Yum China Holdings, Inc.

about our journey in the past three years and discuss fourth quarter performance. Andy will then cover the financial performance and outlook in greater detail. Finally, we will open the call to questions. You can find a webcast of this call in the PowerPoint presentation, which contains operational and financial highlights on our website. Finally, we plan to host our 2023 Investor Day in Shanghai through September. We look forward to sharing more details about this event with you in due course. Now I would like to turn the call over to Ms. Zhou Yiwan, CEO of Young China. Zhou Yi.

Thank you, Michelle. I want to wish everyone joining us today a happy and healthy Chinese New Year. Before looking at the fourth quarter and full year, I would like to reflect upon our journey these past three years with COVID, some of our key learnings and how we have grown. First, I'm incredibly grateful to the entire Young China team for their agility, creativity, and tenacity during this difficult time. Together, we became a more resilient, nimble business, better positioned for long-term growth. During the past three years, we quickly pivoted when dying traffic came after pressure. Delivery doubled from just 20% sales mix in 2019 to 39% in 2022. Our hybrid delivery model and dedicated riders enable us to capture the increase in demand. Combined with takeaway, off-premise sales reached almost two-thirds in the fourth quarter of 2022. Digital ordering also rocketed from 55% of sales in 2019 to now 89%. That's over $20 billion in digital sales in three years. We maintained our rapid growth. Our store portfolio expanded by nearly 40%, a total of 3,800 net new stores. KFC and Pizza Hut stores maintained a healthy payback of two to three years, respectively. The first year profitability of new stores also improved. Strong new store performance was driven by our flexible store models. We optimized store size and secured more favorable lease terms. For new stores opened in 2022, more than half were in smaller format. Such flexibility allows us to continue to increase density in higher tier cities, which is particularly useful and helpful for delivery, and capture white space in lower tier cities. We enhance the coverage and agility of our world-class supply chain to support business growth. We expand from 29 to 33 logistics centers for better self-sufficiency in each province. During extended lockdowns, we add rail and sea freight to move our infantry apart from our traditional trucks. Our store infantry visibility system allows real-time self-forecasting and smart infantry replenishment. These capabilities help mitigate severe disruption even during lockdowns and minimize wastage. Also support product innovation by securing supply at scale. Apart from our classic offerings, we launched over 500 new or upgraded menu items last year, from regional offers to national launches. We invested in digital and automation to improve operating transparency and efficiency. For example, we are rolling out smart order system at KFC. The AI-powered system more accurately predicts demand and recommends food preparation plans to minimize stock out and wastage and also reduce waiting time for customers. It also enhances customer experience by reducing wait time and providing real-time order updates. And recently, we added robotic servers at one-third of our Pizza Hut restaurants, ,, freeing up crews to serve customers. We remain profitable each and every quarter since the beginning of pandemic in 2020. By refacing cost structures and implementing austerity measures, we cushioned shocks created by the volatile market situation. In the past three years, we were able to generate 1.9 billion U.S. dollars in free cash flow and returned over 1 billion U.S. dollars to shareholders. Notably, I'm proud to say we did this while also protecting the jobs of our employees. We have had no staff layoffs since the pandemic began. Looking back over this period, we see opportunities improve our ability to operate in good times and bad times. Looking forward, our anti-fragile operation will enable us to shine and drive long-term growth in China. Now let me provide some highlights for the fourth quarter and full year. 2022 was filled with unprecedented challenges. In just 12 months, we managed sporadic COVID outbreaks, entire city lockdowns, nationwide infections, and the sudden lifting of COVID-related restrictions. In October and November, COVID infection quickly evolved into major regional outbreaks, leading to tightened COVID-related measures. In December, China entered a new phase of COVID response with brand new challenges. With surging infection rates, a significant portion of our employees and riders became infected, resulting in a labor shortage. Thousands of our stores were temporarily closed or only provided limited services. Many residents also opted to stay at home to avoid infection or recover from symptoms. Dying traffic fell sharply. During this time, as always, the health and safety of our employees and customers remained our top priority. We moved quickly and supported our employees with relief medicine and antigen test kits. We mandate daily testing for all crews and riders to minimize infection, and we organize informative health talks and a consultation hotline