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Yum China Holdings, Inc.$37.16($.32)(.85%)

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 Yum China Reports Q2 Same-Store Sales Growth of 3% and Operating Profit Growth of 64%; Loyalty Members Surpassed 100 Million; Mobile Payment Exceeded 40% of Total Company Sales
   Wednesday, July 05, 2017 4:30:00 PM ET

Yum China Holdings, Inc. (the "Company" or "Yum China") (YUMC ) today reported unaudited results for the second quarter ended May 31, 2017.

Second Quarter Highlights

-- Total system sales grew 7%, including growth of 8% at KFC and 7% at Pizza Hut1, excluding foreign currency translation ("F/X").

-- Same-store sales grew 3%, including growth of 4% at KFC, flat at Pizza Hut.

-- Opened 90 new restaurants during the quarter.

-- Total restaurant margin increased 2.7 percentage points to 15.3%, primarily due to the impact of retail tax structure reform and also driven by same-store sales leverage, partially offset by wage inflation and commodity inflation.

-- Operating profit increased 64%, and 73% excluding F/X, primarily due to the impact of retail tax structure reform and also driven by same-store sales leverage. F/X negatively impacted reported operating profit by $8 million.

-- Net income increased 39% to $107 million.

-- Adjusted EBITDA increased 15% to $259 million.

-- Basic EPS increased 33% to $0.28 and diluted EPS increased 29% to $0.27.

1 Beginning with the quarter ended May 31, 2017, Pizza Hut Casual Dining and Pizza Hut Home Service were combined and reported together as the Pizza Hut reportable segment. Segment financial information for prior periods has been re-cast to align with this change in segments.

Key Results

                        Second Quarter                            Year to Date
                        % Change                                  % Change
                        System  Same-Store  Net New   Operating   System  Same-Store  Net New   Operating
                        Sales   Sales       Units     Profit      Sales   Sales       Units     Profit
Yum China               7       3           6         64          6       2           6         34
KFC                     8       4           5         41          6       3           5         20
Pizza Hut               7       -           9         157         8       1           9         95
                        Second Quarter                            Year to Date
(in US$ million, except 2017    2016        % Change  Ex F/X      2017    2016        % Change
for per share data and
percentages)
                                            Reported                                  Reported  Ex F/X
Operating Profit        $143    $   87      64        73          $397    $  296      34        41
Net Income              $107    $   77      39        46          $282    $  222      27        34
Adjusted EBITDA         $259    $ 226       15        21          $579    $  505      14        21
Basic EPS               $0.28   $0.21       33        39          $0.73   $0.61       20        25
Diluted EPS             $0.27   $0.21       29        35          $0.71   $0.61       16        23
Note: All comparisons are versus the same period a year ago. Consistent with prior years, Yum China’s fiscal second quarter includes March, April and May results. Percentages may not recompute due to rounding.
System sales and same-store sales percentages exclude the impact of F/X. Adjusted EBITDA is a non-GAAP financial measure. See Reconciliation of Reported Results to Non-GAAP Measures included in the accompanying tables of this release for further details.

CEO Comments

"I am pleased with our overall performance during the quarter, with same-store sales up 3% and system sales up 7%, on the back of continued strength at KFC. Operating profit, restaurant margin and net income all showed robust improvement." said Micky Pant, CEO.

"We are committed to building one of the world’s leading restaurant companies, and are executing against a plan that we have developed towards this goal. We are making progress in the key themes we are investing in - loyalty programs, digital and delivery capabilities, and continued upgrade of restaurant assets and optimization of store formats. We are pleased to report some encouraging results: loyalty members for KFC and Pizza Hut have surpassed 100 million in total, and mobile payment exceeded 40% of our company sales in the second quarter. Over 4,900 of our restaurants offered delivery service. Delivery sales accounted for 13% of company sales in the second quarter.

We also completed the acquisition of an 80% stake, on a fully diluted basis, in Daojia, an online aggregator platform with two brands focusing on higher-end delivery market segment, for a cash consideration of $36.7 million to the selling shareholders and a capital contribution of $25 million to Daojia. We see this acquisition as complementary to our existing delivery business, and it provides valuable operational and technological expertise."

New-Unit Development and Asset Upgrade

-- Opened 90 new restaurants during the second quarter, and 223 year to date.

