Yum China Reports Second Quarter 2018 Results

SHANGHAI,Aug. 1,2018 -- Yum China Holdings,Inc. (the "Company" or "Yum China") (NYSE: YUMC) today reported unaudited results for the second quarter ended June 30,2018. Reported GAAP results include Special Items,which are excluded from adjusted measures. Special Items are not allocated to any segment and therefore only impact reported GAAP results of Yum China. See "Reconciliation of Reported GAAP Results to Adjusted Measures" within this release.

Second Quarter Highlights

Total revenues increased 12% year over year to $2.1 billion from $1.8 billion (5% year over year increase excluding foreign currency translation ("F/X")).

Total system sales grew 3% year over year,with 5% growth at KFC partially offset by 1% decline at Pizza Hut,excluding F/X.

Same-store sales declined 1% year over year,with flat same-store sales at KFC and a 4% decrease at Pizza Hut,excluding F/X.

Restaurant margin was 15.1%,as compared with 16.6% in the prior year period.

Operating Profit increased 13% year over year to $193 million from $171 million (5% year over year increase excluding F/X).

Net Income increased 14% to $143 million from $125 million in the prior year period (6% year over year increase excluding F/X).

Effective tax rate was 26.0%.

Diluted EPS was $0.36,as compared with $0.31 in the prior year period.

Repurchased approximately 1.9 million shares for $73.4 million at an average price of $38.41 per share.

Opened 164 new restaurants during the quarter,bringing total store count to 8,198 across more than 1,200 cities.

Digital and Delivery

As of June 30,2018,the KFC loyalty program had more than 135 million members and the Pizza Hut loyalty program had over 45 million members,an increase of 50 million and 20 million,respectively,year over year.

Mobile payments accounted for approximately 63% of Company sales in the quarter,an increase of 21 percentage points year over year.

Delivery contributed to 16% of Company sales in the second quarter of 2018,an increase of 3 percentage points year over year. Delivery services now available in over 1,000 cities,up from 800 cities in the prior year period.

Key Financial Results

Second Quarter 2018

Year to Date Ended 6/30/2018

% Change

% Change

System

Same-

Store

Net New

Units

Operating

System

Same-

Store

Net New

Units

Operating

Sales

Sales

Profit

Sales

Sales

Profit

Yum China

+3

(1)

+6

+13

+5

+1

+6

+26

KFC

+5

-

+7

+10

+7

+3

+7

+16

Pizza Hut

(1)

(4)

+4

(49)

(1)

(5)

+4

(55)

Second Quarter

Year to Date Ended 6/30

(in US$ million,except

% Change

% Change

for per share data and percentages)

2018

2017

Reported

ExF/X

2018

2017

Reported

ExF/X

Operating Profit

$

193

$

171

+13

+5

$

588

$

467

+26

+16

Adjusted Operating Profit1

$

193

$

171

+13

+5

$

490

$

467

+5

(3)

Net Income

$

143

$

125

+14

+6

$

431

$

329

+31

+20

Basic Earnings Per Common Share

$

0.37

$

0.32

+16

+6

$

1.12

$

0.85

+32

+20

Adjusted Basic EPS Per Common Share1

$

0.37

$

0.32

+16

+6

$

0.93

$

0.85

+9

(1)

Diluted Earnings Per Common Share

$

0.36

$

0.31

+16

+6

$

1.08

$

0.83

+30

+19

Adjusted Diluted EPS Per Common Share1

$

0.36

$

0.31

+16

+6

$

0.89

$

0.83

+7

(1)

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

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

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

Yum China's fiscal second quarter 2018 includes April,May and June results.

Percentages may not recompute due to rounding.

System sales and same-store sales percentages exclude the impact of F/X.

Prior period results have been recast for the change of fiscal quarter,same-store sales growth definition and adoption of the new revenue accounting standard.

CEO and CFO Comments

"KFC achieved 5% system sales growth in the second quarter as a result of solid business fundamentals and accelerated new store development. We are on track to add 600-650 new stores,led by KFC,by the end of the year. This growth strategy will set us up for long-term growth in both profitability and market share. We are confident in the sustainability of KFC's leader position in the QSR market in China. While Pizza Hut continued to face challenges in China's competitive casual dining space,we added new talent to our team and made progress repositioning the brand with our target customers. We remain dedicated to revitalizing the brand and strongly believe that our initiatives including delivering more innovative products and introducing new store formats will restore the brand to the level of consistent growth that our shareholders expect," said Joey Wat,CEO of Yum China.

