Yum China Reports Fourth Quarter and Full Year 2020 Results

Author: Yum China Holdings, Inc. / 2023-07-23 22:32 / Source: Yum China Holdings, Inc.

Yum China Reports Fourth Quarter and Full Year 2020 Results

Fourth Quarter Total Revenues grew 11%. System Sales grew 5% in constant currency

Fourth Quarter Operating Profit grew to $180 million

Opened 1,165 new stores in 2020

SHANGHAI,Feb. 4,2021 -- Yum China Holdings,Inc. (the "Company" or "Yum China") (NYSE: YUMC and HKEX: 9987) today reported unaudited results for the fourthquarter and year ended December 31,2020.

Impact of COVID-19 Outbreak and Mitigation Efforts

Fourth quarter operations improved sequentially from the third quarter. The Company's primary focus continues to be safety,efficiency and sales recovery. To counter the pandemic impact,we ran strong value and digital campaigns to drive traffic. Delivery and takeaway remained popular,while dine-in recovered sequentially. Proactive cost structure realignment,productivity improvements and one-off cost savings helped us achieve year-over-year expansion of restaurant margins and operating profit. However,the pace of recovery was uneven and non-linear,impacted by regional resurgences of COVID-19 in Qingdao,Xinjiang,Beijing,Dalian and elsewhere. October sales benefited from the National Day long holiday,but November and December sales were pressured by the regional outbreaks. Traffic at transportation hubs remained significantly below the prior year due to reduced travel.

The impact of regional resurgences has continued into the first quarter of 2021. In January,there were clusters of outbreaks,mostly in northern and northeastern China,resulting in tighter public health measures across China. There are now measures restricting travel and large gatherings,and recommendations against dining out. Several cities have been put on city-wide quarantine,including Shijiazhuang which has an 11-million population and is the capital city of Hebei province.

The Company anticipates significant headwinds in the first quarter. Our transportation and tourist locations,representing high single digits of sales mix,will likely be more significantly impacted. In the first few days of the Chinese New Year travel season,which started in late January,the number of travelers declined over 70% year-over-year. The important Chinese New Year holiday season will be subdued,with sales impacted by substantially less travel,smaller gatherings and generally reduced social activities. Our teams are closely monitoring this fluid situation and adjusting marketing programs and operations accordingly. Please also note that in 2020,COVID-related lockdowns started in late January,so they only impacted the last two months of that quarter. January 2020 sales were strong leading into Chinese New Year.

Fourth Quarter Highlights

Total revenues increased 11% year over year to $2.26 billion from $2.03 billion (a 5% increase excluding foreign currency translation ("F/X")).

Total system sales increased 5% year over year,with an increase of 3% at KFC and a decline of 3% at Pizza Hut,excluding F/X.

Same-store sales declined 4% year over year,with declines of 4% at KFC and 5% at Pizza Hut,excluding F/X.

Opened 505 new stores during the quarter.

Restaurant margin was 15.1%,compared with 12.4% in the prior year period.

Operating Profit increased 90% year over year to $180 million from $94 million (a 78% increase excluding F/X).

Adjusted Operating Profit increased 72% year over year to $182 million from $105 million (a 61% increase excluding F/X).

Effective tax rate was 28.0%.

Net Income increased 68% to $151 million from $90 million in the prior year period,primarily due to the increase in Operating Profit.

Adjusted Net Income increased 56% to $153 million from $98 million in the prior year period (a 76% increase excluding the $23 million and $24 million net gains in the fourth quarter of 2020 and 2019,respectively,from our equity investment in Meituan Dianping ("Meituan"); a 65% increase if further excluding F/X).

Diluted EPSincreased 52% to $0.35 from $0.23 in the prior year period.

Adjusted Diluted EPSincreased40% to $0.35 from $0.25 in the prior year period (a 58% increaseexcluding the net gains from our equity investment in Meituan in 2020 and 2019; a 47% increaseif further excluding F/X).

Full YearHighlights

There was no material F/X impact on the full year results,and therefore growth rates are based on reported currency,unless otherwise noted.

Total revenues declined 6% year over year to $8.26 billion from $8.78 billion.

Total system sales declined 5% year over year,with declines of 5% at KFC and 15% at Pizza Hut,excluding F/X.

Same-store sales declined 9% year over year,with declines of 8% at KFC and 14% at Pizza Hut,excluding F/X.

Opened 1,165 new stores during the year,bringing total store count to 10,506 across more than 1,500 cities.

Restaurant margin was 14.9%,compared with 16.0% in the prior year.

Operating Profit increased 7% year over year to $961 million from $901 million,primarily due to the re-measurement gain of Suzhou KFC acquisition.

Adjusted Operating Profit declined 20% year over year to $732 million from $912 million.

Effective tax rate was 26.6%.

Net Income increased 10% to $784 million from $713 million in the prior year,primarily due to the increase in Operating Profit.

Adjusted Net Income declined 16% to $615 million from $729 million in the prior year (a 19% decline excluding $75 million and $63 million net gains in 2020 and 2019,from our equity investment in Meituan).

Diluted EPS increased 6% to $1.95 from $1.84 in the prior year.

Adjusted Diluted EPS declined 19% to $1.53 from $1.88 in the prior year (a 22% decline excluding the net gains from our equity investment in Meituan in 2020 and 2019).

Results include the consolidation of Huang Ji Huang since April 2020,and Suzhou KFC since August 2020.