for our employees. At the same time, we took immediate steps to address the labor shortage. We simplified manuals, shortened operating hours, and optimized labor shifts. We reallocate crew resources among stores, prioritizing stores with stronger demand. And we adjusted delivery operations, encourage customers to pick up orders, and promote packaged food products. I'm thankful for our team's nimble actions and amazing execution. Even in this challenging quarter, we delivered substantial year-over-year restaurant margin expansion despite lower sales. This was achieved by our extensive scenario planning, operational efficiency improvement, cost rebasing initiatives, and temporary relief. We were also able to open a record 538 net new stores in the fourth quarter, or 1,106 59 net new stores in the full year. Let's move on to the brand. By brand, KFC and Pizza Hut continue to introduce delicious food and exciting campaigns to delight our customers. At KFC, new categories grew with solid momentum. Juicy whole chicken, and beef burger, doubled in sales in 2022. Combined, they generate around 5% of KFC cells mixed in the fourth quarter, nearly equal to our original recipe chicken. We continued to introduce more flavors in these categories, such as the spicy whole chicken, ,, launched during Chinese New Year. Following the success of Pokemon Cider in quarter two, Our toys in the fourth quarter also generated huge social buzz. These include fancy chicken Bun Bun Ji and fluffy chicken popcorn Ji Mi Hua. Both were originally designed as pet toys or toys for your cats, but quickly became very popular with all customers and drove traffic. At Pizza Hut, pizza sales grew nicely for the year. reaching almost 40% of sales. We sold over 100 million pizzas in 2022. That's nearly seven pizzas per second. Apart from our signature pan, hand-tossed, and crispy pizzas, we have added stuffed crust pizzas. Customers can choose fillings like double cheese, sausage, and meat floss, Rochon, These new launches encourage the trade-offs and lift effective price. We continue to offer stunning value for money. Our signature value campaign at KFC, Crazy Thursday, 疯狂星期四, attracts excellent traffic, generating over 50% more sales on Thursdays compared with other weekdays. Sunday, Buy More Save More, 周日疯狂拼, continues to spur weekend sales. Customers love the option to mix and match and the sizeable discount. At Pizza Hut, we brought back the wildly popular two pizza for 59 yuan promotion in November. The amazing value drove great traffic and sales uplift. New retail packaged food provide us flexibility during lockdown and when we were short of staff. In 2022, KFH food sales grew 90% and reached nearly 900 million yuan. We continue to broaden our offerings, adding some of the classics such as our egg tart and popcorn chicken, Jin Mi Hua. Now, moving on to our emerging brands, we have solid management teams and strategies in place. While it would take time to fine-tune and test the business models, we are making solid products. Lavazza continues to execute its four pillar strategy, which includes brand building, menu innovation, digital and delivery, and store development. Throughout the year, we introduce new coffee flavors, such as orange buffalo latte with buffalo milk, , we also introduce sweet and savory foods that pair well with coffee. such as Cube Connect, which is a fluffy lava croissant. Loyalty members more than doubled to 1 million in 2022, contributing to over 40% of sales. We enhanced operational efficiency and optimized new store design, lowering upfront investments. Although COVID disruptions have delayed store openings, Lavazza reached 85 stores by the end of Q4. Taco Bell doubled its store count in 2022 to 91 stores. We continue to localize the menu for Chinese customers. For example, a crispy wonton taco, Ya Xiao Su, used duck and a wonton wrapper in place of a tortilla. Why not? We also continue to improve the value proposition customer experience and unit economics. Little Sheep and Huang Jinghua were accurately impacted by COVID due to their dying focus. We use 2022 to refine their business models and strengthen fundamentals from menu, marketing, store models, supply chain, to digital initiatives. Huang Ji Huang also continued to generate operating profit. To wrap up, with a new chapter opening in 2023, we are excited to see positive momentum in the Chinese New Year season. We took decisive action to ensure operational efficiency and capture sales. At KFC, we brought back our signature golden bucket, Jing Tong, which is a holiday favorite. At Pizza Hut, we introduced a holiday-themed pizza with Wagyu beef and seafood. It's called Xian Tiao Tiang He Niu Pizza, which is inspired by a popular game. It's gratifying to see how our delicious food plays an important part in our customers' celebration during the holiday. Yet COVID remains a reality. and many challenges still lay ahead, including cautious consumer spending post-holiday. While we anticipate the road to recovery will be gradual and uneven, I'm optimistic that brighter days are ahead. We will continue to execute our proven RGM strategy, which stands for resiliency, growth, and strategic mode, to capture the growth opportunities and deliver shareholder value. With that, I will turn the call over to Andy. Andy?