"Yum China reported total revenues and operating profit growth of 12% and 13% respectively in the second quarter. We will continue to invest in strengthening our core competencies as well as building delivery,digital and data capabilities to capture online and offline opportunities and drive future growth," added Ms. Wat.

"In an increasingly competitive environment,we stepped up food investment and promotional activities,which inevitably had some pressure on our margins. This reflects our strategic decision to invest in our brands for long-term market share gain. Our business continues to generate substantial free cash flow,and during the second quarter,we returned over $110 million of cash to our shareholders through share buyback and dividends. We remain committed to creating enduring value for our stockholders," remarked Jacky Lo,CFO of Yum China.

Dividend and Share Repurchase

The Board of Directors declared a cash dividend of $0.10 per share on Yum China's common stock,payable as of the close of business on September 19,2018 to stockholders of record as of the close of business on August 29,2018.

During the second quarter,we repurchased approximately 1.9 million shares of Yum China common stock for $73.4 million at an average price of $38.41 per share.

New-Unit Development and Asset Upgrade

The Company opened 164 new restaurants and remodeled 365 restaurants in the second quarter of 2018.

New Units

Restaurant Count

Second Quarter

2018

Year to Date

Ended 6/30/2018

As of 6/30

2018

2017

Yum China

164

367

8,198

7,704

KFC

128

272

5,696

5,324

Pizza Hut

27

68

2,209

2,122

Little Sheep,East Dawning,Taco Bell

9

27

293

258

Restaurant Margin

In the second quarter of 2018,Yum China restaurant margin was 15.1%,as compared with 16.6% in the prior year period,primarily attributable to Pizza Hut sales deleverage and investment in product upgrades and promotions for both KFC and Pizza Hut.

Second Quarter

Year to Date Ended 6/30

2018

2017

% pts

change

2018

2017

% pts

change

Yum China

15.1

%

16.6

%

(1.5)

16.6%

18.5%

(1.9)

KFC

16.8

%

17.5

%

(0.7)

18.9%

19.2%

(0.3)

Pizza Hut

11.2

%

14.9

%

(3.7)

10.8%

17.4%

(6.6)

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. US Eastern Time on Wednesday,August 1,2018 (8:00 a.m. Beijing/HK time on Thursday,August 2,2018). A copy of the presentation will be available on the Yum China Holdings,Inc. website,http://ir.yumchina.com

US:

+1-845-675-0437

Hong Kong:

+852-3018-6771

Mainland China:

400-620-8038 or 800-819-0121

UK:

+44 20 36214779

International:

+65-6713-5090

Passcode:

Yum China

A replay of the conference call may be accessed by phone at the following numbers until Thursday August 9,2018:

US:

+1-855-452-5696

International:

+61-2-8199-0299

Passcode:

6146028

The webcast and the playback can be accessed via the internet by visiting the Yum China Holdings,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," "project," "likely," "will," "continue," "should," "forecast," "outlook" or similar terminology. These statements are based on current estimates and assumptions made by us in light of our experience and perception of historical trends,current conditions and expected future developments,as well as other factors that we believe are appropriate and reasonable under the circumstances,but there can be no assurance that such estimates and assumptions will prove to be correct. Forward-looking statements include,without limitation,statements regarding the future business plans,earnings and performance of Yum China,statements regarding the revitalization of Pizza Hut,anticipated effects of population and macroeconomic trends,statements regarding the capital structure of Yum China,and beliefs regarding the long-term drivers of Yum China's business. Forward-looking statements are not guarantees of performance and are inherently subject to known and unknown risks and uncertainties that are difficult to predict and could cause our actual results or events to differ materially from those indicated by those statements. We cannot assure you that any of our expectations,estimates or assumptions will be achieved. The forward-looking statements included in this press release are only made as of the date of this press release,and we disclaim any obligation to publicly update any forward-looking statement to reflect subsequent events or circumstances,except as required by law. Numerous factors could cause our actual results or events to differ materially from those expressed or implied by forward-looking statements,including,without limitation: whether we are able to achieve development goals at the times and in the amounts currently anticipated,if at all,the success of our marketing campaigns and product innovation,our ability to maintain food safety and quality control systems,our ability to control costs and expenses,including tax costs,as well as changes in political,economic and regulatory conditions in China. In addition,other risks and uncertainties not presently known to us or that we currently believe to be immaterial could affect the accuracy of any such forward-looking statements. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. You should consult our filings with the Securities and Exchange Commission (including the information set forth under the captions "Risk Factors" and "Forward-Looking Statements" in our Annual Report on Form 10-K) for additional detail about factors that could affect our financial and other results.