Key Financial Results

Fourth Quarter 2020

Full Year 2020

% Change

System

Sales

Same-

Store Sales

Net New

Units

Operating

Profit

System

Sales

Same-Store

Sales

Net New

Units

Operating

Profit

Yum China

(4)

+14

+90

(5)

(9)

+14

KFC

(4)

+10

+26

(5)

(8)

+10

(16)

Pizza Hut

(3)

(5)

(15)

(14)

(45)

Fourth Quarter

Full Year

(in US$ million,except

% Change

per share data and percentages)

2020

2019

Reported

ExF/X

2020

2019

Reported

ExF/X

Operating Profit

180

+90

+78

961

901

Adjusted Operating Profit(1)

182

105

+72

+61

732

912

(20)

Net Income

151

+68

+59

784

713

+10

Adjusted Net Income(1)

153

+56

+48

615

729

(16)

(15)

Basic Earnings Per Common Share

0.36

0.24

+50

+42

2.01

1.89

Adjusted Basic Earnings Per

Common Share(1)

0.37

0.26

+42

+35

1.58

1.93

(18)

Diluted Earnings Per Common Share

0.35

0.23

+52

+43

1.95

1.84

Adjusted Diluted Earnings Per

Common Share(1)

0.35

0.25

+40

+36

1.53

1.88

(19)

(18)

(1) See "Reconciliation of Reported GAAP Results to non-GAAP Adjusted Measures" included in the accompanying tables of this release for further details.

Note: All comparisons are versus the same period a year ago.

NM refers to changes over 100%,from negative to positive amounts or from zero to an amount.

Percentages may not recompute due to rounding.

System sales and same-store sales percentages exclude the impact of F/X. Effective January 1,2018,temporary store closures are normalized in the same-store sales calculation by

excluding the period during which stores are temporarily closed.

CEO and CFO Comments

Joey Wat,CEO of Yum China,commented,"2020 was an unprecedented year that tested our people,systems and capabilities. I would like to express my heartfelt appreciation to our employees and business partners. Through their dedication,creativity,and tireless efforts,we overcame numerous challenges and demonstrated our ability to succeed in the face of adversity. Fourth quarter results marked a strong finish to 2020,with same-store sales recovering sequentially and double-digit operating profit growth. Our foremost priority remains the safety of our employees and customers. The COVID-19 pandemic reinforced our determination to look after our employees and strive to be a responsible corporate citizen,an effort that is recognized by our industry."

Wat continued,"Looking into 2021,we will continue to manage the impact of the pandemic. We will swiftly adjust our operations according to market conditions and drive traffic with compelling offers for both dine-in and off-premise occasions. Our industry-leading digital capabilities enable us to stay agile in this ever-evolving situation. We remain committed to growth and intend to open approximately 1,000 new stores in the year ahead. Our confidence in the long-term potential of China is unshaken. We are focused on growing our store footprint and developing our emerging brands. We will also step up investment in digitization and infrastructure to create an even stronger foundation to accelerate expansion. I am confident that with the strength of our team together with our resilient business model,culture of innovation and execution capabilities,we will overcome these short-term challenges and achieve attractive long-term growth."

Andy Yeung,CFO of Yum China,added,"Fourth quarter operations improved sequentially,although the recovery was uneven and non-linear,impacted by regional outbreaks. We improved our margins in the quarter with solid productivity gains,temporary relief and one-off savings. Recent surges in COVID-19 outbreaks resulted in the government tightening measures nationwide,including city-wide quarantine in several cities,advice against travel during the Chinese New Year holiday period and large gatherings. These measures resulted in a very challenging condition. Traffic is significantly lower in transportation and tourist locations. Accordingly,we will continue to adjust our operations and leverage our digital and delivery resources to capture dine-in and off-premise demand. We also plan to step up our value campaigns and tailor offers according to city tiers and trade zones. Despite these challenges,we will continue to invest for the long term,focusing on building our capabilities,making our business model more resilient,and driving long-term growth. Our healthy balance sheet and strong cash position enable us to handle potential contingencies,while laying the foundation for us to capture market opportunities and achieve sustainable growth in the long run."

Dividends

The Board of Directors declared a cash dividend of $0.12 per share on Yum China's common stock,payable as of the close of business on March 25,2021 to shareholders of record as of the close of business on March 3,2021.

Digital and Delivery

The KFC and Pizza Hut loyalty programs exceeded 300 million members combined. Member sales increased to approximately 59% of system sales in the fourth quarter 2020,an increase of approximately 3 percentage points from the prior year period.

Delivery contributed to approximately 29% of KFC and Pizza Hut's Company sales in the fourth quarter of 2020,an increase of approximately 7 percentage points from the prior year period.

Digital orders,including delivery,mobile orders and kiosk orders,accounted for approximately 83% of KFC and Pizza Hut's Company sales in the fourth quarter of 2020,an increase of approximately 22 percentage points from the prior year period.

KFC and Pizza Hut Total

Fourth Quarter

Full Year

2020

2019

2020

2019

Member count (as of period-end)

300 million+

240 million+

300 million+

240 million+

Member sales as % of system sales

~59%

~56%

~60%

~52%

Delivery as % of Company sales

~29%

~22%

~30%

~20%

Digital orders as % of Company sales

~83%

~61%

~80%

~55%

New-Unit Development and Asset Upgrade

The Company opened 505 new stores in the fourth quarter and 1,165 new stores in the full year 2020,mainly driven by development of the KFC brand.

The Company remodeled 297 stores in the fourth quarter and 939 stores in the full year 2020.

