Q4 2021 Yum China Holdings Inc Earnings Call

Speaker 1: Good day, everyone. Thank you for standing by. Welcome to Yum! China Four Quarter and Fiscal Year 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you need to press star 1 on your telephone.

Good day, everyone. Thank you for standing by and welcome to Yum, China's fourth quarter and fiscal year 2021 earnings conference call. At this time all participants are in a 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.

One on your telephone.

Speaker 1: Please be advised that today's conference is being recorded. If you require any assistance during the call, please press star zero. I would now like to hand the conference over to your first speaker today, Ms. Michelle Shen, IR Director. Thank you, please go ahead.

Please be advised that today's conference is being recorded if you require any assistance during the call. Please press star Zero I would now like to hand, the conference over to your first speaker today Ms. Michelle <unk>.

Victor. Thank you. Please go ahead.

Speaker 2: Thank you, Desmond. Hello, everyone, and thank you for joining Yum! China's fourth quarter 2021 Earnings Conference call. Joining us on today's call are our CEO , Ms. Zhou Yu-Hua, and our CFO , Ms. Andy Hu. Before we get started, I'd like to remind you that our earnings call and investor presentations contain forward-looking statements, which are subject to future events and uncertainty.

Thank you Hello, everyone and thank you for joining Yum, China's fourth quarter 2021 earnings conference call joining us on today's call are <unk>.

Oh, Ms Joey Wat and our CFO Mr. Andy 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 uncertainties our actual.

Speaker 2: Our actual results may differ materially from these forward-looking treatments.

Actual results may differ materially from these forward looking statements.

Speaker 2: 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.

All forward looking statements should be considered in conjunction with the cautionary statements in our earnings release and the risk factors included in our filings with the SEC. Please.

Speaker 2: 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.

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.

Speaker 2: Today's call includes three sections. Joey will provide an update regarding our performance over this past year and then review key actions. 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 and a PowerPoint presentation, which contain operational and the financial information for the quarter on our IR website. Now, I would like to turn the call over to Ms. Joey Watt, CEO of Yum! China.

Today's call includes three sections Joey will provide an update regarding outperformance over this past year and that review key actions. Andy will then cover the financial performance and outlook in greater detail. Finally, we will open the call to questions. You can find the webcast of this call and a powerpoint presentation, which contains.

<unk> operational and the financial information for the quarter on our IR website now I would like to turn the call over to Ms. Joey Wat.

Yum, China Joey.

Speaker 3: Thank you, Michelle. Hello everyone and thank you for joining us today. In the fourth quarter, multiple waves of outbreaks across the nation significantly impact our business. I would like to express my heartfelt gratitude to all of our employees for taking the right actions to ensure customer safety and minimize business disruption.

Thank you Michelle Hello, everyone and thank you for joining us today.

Fourth quarter multiple ways, all outbreak across the nation significantly impact our business.

I'd like to express my heartfelt gratitude to all of our employees, while taking the right actions to ensure customer safety and minimize business disruption play.

Speaker 3: For example, during the lockdown in Xi'an, our excellent supply chain team shielded us from major disruptions. Our operation teams took immediate actions to quickly resume delivery and take away. They provide vital services to the community in this time of need. We also provided free meals to frontline medical and social workers as a token of our appreciation.

Sample during the lockdown in Xian excellent supply chain team shoot us from major disruption.

Our operation team took immediate actions to quickly resume delivery and takeaway.

They provide vital services to the community in this time of need.

Also provided free meals to frontline medical and social workers as a token of appreciation.

Speaker 3: We consider people to be a critical pillar of our sustainability strategy.

We can see the people to be a critical pillar of our sustainability strategy. We aim to have a workplace where employees can thrive, while protecting them and supporting their career in times of uncertainty there.

Speaker 3: We aim to have a workplace where employees can thrive while protecting them and supporting their careers in times of uncertainty.

Speaker 3: Therefore, this year we enhance medical insurance coverage for our RGM, restaurant management teams and supervisors. These greater benefits cover around 100,000 frontline employees.

Therefore, this year, we enhance that medical insurance coverage for all G M restaurant management teams and supervisors.

He is greater benefit cover around 100000 frontline employees.

Despite the challenging environment for the full year, we grew revenue by 19%, we delivered operating profit of $1 4 billion or $766 million, excluding special items.

Speaker 3: Despite the challenging environment, for the full year we grew revenue by 19%. We delivered operating profit of 1.4 billion or 766 million excluding special items.

Speaker 3: We opened over 1,800 stores. That is equivalent to five new stores per day.

Opened over 1800 stores that is equivalent to five new stores per day.

Speaker 3: compared to three new stores per day just a year ago.

Compared to three new stores per day, just a year ago.

Speaker 3: On the next basis, we add over 1,200 stores.

Net basis, we at over 1200 stores.

Speaker 3: KFC continues to demonstrate remarkable growth and resilience.

KFC continue to demonstrate remarkable growth and resiliency.

Speaker 3: System sales grew 8% in 2021.

<unk> sales grew 8% in 2021.

Speaker 3: The brand opened more than 1200 stores, entering 160 new cities in 2021. More than half of new stores were in lower tier cities, but we're also adding store density in higher tier cities.

The brand opened more than 1200 stores entering 116, new cities in 2021.

More than half of newest stores, bringing lowest tier cities, but we also adding towards sanity in higher tier cities.

Speaker 3: the business contributes to the majority of young China's profits.

The business concept built to the majority of young China Province.

Pizza hut came back stronger.

Speaker 3: achieving thinkorswim growth of 7% for the full year.

Achieving same store sales growth of 7% for the full year.

Speaker 3: We are happy to see the growth was driven by transaction volume increase of over 10

We are happy to see the growth was driven by transaction volume increase of over 10%.

Speaker 3: Pizza Hut opened over 300 stores, a record opening since 2016.

Pizza hut opened over 300 stores a record opening since 2016.

Speaker 3: The brand also strengthened its bottom line with fully established operating profit of 77%.

The brand also strengthened its bottom line with full year segment operating profit up 77%.

Speaker 3: These results reflect a remarkable improvement over the past few years.

These results reflect the remarkable improvement over the past few years.

Speaker 3: Now let me provide some color on the fourth quarter. During the national day holiday in early October , we saw a sequential recovery from the third quarter.

Now, let me provide some color on the fourth quarter.

During the National day holiday in early October we saw a sequential recovery from the third quarter.

Speaker 3: As regional outbreak surged, November same-store sales were done by mid-teens year over year, all approximately 20% compared to November 2019.

As a regional outbreak searched November same store sales were down by mid teens year over year.

Or approximately 20% compared to November 2019.

Speaker 3: Since those sales improved slightly in December , but we're still more than 10% below both prior year and 2019 level.

Same store sales improved slightly in December , but we're still more than 10% below both prior year and 2019 level.

Speaker 3: Authorities implemented mass testing, regional lockdown, and stringent travel measures nationwide.

As far as these increments mass testing regional Lockdowns and stringent travel measures nationwide.

Speaker 3: These significantly impact the overall restaurant industry in our business. At the height of the outlook, nearly 300 of our stores were temporarily closed, or only provide delivery and takeaways.

These significantly impact the overall restaurant industry and our business at.

At the height of the outlook nearly 300 of our stores were temporarily closed.

I'll only provide delivery and takeaway services.

Speaker 3: But more importantly, reduced social activities, less traveling, and paradigm- theorem is too large, the evaluation of low social activities

But more importantly, reduced social activities, less traveling and soft and consumption impact foot traffic across our brands.

Let me share with you the key actions, we took to stabilize our business.

Speaker 3: Let me share with you the key actions we took to stabilize our business.

Speaker 3: First, we drive traffic and sales with great product and value.

We drive traffic and sales with great products and value.

Speaker 3: The ability to innovate is one of our core competitive advantages.