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 and East Dawning concepts outright. The Company had more than 8,100 restaurants and more than 460,000 employees in over 1,200 cities at the end of June 2018. For more information,please visit http://ir.yumchina.com

Investor Relations Contacts:

Tel: +86 21 2407 7556

IR@YumChina.com

Media Contact:

Tel: +86 21 2407 7510

Media@YumChina.com

Yum China Holdings,Inc.

Consolidated Statements of Income

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

(unaudited)

Quarter Ended

% Change

Year to Date Ended

% Change

6/30/2018

6/30/2017

B/(W)

6/30/2018

6/30/2017

B/(W)

Revenues

Company sales

$

1,888

$

1,664

13

$

3,904

$

3,402

15

Franchise fees and income

34

33

2

74

69

7

Revenues from transactions with

franchisees and unconsolidated affiliates

141

141

—

302

288

5

Other revenues

5

3

79

9

8

15

Total revenues

2,068

1,841

12

4,289

3,767

14

Costs and Expenses,Net

Company restaurants

Food and paper

571

483

(18)

1,165

969

(20)

Payroll and employee benefits

424

366

(16)

866

734

(18)

Occupancy and other operating expenses

607

539

(13)

1,226

1,069

(15)

Company restaurant expenses

1,602

1,388

(15)

3,257

2,772

(18)

General and administrative expenses

101

118

16

215

216

1

Franchise expenses

17

17

—

37

35

(6)

Expenses for transactions with

franchisees and unconsolidated affiliates

138

137

(1)

298

284

(5)

Other operating costs

7

3

NM

11

6

(67)

Closures and impairment expenses,net

17

18

7

16

18

15

Other income,net

(7)

(11)

44

(133)

(31)

NM

Total costs and expenses,net

1,875

1,670

(12)

3,701

3,300

(12)

Operating Profit

193

171

13

588

467

26

Interest income,net

10

4

NM

18

8

NM

Income Before Income Taxes

203

175

16

606

475

28

Income tax provision

(53)

(43)

(24)

(160)

(133)

(21)

Net income – including noncontrolling interests

150

132

13

446

342

30

Net income – noncontrolling interests

7

7

(2)

15

13

10

Net Income – Yum China Holdings,Inc.

$

143

$

125

14

$

431

$

329

31

Effective tax rate

26.0

%

24.3

%

(1.7)

ppts.

26.4

%

27.9

%

1.5

ppts.

Basic Earnings Per Common Share

$

0.37

$

0.32

$

1.12

0.85

Weighted average shares outstanding (in millions)

386

387

386

387

Diluted Earnings Per Common Share

$

0.36

$

0.31

$

1.08

0.83

Weighted average shares outstanding (in millions)

398

399

400

397

Cash Dividends Declared Per Common Share

$

0.10

$

—

$

0.20

$

—

Company sales

100.0

%

100.0

%

100.0

%

100.0

%

Food and paper

30.3

29.0

(1.3)

ppts.

29.8

28.5

(1.3)

ppts.

Payroll and employee benefits

22.5

22.0

(0.5)

ppts.

22.2

21.6

(0.6)

ppts.

Occupancy and other operating expenses

32.1

32.4

0.3

ppts.

31.4

31.4

—

ppts.

Restaurant margin

15.1

%

16.6

%

(1.5)

ppts.

16.6

%

18.5

%

(1.9)

ppts.

Operating margin

10.2

%

10.3

%

(0.1)

ppts.