New Units

Restaurant Count

Fourth Quarter

Full Year

As of Year-End

2020

2019

Yum China

505

1,165

10,506

9,200

KFC

306

840

7,166

6,534

Pizza Hut

152

2,355

2,281

Others(2)

103

173

985

385

(2) Others include Taco Bell,Little Sheep,Huang Ji Huang,East Dawning,COFFii & JOY and Lavazza.

Restaurant Margin

Restaurant margin was 15.1% in the fourth quarter 2020,compared with 12.4% in the prior year period,primarily attributable to lower commodity prices,relief provided by landlords and government agencies,and other store cost savings,partially offset by pressure from the same-store sales decline and value promotions. In terms of cost of labor,higher productivity largely offset wage inflation,increased rider cost associated with the rise in delivery volume and the impact from lower sales.

Restaurant margin was 14.9% in the full year 2020,compared with 16.0% in the prior year,primarily attributable to same-store sales decline,temporary store closures impacted by COVID-19 and value promotions,partially offset by higher productivity and relief provided by landlords and government agencies.

Fourth Quarter

Full Year

2020

2019

ppts change

2020

2019

ppts change

Yum China

15.1%

12.4%

+2.7

14.9%

16.0%

(1.1)

KFC

16.8%

14.5%

+2.3

16.3%

17.8%

(1.5)

Pizza Hut

10.4%

6.7%

+3.7

10.5%

11.1%

(0.6)

2021 Outlook

The Company provides the following fiscal year 2021 targets:

To open approximately 1,000 new stores (gross)

To make capital expenditures of approximately $600 million

Other Company Updates

Johnson Huang,General Manager of KFC,resumed his role after his medical leave.

Yum China has been named the Industry Leader for the Restaurant & Leisure Facilities Industry in the 2020 Dow Jones Sustainability Indices (DJSI). Yum China has also been selected as the member of 2020 DJSI World and DJSI Emerging Markets. This reflects the Company's strong performance across economic,environmental and social dimensions,receiving industry best scores in a number of criteria,including supply chain management,risk & crisis management,brand management,packaging as well as labor practice indicators.

The Top Employers Institute has certified Yum China as a Top Employer China for 2021. This is the third year in a row that Yum China has received the award and is a testament to the Company's long-standing commitment to employee care centered around its "Fair,Care and Pride" principles. The global certification program recognizes leading employers that demonstrate dedication to the betterment of the workplace through excellent HR policies and people practices.

Yum China has been named for the third consecutive year in 2021 to the Bloomberg Gender-Equality Index (GEI),which recognizes companies committed to transparency in gender reporting and advancing women's equality. Yum China is the only company from Mainland China included in the latest GEI.

Note on Non-GAAP Adjusted Measures

Reported GAAPresults include Special Items,which are excluded from non-GAAP adjustedmeasures. Special Items are not allocated to any segment and therefore only impact reported GAAP results of Yum China. See "Reconciliation of Reported GAAP Results to Non-GAAP AdjustedMeasures" within this release.

Conference Call

Yum China's management will hold an earnings conference call at 7:00p.m. U.S. Eastern Time on Wednesday,February 3,2021 (8:00 a.m. Beijing/Hong Kong Time on Thursday,February 4,2021).

Operator-assisted conference calls are not available at the moment. Please register in advance of the conference through the link provided below. Upon registering,you will be provided with participant dial-in numbers,a passcode and a unique registrant ID.

Pre-registration Link: http://apac.directeventreg.com/registration/event/2064799

Conference ID: 2064799

A live webcast of the call may also be accessed athttps://edge.media-server.com/mmc/p/mmubh6w3.

A replay of the conference call will be available two hours after the call ends until 8:00 a.m. U.S. Eastern Time on Thursday,February 11,2021 (9:00 p.m. Beijing/Hong Kong Time on Thursday,2021) and may be accessed by phone at the following numbers:

U.S.: 1 855 452 5696

Mainland China: 400 602 2065 or 800 870 0206

Hong Kong: +852 3051 2780

U.K.: 0808 234 0072

International: +61 2 8199 0299

Replay access code: 2064799

Additionally,this earnings release,the accompanying slides,a live webcast and an archived webcast of this conference call will be available at Yum China's Investor Relations website at http://ir.yumchina.com.

For important news and information regarding Yum China,including our filings with the U.S. Securities and Exchange Commission and the Hong Kong Stock Exchange,visit Yum China's Investor Relations website at http://ir.yumchina.com. Yum China uses this website as a primary channel for disclosing key information to its investors,some of which may contain material and previously non-public information.

Forward-Looking Statements

This press release contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,including under "2021 Outlook." We intend all forward-looking statements to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally can be identified by the fact that they do not relate strictly to historical or current facts and by the use of forward-looking words such as "expect," "expectation," "believe," "anticipate," "may," "could," "intend," "belief," "plan," "estimate," "target," "predict," "project," "likely," "will," "continue," "should," "forecast," "outlook" or similar terminology. These statements are based on current estimates and assumptions made by us in light of our experience and perception of historical trends,current conditions and expected future developments,as well as other factors that we believe are appropriate and reasonable under the circumstances,but there can be no assurance that such estimates and assumptions will prove to be correct. Forward-looking statements include,without limitation,statements regarding the future strategies,business plans,investment,dividend and share repurchase plans,earnings,performance and returns of Yum China,anticipated effects of population and macroeconomic trends,the expected impact of the COVID-19 outbreak,the anticipated effects of our innovation,digital and delivery capabilities on growth and beliefs regarding the long-term drivers of Yum China's business. Forward-looking statements are not guarantees of performance and are inherently subject to known and unknown risks and uncertainties that are difficult to predict and could cause our actual results or events to differ materially from those indicated by those statements. We cannot assure you that any of our expectations,estimates or assumptions will be achieved. The forward-looking statements included in this press release are only made as of the date of this press release,and we disclaim any obligation to publicly update any forward-looking statement to reflect subsequent events or circumstances,except as required by law. Numerous factors could cause our actual results or events to differ materially from those expressed or implied by forward-looking statements,including,without limitation: whether we are able to achieve development goals at the times and in the amounts currently anticipated,if at all,the success of our marketing campaigns and product innovation,our ability to maintain food safety and quality control systems,changes in public health conditions,including the COVID-19 outbreak,our ability to control costs and expenses,including tax costs,as well as changes in political,economic and regulatory conditions in China. In addition,other risks and uncertainties not presently known to us or that we currently believe to be immaterial could affect the accuracy of any such forward-looking statements. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. You should consult our filings with the Securities and Exchange Commission (including the information set forth under the captions "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q) for additional detail about factors that could affect our financial and other results.

