Yum China Holdings, Inc.

Thank you for standing by and welcome to the Yum China third quarter 2022 earnings conference call. All participants are in a listen only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Ms. Michelle Shen, Director of Investor Relations. Please go ahead.

Thank you, Ashley. Hello, everyone. Thank you for joining Yum! China's third quarter 2022 earnings conference call. On today's call are our CEO, Ms. Joey Watt, and our CFO, Ms. Andy Young. We are diving in from different locations today. If we experience any technical difficulties during the call, please remain on the line as we reconnect. Before we get started, I'd like to remind you that our earnings call and investor materials contain forward-looking statements. which are subject to future events and uncertainties. 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 GAAP measures is included in our earnings release. Today's call includes three sections. Joey will provide an update regarding our performance in the third quarter. Andy will then cover the financial performance and outlook in greater detail. Finally, we'll open the call to questions. You can find a webcast of this call in the PowerPoint presentation, which contains operational and financial information for the quarter on our IR website. Also on the site, you can find a video we prepared that that showcases our latest stores, offers, and activities. Now I would like to turn the call over to Ms. Joey Watt, CEO of Yum China. Joey?

Thank you, Michelle. Hello, everyone, and thank you for joining us today. We achieved outstanding performance in the third quarter with fantastic growth, both top line and bottom line. Let's demonstrate our ability to operate in an uncertain environment by learning, adapting, and strengthening business fundamentals. During tough times, our resilient business model and agility help us manage the negative impact. As COVID conditions were relatively calmer in July and August, we captured sales opportunities during the peak summer season. System sales recovered with 5% year-over-year growth. Operating profit surged 77% year-over-year to $360 million, even higher than 2019 level. Great teamwork makes this possible. Key elements in our winning formula include our in-house and tailor-made supply chain, industry-leading digital and delivery capabilities, cost restructuring, and solid execution. Let's move to KFC and Pizza Hut. We have been innovating new products to satisfy customer cravings. In the past two years, we have established strong presence in new categories, such as beef burger, whole chicken, and durian pizza. This was enabled by our powerful supply chain by securing supply at scale, streamlining production, and optimizing costs. Let me share our success stories. At KFC, our extra juicy beef burgers rapidly capture meaningful market share. Since adding them to the permanent menu in May 2021, we have sold over 100 million burgers. That's about five beef burgers every second. For the full year, we expect to generate close to 2 billion yen in sales from beef burgers. We cater to Chinese taste by making the patty super juicy using our specialty oven. Customers love our burgers for their great taste and value for money. We source our Wagyu beef, Longjiang Henou locally from northeastern China and have signed a multi-year contract to secure a price and surprise. Our juicy whole chicken has also quickly gained popularity since it launched late last year. Year-to-date, we have sold over 18 million whole chickens. Whole chicken is a versatile product, good for both dining and take-home consumption. We use a different breed of smaller chicken with better cost that is the perfect size for an individual meal and particularly juicy. And it's good for sharing on the dining table at home as well. A pizza hut. Durian pizza has become a customer favorite. In fact, during Q3's promotion, every fourth pizza we sold was a durian pizza. Our limited-time durian trio pizza, with three types of durian, was especially popular with durian lovers. Customers are increasingly value cautious, yet we do not compromise on quality. Last quarter, we shared about KFC's wildly popular Crazy Thursday campaign, 瘋狂星期四. Since 2018, we have been offering delicious food, including the latest innovations, at amazing value. The campaign continues to be a phenomenal event, generating a significant boost in sales every Thursday. Our customers create witty and playful social media content using the crazy Thursday theme. Many of these postings have gone viral, creating huge hype for us. Now, to drive weekend traffic for families and kids, we have introduced a Sunday Buy More Save More campaign in July. Customers can get a bigger discount when they buy more, up to 50% off for eight items. This new promotion platform has built wonderful momentum with good value perception while protecting our ticket average. Apart from abundant value, we also launched a Golden Star Chicken Breast Burger, Huang Jing's Bar Ji Pai Bao. This is our first successful chicken breast burger. We add an extra step in the preparation process to