15.1

%

13.7

%

1.4

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

6/30/2018

6/30/2017

B/(W)

6/30/2018

6/30/2017

B/(W)

Revenues

Company sales

$

1,352

$

1,159

17

$

2,796

$

2,358

19

Franchise fees and income

33

32

1

70

66

5

Revenues from transactions with

franchisees and unconsolidated affiliates

15

15

(1)

32

32

—

Total revenues

1,400

1,206

16

2,898

2,456

18

Costs and Expenses,Net

Company restaurants

Food and paper

413

348

(19)

837

701

(19)

Payroll and employee benefits

289

241

(20)

582

482

(21)

Occupancy and other operating expenses

423

367

(15)

849

723

(17)

Company restaurant expenses

1,125

956

(18)

2,268

1,906

(19)

General and administrative expenses

45

38

(13)

91

77

(16)

Franchise expenses

17

17

2

36

34

(5)

Expenses for transactions with

franchisees and unconsolidated affiliates

15

15

1

32

32

—

Closures and impairment expenses,net

6

9

43

6

10

44

Other income,net

(7)

(11)

(40)

(30)

(30)

(2)

Total costs and expenses,201

1,024

(17)

2,403

2,029

(18)

Operating Profit

$

199

$

182

10

$

495

$

427

16

Company sales

100.0

%

100.0

%

100.0

%

100.0

%

Food and paper

30.5

30.1

(0.4)

ppts.

29.9

29.7

(0.2)

ppts.

Payroll and employee benefits

21.4

20.8

(0.6)

ppts.

20.8

20.4

(0.4)

ppts.

Occupancy and other operating expenses

31.3

31.6

0.3

ppts.

30.4

30.7

0.3

ppts.

Restaurant margin

16.8

%

17.5

%

(0.7)

ppts.

18.9

%

19.2

%

(0.3)

ppts.

Operating margin

14.7

%

15.6

%

(0.9)

ppts.

17.7

%

18.1

%

(0.4)

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

6/30/2018

6/30/2017

B/(W)

6/30/2018

6/30/2017

B/(W)

Revenues

Company sales

$

528

$

497

6

$

1,092

$

1,024

7

Franchise fees and income

—

—

23

1

1

24

Revenues from transactions with

franchisees and unconsolidated affiliates

—

1

5

—

1

(1)

Total revenues

528

498

6

1,093

1,026

7

Costs and Expenses,Net

Company restaurants

Food and paper

156

132

(18)

323

261

(24)

Payroll and employee benefits

133

122

(9)

280

246

(14)

Occupancy and other operating expenses

181

169

(7)

371

339

(9)

Company restaurant expenses

470

423

(11)

974

846

(15)

General and administrative expenses

28

26

(6)

56

51

(10)

Franchise expenses

—

—

(65)

1

1

(42)

Expenses for transactions with

franchisees and unconsolidated affiliates

—

1

(5)

—

1

1

Closures and impairment expenses,net

11

9

(34)

10

8

(22)

Other income,net

(1)

—

NM

(2)

—

NM

Total costs and expenses,net

508

459

(11)

1,039

907

(15)

Operating Profit

$

20

$

39

(49)

$

54

$

119

(55)

Company sales

100.0

%

100.0

%

100.0

%

100.0

%

Food and paper

29.5

26.5

(3.0)

ppts.

29.6

25.5

(4.1)

ppts.

Payroll and employee benefits

25.2

24.5

(0.7)

ppts.

25.7

24.0

(1.7)

ppts.

Occupancy and other operating expenses

34.1

34.1

—

ppts.

33.9

33.1

(0.8)

ppts.

Restaurant margin

11.2

%

14.9

%

(3.7)

ppts.

10.8

%

17.4

%

(6.6)

ppts.

Operating margin

3.9

%

8.0

%

(4.1)

ppts.

4.9

%

11.7

%

(6.8)

ppts.

Percentages may not recompute due to rounding.

Yum China Holdings,Inc.