About Yum China Holdings,Inc.

Yum China Holdings,Inc. is a licensee of Yum! Brands in mainland China. It has exclusive rights in mainland China to KFC,China's leading quick-service restaurant brand,Pizza Hut,the leading casual dining restaurant brand in China,and Taco Bell,a California-based restaurant chain serving innovative Mexican-inspired food. Yum China also owns the Little Sheep,East Dawning and COFFii & JOY concepts outright. In addition,Yum China has partnered with Lavazza to explore and develop the Lavazza coffee shop concept in China. The Company had 10,506 restaurants in over 1,500 cities at the end of December 2020. Yum Chinaranked # 361 on the Fortune 500 list for 2020. Yum China has been named the Industry Leader for the Restaurant & Leisure Facilities Industry in the 2020 Dow Jones Sustainability Indices. In 2021,Yum China was named to the Bloomberg Gender-Equality Index and was certified as a Top Employer 2021 in China by the Top Employers Institute,both for the third consecutive year. For more information,please visit http://ir.yumchina.com.

Investor Relations Contact:

Tel: +86 21 2407 7556 / +852 2267 5801

IR@YumChina.com

Media Contact:

Tel:+86 21 2407 7510

Media@YumChina.com

Yum China Holdings,Inc.

Condensed Consolidated Statements of Income

(in US$ million,except per share data)

(unaudited)

Quarter Ended

% Change

Year Ended

% Change

12/31/2020

12/31/2019

B/(W)

12/31/2020

12/31/2019

B/(W)

Revenues

Company sales

$ 2,038

$ 1,813

$ 7,396

$ 7,925

(7)

Franchise fees and income

148

—

Revenues from transactions with

franchisees and unconsolidated affiliates

159

158

—

647

654

(1)

Other revenues

Total revenues

2,259

2,029

8,263

8,776

(6)

Costs and Expenses,Net

Company restaurants

Food and paper

631

583

(8)

2,342

2,479

Payroll and employee benefits

494

436

(13)

1,730

1,807

Occupancy and other operating expenses

605

569

(6)

2,226

2,373

Company restaurant expenses

1,588

(9)

6,298

6,659

General and administrative expenses

140

147

479

487

Franchise expenses

Expenses for transactions with

franchisees and unconsolidated affiliates

153

157

633

645

Other operating costs and expenses

(13)

(53)

Closures and impairment expenses,net

(10)

(51)

Other income,net

(3)

(12)

(73)

(285)

(60)

Total costs and expenses,net

2,079

1,935

(7)

7,302

7,875

Operating Profit

180

961

901

Interest income,net

Investment gain

104

Income Before Income Taxes

224

128

1,108

1,003

Income tax provision

(63)

(34)

(82)

(295)

(260)

(13)

Net income – including noncontrolling interests

161

813

743

Net income – noncontrolling interests

Net Income – Yum China Holdings,Inc.

$ 151

$ 90

$ 784

$ 713

Effective tax rate

28.0%

26.8%

(1.2)

ppts.

26.6%

25.9%

(0.7)

ppts.

Basic Earnings Per Common Share

$ 0.36

$ 0.24

$ 2.01

$ 1.89

Weighted-average shares outstanding

(in millions)

420

376

390

377

Diluted Earnings Per Common Share

$ 0.35

$ 0.23

$ 1.95

$ 1.84

Weighted-average shares outstanding

(in millions)

433

387

402

388

Cash Dividends Declared Per Common Share

$ 0.12

$ 0.24

$ 0.48

Company sales

100.0%

Food and paper

31.0

32.2

1.2

ppts.

31.7

31.3

(0.4)

ppts.

Payroll and employee benefits

24.2

24.0

(0.2)

ppts.

23.4

22.8

(0.6)

ppts.

Occupancy and other operating expenses

29.7

31.4

1.7

ppts.

30.0

29.9

(0.1)

ppts.

Restaurant margin

15.1%

12.4%

2.7

ppts.

14.9%

16.0%

(1.1)

ppts.

Operating margin

8.8%

5.2%

3.6

ppts.

13.0%

11.4%

1.6

ppts.

Percentages may not recompute due to rounding.

Yum China Holdings,Inc.