make the breast meat super juicy and tender. This entry-price burger widens our choices for customers and is a great product for lower-tier cities. We try to keep our brand appealing to youthful customers. In September, we transformed select Pizza Hut stores into social hubs for gamers. Partnering with the popular RPG game Jensen Impact, we decorated stores, outfitted restaurant crews, and offered Exclusive gifts. The campaign generated extraordinary social buzz. In just three minutes, we sold over 300,000 themed combo meals. And our super app recorded its highest activity ever. I'm looking forward to more successful events with this partnership. Let's move to digital and delivery. We have been enhancing our delivery and digital ecosystem to make our business fundamentally stronger. Customers love convenience. Delivery sales are growing fast. Empowered by our dedicated delivery riders and leading digital capabilities, delivery grew 19% year over year and reached 38% of sales mix in quarter three. Together with takeaway, off-premise sales were over 60%. Our ability to capture off-premise demand not only enable us to flexibly serve customers, but also cushion store closure impact due to COVID conditions. This 60% off-premise sales is so fundamental to our business model because it really protects our downside in both sales and profit, despite the fluid situation. We have been maximizing delivery coverage and flexibility using AI technology. Most recently, we launched Smart Delivery to dynamically adjust delivery coverage for each store by data, taking into account the operating hours of nearby stores. The upgrade system helps us serve more customers more efficiently. Our digital capabilities serve as key touchpoints with customers. In quarter three, we reached two milestones in our digital ecosystem. One, our loyalty program reached 400 million members. And two, cumulatively since 2018, KFC sold over 100 million privileged subscriptions. Our privileged subscriptions are of great value for money and have been an effective tool in driving frequency and spending. Our digital capabilities are also crucial to streamlining restaurant efficiency. Digital orders optimize in-store labor efficiency and account for more than 90% of sales in the quarter. Pizza Hut's table-sized mobile ordering sales have grown exponentially from just 2% at its launch in 2018 to 45% in Quarter 3, 2022. This helps mitigate rising wage inflation and frees up crew members to enhance customer service. To improve digital experience, we introduced intelligent order sequencing at KFC, 智能订单交付. In the third quarter, this system automatically arranges orders to shorten customer wait times. Now let's move on to coffee, our third growth engine. Lavazza is making solid progress along its clear four pillar strategy. The pillars include brand building, menu upgrades, expanded digital and delivery capabilities, and store development. Here's how we built these out. Branding. Lavazza has a century-long reputation for coffee expertise. We will continue to accentuate its brand positioning as the leading Italian coffee brand offering an authentic Italian experience. Menu upgrades. We are broadening food and drink offerings with more unique Italian products, including cover premium single-origin beans and tagliatelle, which is an Italian flatbread with meat or egg stuffing, something like our Chinese loziamo. We also launched localized products, such as coconut latte, buffalo milk latte, and even osmanthus latte. Osmanthus, guihua, is a very lovely fragrant flower used in many Chinese desserts. These new products capture the latest coffee trends and have been well received by our customers. Digital and delivery. We are building our membership program and digital fundamentals to improve customer experience and attract online traffic. Delivery reached almost 40% of sales mix in quarter three. Store development. Now with 78 stores, we have further refined our store models, paving the way for growth. We have made great progress so far, but work remains. Good things do take time. We want to grow this brand right with every step at the right time. In close partnership with Lavazza Group, we are confident to build a successful Lavazza business in China. We decided to wind down our coffee and joint operation. From branding to site selection to operation and more, we learned a lot with coffee and joint. This invaluable learning experience will help us capture growing opportunities in the coffee market. Going forward, we will grow our coffee business with two distinct market positionings, K-Coffee, focused on value and convenience, and Lavazza, focused on authentic Italian coffee. To summarize, our innovations and hard work in the pandemic years have made our business fundamentally stronger. We are confident in our team's ability to find opportunities in adversity and unlock further potential in China. We will continue to execute our RGM, which stands for resiliency, growth, and mode framework to strengthen our competitive position and capture long-term growth. With that, I will turn the call over to Andy. Andy?