Consolidated Balance Sheets

(amounts in US$ million)

(unaudited)

6/30/2018

12/31/2017

ASSETS

Current Assets

Cash and cash equivalents

$

1,261

$

1,059

Short-term investments

278

205

Accounts receivable,net

73

81

Inventories,net

276

297

Prepaid expenses and other current assets

205

160

Total Current Assets

2,802

Property,plant and equipment,657

1,691

Goodwill

276

108

Intangible assets,net

145

101

Investments in unconsolidated affiliates

53

95

Other assets

421

385

Deferred income taxes

85

105

Total Assets

4,730

4,287

LIABILITIES,REDEEMABLE NONCONTROLLING INTEREST ANDEQUITY

Current Liabilities

Accounts payable and other current liabilities

1,147

985

Income taxes payable

59

39

Total Current Liabilities

1,206

1,024

Capital lease obligations

27

28

Other liabilities and deferred credits

396

388

Total Liabilities

1,629

1,440

Redeemable Noncontrolling Interest

5

5

Equity

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

391 million shares and 389 million shares issued at June 30,2018

and December 31,2017,respectively; 385 million shares and 385 million shares

outstanding at June 30,2018 and December 31,respectively

4

4

Treasury stock

(221)

(148)

Additional paid-in capital

2,388

2,375

Retained earnings

751

397

Accumulated other comprehensive income

81

137

Total Equity – Yum China Holdings,Inc.

3,003

2,765

Noncontrolling interests

93

77

Total Equity

3,096

2,842

Total Liabilities,Redeemable Noncontrolling Interest and Equity

$

4,730

$

4,287

Yum China Holdings,Inc.

Consolidated Statements of Cash Flows

(amounts in US$ million)

(unaudited)

Year to Date Ended

6/30/2018

6/30/2017

Cash Flows – Operating Activities

Net income – including noncontrolling interests

$

446

$

342

Depreciation and amortization

235

196

Closures and impairment expenses

16

18

Gain from re-measurement of equity interest upon acquisition

(98)

—

Deferred income taxes

42

(3)

Equity income from investments in unconsolidated affiliates

(35)

(35)

Distributions received from unconsolidated affiliates

41

31

Share-based compensation

13

11

Changes in accounts receivable

(2)

12

Changes in inventories

18

(3)

Changes in prepaid expenses and other current assets

(28)

(1)

Changes in accounts payable and other current liabilities

182

46

Changes in income taxes payable

20

20

Other,net

(31)

(30)

Net Cash Provided by Operating Activities

819

604

Cash Flows – Investing Activities

Capital spending

(230)

(204)

Purchases of short-term investments

(370)

(318)

Maturities of short-term investments

295

81

Proceeds from refranchising of restaurants

3

3

Acquisition of business,net of cash acquired

(88)

(25)

Other,net

(16)

(2)

Net Cash Used in Investing Activities

(406)

(465)

Cash Flows – Financing Activities

Payment of capital lease obligation

(1)

(1)

Repayment of short-term borrowings assumed from acquisition

(10)

—

Repurchase of shares of common stock

(70)

(96)

Proceeds from exercise of stock options

—

4

Cash dividends paid

(77)

—

Dividends paid to noncontrolling interests

(27)

(17)

Other,net

(1)

—

Net Cash Used in Financing Activities

(186)

(110)

Effect of Exchange Rates on Cash and Cash Equivalents

(25)

12

Net Increase in Cash and Cash Equivalents

202

41

Cash and Cash Equivalents - Beginning of Period

1,059

885

Cash and Cash Equivalents - End of Period

$

1,261

$

926

Reconciliation of Reported GAAP Results to Adjusted Measures

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

(unaudited)

In this press release:

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

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

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

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

In addition to the results provided in accordance with US Generally Accepted Accounting Principles ("GAAP") in this press release,the Company provides measures adjusted for Special Items,which include Adjusted Operating Profit,Adjusted Diluted Earnings Per Common Share,Adjusted Effective Tax Rate and Adjusted EBITDA,which we define as net income including noncontrolling interests adjusted for income tax,interest income,depreciation,amortization and other items,including store impairment charges. The Special Item for the year to date ended June 30,2018 represents a gain recognized from the re-measurement of our previously held equity interest in Wuxi KFC at fair value upon acquisition,as described in the accompanying notes. The Company excludes impact from Special Items for the purpose of evaluating performance internally. Special Items are not included in any of our segment results. In addition,the Company provides Adjusted EBITDA because we believe that investors and analysts may find it useful in measuring operating performance without regard to items such as income tax,including store impairment charges. These adjusted measures are not intended to replace the presentation of our financial results in accordance with GAAP. Rather,the Company believes that the presentation of these adjusted measures provide additional information to investors to facilitate the comparison of past and present results,excluding those items that the Company does not believe are indicative of our ongoing operations due to its nature. These adjusted measures should not be considered in isolation or as a substitute for GAAP financial results,but should be read in conjunction with the unaudited Consolidated Statements of Income and other information presented herein. A reconciliation of the most directly comparable GAAP measures to adjusted measures follows.