KFC Operating Results

(in US$ million)

(unaudited)

Quarter Ended

% Change

Year Ended

% Change

12/31/2020

12/31/2019

B/(W)

12/31/2020

12/31/2019

B/(W)

Revenues

Company sales

$ 1,556

$ 1,344

$ 5,633

$ 5,839

(4)

Franchise fees and income

(12)

125

136

(8)

Revenues from transactions with

franchisees and unconsolidated affiliates

(10)

(4)

Other revenues

—

Total revenues

1,599

1,392

5,821

6,040

(4)

Costs and Expenses,Net

Company restaurants

Food and paper

486

432

(12)

1,801

1,835

Payroll and employee benefits

359

303

(18)

1,247

1,245

—

Occupancy and other operating expenses

450

412

(9)

1,665

1,717

Company restaurant expenses

1,295

1,147

(13)

4,713

4,797

General and administrative expenses

(6)

200

207

Franchise expenses

Expenses for transactions with

franchisees and unconsolidated affiliates

Other operating costs and expenses

(81)

Closures and impairment expenses,net

Other income,net

(3)

(10)

(74)

(42)

(56)

(25)

Total costs and expenses,net

1,396

1,231

(14)

5,020

5,091

Operating Profit

$ 203

$ 161

$ 801

$ 949

(16)

Company sales

100.0%

Food and paper

31.2

32.2

1.0

ppts.

32.0

31.4

(0.6)

ppts.

Payroll and employee benefits

23.1

22.6

(0.5)

ppts.

22.1

21.3

(0.8)

ppts.

Occupancy and other operating expenses

28.9

30.7

1.8

ppts.

29.6

29.5

(0.1)

ppts.

Restaurant margin

16.8%

14.5%

2.3

ppts.

16.3%

17.8%

(1.5)

ppts.

Operating margin

13.0%

12.0%

1.0

ppts.

14.2%

16.2%

(2.0)

ppts.

Percentages may not recompute due to rounding.

Yum China Holdings,Inc.

Pizza Hut Operating Results

(in US$ million)

(unaudited)

Quarter Ended

% Change

Year Ended

% Change

12/31/2020

12/31/2019

B/(W)

12/31/2020

12/31/2019

B/(W)

Revenues

Company sales

$ 469

$ 457

$ 1,721

$ 2,045

(16)

Franchise fees and income

Revenues from transactions with

franchisees and unconsolidated affiliates

Other revenues

—

(6)

—

(30)

Total revenues

471

459

1,730

2,054

(16)

Costs and Expenses,Net

Company restaurants

Food and paper

141

149

529

633

Payroll and employee benefits

132

129

(2)

471

549

Occupancy and other operating expenses

147

149

540

636

Company restaurant expenses

420

427

1,540

1,818

General and administrative expenses

(1)

101

Franchise expenses

—

(36)

(14)

Expenses for transactions with

franchisees and unconsolidated affiliates

(11)

(12)

Other operating costs and expenses

—

Closures and impairment expenses,net

(20)

(83)

Total costs and expenses,net

457

462

1,668

1,940

Operating Profit (Loss)

$ 14

$ (3)

$ 62

$ 114

(45)

Company sales

100.0%

Food and paper

30.3

32.4

2.1

ppts.

30.8

30.9

0.1

ppts.

Payroll and employee benefits

28.0

28.2

0.2

ppts.

27.3

26.8

(0.5)

ppts.

Occupancy and other operating expenses

31.3

32.7

1.4

ppts.

31.4

31.2

(0.2)

ppts.

Restaurant margin

10.4%

6.7%

3.7

ppts.

10.5%

11.1%

(0.6)

ppts.

Operating margin

2.9%

(0.6)%

3.5

ppts.

3.6%

5.6%

(2.0)

ppts.

Percentages may not recompute due to rounding.

Yum China Holdings,Inc.

Condensed Consolidated Balance Sheets

(in US$ million)

12/31/2020

12/31/2019

(Unaudited)

ASSETS

Current Assets

Cash and cash equivalents

$ 1,158

$ 1,046

Short-term investments

3,105

611

Accounts receivable,net

Inventories,net

398

380

Prepaid expenses and other current assets

176

134

Total Current Assets

4,936

2,259

Property,plant and equipment,765

1,594

Operating lease right-of-use assets

2,164

1,985

Goodwill

832

254

Intangible assets,net

246

Deferred income taxes

Investments in unconsolidated affiliates

Other assets

749

580

Total Assets

10,875

6,950

LIABILITIES,REDEEMABLE NONCONTROLLING INTEREST

AND EQUITY

Current Liabilities

Accounts payable and other current liabilities

1,995

1,691

Income taxes payable

Total Current Liabilities

2,067

1,736

Non-current operating lease liabilities

1,915

1,803

Non-current finance lease obligations

Other liabilities

394

210

Total Liabilities

4,404

3,775

Redeemable Noncontrolling Interest

—

Equity

Common stock,$0.01 par value; 1,000 million shares authorized; 440 million shares and

395 million shares issued at December 31,2020 and 2019,respectively; 420 million shares

and 376 million shares outstanding at December 31,respectively

Treasury stock

(728)

(721)

Additional paid-in capital

4,658

2,427

Retained earnings

2,105

1,416

Accumulated other comprehensive income (loss)

167

(49)

Total Yum China Holdings,Inc. Stockholders' Equity

6,206

3,077

Noncontrolling interests

253

Total Equity

6,459

3,175

Total Liabilities,Redeemable Noncontrolling Interest and Equity

$ 10,875

$ 6,950

Yum China Holdings,Inc.

Condensed Consolidated Statements of Cash Flows

(in US$ million)

(unaudited)

Year Ended

12/31/2020

12/31/2019

Cash Flows – Operating Activities

Net income – including noncontrolling interests

$ 813

$ 743

Depreciation and amortization

450

428

Non-cash operating lease cost

368

339

Closures and impairment expenses

Gain from re-measurement of equity interest upon acquisition

(239)

—

Investment gain

(104)

(63)

Equity income from investments in unconsolidated affiliates

(62)

(69)

Distributions of income received from unconsolidated affiliates

Deferred income taxes

111

Share-based compensation expense

Changes in accounts receivable

(15)

(9)

Changes in inventories

(77)

Changes in prepaid expenses and other current assets

(15)

(3)

Changes in accounts payable and other current liabilities

171

Changes in income taxes payable

(8)

Changes in non-current operating lease liabilities

(394)

(381)

Other,net

(44)

(37)

Net Cash Provided by Operating Activities

1,114

1,185

Cash Flows – Investing Activities

Capital spending

(419)

(435)

Purchases of short-term investments

(4,499)

(1,024)

Purchase of long-term time deposits

(57)

—

Maturities of short-term investments

2,061

534

Contribution to unconsolidated affiliates

(17)

—

Acquisition of business,net of cash acquired

(288)

—

Disposal of equity securities

—

Other,net

Net Cash Used in Investing Activities

(3,109)

(910)

Cash Flows – Financing Activities

Common stock issuance proceeds,net of issuance costs

2,195

—

Repurchase of shares of common stock

(8)

(265)

Cash dividends paid on common stock

(95)

(181)

Dividends paid to noncontrolling interests

(33)

(32)

Other,net

(1)

(2)

Net Cash Provided by (Used in) Financing Activities

2,058

(480)

Effect of Exchange Rates on Cash,Cash Equivalents and Restricted Cash

(6)

Net Increase (Decrease) in Cash,Cash Equivalents and Restricted Cash

103

(211)

Cash,Cash Equivalents,and Restricted Cash - Beginning of Year

1,055

1,266

Cash,and Restricted Cash - End of Year

$ 1,158

$ 1,055

In this press release:

The Company provides certain percentage changes excluding the impact of foreign currency translation ("F/X"). These amounts are derived by translating current year results at prior year average exchange rates. We believe the elimination of the F/X impact provides better year-to-year comparability without the distortion of foreign currency fluctuations.

System sales growth reflects the results of all restaurants regardless of ownership,including Company-owned,franchise and unconsolidated affiliate restaurants that operate our restaurant concepts,except for non-Company-owned restaurants for which we do not receive a sales-based royalty. Sales of franchise and unconsolidated affiliate restaurants typically generate ongoing franchise fees for the Company at a rate of approximately 6% of system sales. Franchise and unconsolidated affiliate restaurant sales are not included in Company sales in the Condensed Consolidated Statements of Income; however,the franchise fees are included in the Company's revenues. We believe system sales growth is useful to investors as a significant indicator of the overall strength of our business as it incorporates all of our revenue drivers,Company and franchise same-store sales as well as net unit growth.

Effective January 1,the Company revised its definition of same-store sales growth to represent the estimated percentage change in sales of food of all restaurants in the Company system that have been open prior to the first day of our prior fiscal year,excluding the period during which stores are temporarily closed. We refer to these as our "base" stores. Previously,same-store sales growth represented the estimated percentage change in sales of all restaurants in the Company system that have been open for one year or more,including stores temporarily closed,and the base stores changed on a rolling basis from month to month. This revision was made to align with how management measures performance internally and focuses on trends of a more stable base of stores.

Company sales represent revenues from Company-owned restaurants. Company Restaurant profit ("Restaurant profit") is defined as Company sales less expenses incurred directly by our Company-owned restaurants in generating Company sales. Company restaurant margin percentage is defined as Restaurant profit divided by Company sales.

Reconciliation of Reported GAAP Results to Non-GAAP Adjusted Measures

(in millions,except per share data)

(unaudited)

In addition to the results provided in accordance with U.S. Generally Accepted Accounting Principles ("GAAP") in this press release,the Company provides non-GAAP measures adjusted for Special Items,which include Adjusted Operating Profit,Adjusted Net Income,Adjusted EPS,Adjusted Effective Tax Rate and Adjusted EBITDA,which we define as net income including noncontrolling interests adjusted for income tax,interest income,net,investment gain or loss,certain non-cash expenses,consisting of depreciationand amortization as well as store impairment charges,and Special Items.

The following table set forth thereconciliation of the most directly comparable GAAP financial measures to the non-GAAP adjustedfinancialmeasures.

Quarter Ended

Year Ended

12/31/2020

12/31/2019

12/31/2020

12/31/2019

Non-GAAP Reconciliations

Reconciliation of Operating Profit to Adjusted Operating Profit

Operating Profit

$ 180

$ 94

$ 961

$ 901

Special Items,Operating Profit

(2)

(11)

229

(11)

Adjusted Operating Profit

$ 182

$ 105

$ 732

$ 912

Reconciliation of Net Income to Adjusted Net Income

Net Income – Yum China Holdings,Inc.

$ 151

$ 90

$ 784

$ 713

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

(2)

(8)

169

(16)

Adjusted Net Income – Yum China Holdings,Inc.