The ability to innovate is one of our core competitive advantages.

Speaker 3: We again launched over 500 new or upgraded products like

We have gained launched over 500, new or upgraded product last year.

Speaker 3: At KFC, new categories such as beef burgers and whole chicken have received great customer feedback. Beef burger sales in a full quarter exceed 300 million RMB and accounted for 3% manual maintenance.

At KFC, Neil categories, such as beef burgers, a whole chicken have received great customer feedback.

<unk> sells in a full quarter exceed 300 million RMB.

Kind of four 3% menu mix.

Juicy whole chicken and not as successful limited time offer promotion and therefore, we are putting it on permanent menu this year.

Speaker 3: Juicy Whole Chicken had another successful limited time over promotion and therefore we are putting it on permanent manual this year.

Speaker 3: We also partner with popular Chinese friends, Zoheya from Pubei, and Wang He-Yong from Puh-Nan, to design innovative new menu items.

We also partner with popular Chinese brands, So hey, yeah from Hubei and Wuhan from Qunar to design innovative new menu items.

Speaker 3: Customers love the chicken and duck sandwich and spicy crayfish wrap will launch in a quarter.

The most loved the chicken sandwich and spicy crayfish Rep will launch in a quarter.

Beyond National launches in 2021, Cathy launched 12 local dishes in regional market.

Speaker 3: Beyond national launches, in 2021, KFC launched 12 local dishes in regional markets. We expand all rings from breakfast to late nights next.

Pam offering from breakfast to late night snack.

Speaker 3: Beef and lamb kabob from northwestern China, xibe kou lo chuan, and cold noodles with sesame sauce from Wuhan, Wuhan liang mian.

<unk> and land come up from northwestern China, ebay Colo time.

And cole noodles with Sesame sorts of Hum wanted them yet.

Among customer favorite.

Speaker 3: We have a mechanism to roll out successful regional offerings to more places or even nationwide. Wuhan hot dry noodle, wuhan le gan mian, last year was a big hit.

We have a mechanism to roll out successful regional offering to a more places or even nationwide wow.

I'll try noodle.

Now last year was a big hit.

Speaker 3: A piece of heart will launch special winter theme pieces for the holiday season featuring Greek peas, tiger prawns and filet mignon.

At Pizza Hut, we launched special wind has been pizza for the holiday season.

Drink green sheets tied.

Prong and filet mignon.

We all we also offered more flexibility to our customers, allowing them the option to trade up pizza, topping which translated into higher average ticket.

Speaker 3: We also offered more flexibility to our customers, allowing them the option to trade up piece of toppings, which translated into higher average ticket. We also offered more flexibility to our customers, allowing them the option to trade up piece of toppings, which translated into higher average ticket.

In response to weakened consumption, we increase value promotion across all our brands.

Speaker 3: We increased value promotion across our brand.

Speaker 3: For example, Acapisia Pizza Hut was built on our well-established promotion mechanism Crazy Thursday and Scream Wednesday to offer effective value promotions.

For example, our KFC and Pizza hut with our well established promotion mechanism Crazy Thursday, and Scream Wednesday to offer effective value promotion.

While minimizing margin impact.

Speaker 3: Second, we catch your home consumption demand with all premises services for both KFC and P.

Second we catch a home consumption demand with off premise visits for both KFC and Pizza hut.

In the fourth quarter.

Speaker 3: The delivery continues to be a key growth driver, mitigating the drop in dying traps.

Delivery continues to be a key growth driver mitigating the drop in dine in traffic.

Speaker 3: delivery grew 60% in 2021 compared to 2019 and contributed to approximately 32% of sales.

Delivery grew 60% in 2021 compared to 2019 and Concho built to approximately 32% so.

Speaker 3: combined with takeaway, all premise services represent more than half of ourselves.

Bind it with takeaway off premise services represented more than half of ourselves.

Driving profitable growth.

Speaker 3: off-premise locations is core to our strategy.

In off premise occasions is core to our strategy.

Speaker 3: Our new retail product are designed to capture home consumption demand by leveraging our online and offline channels.

Our new retail products are designed to capture home consumption demand by leveraging our online and offline channels.

Speaker 3: we add more food choices and tripled sales to over 500 million RMB within 2021.

We add more food choices and tripled sells to over 500 million RMB within 2021.

Speaker 3: Lastly, we unleash the power of digital in customer service and operation.

Lastly, we at least the power of digital in customer service and operations.

Speaker 3: The CARF-Z and Peace-A-Hart Loyalty Program exceeds 360 million members as of the end of 2021.

The KFC and Pizza hut loyalty program <unk> 360 million members.

The end of 2021.

Speaker 3: It is 16 million or 20% more than the year.

It is $60 million or 20% more than the year before.

Speaker 3: Members, those are kind of for approximately 60%.

Remember sales account for approximately 60%.

Speaker 3: We continuously enhance our super app to address the needs of customers and improve their digital experience.

We continuously enhance our super App.

Dressed and needs of customers improved our digital experience.

Speaker 3: For example, KFC's personalized manual display and pizza has ordered to get a beach.

For example, Kfc's personalised menu display in Pizza Hut's order to get a feature.

Speaker 3: With enhanced digital capabilities, digital sales exceed 7 billion US dollars or over 85% in 2021.

With enhanced digital capabilities digital sales exceed $7 billion or over.

85% in 2021 .

Speaker 3: We empower our RGM with install digitalization using AI, automation, and IoT. It keeps seeing our system access real-time store-level inventory and automatically dispatch its coupons to digital ordering users to reduce food waste.

We empower are all jammed with install digitization and using AI automation and Iot.

Can't see all system assesses real time store level inventory and automatically dispatches coupons towards digital ordering uses to reduce food waste.

We also introduced our quality control system to automatically evaluate the quality of food products based on the color shape et cetera et cetera.

Speaker 3: We also introduce a quality control system to automatically evaluate the quality of food products based on the color, shape, et cetera, et cetera.

Speaker 3: These technologies improve both the customer experience and our operating efficiency. Now, I would like to briefly update you on our emerging brand.

These <unk> improve both the customer experience and our operating efficiency.

Now I would like to briefly update you on our emerging brands.

Our coffee business is gaining momentum.

Speaker 3: We expand the Lavazza portfolio from 4 to 58 last year.

Expand the Lovaza portfolio from fall to 58 last year, covering all tier one cities and leading tier two cities such as Hangzhou Ole Hunt tons out.

Speaker 3: covering all Tier 1 cities and leading Tier 2 cities such as Hanzhou, Wuhan, and Changshan.

Speaker 3: We continue to enrich our food offerings and tap into lifestyle merchandises to drive further growth.

We continue to enrich our food offerings and tap into lifestyle merchandisers to drive further growth.

Speaker 3: in 2022, we will open more stores to increase our cup.

In 2022, we will open more stores to increase our coverage.

Speaker 3: Coffee and Joy total revenue increased both year over year and compared to pre-COVID levels, I think our sales grew by over 30% last year.

<unk> enjoyed total revenue increased both year over year and compared to pre COVID-19 levels and think ourselves grew by over 30% last year.

Speaker 3: We end the year with 36 stores with improved store economics, reflecting improved fundamentals.

We end the year with 36 new step.

36 stores with improved store economics, reflecting improved fundamentals.

Kim K coffee, so 117 million cups in 2021.

Speaker 3: Just pay coffee, so 117 million cups in 2021, representing a 22% growth compared to 2020. Takobou, Tokyo, and Troubled last year.

Representing a 22% growth compared to 2020.

Taco Bell still con tripled last year from 12 to 37.

Speaker 3: We took action to fine tune the business and make the brand more approachable for Chinese consumers.

Action to fine tune, the business and make the brand more approachable for Chinese consumers.

Speaker 3: Pilot TAS is on smaller formats, has shown improved unit economics.

