Yum China Holdings, Inc.

Good day and thank you for standing by. Welcome to Yum! China's second quarter 2021 earnings conference call. At this time, all participants are in listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to our first speaker today, Ms. Michelle Shen, thank you. Please go ahead.

Thank you, Davina. Hello, everyone, and thank you for joining YamChina's second quarter 2021 earnings conference call. Joining us on today's call are our CEO, Ms. Joey Hua, and our CFO, Ms. Andy Yun. Before we get started, I'd like to remind you that our earnings call and investor presentation contain forward-looking statements, which are subject to future events and uncertainty. Our actual results may differ materially from these forward-looking statements. All forward-looking statements should be considered in conjunction with the cautionary statement in our earnings release and the risk factors included in our findings with SEC. This call also includes certain non-GAAP financial measures. You should carefully consider the comparable GAAP measures. Reconciliation of non-GAAP and the GAAP measures is included in our earnings release. Today's call includes three sections. Joey will provide an update regarding recent developments and our second quarter 2021 results. Andy will then cover the financial performance in greater detail. Finally, we will open the call to questions. You can find the webcast of this call in the PowerPoint presentation, which contains operational and financial information for the quarter on our IR website. Now, I would like to turn the call over to Ms. Zhou Yiwa, CEO of Yum China. Zhou Yi.

Thank you, Michelle. Hello, everyone, and thank you for joining us today. Our business has recovered remarkably well, although the pandemic is still impacting our business and will continue to do so. We have learned to live with it, and we are focusing on the future. We focus on our core, good food, great value and customer experience. We penetrate further into lower tier cities. We increase our store network density to suit the shift to off-premise dining post-pandemic. KFC remains resilient and continues to grow at a very fast pace. Pizza Hut achieved stellar performance and expected to become another growth engine of Yum China. Kofi and Joe and Lavazza are making good progress. We delivered a solid second quarter. System sales grew 14%. Operating profits grew 83%. We expanded the store footprint at an accelerated pace, opening 404 new stores in the quarter. In less than one year, we added more than 1,000 net new stores and increased total store count to over 11,000. Our team is laser-focused on driving sales. Our powerful digital platform enables us to swiftly adjust our marketing campaigns. We can reach members directly with targeted offers. In a quarter, we recruit over 10 million new members, ending the quarter with over 330 million members. Notably, off-premise and home consumption are becoming more popular in a post-pandemic era. Our delivery sales grew over 60% compared to 2019. We also launched retail products across our brands, leveraging our online and offline assets. We intend to learn and innovate to address evolving consumer needs. Let me update you on our core brands. First, let's start with KFC. KFC led our new store openings. We increased store density in existing cities and entered over 100 new cities in the last 12 months. With 280 new stores opened in a quarter, we now have over 7,600 stores across China. More impressively, new store cash payback and profitability remain very healthy across city tiers. System sales grew 14%, led by same-store sales growth and accelerated new store openings. KFC successfully navigated this tough operating environment with reduced volume at transportation and tourist locations. Our operating profit grew by 50% to $240 million. It goes without saying the crucial role good food plays in our business. In the second quarter, KFC adds the Wagyu and Angus beef burgers to the permanent menu. KFC also launched the Bo Dan, a meaty, bunless chicken sandwich, as a limited-time offer. These innovations generated strong social buzz and are well-received by consumers. We know our consumers well and cater to local taste buds. KFC has introduced regional menu items such as hot dry noodles, and steamed dumplings in Hanzhou. We also launched a Sichuan spicy plant-based beef wrap and an oat milk latte to provide more choices to consumers. With our good food, we also offer great value. Throughout the quarter, we launched attractive promotions to dry traffic. Our main Labor Day holiday buckets are the first-ever mix-and-match buckets for die-in locations. On the digital front, we focus on growing our member base and driving their spending. We launched a new privileged subscription plan, giving our members their choice of perks from a range of offerings. This provides flexibility for our members and drives incremental sales, We sold 8 million privileged memberships in the quarter. Every spending of our privileged members doubled that of regular members. Now let's move on to Pizza Hut. Our transformative initiatives in the last four years have yielded great results. Compared to pre-COVID levels back to 2019, same-store sales continue to recover. system sales growth turned positive, operating profit more than doubled from the same period last year. We accelerate our new openings and add 17 net new builds in the first half of this year. This is the highest total net new units we add in the first half since 2016. It shows our confidence in the business model now. Hub & Spoke and other small store formats have proven to be successful. and now account for most of our new stores. Store economics continue to improve. New store payback remains healthy, in particular for the help of small stores. We will continue to increase density and penetrate into more new cities. In the March new menu, we changed 40% of the menu items compared to the previous year. In the second quarter, we continue to improve our product offerings for a better customer experience. In June, we upgrade our hand-tossed dough with more premium flour and low temperature, long fermentation. This makes the pizza dough crispy outside and soft inside. It tastes particularly good and very, very suitable for delivery. We also launched sirloin steak with Parmesan cheese And knife-sliced noodle, not the very proper translation, but the Chinese name is called Dao Shao Mian, is a traditional specialty noodle of Shaanxi province. This is a great fusion product combining elements of East and West. To enable value proposition and enhance our value proposition, Pizza Hut has expanded the price range of its pizza offerings. In June, we launched 13 new pizza flavors at more affordable price points, mainly for the new upgraded hand-tossed dough. We also launched another successful All-You-Can-Eat campaign offering abundant value. The Pizza Hut membership reached a significant milestone of 100 million members. Member sales now account for over half of system sales. Digital and technology continue to play an important role in driving sales. Digital ordering increased to 84% of sales from just 29% two years ago. Delivery and table-side mobile ordering became more popular. Coffee. Our coffee business is making good progress. Lavazza tripled its store count, although the base is a bit small, in the second quarter. Initial results of our new store opening are encouraging. We now have 14 of our other stores in Shanghai, and we are opening our first beautiful store in Hangzhou, which is the first store outside China, in about one hour today. We are confident in the potential of this 126 years old Italian coffee brand. Coffee Enjoy Double is per unit sales compared to 2019 and had a meaningful number of stores breaking even at the end of the quarter. We are reinforcing a specialty coffee brand positioning, expanding their part with more food choices, broadening the customer base, and have better value for money. To conclude, my professor, we are well positioned to capture the market opportunities in China. Our store network is growing at an unprecedented pace. We are investing ahead to fortify and future-proof our infrastructure and digitization. At Yum China, we are committed and confident to achieving sustainable growth in the many years to come. With that, I will turn the call over to Andy.