stock for $124 million, respectively, under the repurchase program.

Current wording

On November 4, 2024, the Board of Directors further increased the Company’s share repurchase authorization by $1 billion, bringing total authorization since 2017 to $4.4 billion. With the increase of share repurchase authorization, approximately $1.4 billion remained available for future share repurchases under the authorization. Yum China may repurchase shares under the authorization from time to time in the open market or, subject to applicable regulatory requirements, through privately negotiated transactions, block trades, accelerated share repurchase transactions and the use of Rule 10b5-1 trading plans.

Previous wording

For the quarters ended June 30, 2024 and 2023, the Company paid cash dividends of approximately $62 million and $54 million, respectively, and for the years to date ended June 30, 2024 and 2023, the Company paid aggregate cash dividends of approximately $126 million and $108 million, respectively, to stockholders through a quarterly dividend payment of $0.16 and $0.13 per share, respectively.

Current wording

For the quarters ended September 30, 2024 and 2023, the Company paid cash dividends of approximately $61 million and $54 million, respectively, and for the years to date ended September 30, 2024 and 2023, the Company paid aggregate cash dividends of approximately $187 million and $162 million, respectively, to stockholders through a quarterly dividend payment of $0.16 and $0.13 per share, respectively.

Previous wording

Our ability to declare and pay any dividends on our stock may be restricted by our earnings available for distribution under applicable Chinese laws. The laws, rules and regulations applicable to our Chinese subsidiaries permit payments of dividends only out of their accumulated profits, if any, determined in accordance with applicable Chinese accounting standards and regulations. Under Chinese laws, an enterprise incorporated in China is required to set aside at least 10% of its after-tax profits each year, after making up previous years’ accumulated losses, if any, to fund certain statutory reserve funds, until the aggregate amount of such a fund reaches 50% of its registered capital. As a result, our Chinese subsidiaries are restricted in their ability to transfer a portion of their net assets to us in the form of dividends. At the discretion of the board of directors, as an enterprise incorporated in China, each of our Chinese subsidiaries may allocate a portion of its after-tax profits based on Chinese accounting standards to staff welfare and bonus funds. These reserve funds and staff welfare and bonus funds are not distributable as cash dividends.

Current wording

Our capital returns plan is based on current expectations, which may change based on market conditions, capital needs or otherwise. In addition, our ability to declare and pay any dividends on our stock may be restricted by our earnings available for distribution under applicable Chinese laws. The laws, rules and regulations applicable to our Chinese subsidiaries permit payments of dividends only out of their accumulated profits, if any, determined in accordance with applicable Chinese accounting standards and regulations. Under Chinese laws, an enterprise incorporated in China is required to set aside at least 10% of its after-tax profits each year, after making up previous years’ accumulated losses, if any, to fund certain statutory reserve funds, until the aggregate amount of such a fund reaches 50% of its registered capital. As a result, our Chinese subsidiaries are restricted in their ability to transfer a portion of their net assets to us in the form of dividends. At the discretion of the board of directors, as an enterprise incorporated in China, each of our Chinese subsidiaries may allocate a portion of its after-tax profits based on Chinese accounting standards to staff welfare and bonus funds. These reserve funds and staff welfare and bonus funds are not distributable as cash dividends.

Previous wording

As of June 30, 2024, the Company had credit facilities of RMB8,080 million (approximately $1,112 million), comprised of onshore credit facilities in the aggregate amount of RMB5,900 million (approximately $812 million), offshore credit facilities in the aggregate amount of $100 million and a credit facility of $200 million that can be used for either onshore or offshore.

Current wording

As of September 30, 2024, the Company had credit facilities of RMB8,006 million (approximately $1,141 million), comprised of onshore credit facilities in the aggregate amount of RMB5,900 million (approximately $841 million), offshore credit facilities in the aggregate amount of $100 million and a credit facility of $200 million that can be used for either onshore or offshore.