Pilot tests on smaller format has shown improved unit economics.

Speaker 3: This year, we will continue to refine the formula for long-term success, just as we have done with KFC and Pisa her over the years.

This year, we will continue to refine our formula for long term success, just as we have done with KFC and pizza hut over the years.

Speaker 3: Our Chinese cuisine brands Little Sheep and Huan Ji Huan face a particularly adverse situation during COVID-19. A large number of their stores are located in northern and western China, while cases were concentrated.

Chinese cuisine brands little sheep, and one tier one faced a particularly adverse situations during COVID-19.

A large number of their stores are located in northern and Western China.

Cases were concentrated.

Is daunting was also hit hard.

Speaker 3: E-starning was also hit hard due to the transportation location focus.

Two of that transportation locations focus.

Speaker 3: After a careful review, we decided to wind down the operation in 2022 and focus resources on our hop-hop.

After careful review, we decided to wind down the operation in 2022 and focus resources on IHOP pulp Ren.

Speaker 3: Before I pass the call to Andy, I want to emphasize that we face enormous uncertainties and help wins from the external environment.

Before I pass the call to Andy I want to emphasize that we faced enormous uncertainties and headwinds from the external environment, but.

Speaker 3: But we have the ability to embrace change and innovate and adapt accordingly.

But we have the ability to embrace change and to innovate and adapt accordingly, we continue to focus on the tea leaves I just mentioned to drive sales and profit in the short term.

Speaker 3: We continue to focus on the key levers, I just mentioned, to drive sales and protect our product in a short time.

Speaker 3: We are also building our core capabilities to strengthen our market leadership for long-term sustainable growth.

We are also building our core capabilities to strengthen our market leadership for long term sustainable growth.

Speaker 3: I'm confident that we can emerge from this challenging period even stronger. With that, I will turn the call over to the end.

I am confident that we can emerge from this challenging period even stronger.

With that I will turn the call over to Andy Andy.

Speaker 4: Thank you, Joey, and slow everyone. The COVID situation caused a great deal of positive issues to our operations in 2021. We delivered strong performance in the first half of the year when COVID conditions was remarkably stable. In the second half of the year, our business was significantly affected by regional outbreaks and tighter public health measures.

Thank you, Joe and Hello, everyone.

Colby situations cost a great deal of that movie.

Patients in 2021, we delivered strong performance in the first half of the year when COVID-19 conditions with market to be stable.

The second half of the year, our business was significantly affected by regional outbreak and pay to public health measures.

Despite the challenges on a full year.

Speaker 4: Despite the challenges on a full year basis, we have a new rich $9.9 billion.

Year basis revenue reached $9 9 billion.

System sales grew 10% in constant currency.

Speaker 4: System cells grow 10% in content current.

Speaker 4: We reported offering profit of $1.24 billion and adjusted the offering profit of $766 million.

We reported operating profit of $1 4 billion.

Operating profit of $766 million.

In 2021, we received roughly $19 million less onetime relief from the government Amendment.

Speaker 4: In 2021, we received it roughly $19 million less in one time relief from the government and then law, comparing to 2020.

Comparing to 2020.

If we remove the onetime relief.

Speaker 4: If we remove the one time release from the equation, our adjusted oven profit will be up 20% year over year.

The accretion.

Adjusted operating profit.

Be up 20% year over year.

This result reflects the volatility arising from Colby <unk>.

Speaker 4: This results reflect the vitalities arising from COVID, but also reflect the resiliency of our business and tremendous efforts our teams put in.

Also reflect the resiliency of our <unk>.

And tremendous effort.

Excluding.

We have accelerated store openings in the past few years.

Speaker 4: We have the service store opening in the past few years.

We maintain a healthy store payback period of two years and three years for Pizza hut.

Speaker 4: We maintain a healthy stall payback period of two years, okay, I've seen in three years for Pisa Hut, despite the impact from the pandemic.

Despite the impact from the pandemic.

Speaker 4: Even newer stores open in the first half of 2021 have performed well.

Even newer stores to open in the first half of 2021.

Somewhat.

Speaker 4: A majority of them achieve monthly break even within the first three months.

A majority of all of them achieved monthly breakeven within the first three months.

Yes, it's still a lot of white space opportunities in China, especially in lower tier cities.

Speaker 4: There are still a lot of white space opportunities in China, especially in lower tier cities.

Speaker 4: More Star Farmers enable us to expand more festivals.

Small store format to enable us to expand more effectively.

Speaker 4: The reduced source size, combined with other cost reduction initiatives, enable us to decrease capital by around high single digit EOV.

We reduced the size combine it with other cost reduction initiatives.

Enable us to.

The decreased Capex crystal by around high single digit year over year.

We will continue to apply a disciplined and systematic approach.

Speaker 4: We will continue to apply a discipline and systematic approach in our start opening process.

The opening process.

Speaker 4: To ensure we open promising and high quality.

Sure, we opened promising and high quality stuff.

Speaker 4: Now, let me review our full quarter financial itself.

Now, let me review, our fourth quarter financial results.

Speaker 4: Even with the repeat´s outbreaks seems made up for

Even with the repeat the outbreak.

Our poker.

Speaker 4: First quarter revenue, who won percent in reply current.

Fourth quarter revenue grew 1%.

On a currency.

Speaker 4: to $2.3 billion and remain possible.

The $2 3 billion.

And we made possible.

Speaker 4: System cells were down 3% over year, mainly due to the same cell decline, partially offset by new unit growth.

System sales were down 3% year over year, mainly due to the things to also decline partially offset by new unit growth.

Like prior quarters, we are.

Speaker 4: Like five quarters, we are awarding for former measures here for convenient comparison with 2019.

We are providing pro forma measure this here will convenient comparison with 2019.

Kfc's same store sales were approximately 88% of the prior year's level.

Speaker 4: CFC's same thought those were approximately 88% of the prior years level. And 85% of...

And 85% of the 2019 level.

Speaker 4: We've seen so traffic at approximately 80% of 2019 level. Every single rule roughly 6% versus 2019. Mainly due to the increased risk remakes, partially offset, but increased.

We have seen store traffic of approximately 80% of 2019 level.

Average ticket grew roughly 6% versus 2019.

Mainly due to the increase.

Partially offset by increased discounts.

Because same store sales were approximately 92% of the prior year and 88% after 2019 level.

Speaker 4: These have same source cells, were approximately 92% of the prior year, and 88% of the 2019 level.

Speaker 4: SimPStoreTropic at approximately 96% close to 2019 level, while the average ticket was...

Same store traffic and approximately 96% close to 2019 level.

While the average ticket.

Was down by about 8%.

Speaker 4: This was driven by the increased mix delivery, which has a lower average thickness than the side-hints.

This was driven by the increased mix and delivery, which has a lower average ticket.

Sure.

Speaker 4: see what was hands in the

Yes.

<unk> was more effective.

And these are Hudson the full quarter Q.

Speaker 4: Due to care, please having a highest dormit in transportation and tourist location.

<unk>, having a higher skill mix in tourist locations and tourist locations.

Speaker 4: This location experience is sharp, sharp, decline in sales, down about 40% on a two-year basis.

Dislocation experienced a sharp decline in sales down approximately 40% on a two year basis.

Speaker 4: The fourth quarter is, seasonally, the smallest quarter for ourselves and magic.

The fourth quarter is seasonally smallest quarter for.

Our sales and margin.

Speaker 4: So the sales delivery impact on margins is more prominent. Restaurant margin was...

So the sales deleveraging impact on margin.

Permanent.

Restaurant margin was seven 5%.

Down seven to 160 basis points compared to last year.

Speaker 4: down to 160 basis points compared to last.

Speaker 4: This was mainly caused by significant sales delivery. Calls in patient.

This was mainly caused by significant sales deleveraging.