-- Remodeled 197 restaurants during the second quarter, and 229 year to date, led by KFC.

                                            New Units               Restaurant Count
                                            Second   Year to Date   As of Second Quarter End
                                            Quarter
                                                                    2017         2016
 Yum China                                  90       223                 7,685        7,246
 KFC                                        62       134                 5,301        5,039
 Pizza Hut                                  25       64                  2,122        1,949
 Little Sheep, East Dawning and Taco Bell   3        25                  262          258

Total Restaurant Count

                             Restaurant Count
                             As of Second Quarter End
                             2017         2016
 Restaurants                      7,685        7,246
 Company-owned                    6,103        5,800
 Unconsolidated Affiliates        854          811
 Franchisees                      728          635

Restaurant Margin

-- For the second quarter, restaurant margin for Yum China increased 2.7 percentage points to 15.3%. Year to date, restaurant margin for Yum China increased 3.1 percentage points to 18.7%. Margin expansion was primarily due to the impact of retail tax structure reform and also driven by same-store sales leverage, partially offset by wage inflation and commodity inflation.

           Second Quarter                   Year to Date
           2017       2016       % ppts     2017       2016       % ppts
                                 change                           change
 Yum China    15.3 %     12.6 %      2.7       18.7 %     15.6 %      3.1
 KFC          16.0 %     13.8 %      2.2       19.4 %     17.2 %      2.2
 Pizza Hut    13.9 %     10.4 %      3.5       17.5 %     12.4 %      5.1

Digital and Delivery

-- Driven by our digital initiatives, we continued to strengthen our loyalty membership programs. By the end of the second quarter, total members in our loyalty programs surpassed 100 million, including 83 million members for KFC and 26 million for Pizza Hut.

-- Mobile payments exceeded 40% of company sales in the second quarter of 2017. Over $900 million in company sales were settled by cashless payment methods during the quarter.

-- Over 4,900 restaurants across China offered delivery services as of the end of the second quarter. Delivery contributed about 13% of company sales in the second quarter.

Completed Acquisition of Daojia

-- During the second quarter, Yum China completed the acquisition of a controlling interest in the holding company of DAOJIA.com.cn ("Daojia"), an established online food delivery service provider. Founded in 2010, Daojia targets higher-end orders in four Tier 1 cities. Daojia also operates Sherpa’s, a leading premium food delivery platform specializing in English speaking services.

-- Yum China agreed to pay cash consideration of $36.7 million to the sellers and made a concurrent capital contribution of $25.0 million to Daojia. As of the completion of the acquisition, Yum China held 90% of Daojia’s outstanding shares of common stock, or 80% of its equity interests on a fully-diluted basis. Mr. Hank Sun, founder of Daojia, will continue to lead the business.

-- The acquisition marks another step in executing Yum China’s strategy to accelerate growth by building know-how and expertise in delivery. Daojia is complementary to Yum China’s existing delivery business, and it provides valuable operational and technological expertise.

Share Repurchase Update

-- Year to date ended May 31, 2017, we repurchased approximately 1 million shares for $39 million at an average price of $36.27 per share.

Conference Call

Yum China Holdings, Inc. will host a conference call to review the Company’s financial performance and strategies at 8:00 p.m. U.S. Eastern Time on Wednesday, July 5, 2017 (8:00 a.m. Beijing/Hong Kong Time on Thursday, July 6, 2017). A copy of the presentation will be available on the Yum China Holdings, Inc. website, http://ir.yumchina.com .

U.S.:            +1-845-675-0437
Hong Kong:       +852-3018-6771
Mainland China:  400-6208-038 or 800-8190-121
International:   +65-6713-5090
Passcode:        Yum China

A live webcast of the call may also be accessed at http://edge.media-server.com/m/p/kdojo9ry .

A replay of the conference call may be accessed by phone at the following numbers two hours after the call ends until 9:00 a.m. U.S. Eastern Time on Thursday, July 13, 2017 (9:00 p.m. Beijing/Hong Kong Time on Thursday, July 13, 2017):

U.S.:           +1-855-452-5696
International:  +61-2-8199-0299
Passcode:       26482181

The webcast and the playback can be accessed via the internet by visiting the Yum China Holdings, Inc. website, http://ir.yumchina.com

Forward-Looking Statements

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

About Yum China Holdings, Inc.