Previous wording

The credit facilities had remaining terms ranging from less than one year to three years as of June 30, 2024. Our credit facilities mainly include term loans, overdrafts, letters of credit, banker’s acceptance notes and bank guarantees. The credit facilities in general bear interest based on the Loan Prime Rate (“LPR”) published by the National Interbank Funding Centre of the PRC, or Secured Overnight Financing Rate (“SOFR”) published by the Federal Reserve Bank of New York. Each credit facility contains a cross-default provision whereby our failure to make any payment on a principal amount from any credit facility will constitute a default on other credit facilities. Some of the credit facilities contain covenants limiting, among other things, certain additional indebtedness and liens, and certain other transactions specified in the respective agreements. As of June 30, 2024, we had outstanding short-term bank borrowings of RMB3,025 million (approximately $416 million), mainly to manage working capital at our operating subsidiaries. Such bank borrowings were secured by $57 million short-term investments, and are due within one year from their issuance dates. As of June 30, 2024, we also had outstanding bank guarantees of RMB239 million (approximately $33 million) mainly to secure our lease payments to landlords for certain Company-owned restaurants. Our credit facilities were therefore reduced by outstanding short-term bank borrowings, adjusted for unamortized interest and collateral, and outstanding guarantees. As of June 30, 2024, the Company had unused credit facilities of approximately $719 million.

Current wording

The credit facilities had remaining terms ranging from less than one year to three years as of September 30, 2024. Our credit facilities mainly include term loans, overdrafts, letters of credit, banker’s acceptance notes and bank guarantees. The credit facilities in general bear interest based on the Loan Prime Rate (“LPR”) published by the National Interbank Funding Centre of the PRC, or Secured Overnight Financing Rate (“SOFR”) published by the Federal Reserve Bank of New York. Each credit facility contains a cross-default provision whereby our failure to make any payment on a principal amount from any credit facility will constitute a default on other credit facilities. Some of the credit facilities contain covenants limiting, among other things, certain additional indebtedness and liens, and certain other transactions specified in the respective agreements. As of September 30, 2024, we had outstanding short-term bank borrowings of RMB2,211 million (approximately $315 million), mainly to manage working capital at our operating subsidiaries. Such bank borrowings are due within one year from their issuance dates. As of September 30, 2024, we also had outstanding bank guarantees of RMB244 million (approximately $35 million) mainly to secure our lease payments to landlords for certain Company-owned restaurants. Our credit facilities were therefore reduced by outstanding short-term bank borrowings, adjusted for unamortized interest and collateral, and outstanding guarantees. As of September 30, 2024, the Company had unused credit facilities of approximately $789 million.

Previous wording

Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. These statements often include words such as “may,” “will,” “estimate,” “intend,” “seek,” “expect,” “project,” “anticipate,” “believe,” “plan,” “could,” “target,” “aim,” “commit,” “predict,” “likely,” “should,” “forecast,” “outlook,” “model,” “continue,” “ongoing” or other similar terminology. Forward-looking statements are based on our expectations, estimates, assumptions or projections concerning future results or events as of the date of the filing of this Form 10-Q. Forward-looking statements are neither predictions nor guarantees of future events, circumstances or performance and are inherently subject to known and unknown risks, uncertainties and assumptions that could cause our actual results and events to differ materially from those indicated by those statements. We cannot assure you that any of our assumptions are correct or any of our expectations, estimates or projections will be achieved. Numerous factors could cause our actual results to differ materially from those expressed or implied by forward-looking statements, including, without limitation, the following:

Current wording

Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. These statements often include words such as “may,” “will,” “estimate,” “intend,” “seek,” “expect,” “project,” “anticipate,” “believe,” “plan,” “could,” “target,” “aim,” “commit,” “predict,” “likely,” “should,” “forecast,” “outlook,” “model,” “continue,” “ongoing” or other similar terminology. Forward-looking statements are based on our expectations, estimates, assumptions or projections concerning future results or events as of the date of the filing of this Form 10-Q. Our plan of capital returns to shareholders is based on current expectations, which may change based on market conditions, capital needs or otherwise. Forward-looking statements are neither predictions nor guarantees of future events, circumstances or performance and are inherently subject to known and unknown risks, uncertainties and assumptions that could cause our actual results and events to differ materially from those indicated by those statements. We cannot assure you that any of our assumptions are correct or any of our expectations, estimates or projections will be achieved. Numerous factors could cause our actual results to differ materially from those expressed or implied by forward-looking statements, including, without limitation, the following: