Yum China Holdings, Inc.

Thank you for standing by and welcome to the Yum! China second 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 YUM China's second quarter 2023 earnings conference call. On today's call are our CEO, Ms. Jo Yuat, and our CFO, Mr. Andy Yoon. 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. Actual results may differ materially from these forward-looking statements. All forward-looking statements should be considered in conjunction with a cautionary statement in our earnings release and the risk factors included in our findings with FDC. 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. You can find a webcast of this call in the PowerPoint presentation on our IR website. Now I would like to turn the call over to Joey Wang, CEO of Young China. Joey?

Hello, everyone, and thank you for joining us today. I'm delighted to report outstanding performance in the second quarter, both top only and bottom line. Our results are the testament to our resilient and anti-fragile business, which allow us to capture upside in good times and protect downside in bad times. From the back office to the front line, our teams are doing a great job. During the quarter, we reached new heights on multiple fronts. Third, sales performance. Total revenue of $2.65 billion set the new record for second quarter, especially given the exchange rate. System sales grew 32% and same-store sales grew 15% year-over-year. we observed strong demand around holidays. Trading for the May 1st Labor Day holidays was vibrant. However, demand actually softened afterwards with a dip in customer traffic. We adjusted limply with attractive campaigns and we gained sales momentum in June. On June 1st, Children's Day, we hit the record 8.5 million transactions. That's equivalent to a transaction every minute in every location across our 13,000-plus store portfolio in a single day. Thanks to our amazing operation team, robust end-to-end digitalization and agile supply chain, we flexibly handle the spike in demand during campaigns without compromising quality and customer service. The results demonstrate our brand equity and ability to connect with customers with delicious, innovative food and compelling value for money. Second, store expansion. In the first six months this year, we opened 655 next-new stores, setting a new record. We continue to see vast opportunities across all regions and city tiers in China. KFC continued its aggressive expansion, hitting 9,500 stores in over 1,900 cities. Notably, Shanghai became our first city to reach 500 KFC stores. Our 500th store is in the Shanghai Library. As part of our Book Kingdom program for kids, It features a dedicated reading area to promote the love of reading to children. It's also one of our 36 angel restaurants of KFC China. The restaurant offers a warm, inclusive space for employees and customers with special needs. It showcases our commitment to positive social impact in the communities we serve. Pizza Hut opened a record 169 net new stores in the first half of the year. Supported by strengthened fundamentals through the revitalization program, healthy new store payback give us confidence for accelerated growth. In addition, Pizza Hut reached 3,000 stores in China, a milestone that few casual dining restaurant chains can claim. Our 3,000 store is in Qinghuandao, a popular holiday destination in northern China. This resort-themed store boasts a beautiful patio with stunning sea view. In addition, it was built with eco-friendly materials and an intelligent energy management system. Third is profitability. Our operating profit for the first half of 2023 has already exceeded the entire year of 2022. This achievement reflects our ability to capture sales and rebate our cost structure. Our rent for the first half was below 9%. This is the best ratio in the past decade. Now, let's talk about KFC. Our value platform generated Amazing sales results. First, crazy Thursday, the famous crazy Thursday, 瘋狂星期四, continue to be a tremendous draw, driving 50% more sales than other weekdays. Second, Sunday, buy more, save more, 週日瘋狂拼, energize Sunday sales. We captured at-home consumption with our juicy whole chicken, 蜜汁全雞, We sold 22 million of this product in the first half, and more than doubled itself year over year. Third, our weekday value combos, OK San Jian Tao, are gaining popularity. We added a new sizzling roasted chicken fried burger, Zhi Zhi Kao Zhi Cui Bao, to enrich our entry price point offerings. For just US $3, Customers love the new weekday value combos. Delicious and innovative food continues to delight our customer KFC. In the second quarter, we introduced the quesa, a creative twist on pizza that utilized our existing ingredients. We used the wrap from our dragon twister, Lao Bei Jin Ji Rou Ji, to make the thin crust and popcorn chicken, Ji Mi Hua, as the topping. This fun, innovative, limited-time-over-generated strong sale receives great potential for more taser variations in the future. K-coffee sales grew 50% with 47 million cups sold in the second quarter. Our Ice Sparkling Americano with Sexy Lemon