Yum China Holdings, Inc.

Thank you for standing by and welcome to the Yum! China first quarter 2023 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, IR Director. Please go ahead.

Thank you, Ashley. Hello, everyone. Thank you for joining YamChina's first quarter 2023 Earnings Conference Call. On today's call are our CEO, Ms. Zhou Yiwat, and our CFO, Mr. Andy Yung. 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. These calls also include 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. You can find a webcast of these calls and a PowerPoint presentation on our IR website. Now I would like to turn the call over to Joey Wang, CEO of Young China. Joey?

Thank you, Michelle. Hello, everyone, and thank you for joining us today. We are pleased to have set new records for first quarter revenue and operating profits. It's a wonderful start to 2023. Like the Chinese saying, I want to thank all of our 400,000 plus employees Without their hard work and dedication, our performance would not be possible. System sales grew 17% year over year. Back in early January, we had low visibility into how conditions would unfold after the realization of strict COVID measures. Chinese New Year is a critical trading period for us. This year and earlier Chinese New Year was particularly challenging. due to a shorter ramp-up period. We planned for multiple scenarios incorporating regional differences and focused on driving sales based on the more optimistic scenarios. Therefore, we were able to effectively deploy resources as opportunities emerged. Operating profit more than doubled to $416 million. Our efforts in enhancing operational efficiency and rebasing our cost structure in the past few years contributed to strong profitability in the quarter. And our system sales growth compared to 2019 is plus 20% and operating profit also compared to 2019 is plus 37%. These results exemplify our ability to stay resilient in challenging times and seize opportunities when better times emerge. Our initiatives and investments, along with our resiliency, growth, moat, strategy, have made us more agile and responsive. During the quarter, we were encouraged by early signs of recovery. Notably, sign, takeaway, delivery, all grew year over year on the same store sales basis. Delivery, a part four, around 36% of sales, same as a year ago. Customers continue to love the convenience and delivery provided. Off-premise was over 60% of sales. ThinkSo sales grew year over year across different regions and trade zones. We benefit from increasing mobility and saw a 40% plus growth at transportation and tourist locations. single sales at these locations in the first quarter were still 20 to 30% below 2019 level. Weekend sales growth slightly outpaced with day sales. Apart from increased social gatherings, value programs since 2022 also contributed to growth. Let me share about how we grow sales. We focus on our core pillars, good food, at great value and good customer experience to capture demand. Good food at great value is our hallmark. We refreshed several signature products and achieved great results. After doing it for more than a decade, people come to expect our Chinese New Year bucket at KFC. To capture a home consumption around family reunion, we add the option to trade up for a juicy whole chicken, . We sold 11 million whole chickens in the first quarter, more than doubled year over year. We gave our classic beef wrap a localized spicy twist, . The innovation sparked social buzz, leading to a sellout in many markets in just six days. A Pizza Hut, The Supreme series is our most popular pizza lineup, accounting for nearly 30% of all the pizzas we sold in the first quarter. We introduced Wagyu Beef and Seafood Supreme in Chinese New Year by including premium ingredients like abalone, sea cucumber, and Wagyu beef. These pizzas became the perfect festive choice. We also created double durian supreme, for durian fence. Two types of durian, and were combined with grapefruit and pineapple to create an explosive tropical flavor. Durian lovers love it. We continue to make our good food available at great value. At KFC, Crazy Thursday and Sunday Buy More, Save More promotions, 疯狂星期四,还有 走乐疯狂拼, continue to drive sales momentum and excitement. This year, we offered these great values even during Chinese New Year. We also revamped our weekday value combos OK Sanjian top with more choices and lowered prices of select burger combos to just 19.9 RMB. These three item combos attract new customers and grow frequency. We also expand our popular buy one, get one free campaign Pizza Hut to include pizza and stick options. Customers can redeem the free item immediately or in the next visit within 30 days. The campaign significantly increased sales by encouraging repeat purchases during the promotion period. Now let's talk about operating efficiency. Late last year, a significant portion of our employees and riders were infected with COVID. At the peak, Over 4,000 of our stores were temporarily closed or offered only limited services. By early January, as people gradually recovered from COVID, we made every effort to keep our stores open and resume normal operations. We got ready for the Chinese New Year period. We planned for cruise and inventory based on the more optimistic scenarios We also account for regional differences and continuously fine-tune our plans based on regional learning. We further improved hiring an incentive program to manage staffing and minimize labor shortages. To enhance productivity, we expand our initiative to share store management teams across multiple stores. It also provides career development opportunities for our young talents. Now let me share with you about our digitization. We have built a powerful digital ecosystem that's instrumental to our innovations while also enhancing operational efficiency. We leverage AI to optimize demand forecasting, inventory management, crew scheduling and production. Smart order system, 订单智能交付, streamlined the food preparation for dining and off-premise orders. These capabilities are particularly important during the peak season like Chinese New Year. Also, migrating our key infrastructure to private EMC cloud enhanced the reliability of our operations. It's especially important when we face significant traffic spikes during campaigns like Crazy Thursday. Smart delivery. Zilin, Shanchuan continue to improve delivery coverage and flexibility. Last year, we upgraded the system to dynamically adjust delivery coverage for each store by day part. These capabilities, along with our dedicated delivery riders, allow us to capture more sales and fulfill orders, even during the Chinese New Year peak season. We continued to improve digital touchpoints for better engagement with members. Digital orders account for around 89% of sales in the first quarter. Our loyalty programs exceed 430 million members. Members steadily contribute to about 60% sales. We actively engage members and drive frequency with privileged subscription plans. K-Friends is an invitation-only program for top 1 million loyal customers. K-Friends receives exclusive coupons and perks and a royal crown on the call screen when ordering in-store. These help us gain valuable insights to improve service for our most loyal members and all customers. To sum up, we are extremely pleased to deliver strong first quarter performance. Multiple scenario planning, innovative products, and value campaigns along with our agile supply chain and digital capabilities enable us to capture market opportunities. As we progress through 2023, we plan to stay nimble to the evolving market conditions. Looking ahead, we will focus on building sales momentum, expanding our store network, and fortifying our competitive moat. With that, I will turn the call over to Andy. Andy?