Both in patients.

Speaker 4: more valuable motion, as well as higher delivery costs due to increasing sales in delivery volume. Let me go through each expense-line item.

<unk> value promotion as well as higher delivery costs due to increasing so.

Delivery volume.

Let me go through each expense line item.

Cost of sales was 32, 5%.

150 basis points higher than last year.

Speaker 4: It was mainly due to increased valuable motions to dry customer traffic and upgraded packaging to face our traffic. Class of labor was 27.9%. 300%.

Yourself, mainly due to increased volume promotions to drive customer traffic.

And upgraded packaging to face.

Yes.

Cost of Labor was 27, 9%.

370 basis points higher than last year.

This is due to sales deleveraging.

Speaker 4: Ration inflation of 6th of end, delivery volume increased, resulting in higher delivery right across, and higher staffing levels as more staff were scheduled to implement increased safety protocols. Obviously, an other was 30.

Ratio inflation of 6%.

<unk> volume increased resulting in higher delivery rider call.

And higher staffing levels as more staff was scheduled to implement increased safety protocols.

Occupancy and other was 32, 1%.

240 basis points higher than last year.

Speaker 4: This is mainly attributable to the sales-delivered and e-p...

This is mainly attributable to the sales deleveraging.

Speaker 4: In addition, UDLU prices went up by double digits starting in December .

In addition.

You do the prices went up by double digits starting in December .

Speaker 4: GNA expenses increase 7% year-year in causing time.

G&A expenses increased 7% year over year in constant currency.

Speaker 4: mainly due to increased commutations and benefit expenses, as well as the impact of consolidating control care.

Mainly due to increased compensation and benefit expenses as well as the impact of consolidating <unk>.

Joe carefully.

Compared to last year, we received.

Speaker 4: Compared to last year, we received $10 million less from the government in Lengor.

$10 million less will be from the government and levels.

Speaker 4: who active cost management and who are to see enhancement enable us to partially of a mitigate the head means and achieve a possible quarter. Offering profit was $633 million.

We were active cost management and productivity enhancements enable us to partially mitigate the headwinds and achieve a profitable quarter.

Operating profit was $633 million.

Adjusted operating profit was $16 million.

Speaker 4: The difference is mainly due to the non-cash gain of 618 million dollars from the fair value and with valuation of half value.

The difference is mainly due to the non cash gain of $618 million.

From the fair value revaluation of.

Hangzhou carefully.

In December we completed the investment in Hangzhou catering and now own approximately 60% of Hangzhou KFC directly and indirectly.

Speaker 4: In December , we completed the investment in Hangzhou catering and now, on a possibly 60% of Hangzhou KFC directly and in direct.

Other than this noncash gain.

Speaker 4: Other than this non-cash gain, the impact from consolidating counter-cfc was small as the transaction was completed only on December 10. If I could tax rate was 25.1%, net income was 400%.

From consolidating Holdco KFC was small.

The transaction was completed only on December 10th.

The effective tax rate was 25, 1% net.

Net income was $475 million.

And adjusted net income was $11 million.

Speaker 4: This includes a marketing market investment loss of $9 million in sales.

This include a mark to market.

The investment loss of $9 million.

We made one.

Speaker 4: In contrast to a gain of 23 men down on the fourth quarter of 2012.

In contrast to a gain of $23 million in the fourth quarter of 2020.

Let's now turn to our outlook for FY 2022.

Speaker 4: Let us now turn to our alo for 2022.

Speaker 4: First, we expect stringent health measures to remain in effect in the near future.

First we expect stringent health measures remain in effect in the near future.

Speaker 4: The development of COVID remains highly uncertain as we have seen last year. In January ,

The development of Colgate remains highly uncertain.

We have seen last year.

In January apart from the Delta Varian Oprah.

Speaker 4: Omicron cases also spread to important cities such as Beijing, Shanghai, Tianjin, S&G.

Amit from cases also spread two important cities such as Beijing.

Hi, Tien tsin.

Sure.

Speaker 4: Almost five hand of our skills were temporally closed.

Over 500 stores.

Temporarily closed.

Speaker 4: or only provided delivery and take away services that are peaked in January . Same for ourselves in January .

Or only provided delivery and takeaway services.

In January .

Same store sales in January improved modestly.

From the fourth quarter.

Comparing to the comparable Chinese new year holiday period in 2021.

Speaker 4: comparing to the comparable Chinese New Year holiday period in 2021.

Speaker 4: Scenes or cells are still down year over year and remain wild time. Second is on the weakening map.

Same store sales are still down year over year and remains volatile.

Second is on the weakening method.

As the government has recently mentioned.

Speaker 4: China's economic development is facing triple pressures from demand contraption, supply shock, and the weakening expectations.

China's economic development is facing triple pressures from demand contraction.

Russia.

And the weakening expectations.

Therefore, we will continue to focus on providing our customer exceptional value to drive traffic.

Speaker 4: Therefore, we will continue to focus on providing our customer exceptional value to drive traffic.

On the coal side.

Inflation is on the rise globally.

Commodities, such as chicken beef.

Speaker 4: Commodities such as Shken Seeds, Ease and Sheets, as well as energy prices have increased double digits.

Beef and cheese as well as energy prices have increased double digits.

Our team is taking initiative.

Speaker 4: Our team is taking initiative to rebase our course structure and to improve efficiency, including...

We base our cost structure.

To improve efficiency.

Including.

Speaker 4: Locking in prices when they are wildly more favorable.

Locking in prices when they are relatively more favorable.

Speaker 4: Innovating manual items to fully utilize all part of chicken and cattle, expanding our supplier base, especially local suppliers.

Innovating menu items to fully utilized.

Chicken and Carlo.

Expanding our supplier base, especially local supplier.

Speaker 4: We have this initiative. We expect to partially mitigate the right in cost, but we will still.

With these initiatives, we expect to partially mitigate the rising cost.

But we will still.

Faced commodity price pressures this year.

Additionally.

Speaker 4: The increase in delivery sales mix will increase wider costs.

The increase in delivery sales mix will increase wider call.

We maintain a very strong balance sheet with approximately $4 billion cash and short term investments.

Speaker 4: We maintain a very strong balance sheet with a possibly $4 billion cash and short term

Speaker 4: We resume share we purchases in the third quarter of 2021.

We resumed share repurchases in the third quarter's 2021.

Speaker 4: Approximately $617 million remain available for future share repurchases under the authorization. Real company.

Approximately $617 million remained available for future share repurchases under the authorization.

We will continue to return excess capital to shareholders.

Speaker 4: Re-intestate, opening approximately 1,000 to 1200 net news stars.

We anticipate.

Opening approximately 1002 1200 net new stores.

Speaker 4: as we increase density in higher tier cities and capture white space in lower tier cities.

We increased density in higher tier cities and capture the white space in there.

Lower tier cities.

Speaker 4: We will continue with a disciplined approach of opening high quality news.

We will continue with our disciplined approach of opening high quality useful.

We expect our capital expenditures in 2022 to be in the range of $800 million too.

Speaker 4: We expect our capital expenditures in 2022 to be in the range of $800 million to $1 billion.

Two 1 billion.

Speaker 4: The majority of this is allocated to start opening and we model.

The majority of this is allocated to store opening and we model it.

We are stepping up investment and supply chain infrastructure and digital.

Speaker 4: We are stepping up investment in supply chain infrastructure and digital. It's part of our long-term capital allocation as highlighted in the way.

Hi.

Long term capital allocation at all.

Got it.

The Investor Day last September .

This investment is essential.

Speaker 4: This investment are essential to driving the long-term, sustainable growth of our business.

Two driving the long term sustainable growth business.

Speaker 2: With that, I will pass you back to Michelle to stop a Q&A. Michelle. Thanks, Andy. We'll not open the call for questions in order to give as many people as possible the chance to ask questions. Please submit your question to one at a time. Desmond, please start a Q&A.

With that I will.

I'll pass you back to Michelle to start the Q&A Michel Thanks, Andy <unk> will now open the call for questions in order to give as many people as possible the chance to ask questions. Please limit your portion to one at a time assessment. Please start the Q&A.

Thank you very much as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound or hash key please standby, while we compile the Q&A roster.

Speaker 1: Thank you very much. As a reminder to ask questions you will need to press star one on your telephone. To withdraw your question, press the power O hash key. Please standby while we compile the Q&A roster.

Yes.

Yes.

The first question comes from the line of Brian Bittner from Oppenheimer. Please go ahead.

Speaker 1: First questions comes from the line up. Brian Bittner from Openheimer. Please.

Speaker 5: You're unit openings during a time of heightened uncertainty for the business. And I realize the returns are still very strong as you outlined in your repair remarks and as you outlined in your presentation. But can you talk to us what specifically is driving this big step up?

Hey did you did openings during a time of heightened uncertainty for the business and I realize the returns are still very strong as you outlined in your prepared remarks, and as you outlined in your.

Your presentation, but can you talk to us what specifically is driving this big step up.

Speaker 5: in-unit openings. And it appears it's a trend that is continuing in 2022 based on your outlook. So it wasn't just a one-time situation in 2021. Talk about the dynamics behind this strategy. Do you believe the COVID environment has opened up an elevated amount of development opportunities? Just any type of additional color on this new level of unit growth would be helpful. Thank you.

Openings and it appears it's a trend that is continuing in 2022 based on your outlook. So it wasn't just a one time situation in 2021 talk about the dynamics behind this strategy do you believe the Covid environment has opened up.

Elevated amount of development opportunities.

Any type of additional color on this new level of unit growth would be helpful. Thank you.

Thank you Brian .

Yes.

Paul.

Speaker 3: For our focus on new store opening, the management team has a very transparent about the way that we are thinking. I think it's, we lay out very clearly in our yesterday that when we,

Our focus on new store opening.

The management team has been very transparent about the way that we're thinking I think is.

We lay out very clearly in our Investor day that when we.

Look at how to operate this business in a short term long term, we focus on three things the algae.

Speaker 3: look at how to operate this business in a short and long term, we focus on three things. The algae and the resilience, the growth and the growth. So even for a new store opening, we are thinking I still the same. In a way, resilience might be even more important than growth. But once we achieve resiliency, then we really will push to growth.

Chilean Sea the Grove and a moat, so even for new store opening.

We are thinking I see what they say.

<unk>.

In a way resilience might be even more important than growth, but once we achieve resiliency and we really.

We're push to growth.

Speaker 3: So that's all of the holistic thinking. And specifically, why we are still opening that many store. As you have mentioned earlier, Brian , your question.

So that's sort of the holistic thinking and specifically why we are.

Still opening that many store as you have mentioned earlier right in your question.

Speaker 3: The most important criteria is whether we are getting the payback that we are looking for and the answer is yes.

The most important criteria is whether we are getting.

The payback that we're looking for and the answer is yes.

Speaker 3: For KFC, we still getting the paper within two years for pizza actually improve. In the past, we, in the past.

Paul Cassie, we're still getting the payback within two years.

<unk> actually improve.

In the past we are in the past.

Speaker 3: five years because pizza this year we open more stores than any other year since 2016 actually the net new store opening is

Five years.

Because this year, we opened more so than any other year since 2016.

Actually the net new store opening is.

It's more than almost all we have opened in the last three years.

Speaker 3: is more than all the stories we have opened in the last three years.

Speaker 3: It has improved. The paper has improved now to three to four years, well, two to three years, from three to four years to two to three years, particularly the satellite store. We can get the paper almost as good as the KFC.

So it has improved the paper has improved now two to three.

Three to four years two to three years from three to four years, that's over three years.

That's what I saw.

We can get a payback almost as good as a courtesy.

Cassie.

Speaker 3: So that's the key criteria. And when we can get the payback then, we should open stores.

So that's the that's the key criteria and when we can get the payback then wish you open stores.

Speaker 3: while our operating team can handle. So that's 0.2. One is our thinking of strategy 2 is

While our operating teams can handle.

So that point to them one is the our thinking our strategy.

Who is.

Speaker 3: our requirement of the paper and third, where are the opportunities, well, the opportunities are still in lower T.S. city, as I mentioned earlier.

All of the kind of the payback.

Where are the opportunities the opportunities are still in lower tier city as the as I've mentioned earlier.

Speaker 3: For KSEA Long, we enter 160 new cities.

Kathy alone, we enter 160 new cities.

Speaker 3: So for these new cities, Kelsey Brand is very strong and that's very limited cell transfer because it's brand new.

So for these new cities.

Kathy brand very strong and Thats very limited sales transfer because it's brand new.

Speaker 3: And then also the other area is the channel opportunity such as highway station, service center, etc. And there's a particular opportunity in franchising as well.

And then I'll.

Also the other area is the.

The channel opportunities such as highway station.

Service Center et cetera.

And this particular opportunity and franchising as well.

Speaker 3: And then for Pizza Hut, obviously the white space is even larger because we're only in fuel. Pizza is only in few hundred cities in China right now. And then even for the existing cities we are in, we see the opportunity to...

And then for Pizza hut.

Obviously, the white space.

Even even larger because we are only infill piece only in 200 cities in China right now and then even for the existing cities and we see the opportunity to two.

Speaker 3: to open more stored to increase the stored density. When the stored density improves, it has the other benefit to our delivery.

Open more saw the increased store density.

When the thought Anthony improve it has the benefit of the two hour delivery business because the average distance of the delivery rider has shortened and the convenience has improved.

Speaker 3: because the average distance of the delumirator has short

Speaker 3: and the communion has improved. And that will...

Paul.

Speaker 3: work for the customer because they get right out of it. And it works for the operating cost because the average delivery cost is actually

What for the customer because they get better service.

Well it was more the operating cost because the.

Average delivery cost.

It's actually <unk>.

<unk> two.

Speaker 3: So that gives you a sense of where are the opportunities.

So so that gives you a sense.

What are the opportunities.

Speaker 3: And in terms of how COVID gave us more opportunity in slow opening, in a way, yes, because I think during good time when the market is growing, it's much harder to see the resiliency of young China business. And during bad times, particularly in the last two years, land laws can see that very clearly.

And then in terms of how Covid give us more opportunity.

Infill opening in a way yet because.

I think they're in good time, when when when the market is growing it's much harder to see.

The resiliency of Yum, China business and during that time, particularly in the last two years landlord can see that very clearly.

Speaker 3: So, you know, we have become even more popular tenant for land or across all tier cities.

So we have become even more popular tenant for lateral across all tier cities.

Speaker 3: Not only we can deliver good profits and secure job opportunities to our shareholders and to our employees, but we also can deliver reliable rent, rental income to landlords.

Not only we can deliver good profit and secure to opportunity to our shareholders and to our employees.

But we also can deliver reliable rent rental income to landmark.

Speaker 3: So you can imagine why we are a popular tenant. And therefore, a significant percentage of the leads, we are talking about 70, 80% of our leads have certain, cell, the brand is calculated based on percentage of cells, which give us the flexibility and resiliency in terms of our core strength.

So you can imagine why.

We are a popular tenants and therefore.

<unk> percentage of the leads we are talking about.

70, 80% of our lease have sudden.

Ah.

Rent is calculated based on percentage yourself, which gave us the flexibility and resiliency in.

In terms of our cost structure. So I hope that gives you.

Speaker 3: So I hope that give you some more color in terms of the new store opening. We never change after specific number and we emphasize it again and again and again, but when we can get the payback two to three years, which is fantastic, then we'll open the store when we see the opportunity. Thank you, Brian .