Yum China Holdings, Inc. is a licensee of Yum! Brands in mainland China. It has exclusive rights in mainland China to KFC, China’s leading quick-service restaurant brand, Pizza Hut, the leading casual dining restaurant brand in China, and Taco Bell, which opened its first restaurant in China at the end of 2016. Yum China also owns the Little Sheep and East Dawning concepts outright. Yum China is well positioned for growth thanks to its strong competitive position, integration of its brands into Chinese popular culture and consumers’ daily lives, expanding geographic footprint in China and existing operational expertise. It has a strong capital position, no external debt and expects to continue growing its system sales and profit by adding new restaurants and through growing same-store sales. Yum China had more than 7,600 restaurants and more than 420,000 employees in over 1,100 cities at the end of May 2017. A new generation of younger consumers who are digitally sophisticated and brand driven are fueling growth in consumption in China. The ongoing growth of the middle class and urban population in China is expected to create the world’s largest market for restaurant brands, with Yum China poised to be the market leader.

Analysts are invited to contact:
                Christie Ju, Vice President - Finance, Investor Relations, at +86 21 2407 8090
                Elaine Lai, Director - Finance, Investor Relations, at +86 21 2407 8278
Members of the media are invited to contact:
                Forest Liu, Director, Public Affairs, at +86 21 2407 7505
Yum China Holdings, Inc.
Condensed Consolidated and Combined Summary of Results
(amounts in US$ million, except for number of shares and per share amounts)
(unaudited)
                                                 Quarter ended                             % Change         Year to date ended                         % Change
                                                 5/31/2017            5/31/2016            B/(W)            5/31/2017             5/31/2016            B/(W)
Revenues
Company sales                                    $    1,563           $    1,558              --            $    2,820            $    2,836              (1)
Franchise fees and income                             31                   30                 6                  58                    55                 6
Total revenues                                        1,594                1,588              --                 2,878                 2,891              --
Costs and Expenses, Net
Company restaurants
Food and paper                                        453                  462                2                  798                   847                6
Payroll and employee benefits                         358                  342                (5)                615                   587                (5)
Occupancy and other operating expenses                513                  558                8                  879                   960                8
Company restaurant expenses                           1,324                1,362              3                  2,292                 2,394              4
General and administrative expenses                   107                  104                (4)                174                   170                (2)
Franchise expenses                                    15                   17                 12                 28                    31                 11
Closures and impairment expenses, net                 17                   31                 47                 17                    31                 47
Refranchising gain, net                               (1)                  (1)                (73)               (2)                   (4)                (67)
Other income, net                                     (11)                 (12)               (1)                (28)                  (27)               7
Total costs and expenses, net                         1,451                1,501              3                  2,481                 2,595              4
Operating Profit                                      143                  87                 64                 397                   296                34
Interest income, net                                  5                    2                  66                 7                     4                  59
Income Before Income Taxes                            148                  89                 64                 404                   300                34
Income tax provision                                  (35)                 (16)            NM                    (111)                 (78)               (40)
Net income - including noncontrolling interests       113                  73                 55                 293                   222                32
Net income (loss) - noncontrolling interests          6                    (4)             NM                    11                    --              NM
Net Income - Yum China Holdings, Inc.            $    107             $    77                 39            $    282              $    222                27
Effective tax rate                                    22.9        %        18.6        %      (4.3)  ppts.       27.4        %         26.2        %      (1.2)  ppts.
Basic Earnings Per Common Share                  $    0.28            $    0.21               33            $    0.73             $    0.61               20
Weighted average shares outstanding                   387,901,955          363,758,219     NM                    387,754,681           363,758,219     NM
Diluted Earnings Per Common Share                $    0.27            $    0.21               29            $    0.71             $    0.61               16
Weighted average shares outstanding                   397,326,233          363,758,219     NM                    396,679,703           363,758,219     NM
Company sales                                         100.0       %        100.0       %                         100.0       %         100.0       %
Food and paper                                        29.0                 29.6               0.6    ppts.       28.3                  29.9               1.6    ppts.