Quarter Ended

Year to Date Ended

6/30/2018

6/30/2017

6/30/2018

6/30/2017

Detail of Special Items

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

$

—

$

—

$

98

$

—

Special Items Income - Operating Profit

—

—

98

—

Tax Expenses on Special Items(c)

—

—

(24)

—

Special Items Income,net of tax – including noncontrolling interests

—

—

74

—

Special Items Income,net of tax – noncontrolling interests

—

—

—

—

Special Items Income,net of tax –Yum China Holdings,Inc.

$

—

$

—

$

74

$

—

Weighted Average Diluted Shares Outstanding

398

399

400

397

Special Items Diluted Earnings Per Common Share

$

—

$

—

$

0.19

$

—

Reconciliation of Operating Profit to Adjusted Operating Profit

Operating Profit

$

193

$

171

$

588

$

467

Special Items Income - Operating Profit

—

—

98

—

Adjusted Operating Profit

$

193

$

171

$

490

$

467

Reconciliation of EPS to Adjusted EPS

Diluted Earnings Per Common Share

$

0.36

$

0.31

$

1.08

$

0.83

Special Items Diluted Earnings Per Common Share

—

—

0.19

—

Adjusted Diluted Earnings Per Common Share

$

0.36

$

0.31

$

0.89

$

0.83

Reconciliation of Effective Tax Rate to Adjusted Effective Tax Rate

Effective Tax Rate

26.0

%

24.3

%

26.4

%

27.9

%

Impact on Effective Tax Rate as a result of Special Items

—

%

—

%

(0.2)

%

—

%

Adjusted Effective Tax Rate

26.0

%

24.3

%

26.6

%

27.9

%

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

6/30/2018

6/30/2017

6/30/2018

6/30/2017

Reconciliation of Net Income to Adjusted EBITDA

Net Income – Yum China Holdings,Inc.

$

143

$

125

$

431

$

329

Net income – noncontrolling interests

7

7

15

13

Income tax provision

53

43

160

133

Interest income,net

(10)

(4)

(18)

(8)

Operating Profit

193

171

588

467

Depreciation and amortization

117

100

235

196

Store impairment charges

19

19

21

23

Special Items Income - Operating Profit

—

—

(98)

—

Adjusted EBITDA

$

329

$

290

$

746

$

686

Unit Count by Brand

KFC

12/31/2017

NewBuilds

Acquired

Closures

Refranchised

Others

6/30/2018

Company-owned

4,112

205

1

(48)

(6)

157

4,421

Unconsolidated affiliates

891

61

—

(11)

—

(157)

784

Franchise

485

6

(1)

(5)

6

—

491

Total

5,488

272

—

(64)

—

—

5,696

Pizza Hut

12/31/2017

NewBuilds

Closures

Refranchised

6/30/2018

Company-owned

2,166

67

(53)

(1)

2,179

Franchise

29

1

(1)

1

30

Total

2,195

68

(54)

—

2,209

All Other Segments

12/31/2017

NewBuilds

Closures

Refranchised

6/30/2018

Company-owned

29

1

(3)

(1)

26

Franchise

271

26

(31)

1

267

Total

300

27

(34)

—

293

Yum China Holdings,Inc.

Segment Results

(amounts in US$ million)

(unaudited)

Quarter Ended 6/30/18

KFC

Pizza Hut

All Other

Segments

Corporate

and

Unallocated(1)

Elimination

Total

Company sales

$

1,352

$

528

$

8

$

—

$

—

$

1,888

Franchise fees and income

33

—

1

—

—

34

Revenues from transactions with

franchisees and unconsolidated affiliates

15

—

4

122

—

141

Other revenues

—

—

5

1

(1)

5

Total revenues

$

1,400

$

528

$

18

$

123

$

(1)

$

2,068

Company restaurant expenses

1,125

470

8

—

(1)

1,602

General and administrative expenses

45

28

9

19

—

101

Franchise expenses

17

—

—

—

—

17

Expenses for transactions with

franchisees and unconsolidated affiliates

15

—

3

120

—

138

Other operating costs

—

—

6

1

—

7

Closures and impairment expenses,net

6

11

—

—

—

17

Other (income) expense,net

(7)