Some some more color in terms of the new store opening.

We never chase of the specific number and we emphasize it again and again and again.

But when we can get the payback two to three year, which fantastic Sam.

Then we will open this fall when we see the opportunity.

Thank you Brian .

Thank you for the questions.

Speaker 1: Next question comes from the light of Christine, paying from UBS. Please go ahead.

Next question comes from the line Christine Peng from UBS. Please go ahead.

Speaker 3: Hi, Nancy, thank you for the presentation. So I have a question regarding the delivery competition landscape.

Hi management. Thank you for the presentation. So I have a question regarding the delivery competition landscape.

Speaker 3: In 2021, we noticed that Modano initiated a much more upgraded version of the app.

In 2021 will notice that Mcdonnell initiated a much more upgraded version of the App.

Speaker 3: in China, enabling its digital strategy extension. In the country, so Kiyushia, with small colors, you have observed incomes of the delivery competition, landscape in a whole Chinese restaurant industry, particularly considering the Donalds new strategy. Thank you.

You're in China, enabling its digital strategy expansion.

Countries. So can you share with us more colors, you have observed in terms of the labor competition landscape in the whole Chinese restaurant industry particular.

Considering Mcdonald's new strategy. Thank you.

Speaker 3: Christine, we have been putting delivery at very high priority in our business since long, long time ago.

Christine.

Have being.

Putting delivery a very high priority in our.

Business.

Since a long long time ago.

And as you can see compared to 2019.

Speaker 3: And as you can see, compared to 2019, our delivery business has grown even stronger. As you can see from our number, you know, 60% four year delivery growth was 2019. And then for KC, along is 70% plus and then a PTA at 37%.

Our delivery business.

Has grown.

Even stronger.

As you can see from our number.

660%.

Full year delivery growth.

Was the 2019 and handful Cassie along is 70% plus and then pizza 37%.

Speaker 3: So that give you a sense. We are very focusing on the app to improve the convenience, both in terms of the app experience, but also it might not be so clear to our investor that we also have a keen.

So that gives you gives you a sense.

We we are very focusing on the app.

To improve the convenience.

Both in terms of the App experience.

But also.

It might not be so Korea.

To our investors that we also have a team.

Speaker 3: Digital, we call it Digital Operation Team that work with

The digital we call it digital operation team.

<unk> worked with our store operating team too.

Speaker 3: our store operating team to ensure the seamless experience online and offline.

And ensure the seamless experience online and offline for our delivery business.

Speaker 3: So that helps a lot because one is about the digital experience. Two is we have people working together with the storm team to deliver the service.

So that helps a lot because one is about the digital experience to.

We have people.

Working.

Together with the star team to deliver the services and that will include the membership engagement too right. So that's the second thing the third fit which is rather unique.

Speaker 3: And that will include the membership engagement too. So that's the second bit. The third bit, which is rather you need to Yom Chana, it's not only you need probably the only one, we have our hybrid delivery model.

China is not only unique probably the only one.

We have our own.

A hybrid delivery model.

We have been building since 2000.

Speaker 3: We have been building since 20th, well, actually from the very beginning, but we, we, in the building our...

Well actually from the very beginning.

But we we insist on building our.

Speaker 3: on writing capability. And

Our underwriting capability.

And that that can be understood right now I think if we use the.

Speaker 3: That can be understood right now. I think if we use the framework that we share again in the university, the resilience, the growth, and the mook, and this is the mook, the strategic mook, is our own long term, competitive advantage without delivery riders.

The framework.

We share again in <unk>.

Yesterday, the resilience the growth and the moat and this is the marked that strategic moat is our own long term competitive advantage with our delivery rider the hybrid model, while we worked with the.

Speaker 3: hybrid model. Why we work with the platforms to solve traffic we rely exclusively on our own rider.

<unk> to soft traffic.

We.

Rely exclusively on rider too.

Speaker 3: to deliver the product. And that has multiple advantages. One is...

To deliver.

The product and that has.

Multiple advantages.

One is the quality.

Speaker 3: the quality, the percentage of service is much lower, which we have experienced when we convert the piece of heart delivery from the past version to current one, when we took the delivery ride the service back in house, we see the drop of the customer complaint and the sales increase.

The quality of the percentage of surface.

Playing is much lower.

We have experienced when we convert the pizza hut.

Deliveries from from.

From the possible Ocean to current one when we took the delivery right.

Surface that in house, we see the drop off the cuff.

Customer complaint and thus the sales increase.

So that gives us a very unique advantage.

Speaker 3: So that gives us a very unique advantage in our delivery business. So, not that, it has been a very important part of business. It has become even more important in the last two years.

In on delivery.

So net net.

It has a.

It has been a very important part business has become even more important in the last two years.

Speaker 3: given the COVID situation. And we have very unique resiliency to grow the business and in the long term with our unique capabilities that give us strategic mode to continue to deliver good services to our customers. Thank you, Christine.

Given the Covid situation and we have very unique.

Resiliency to grow the business.

The long term with our unique capabilities that give us strategic moat to continue to deliver good services to our customers. Thank you Christine.

Speaker 1: Thank you for the questions. Next question comes from the light of Chundle, off bang off Amrator. Please go ahead.

Thank you for the question next.

Our next question comes from the line of Chengdu Bank of America. Please go ahead.

Speaker 6: Hi, management team, happy Chinese New Year. So I've got a follow-up question on our new store opening. So as we are accelerating our new store opening pace, are we seeing any challenges in terms of training the right store managers and hiring additional staff?

Hi.

Uh huh.

Management team happy Chinese new year, So I've got a follow up question on our new store openings.

So as we are accelerating our new store opening pace.

Seeing any challenges in terms of timing.

Our store managers and hiring additional staff.

Speaker 6: Meanwhile, when a standard, although the store payback period for new stores could be still pretty impressive, the new stores may actually create a kind of validation to the existing stores.

Meanwhile, we understand.

Although the store payback period for new stores could be still pretty impressive.

The new stores may actually clean cut utilization to make just some stores.

Speaker 6: and it may also create additional resources, requirement and terms of management attention. So with this factor in mind, if our same store sales growth remains under pressure for the coming 12 months because of the COVID impact.

We also accrued additional.

The resources requirement in terms of management attention.

<unk>.

A factor in mind.

Our same store sales growth in the <unk>.

Pressure for the coming 12 months because of the call. The impact is there any chance for us to consider to slowdown our store expansion.

Speaker 6: Is there any chance for us to consider to slow down our thoughts mentioned temporarily? Thank you.

Thank you.

Lawton.

Speaker 3: Thank you. Our staff or resources, you know, we manage to handle it quite alright. And as you can see, over actually since 2014 and 2015, despite.

Thank you.

Our stop all resources.

We we may try to handle it quite alright, and as you can see.

Over actually since 2014 and 2015.

Despite.

Speaker 3: the growth of our same-store sales, despite the growth of our new stores, from 7,000 plus store right now is 11,000 store. We managed to maintain the total number of staff in our system at 420,000.

The growth of our same store sales.

Despite a robust new stores.

7000 per store right now is the 11, thousands so we manage to make.

Maintain the total number of staff in our system at 420000.

Speaker 3: So we increase the store, but without increasing the total number of staff. And what is the Delta here is the automation and AI and digital.

So we increased the store, but without increasing the total number of stops and what is the delta here is the automation and AI in digital.

Speaker 3: so You know particularly right now with our

No.

Particularly right now with our.

Speaker 3: So based, we can train our staff to meet the new store opening demand. And if we cannot do it, if we somehow see the challenge in terms of quality of the staff and the new store, then we will adjust our pace of new store opening, of course.

The store base.

Can train.

Our stuff too.

To meet the new store opening demand and if we cannot do it if we somehow either.