Payroll and employee benefits                         22.9                 21.9               (1.0)  ppts.       21.8                  20.7               (1.1)  ppts.
Occupancy and other operating expenses                32.8                 35.9               3.1    ppts.       31.2                  33.8               2.6    ppts.
Restaurant margin                                     15.3        %        12.6        %      2.7    ppts.       18.7        %         15.6        %      3.1    ppts.
Operating margin                                      9.1         %        5.6         %      3.5    ppts.       14.1        %         10.5        %      3.6    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
                                        5/31/2017      5/31/2016     B/(W)            5/31/2017       5/31/2016     B/(W)
Revenues
Company sales                           $    1,087     $    1,078       1             $    1,957      $    1,975       (1)
Franchise fees and income                    29             29          4                  55              53          4
Total revenues                               1,116          1,107       1                  2,012           2,028       (1)
Costs and Expenses, Net
Company restaurants
Food and paper                               330            330         --                 581             605         4
Payroll and employee benefits                236            223         (5)                403             382         (6)
Occupancy and other operating expenses       347            377         8                  594             649         9
Company restaurant expenses                  913            930         2                  1,578           1,636       4
General and administrative expenses          39             38          (3)                64              62          (5)
Franchise expenses                           14             17          13                 27              31          12
Closures and impairment expenses, net        8              21          65                 9               21          61
Other income, net                            (12)           (8)         36                 (27)            (22)        21
Total costs and expenses, net                962            998         4                  1,651           1,728       4
Operating Profit                        $    154       $    109         41            $    361        $    300         20
Company sales                                100.0 %        100.0 %                        100.0 %         100.0 %
Food and paper                               30.3           30.5        0.2    ppts.       29.7            30.6        0.9    ppts.
Payroll and employee benefits                21.7           20.7        (1.0)  ppts.       20.6            19.3        (1.3)  ppts.
Occupancy and other operating expenses       32.0           35.0        3.0    ppts.       30.3            32.9        2.6    ppts.
Restaurant margin                            16.0  %        13.8  %     2.2    ppts.       19.4  %         17.2  %     2.2    ppts.
Operating margin                             14.1  %        10.1  %     4.0    ppts.       18.4  %         15.2  %     3.2    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
                                        5/31/2017      5/31/2016     B/(W)            5/31/2017       5/31/2016     B/(W)
Revenues
Company sales                           $    467       $    465         1             $    846        $    832         2
Franchise fees and income                    1              1           23                 1               1           27
Total revenues                               468            466         1                  847             833         2
Costs and Expenses, Net
Company restaurants
Food and paper                               120            127         6                  212             232         9
Payroll and employee benefits                119            115         (5)                207             197         (5)
Occupancy and other operating expenses       163            175         7                  279             301         7
Company restaurant expenses                  402            417         3                  698             730         4
General and administrative expenses          26             26          2                  43              43          2
Franchise expenses                           1              --          (21)               1               --          (13)
Closures and impairment expenses, net        9              11          21                 8               10          21
Total costs and expenses, net                438            454         4                  750             783         4
Operating Profit                        $    30        $    12          157           $    97         $    50          95
Company sales                                100.0 %        100.0 %                        100.0 %         100.0 %
Food and paper                               25.8           27.5        1.7    ppts.       25.1            28.0        2.9    ppts.
Payroll and employee benefits                25.6           24.4        (1.2)  ppts.       24.5            23.6        (0.9)  ppts.
Occupancy and other operating expenses       34.7           37.7        3.0    ppts.       32.9            36.0        3.1    ppts.
Restaurant margin                            13.9  %        10.4  %     3.5    ppts.       17.5  %         12.4  %     5.1    ppts.
Operating margin                             6.6   %        2.6   %     4.0    ppts.       11.6  %         6.0   %     5.5    ppts.
Percentages may not recompute due to rounding.
Yum China Holdings, Inc.
Condensed Consolidated Balance Sheets
(amounts in US$ million, except for number of shares)
                                                                                   5/31/2017     12/31/2016
ASSETS                                                                             (Unaudited)
Current Assets
Cash and cash equivalents                                                          $     892     $     885
Short-term investments                                                                   310           79
Accounts receivable, net                                                                 74            74