is the perfect drink to beat the summer heat. We use our soda fountain machine to make this sparkling drink without additional investment in the store. It has become K-Coffee's best ever limited time offering. Now, let's talk about our marketing campaign. Connecting with families and children is an important part of strengthening our brand affinity. Around Children's Day, we partnered with Sanrio, Sanrio, and sold nearly 3 million meal sets with adorable toys such as Hello Kitty. This campaign contributes to our overwhelming success on Children's Day. Of course, these popular toys also work very well for adults as well. Pizza Hut. Let's move to Pizza Hut. We continuously innovate to offer better products at great value. Our new menu launched in May has been a big success and strong sales driver. Over half of the menu items are either new or upgraded from a year ago. Pizza is our biggest category, accounting for over one-third of sales. We continue to fortify our pizza expert image by upgrading existing products and introducing new toppings. apart from our signature Super Supreme, and durian, durian pizza. We introduced a new pizza, like bolognese pizza with beef, pizza. It's a familiar taste because of spaghetti, and it has become a customer favorite, especially among children. Of course, we use quite a bit existing ingredients to simplify the store operation and to keep the ingredients fresh as well. In addition, many customers are trading up to stuffed crust pizza, which accounts for nearly 40% of pizza sales. Most recently, we launched pineapple and cream stuffed crust to complement our other stuffed crust choices of cheese and sausage. Pizza Hut has been sharpening its value proposition and customer engagement. Our value platform Screen Wednesday successfully drove sales and traffic growth. Every Wednesday, we offer different meal choices from pizza, steak, rice, and pasta, to appetizers at an attractive price of $3 to $5 US dollars. There are choices for one-person meals and for social gatherings. We continue our collaboration with Jensen Impact, Jensen, for the second year. This campaign significantly boosts sales and attracts many young customers. We sold more than two million meal sets with themed accessories, tripling last year's numbers. This wildly popular campaign helped us recruit over one million new members. Lavazza, let's switch gears to Lavazza. Lavazza continues to make good strides forward. In July, we crossed the 100-store milestone. In addition to the coffee shop business, we sell Lavazza coffee beans and capsules to premium hotels, restaurants, and other channels. Recently, Lavazza also starts supplying coffee beans to Pizza Hut to upgrade the coffee at Pizza Hut. I'm happy with the progress we have made and excited about the growth opportunity. Digital. On to digital. Our digital ecosystem plays a crucial role in recruiting and engaging members, driving their activities and unlocking sales performance and potential for us. Our loyalty programs now exceed 445 million members. Member sales increased to 66%, setting a new record. Our super app had a major update earlier this year, offering our customers a better digital experience. We introduced interesting member-exclusive perks to tickle our customers, such as app-exclusive new product pre-sales and lucky draws utilizing member points. In addition, we have been working with third-party online platforms to expand our reach. For example, prepaid discount vouchers, Yifu Chips, have been gaining popularity on short video platforms. By offering geographically specific deals, we effectively attract new members and increase spending of existing customers. Our end-to-end digitization unleashed great potential of our restaurant general manager, our GM. Our store management team sharing initiative It is progressing well at KFC and Pizza Hut. Selected RGM, for the first time in our history, can now manage multiple stores. Our AI-enabled systems have streamlined administrative work to help relieve our RGMs of repetitive tasks. By further integrating our store management system, we enhance the visibility of store operations and cross-store data analytics. These digital tools empower our RGM to manage multiple stores more effectively while upholding operating standards. This will be a driver for future store costs and also address our bottleneck of new store opening. So we are looking for more progress going forward. Summer peak season, as we speak, we have entered our summer peak trading season. We are ready to capture summer holiday traffic with eye-catching menu items backed up by rock solid operations. we have brought back our crowd-pleasing fried chicken taco with a new ingredient, blue frog . It does not translate well, but is a delicacy for a customer in China. At Pizza Hut, we have extended our popular durian pizza with a new product, durian coconut lava pizza, , durian pizza. To handle increased demand in the summer peak season, we are ramping up crew resources, securing supplies, and staying vigilant with multiple scenario planning. With that, I'll turn the call over to Andy.