$ 153

$ 98

$ 615

$ 729

Reconciliation of EPS to Adjusted EPS

Basic Earnings Per Common Share

$ 0.36

$ 0.24

$ 2.01

$ 1.89

Special Items,Basic Earnings Per Common Share

(0.01)

(0.02)

0.43

(0.04)

Adjusted Basic Earnings Per Common Share

$ 0.37

$ 0.26

$ 1.58

$ 1.93

Diluted Earnings Per Common Share

$ 0.35

$ 0.23

$ 1.95

$ 1.84

Special Items,Diluted Earnings Per Common Share

—

(0.02)

0.42

(0.04)

Adjusted Diluted Earnings Per Common Share

$ 0.35

$ 0.25

$ 1.53

$ 1.88

Reconciliation of Effective Tax Rate to Adjusted Effective Tax Rate

Effective tax rate

28.0%

26.8%

26.6%

25.9%

Impact on effective tax rate as a result of Special Items

0.3%

1.7%

(0.2)%

1.0%

Adjusted effective tax rate

27.7%

25.1%

26.8%

24.9%

Net income,along with the reconciliation to Adjusted EBITDA,is presented below:

Quarter Ended

Year Ended

12/31/2020

12/31/2019

12/31/2020

12/31/2019

Reconciliation of Net Income to Adjusted EBITDA

Net Income – Yum China Holdings,Inc.

$ 151

$ 90

$ 784

$ 713

Net income – noncontrolling interests

Income tax provision

295

260

Interest income,net

(15)

(10)

(43)

(39)

Investment gain

(29)

(24)

(104)

(63)

Operating Profit

180

961

901

Special Items,Operating Profit

(229)

Adjusted Operating Profit

182

105

732

912

Depreciation and amortization

123

106

450

428

Store impairment charges

Adjusted EBITDA

$ 332

$ 222

$ 1,248

$ 1,378

Details of Special Items are presented below:

Quarter Ended

Year Ended

12/31/2020

12/31/2019

12/31/2020

12/31/2019

Gain from re-measurement of equity interest upon acquisition(1)

$ -

$ 239

$ -

Share-based compensation expense for Partner PSU awards(2)

(2)

(7)

Derecognition of indemnification assets related to Daojia(3)

(3)

Daojia impairment(4)

(11)

Special Items,Operating Profit

(2)

(11)

229

(11)

Tax effect on Special Items(5)

(60)

Impact from the Tax Act(6)

(8)

Special Items,net income – including noncontrolling interests

(2)

(10)

169

(18)

Special Items,net income – noncontrolling interests

(2)

Special Items,Inc.

$ (2)

$ (8)

$ 169

$ (16)

Weighted-average Diluted Shares Outstanding (in millions)

433

387

402

388

Special Items,Diluted Earnings Per Common Share

$ -

$ (0.02)

$ 0.42

$ (0.04)

(1) As a result of the acquisitionof Suzhou KFC in the third quarter of 2020,the Company recognized a gain of $239 million from the re-measurement of our previously held 47% equity interest at fair value,which was not allocated to any segment for performance reporting purposes.

(2) In February 2020,the Company granted Partner PSU Awards to select employees who were deemed critical to the Company's execution of its strategic operating plan. These PSU awards will only vest if threshold performance goals are achieved over a four-year performance period,with the payout ranging from 0% to 200% of the target number of shares subject to the PSU awards. Partner PSU Awards were granted to address increased competition for executive talent,motivate transformational performance and encourage management retention. Given the unique nature of these grants,the Compensation Committee does not intend to grant similar,special grants during the performance period. The impact from these special awards is excluded from metrics that management uses to assess the Company's performance. The Company recognized share-based compensation cost of $2 million and $7 million associated with the Partner PSU Awards for the quarter and year ended December 31,2020,respectively.

(3) In the quarter ended June 30,the Company derecognized a $3 million indemnification asset previously recorded for the Daojia acquisition as the indemnification right expired pursuant to the purchase agreement. The amount was included in Other income,but was not allocated to any segment for performance reporting purposes.

(4) During the year ended December 31,2019,we recorded an impairment charge of $11 million on intangible assets and goodwill attributable to the Daojia business. It was included in Closures and impairment expenses in our Condensed Consolidated Statement of Income,but was not allocated to any segment for performance reporting purposes. We recorded a tax benefit of $1 million associated with the impairment,and allocated $2 million of the after-tax impairment charge to noncontrolling interests.

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

(6) We completed the evaluation of the impact on our transition tax computation based on the final regulations that were released by the U.S. Treasury Department and the U.S. Internal Revenue Service and became effective in the first quarter of 2019,and recorded an additional tax expense of $8 million for the transition tax accordingly.

The Company excludes impact from Special Items for the purpose of evaluating performance internally. Special Items are not included in any of our segment results. In addition,the Company provides Adjusted EBITDA because we believe that investors and analysts may find it useful in measuring operating performance without regard to items such as income tax,depreciation and amortization,store impairment charges,and Special Items. Store impairment charges included as an adjustment item in Adjusted EBITDA primarily resulted from our semi-annual impairment evaluation of long-lived assets of individual restaurants,and additional impairment evaluation whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. If these restaurant-level assets were not impaired,depreciation of the assets would have been recorded and included in EBITDA. Therefore,store impairment charges were a non-cash item similar to depreciation and amortization of our long-lived assets of restaurants. The Company believes that investors and analyst may find it useful in measuring operating performance without regard to such non-cash item.

These adjusted measures are not intended to replace the presentation of our financial results in accordance with GAAP. Rather,the Company believes that the presentation of these adjusted measures provides additional information to investors to facilitate the comparison of past and present results,excluding those items that the Company does not believe are indicative of our ongoing operations due to their nature.