Inventories, net                                                                         266           268
Prepaid expenses and other current assets                                                150           120
Total Current Assets                                                                     1,692         1,426
Property, plant and equipment, net                                                       1,617         1,647
Goodwill                                                                                 103           79
Intangible assets, net                                                                   105           88
Investments in unconsolidated affiliates                                                 51            71
Other assets                                                                             287           254
Deferred income taxes                                                                    166           162
Total Assets                                                                             4,021         3,727
LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND EQUITY
Current Liabilities
Accounts payable and other current liabilities                                           966           971
Income taxes payable                                                                     36            33
Total Current Liabilities                                                                1,002         1,004
Capital lease obligations                                                                27            28
Other liabilities and deferred credits                                                   260           252
Total Liabilities                                                                        1,289         1,284
Redeemable Noncontrolling Interest                                                       5             --
Equity
Common stock, $0.01 par value; 1,000,000,000 shares authorized;                          4             4
386,617,759.42 shares and 383,344,835.42 shares issued at May 31, 2017
and December 31, 2016, respectively; 384,760,471 shares and 383,344,835.42 shares
outstanding at May 31, 2017 and December 31, 2016, respectively
Treasury stock                                                                           (59)          (20)
Additional paid-in capital                                                               2,367         2,352
Retained earnings                                                                        322           40
Accumulated other comprehensive income                                                   35            1
Total Equity - Yum China Holdings, Inc.                                                  2,669         2,377
Noncontrolling interests                                                                 58            66
Total Equity                                                                             2,727         2,443
Total Liabilities, Redeemable Noncontrolling Interest and Equity                   $     4,021   $     3,727
Yum China Holdings, Inc.
Condensed Consolidated and Combined Statements of Cash Flows
(amounts in US$ million)
(unaudited)
                                                                 Year to date ended
                                                                 5/31/2017       5/31/2016
Cash Flows - Operating Activities
Net income - including noncontrolling interests                  $      293      $      222
Depreciation and amortization                                           160             171
Closures and impairment expenses                                        17              31
Refranchising gain                                                      (2)             (4)
Deferred income taxes                                                   (1)             (29)
Equity income from investments in unconsolidated affiliates             (30)            (26)
Distributions of income received from unconsolidated affiliates         26              13
Share-based compensation expense                                        10              5
Changes in accounts receivable                                          3               (8)
Changes in inventories                                                  7               (30)
Changes in prepaid expenses and other current assets                    5               --
Changes in accounts payable and other current liabilities               7               35
Changes in income taxes payable                                         3               25
Other, net                                                              (25)            18
Net Cash Provided by Operating Activities                               473             423
Cash Flows - Investing Activities
Capital spending                                                        (177)           (172)
Purchase of short-term investments                                      (229)           (54)
Proceeds from refranchising of restaurants                              3               13
Acquisition of business, net of cash acquired                           (25)            --
Other, net                                                              (4)             (1)
Net Cash Used in Investing Activities                                   (432)           (214)
Cash Flows - Financing Activities
Net transfers to Parent                                                 --              (118)
Payment of capital lease obligations                                    (1)             (1)
Repurchase of shares of common stock                                    (30)            --
Employee stock option proceeds                                          4               --
Other, net                                                              (16)            --
Net Cash Used in Financing Activities                                   (43)            (119)
Effect of Exchange Rates on Cash and Cash Equivalents                   9               (7)
Net Increase in Cash and Cash Equivalents                               7               83
Cash and Cash Equivalents - Beginning of Period                         885             425
Cash and Cash Equivalents - End of Period                        $      892      $      508