See the challenge in terms of quality of the stuff in the news in the new store that we will adjust our pace of new store opening of course.

Speaker 3: So with that, I passed the question to Andy, and Andy can comment about the other numbers impact from the news source, Andy.

So with that IP.

The question to Andy and Andy can comment about the other number.

Impact from the new stores Andy.

Thanks, Joe.

So looking happy new year so.

Speaker 4: So, I'm not saying happy new year. So, first of all, I want to say a little bit about, obviously, Ecuador joy has mentioned, in terms of new start opening, China still growth markets, and there's lots of white space, especially in lower tier cities, and recently overnight area. And so, I think sometimes we encourage investors and allies to look more into the system cells, rather than as a...

So first of all I want to say a little bit about <unk>.

Echo what do we have mentioned in terms of new store openings.

China is a great market.

There's lots of white space.

Especially in lower tier cities and recently urbanized area and so I think some time.

We encourage investors and analysts.

To look more into the system rather than SSG.

Speaker 4: Especially in over the past two years, on the coil of databases, we see a lot of autility because of COVID development. It's as we have mentioned over the past two years, we expect to recovery from COVID to the time, the on-linear and uneven. So it still remains the case right now.

Especially.

For the past two years.

On a quarter basis.

See a lot of volatility because the COVID-19 development.

As we have mentioned.

Over the past two years, we expect the recovery from Covid.

At the time.

Non linear.

And uneven so it still remains the case right now.

Speaker 4: In terms of our store opening, we have a discipline. As we have this close, we have to prepare remark. We have five different graduation dividuation.

In terms of our store opening with that discipline.

As we have disclosed in our prepared remarks.

We are quite disciplined.

Valuations.

Devaluations.

Speaker 4: process and to determine our investment. That's why we continue to have consistent payback for two years.

And to determine our best but that's why we continue to have consistent payback.

Two years.

Speaker 4: and for his hard three years and you know for his specialized thought it's close to two years these are very very good returns on investment so we're very comfortable you know without strategies and also in terms of the quality of our stuff as I mentioned even the newest know that we have in the first half 2021 they're also performing well

And for three years and.

So it's close to two years.

Very good return on investment so we're very comfortable with our strategies and also in terms of the coil as I mentioned, even the news flow that we have opened in the first half of 2021. They are also performing well despite the.

Speaker 4: despite the overall impact on pandemic. The majority of them are reaching for events in the first few months of the open.

The overall.

In fact, a majority of them were reaching breakeven.

First few months of opening.

Speaker 4: Now, in terms of generalization, I think, you know, certainly, you know, new start opening, sometimes with transfer from cell, especially in delivery to, you know, to a new store. But, you know, we have been growing our store network.

<unk> I think.

Totally new store opening sometime would transfer themselves.

Especially in delivery.

To do so.

But.

We haven't grown our store network over the past 30, some years and if you look back.

Speaker 4: over the past 30-some years. And if you look back before the pandemic, we're going and right now we're going with the spread consistent, the spread discipline.

As the pandemic, we're growing right now, which is very consistent and disciplined in the way how we deal with it.

Speaker 4: in the way how we do with it. So we have experience doing with normalized SSG impact from new start-ups.

So we have extensively with normalized SSG.

From useful.

Speaker 4: The other one is that when we look at opening a new store, we also capture incremental sales and profit. And then it also pull us, Joey mentioned, passive network effects on delivery and take away business. So, you know.

The other one is that when we look at.

Opening a new store.

We also captured incremental sales and profit.

And then <unk>.

Joe You mentioned positive network effects on delivery and takeaway business.

So.

And.

Speaker 4: given the pandemic and the summer changes, we're also, you know, so what we're designing, I'll solve that work. As Joie mentioned, we look at, you know, these darling, for example, we have wind down the operations because these concentrations on the transfer to the low physical health. So, you know, and then allow us to open more location that better serve off-premise signing.

Given dependent on making those changes we're also.

So it will be signing our installed that Joey mentioned as we look at.

<unk> for example, we have wind down the operations because of this concentration.

That's going to look at the comp.

So and then and then allow us to open more locations that better serve.

Off premise side for example, and so all in all I think if you.

Speaker 4: And so, oh and oh, I think if you, if you, you know, take a step back, you know, in terms of a long term view as we do, you know, we obviously are investing to build up until the end of the season. But we're all positioning ourselves for growth and capturing the market opportunity.

If you take a step back.

In terms of.

A longer term view as we do.

We obviously are investing to view up proclivity to empty, but we are positioning ourselves for growth and capturing the market opportunity and if you look at what we're able to achieve this year.

Speaker 4: And if you look at what we have able to achieve this year, despite some of these very challenging environments, we are able to generate all the four-year basis revenue of $9.9 billion.

Some of this very challenging environment.

We're able to January .

On a full year basis revenue of $9 $9 billion and we grew our system.

Speaker 4: and we grow our system cells by 10% in causing current.

By 10% in constant currency.

Speaker 4: And then we also, you know, achieved and increased the online profit on a offer on a required basis $1.4 billion on a adjusted, you know, basis, you know, our online profit was $766 million. And that's...

And then we also.

Achieved an increase of operating profit.

Although we have basis $1 $4 billion on adjusted.

Basis, often partnered with $766 million.

Yes.

Speaker 4: You know, that's the reason why, you know, despite, you know, the significant impact on the pandemic. So I think internalization and useful opening obviously we'll have to review that, but I think we're pretty confident in that strategy that we have.

Definitely.

Okay.

Despite the significant impact on us.

Very good.

So I think in talking about our patients.

And you're still opening obviously, we'll continue to do that but I think we're pretty confident you can get some chassis that we have with them.

Thank you Andy I think I'll, just make one more comment because there's such a strong interest in our new store opening.

Speaker 3: Thank you and I just made one more comment because there's such a strong interest in our new store opening.

Speaker 3: For our new store, particularly in Lower TSC, it has lower cap pack.

For our new store, particularly in lower tier city it has lower capex.

Speaker 3: We have differentiating pricing strategy, means the price will be lower compared to tier one city. We even have differentiated manual. We will have some special, very special, incredibly good value for money product in that manual only. And we also leverage French ID to help us as well. So that help. But.

We have differentiating pricing strategy means.

The price will be lower.

Compared with Q1 city, we even have differentiated menu, we will have some special very special incredibly good value for money product in that menu oney and we also leverage franchisee.

To help us as well.

So that helps but just in terms of the numbers and in terms of modeling I just wanted to draw your attention to one number historically capex capex number.

Speaker 3: in terms of the numbers and in terms of modeling, I just want to draw your attention to one number historically, cap, cap, cap, number.

Speaker 3: You know, our new store opening has increased a lot, and that might be the reason that gives some of you some concern. But if you look at our cap-tack number, historically, in 2016.

Our new store opening has increased a lot and that might.

It might be the reason that that.

Give us some of your some concern, but if you look at our Capex number historically in 2016.

Speaker 3: We spent 436 million on capital. That's the year we got independent. And we left it. We opened, we got amount of money. We opened 575 stores. Bye.

$436 million on Capex.

Got.

And unless we open with the amount of money, we opened 575 stores.

By 2020.

Speaker 3: We open twice as many doors. Our capper is 490 minutes, which is not done 20 seconds.

<unk> open twice as many so our capex is $419 million, which is down in 2016.

Speaker 3: So what remains, our efficiency of new store has improved significantly.

So what it means.

Wyszynski of new store has improved significantly.

Speaker 3: Right? And on top of that, by 2021, we increased the new store to 1800. I'll kept that increase a bit more.

Right and on top of that.

520, Tony why we.

The new store to 1800, Capex increase a bit more.

And then 50% more 689 billion, but six 689 million, but the bulk of it is also going to digital and infrastructure.