Unit Count by Brand

KFC

12/31/2019

NewBuilds

Closures

Refranchised

Acquired

Others(1)

12/31/2020

Company-owned

5,083

651

(171)

(9)

316

5,872

Unconsolidated affiliates

896

119

(22)

—

(316)

677

Franchisees

555

(15)

(2)

—

617

Total

6,534

840

(208)

—

7,166

Pizza Hut

12/31/2019

NewBuilds

Closures

Refranchised

12/31/2020

Company-owned

2,178

141

(77)

(12)

2,230

Franchisees

103

(1)

125

Total

2,281

152

(78)

—

2,355

Others

12/31/2019

NewBuilds

Closures

Acquired(2)

Others

12/31/2020

Company-owned

(22)

—

Unconsolidated affiliates

—

Franchisees

291

156

(177)

623

—

893

Other

—

(1)

—

Total

385

173

(199)

626

—

985

(1) As a result of the acquisition of Suzhou KFC on August 3,the restaurant units of Suzhou KFC have been transferred from

unconsolidated affiliates to Company-owned.

(2) On April 8,the Company completed the acquisition of Huang Ji Huang.

Yum China Holdings,Inc.

Segment Results

(in US$ million)

(unaudited)

Quarter Ended 12/31/2020

KFC

Pizza Hut

All Other

Segments

Corporate

and

Unallocated(1)

Elimination

Total

Company sales

$ 1,556

$ 469

$ 13

$ —

$ 2,038

Franchise fees and income

—

Revenues from transactions with

franchisees and unconsolidated affiliates(2)

126

—

159

Other revenues

—

(22)

Total revenues

$ 1,599

$ 471

$ 69

$ 142

$ (22)

$ 2,259

Company restaurant expenses

1,295

420

—

1,730

General and administrative expenses

—

140

Franchise expenses

—

Expenses for transactions with

franchisees and unconsolidated affiliates(2)

124

—

153

Other operating costs and expenses

—

(24)

Closures and impairment expenses,net

—

Other (income) expenses,net

(3)

—

(1)

—

(3)

Total costs and expenses,396

457

182

(22)

2,079

Operating Profit (Loss)

$ 203

$ 14

$ 3

$ (40)

$ —

$ 180

Quarter Ended 12/31/2019

KFC

Pizza Hut

All Other

Segments

Corporate

and

Unallocated(1)

Elimination

Total

Company sales

$ 1,344

$ 457

$ 12

$ —

$ 1,813

Franchise fees and income

—

Revenues from transactions with

franchisees and unconsolidated affiliates(2)

133

—

158

Other revenues

—

(10)

Total revenues

$ 1,392

$ 459

$ 54

$ 134

$ (10)

$ 2,029

Company restaurant expenses

1,147

427

—

1,588

General and administrative expenses

—

147

Franchise expenses

—

Expenses for transactions with

franchisees and unconsolidated affiliates(2)

133

—

157

Other operating costs and expenses

—

(11)

Closures and impairment expenses,net

—

Other income,net

(10)

—

(2)

—

(12)

Total costs and expenses,231

462

196

(10)

1,935

Operating Profit (Loss)

$ 161

$ (3)

$ (2)

$ (62)

$ —

$ 94

Year Ended 12/31/2020

KFC

Pizza Hut

All Other

Segments

Corporate

and

Unallocated(1)

Elimination

Total

Company sales

$ 5,633

$ 1,721

$ 42

$ —

$ 7,396

Franchise fees and income

125

—

148

Revenues from transactions with

franchisees and unconsolidated affiliates(2)

533

—

647

Other revenues

—

(58)

Total revenues

$ 5,821

$ 1,730

$ 205

$ 565

$ (58)

$ 8,263

Company restaurant expenses

4,713

1,540

—

6,298

General and administrative expenses

200

144

—

479

Franchise expenses

—

Expenses for transactions with

franchisees and unconsolidated affiliates(2)

531

—

633

Other operating costs and expenses

—

(58)

Closures and impairment expenses,net

—

Other (income) expenses,net(3)

(42)

—

(245)

—

(285)

Total costs and expenses,net

5,020

1,668

212

460

(58)

7,302

Operating Profit (Loss)

$ 801

$ 62

$ (7)

$ 105

$ —

$ 961

Year Ended 12/31/2019

KFC

Pizza Hut

All Other

Segments

Corporate

and

Unallocated(1)

Elimination

Total

Company sales

$ 5,839

$ 2,045

$ 41

$ —

$ 7,925

Franchise fees and income

136

—

148

Revenues from transactions with

franchisees and unconsolidated affiliates(2)

558

—

654

Other revenues

(38)

Total revenues

$ 6,040

$ 2,054

$ 158

$ 562

$ (38)

$ 8,776

Company restaurant expenses

4,797

1,818

—

6,659

General and administrative expenses

207

101

145

—

487

Franchise expenses

—

Expenses for transactions with

franchisees and unconsolidated affiliates(2)

554

—

645

Other operating costs and expenses

(38)

Closures and impairment expenses,net

—

Other income,net

(56)

—

(4)

—

(60)

Total costs and expenses,091

1,940

172

710

(38)

7,875

Operating Profit (Loss)

$ 949

$ 114

$ (14)

$ (148)

$ —

$ 901

The above tables reconcile segment information,which is based on management responsibility,with our Condensed Consolidated Statements of Income.

(1) Amounts have not been allocated to any segment for purpose of making operating decision or assessing financial performance as the transactions are deemed corporate revenues

and expenses in nature.

(2) Primarily included revenues and associated expenses of transactions with franchisees and unconsolidated affiliates derived from the Company's central procurement model

whereby the Company centrally purchases substantially all food and paper products from suppliers and then sells and delivers to KFC and Pizza Hut restaurants,including franchisees

and unconsolidated affiliates.

(3) As a result of the acquisition of Suzhou KFC in the third quarter of 2020,the Company recognized a gain of $239 million from the re-measurement of our previously held 47% equity

interest at fair value,which was not allocated to any segment for performance reporting purposes.