Reconciliation of Reported Results to Non-GAAP Measures (amounts in US$ million) (unaudited)

In this press release:

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

-- System sales growth reflects the results of all restaurants regardless of ownership, including Company-owned, franchise and unconsolidated affiliate restaurants that operate our concepts, except for non-Company-owned restaurants for which we do not receive a sales-based royalty. Sales of franchise and unconsolidated affiliate restaurants typically generate ongoing franchise fees for the Company at a rate of approximately 6% of system sales. Franchise and unconsolidated affiliate restaurant sales are not included in Company sales on the Condensed Consolidated and Combined 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.

-- Same-store sales growth is the estimated percentage change in sales of all restaurants that have been open and in the Company system one year or more.

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

In addition to the results provided in accordance with US Generally Accepted Accounting Principles ("GAAP") in this press release, the Company provides non-GAAP measures which present Operating Profit before Special Items, Diluted Earnings Per Common Share before Special Items, Effective tax rate before Special Items and Adjusted EBITDA, which we define as net income including noncontrolling interests adjusted for income tax, interest income, depreciation, amortization and other items, including store impairment charges. Special Items consist of provision for losses associated with the sale of the aircraft and impact of the redemption of the Little Sheep noncontrolling interest which are described in (a), (b) and (c) in the accompanying notes. The Company excludes impact from Special Items for the purpose of evaluating performance internally. Special Items are not included in any of our segment results. These non-GAAP measures are not intended to replace the presentation of our financial results in accordance with GAAP. Rather, the Company believes that the presentation of these non-GAAP measures provides additional information to investors to facilitate the comparison of past and present results, excluding those items that we do not believe are indicative of our ongoing operations due to their nature. These non-GAAP measures should not be considered in isolation or as a substitute for GAAP financial results, but should be read in conjunction with the unaudited Condensed Consolidated and Combined Summary of Results and other information presented herein. A reconciliation of these non-GAAP measures to the most directly comparable GAAP measures follows.