Thank you, Joey. And belated Happy Chinese New Year to everyone. Let me share with you our fourth quarter performance. As Joey mentioned, we faced an extremely fluid and challenging fourth quarter as there were substantial changes in COVID conditions and related policies. In late November, due to rising infections and strict COVID-related health measures, the number of stores that were either temporarily closed or offered only takeaway and delivery services reached a peak of over 4,300 stores. In December, we faced a different situation where most of the COVID measures were lifted. Due to labor shortage, we had to temporarily close or provide limited services at over $1,300 on average. In such a volatile environment, we took quick actions to capture off-premise demand. Furthermore, we controlled cost, limited wastage, and enhanced productivity, despite lower sales. Our team did a wonderful job improving restaurant margins by almost 3 percentage points despite very difficult circumstances. Let us now go through the financials. Unless looked at otherwise, all percentage changes are before the effects of foreign exchange. Foreign exchange had a negative impact of approximately 11% in the quarter. Fourth quarter total revenue declined 9% year-over-year in reported currency to $2.1 billion. In constant currency, total revenues grew 2%. The contribution of new units and the consolidation of Hangzhou KFC were partially offset by same-store sales decline and temporary store closure. System sales and same-store sales both declined 4% year-over-year. By brand, KFC same-store sales were 97% of the prior year's level, with same-store traffic at 84%. Ticket average grew 16% due to the rise in delivery mix, which has a higher ticket average than dining. Pizza Hut's same-store sales were at 92% of prior year level. Same-store traffic was at 98%. Ticket average was at 95%, driven by lower ticket average of delivery orders and smaller party size due to the pandemic. Restaurant margin was 10.4%, 290 basis points higher than the prior year. The yearly increase was mainly driven by labor productivity, operational efficiency, and temporary relief. These were partially offset by their sales leverage and impact, which includes temporary store closures, as well as high rider costs due to high delivery volume. We also faced inflationary headwinds in commodity and labor costs. Our team worked hard to protect margins during the fourth quarter, which is seasonally slow in terms of sales and profits. Let me go through the key items and highlight the action we took. Cost of sales was 31.9%, 60 basis points lower than prior year. We kept commodity inflation relatively modest by strategically locking in prices and innovating the manual. We also carefully planned promotional activities and reduced wastage. Cost of labor was 28.8%, 90 basis points higher than prior year. This was mainly due to increased wider costs from high delivery sales mix, low single digit wage inflation, and sales leveraging. This was partially offset by better labor productivity and temporary relief of $14 million. Occupancy and order was 28.9%, 220 basis points lower than prior year, despite sales deleveraging. This was mainly due to lower rental expense and other cost-saving initiatives. Rental expense as a percentage of sales benefited from rental relief of $12 million, store portfolio optimization, and more favorable lease terms. G&A expenses increased 2% year-over-year, mainly due to increased compensation and benefit expenses, as well as the consolidation of financial KFC. The increase was partially offset by cause control initiatives. Operating profit was $41 million, compared to $633 million in the year period. In the fourth quarter of 2021, we recorded a non-cash gain of $618 million from the reimbursement of our Chris V. Health equity interest in Hangzhou KFC. Excluding the reimbursement gain, adjusted operating profit increased 189% year-over-year from $16 million to $14 million. The net contributions from Hangzhou KFC's consolidation was 12% of operating profit in the quarter. It included the last quarter of amortization of intangible assets acquired, which was worth $15 million. Effective tax rate was 29.9%, 480 basis points higher than prior year due to lower pre-tax income and the Hangzhou KFC consolidation. Prior to consolidation, the equity income from JVs was not subject to tax, resulting in a lower tax rate. Net income was $53 million. Adjusted net income was $52 million. Excluding the $4 million mark-to-market net gain on our equity investment in Meituan in the quarter and the $9 million net loss in the prior year period, adjusted net income grew 154%. Due to diluted EPS and adjusted EPS were 13 cents. The market-to-market gain in May 2021 increased by 0.1%. In December, we acquired an additional 20% stake in Suzhou KFC JV for approximately $115 million. This increased our total ownership in the JV from 72% to 92%. For the fall year 2022, we generated free cash flow of $734 million. we returned roughly $668 million to shareholders in cash dividends and share repurchases. Cash and short-term investment was $3.2 billion, down from $4 billion in the third quarter. The reduction in cash and short-term investment was mainly due to the reclassification of around $600 million from short-term investment to long-term time deposits. We invested in long-term bank deposits to benefit from better interest rates. Let's now turn to our outlook for 2023. In January, most of the temporary closed-door assumed normal services. Our same-store sales from the comparable Chinese New Year holiday season were up mid-single-digit year-over-year, but remained developed to a condensed level. Same-store sales benefited from pent-up demand as the relaxation of COVID policy coincided with the Chinese New Year holiday. However, the real test will be the sales trajectory after the holiday as we face more cautious consumer spending and macroeconomic uncertainty. Looking ahead, we are encouraged by the new COVID policy. The future indeed looks bright. But we must keep a level head and recognize that uncertainties and challenges still lie ahead. Other countries have shown that further outbreaks and the emergence of new COVID variants are real possibility after COVID restrictions are lifted. We also face macroeconomic headwinds, such as elevated commodity and wage inflation, as well as softening global economic conditions. These factors may impact our operations and consumer spending in China. Now, at the risk of sounding like a broken record, we continue to expect recovery to take time and be nonlinear and uneven. For 2023, our top priority is to drive sales. At the same time, we will remain agile. One of the lessons we learned in the recent years is the importance of planning and preparing for a wide range of scenarios. both to capitalize on growth opportunities and to mitigate risk when needed. On store development, we are targeting to open 1,100 to 1,300 new stores. We expect capital expenditure of $700 to $900 million to support organic growth, remodeling, digital, supply chain, and other infrastructure development. As always, the quality of growth is what matters to us the most. not just the quantity. So we will continue our systematic and disciplined approach to investment and growth. Finally, we remain committed to returning capital to shareholders. The board has approved to raise the cash dividend from $0.12 per share to $0.13 per share. This is supported by our healthy balance sheets and strong cash flow. With that, I will pass you back to Michelle to start the Q&A. Michelle.