(1)

(1)

2

—

(7)

1,201

508

25

142

(1)

1,875

Operating Profit (Loss)

$

199

$

20

$

(7)

$

(19)

$

—

$

193

Quarter Ended 6/30/17

KFC

Pizza Hut

All Other

Segments

Corporate

and

Unallocated(1)

Total

Company sales

$

1,159

$

497

$

8

$

—

$

1,664

Franchise fees and income

32

—

1

—

33

Revenues from transactions with

franchisees and unconsolidated affiliates

15

1

4

121

141

Other revenues

—

—

3

—

3

Total revenues

$

1,206

$

498

$

16

$

121

$

1,841

Company restaurant expenses

956

423

9

—

1,388

General and administrative expenses

38

26

4

50

118

Franchise expenses

17

—

—

—

17

Expenses for transactions with

franchisees and unconsolidated affiliates

15

1

3

118

137

Other operating costs

—

—

3

—

3

Closures and impairment expenses,net

9

9

—

—

18

Other income,net

(11)

—

—

—

(11)

Total costs and expenses,024

459

19

168

1,670

Operating Profit (Loss)

$

182

$

39

$

(3)

$

(47)

$

171

Year to Date Ended 6/30/18

KFC

Pizza Hut

All Other

Segments

Corporate

and

Unallocated(1)

Elimination

Total

Company sales

$

2,796

$

1,092

$

16

$

—

$

—

$

3,904

Franchise fees and income

70

1

3

—

—

74

Revenues from transactions with

franchisees and unconsolidated affiliates

32

—

11

259

—

302

Other revenues

—

—

8

2

(1)

9

Total revenues

$

2,898

$

1,093

$

38

$

261

$

(1)

$

4,289

Company restaurant expenses

2,268

974

16

—

(1)

3,257

General and administrative expenses

91

56

16

52

—

215

Franchise expenses

36

1

—

—

—

37

Expenses for transactions with

franchisees and unconsolidated affiliates

32

—

9

257

—

298

Other operating costs

—

—

9

2

—

11

Closures and impairment expenses,net

6

10

—

—

—

16

Other income,net

(30)

(2)

(1)

(100)

—

(133)

2,403

1,039

49

211

(1)

3,701

Operating Profit (Loss)

$

495

$

54

$

(11)

$

50

$

—

$

588

Year to Date Ended 6/30/17

KFC

Pizza Hut

All Other

Segments

Corporate

and

Unallocated(1)

Total

Company sales

$

2,358

$

1,024

$

20

$

—

$

3,402

Franchise fees and income

66

1

2

—

69

Revenues from transactions with

franchisees and unconsolidated affiliates

32

1

9

246

288

Other revenues

—

—

8

—

8

Total revenues

$

2,456

$

1,026

$

39

$

246

$

3,767

Company restaurant expenses

1,906

846

20

—

2,772

General and administrative expenses

77

51

7

81

216

Franchise expenses

34

1

—

—

35

Expenses for transactions with

franchisees and unconsolidated affiliates

32

1

8

243

284

Other operating costs

—

—

6

—

6

Closures and impairment expenses,net

10

8

—

—

18

Other income,net

(30)

—

—

(1)

(31)

2,029

907

41

323

3,300

Operating Profit (Loss)

$

427

$

119

$

(2)

$

(77)

$

467

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

(1) Corporate and unallocated expenses comprise items that are not allocated to segments for performance reporting purposes. Amount includes revenues and expenses associated with transactions with franchisees and unconsolidated affiliates such as inventory procurement and other services provided to franchisees and unconsolidated affiliates. The Corporate and Unallocated column in the above tables includes,among other amounts,all amounts that we have deemed Special Items. See "Reconciliation of Reported GAAP Results to Adjusted Measures".

Notes to the Consolidated Statements of Income,Consolidated Balance Sheets

and Consolidated Statements of Cash Flows

(amounts in US$ million)

(unaudited)

(a) Amounts presented as of and for the quarter and year to date ended June 30,2018 are unaudited.

(b) As a result of the acquisition of Wuxi KFC,the Company recognized a gain of $98 million from the re-measurement of our previously held 47% equity interest at fair value,which was not allocated to any segment for performance reporting purposes.

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