                                                        Quarter ended                                                                                                   Year to date ended
Detail of Special Items                                 5/31/2017                                               5/31/2016                                               5/31/2017                                               5/31/2016
Provision for loss associated with sale of aircraft(a)  $                         --                            $                         (1)                           $                         --                            $                         (1)
Special Items Expense - Operating Profit                                          --                                                      (1)                                                     --                                                      (1)
Special Items Expense, net of tax of nil                                          --                                                      (1)                                                     --                                                      (1)
- including noncontrolling interests
Special Items Expense, net of tax of nil                                          --                                                      (8)                                                     --                                                      (8)
- noncontrolling interests(b)
Special Items Income, net of tax of nil                 $                         --                            $                         7                             $                         --                            $                         7
- Yum China Holdings, Inc.
Weighted average diluted shares outstanding                                       397,326,233                                             363,758,219                                             396,679,703                                             363,758,219
Special Items Diluted Earnings Per Common Share         $                         --                            $                         0.02                          $                         --                            $                         0.02
Reconciliation of Reported Operating Profit to
Operating Profit Before Special Items
Reported Operating Profit                               $                         143                           $                         87                            $                         397                           $                         296
Special Items Expense - Operating Profit                                          --                                                      (1)                                                     --                                                      (1)
Operating Profit before Special Items                   $                         143                           $                         88                            $                         397                           $                         297
Reconciliation of Reported EPS to EPS Before
Special Items
Reported Diluted Earnings Per Common Share              $                         0.27                          $                         0.21                          $                         0.71                          $                         0.61
Special Items Diluted Earnings Per Common Share                                   --                                                      0.02                                                    --                                                      0.02
Diluted Earnings Per Common Share before Special Items  $                         0.27                          $                         0.19                          $                         0.71                          $                         0.59
Reconciliation of Reported Effective Tax Rate to
Effective Tax Rate Before Special Items
Reported effective tax rate                                                       22.9                      %                             18.6                      %                             27.4                      %                             26.2                      %
Effective tax rate before Special Items(c)                                        22.9                      %                             18.6                      %                             27.4                      %                             26.2                      %
(a)         During the quarter ended May 31, 2016, we recognized a loss of $1 million associated with the sale of the aircraft.
(b)         During the quarter ended May 31, 2016, the Little Sheep founding shareholders sold their remaining 7% Little Sheep ownership interest to the Company pursuant to their redemption rights. The difference between the purchase price of less than $1 million, which was determined using a non-fair value based formula pursuant to the agreement governing the redemption rights, and the carrying value of their redeemable noncontrolling interests was recorded as an $8 million loss attributable to noncontrolling interests.
(c)         Impact on effective tax rate as a result of Special Items was nil.
Reconciliation of Net Income to Adjusted EBITDA
(amounts in US$ million)
(unaudited)
Net income, along with the reconciliation to Adjusted EBITDA, is presented below.
                                                 Quarter ended           Year to date ended
                                                 5/31/2017   5/31/2016   5/31/2017   5/31/2016
Reconciliation of Net Income to Adjusted EBITDA
Net income (loss) - noncontrolling interests     $    6      $    (4)    $    11     $    --
Net Income - Yum China Holdings, Inc.                 107         77          282         222
Income tax provision                                  35          16          111         78
Interest income, net                                  (5)         (2)         (7)         (4)
Operating Profit                                      143         87          397         296
Depreciation and amortization                         96          103         160         171
Store impairment charges                              20          35          22          37
Special Items Expense - Operating Profit              --          1           --          1
Adjusted EBITDA                                  $    259    $    226    $    579    $    505
Yum China Holdings, Inc.
Segment Results
(amounts in US$ million)
(unaudited)
Quarter Ended 5/31/2017               KFC             Pizza Hut       Others          Corporate       Total
                                                                                      and
                                                                                      Unallocated
Total revenues                        $      1,116    $      468      $      10       $      --       $      1,594
Company restaurant expenses                  913             402             9               --              1,324
General and administrative expenses          39              26              2               40              107
Franchise expenses                           14              1               --              --              15
Closures and impairment expenses, net        8               9               --              --              17
Refranchising gain, net                      --              --              --              (1)             (1)
Other income, net                            (12)            --              1               --              (11)
                                             962             438             12              39              1,451
Operating Profit (Loss)               $      154      $      30       $      (2)      $      (39)     $      143
Quarter Ended  5/31/2016              KFC             Pizza Hut       Others          Corporate       Total
                                                                                      and
                                                                                      Unallocated
Total revenues                        $      1,107    $      466      $      15       $      --       $      1,588
Company restaurant expenses                  930             417             15              --              1,362
General and administrative expenses          38              26              3               37              104
Franchise expenses                           17              --              --              --              17
Closures and impairment expenses, net        21              11              (1)             --              31
Refranchising gain, net                      --              --              --              (1)             (1)
Other income, net                            (8)             --              --              (4)             (12)
                                             998             454             17              32              1,501
Operating Profit (Loss)               $      109      $      12       $      (2)      $      (32)     $      87
The above tables reconcile segment information with our Condensed Consolidated and Combined Summary of Results.
Corporate and unallocated expenses comprise items that are not allocated to segments for performance reporting purposes.
The Corporate and Unallocated column in the above tables includes, among other amounts, all amounts that we have deemed Special Items.
See Reconciliation of Reported Results to Non-GAAP Measures.
Yum China Holdings, Inc.
Segment Results
(amounts in US$ million)
(unaudited)
Year to date ended 5/31/2017           KFC             Pizza Hut       Others          Corporate       Total
                                                                                       and
                                                                                       Unallocated
Total revenues                         $      2,012    $      847      $      19       $      --       $      2,878
Company restaurant expenses                   1,578           698             16              --              2,292
General and administrative expenses           64              43              4               63              174
Franchise expenses                            27              1               --              --              28
Closures and impairment expenses, net         9               8               --              --              17
Refranchising gain, net                       --              --              --              (2)             (2)
Other income, net                             (27)            --              (1)             --              (28)
                                              1,651           750             19              61              2,481
Operating Profit (Loss)                $      361      $      97       $      --       $      (61)     $      397
Year to date ended 5/31/2016           KFC             Pizza Hut       Others          Corporate       Total
                                                                                       and
                                                                                       Unallocated
Total revenues                         $      2,028    $      833      $      30       $      --       $      2,891
Company restaurant expenses                   1,636           730             28              --              2,394
General and administrative expenses           62              43              4               61              170
Franchise expenses                            31              --              --              --              31
Closures and impairment expenses, net         21              10              --              --              31
Refranchising gain, net                       --              --              --              (4)             (4)
Other income, net                             (22)            --              (1)             (4)             (27)
                                              1,728           783             31              53              2,595
Operating Profit (Loss)                $      300      $      50       $      (1)      $      (53)     $      296
The above tables reconcile segment information with our Condensed Consolidated and Combined Summary of Results.
Corporate and unallocated expenses comprise items that are not allocated to segments for performance reporting purposes.
The Corporate and Unallocated column in the above tables includes, among other amounts, all amounts that we have deemed Special Items.
See Reconciliation of Reported Results to Non-GAAP Measures.

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/yum-china-reports-q2-same-store-sales-growth-of-3-and-operat

SOURCE Yum China Holdings, Inc

https://rt.prnewswire.com/rt.gif?NewsItemId=CN32413&Transmission_Id=201707051630PR_NEWS_USPR_____CN32413&DateId=20170705



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