Speaker 3: I mean 50% more, 689 million, but 689 million. But the bulk of it is also going to digital and infrastructure as well. So going forward, going forward for the coming year, Andy just mentioned 800 million to the billion.

As well so going forward going forward.

For the coming year, Andy just mentioned 800 millions of failure.

Speaker 3: half of it or slightly more than half of it will be on your store opening.

Also I think more than half of it will be on new store openings. So.

Speaker 3: So that's the way that we look at it.

So that's the way that we looked at it.

Speaker 3: number of eustol is one thing, but the key thing is the efficiency and the total amount allocated to cap.

Number of new store is one thing, but the key thing is the efficiency.

Total amount allocated to capex.

Speaker 3: and that means the energy and the ability to continue to get more efficiency all of CAPPASS and open new stores. In the long term, it becomes strategic mode of office.

Mr Williams.

Ability to to to continue to.

You get more efficiency, all Capex and opened a new store in a long time it becomes strategic multiple offices.

<unk>.

Speaker 1: Thank you for the questions. Next question comes from the Lionel Lillian, though of your China. Please go ahead.

Thank you for the question next question comes from July of Leonardo off Yum, China. Please go ahead.

Thanks, a lot Joe that the things that we talk a lot about our new store opening maybe switch gears a little bit of the.

Speaker 3: Thanks a lot, Joe, YNND. Since we talk a lot about the new store, open you may be split here a little bit on the another driver for the revenue growth despite that and he said that we need to focus on sales growth. That sounds same style sales growth. But I think a little bit of color can you provide?

Another driver for our for the revenue growth despite that Andy said that we need to focus on sales growth less on same store sales growth, but I think a little bit color can you provide.

Speaker 3: Why in fourth quarter the same style growth, same style growth trend quite similarly in August because I remember in August I was in same style growth also down like mid-ting.

Why in fourth quarter, the same store growth same store sales growth trend. Similarly in August because I remember in August our sales same store sales growth also down.

Speaker 3: And by that time, I think the number of cities that is median or high-risk cities, the number actually is way higher than fourth quarter. So trying to understand the dynamic, the impact to our same-stascials growth from this COVID development.

Thanks.

And by that time, I think the number of Cds.

That is a medium or high risk cities, the number actually is way higher than fourth quarter.

So trying to understand the dynamic the impact to our same store sales growth from this COVID-19 development and also I know that this situation would be challenging to predict but.

Speaker 7: And also, I know that this situation is really challenging to predict, but...

Speaker 7: Understanding at the current situation, what do you think is the most possible scenario for our same sales growth trend if the COVID continues like the current?

Standing at the current situation what do you think is the most possible scenario for our same store sales growth trend if the Colgate continues like the coverage.

Level. Thank you.

Andy.

Speaker 4: am I? Yeah, happy then. Um, um. I think.

Yes.

Hum.

I think.

Q4 is actually I believe.

Speaker 4: Q4 is actually probably the in-hub public conditions. The worst since the first quarter of 2022. I think it's pretty obvious to most folks here in China. Is when we have a Delta variant outbreak, and then later on of the year, we also seem to see almost on cases popping up here in China.

Perfect conditions.

Since the first quarter of 2022, I think it's pretty obvious to.

Most folks here in China.

We have a delta berrien outbreak.

And then later on the year, we also have NBC Omnicom cases popping up here in China.

Speaker 4: Now cases, you know, case load may be one and it's quite destructive here because obviously in China here, you know, generally we have our stringent health measure and try to, you know, sort of like, you know, achieve a dynamic zero cases for COVID. And so that we rely on a lot of this, you know, health restriction of measure.

<unk> cases.

So maybe one and is quite disruptive here, because obviously in China here.

<unk>.

Generally we have very stringent health measure and try to.

Sorry.

The dynamic.

Zero cases for.

For for Covid, and so that rely on a lot of help.

Restructuring the measure.

Speaker 4: So but now that if you look at the outbreak in the case and also the widespread, these are worse since the first quarter 2020.

So, but nonetheless, if you look at the outbreak in the case and also the widespread is the worst.

Since the first quarter 2020.

Speaker 4: So as we have mentioned in our press release, in the state chain trend, we've seen some recovery from the summer outbreak, in October , but then we see that can impact from the outbreak in November .

So as we have mentioned in our press release.

Shane trend.

We've seen some recovery from December .

In October .

But then we see significant impact from the outbreak in November .

Speaker 4: And then a little bit of recovery in December . Let's see what sound double digit.

And then a little bit recovery in December , but steel is down double digits.

Now.

Speaker 4: Now, obviously, as we have mentioned, when we look at...

Obviously.

As we have mentioned.

When we look at.

Colby this is going to introduce volatility in our operation and we have co investor and analyst and he told me yesterday that we need to have no.

Speaker 4: COVID is going to introduce about two leads in our operation.

Speaker 4: We have told Investor and analysts and told us about that we need to have analysis and preparation, potentially to plan to deal with. When time is good, how we can execute well and capture more market opportunities. When situation becomes more challenging, how we can rely on resiliency and operation and ensure that even in best time we're able to make costs.

The analysis and preparation potentially would you plan to do with <unk>.

Chinese goods, how we can execute well.

Capturing more market opportunities when situation become more challenging however, we can rely on <unk> operations and ensure that even better and we're able to make profit.

Speaker 4: And so I think, you know, for the first quarter, that's what we do. But I think it's worthwhile to step back because, you know, from a quarter of a quarter basis, very, or even months, months basis, to predict what's going to happen, you know, with COVID. But if we step back for the whole year, you know, as I mentioned, you would see, you know, you know, a little bit of data picture.

So I think for the for the fourth quarter, that's what we do but I think it's worthwhile to step back because we know from a quarter over quarter basis.

This month basis to predict what's going to happen.

With Covid, but if we step back for the full year as I mentioned you will see.

A little bit.

A better picture despite.

Speaker 4: Despite the volatility and charging involvement that we operate in 2021, we're able to grow our webinars, able to grow our system sales, even grow our profit.

Despite of opportunities in a challenging environment that we operate in 2021.

<unk> able to grow our revenues to grow.

Our system sales.

Even grow out.

Okay.

And so I think.

Speaker 4: And so I think, you know, in the sense, I think, you know, sometimes we need to take a little bit of work, but we also have to accept the fact that, you know, with COVID, you know, that will be something to turn.

In a sense I think sometimes we need to take a little bit worse, but we also have to accept the fact that with COVID-19 .

Would be some uncertainty.

Speaker 4: Now, in tab up FSG and then also profit, you can see that when the situation is stabilized.

Now how about SSG and then the other part that you can see that when the situation stabilizes.

Speaker 4: We're able to actually wear a while in the first half, and even the second half in 2012.

Able to execute very well.

Even the second half in 2012.

Speaker 4: Now obviously when things are challenging, we continue to rely on our team, our operations, our brand, our product and customer, and our digital and delivery. So the spirit is kind of hot for me to provide guidance on the COVID development and we have the industry impact, but as we have mentioned, the biggest impact on the industry right now, the volatility is because of COVID.

Obviously, you have to think the challenging we can.

Continuing to rely on our team our operations are Brian I'll put it in customers' digital and delivery.

So so.

Yes.

For me to provide.

Guidance on corporate development and related impact, but as we have mentioned the biggest impact on SSG way, though the volatility because of Covid.

Speaker 4: And so, but, you know, I'm confident we go over the last couple of years, you know, we do both in terms of, you know, authorities and in terms of our RGM, our operational team, we learn something, you know, over the past two years. It's hard to respond, you know, to when there's a close outbreak. And then try to mitigate some of those impacts.

And so but I am confident as we go over the last couple of years, we do a bolt on to him.

Although these in terms of our rgs our operational team.

We've learned something over the past two years trying to respond to when does the outbreak.

And try to mitigate those impacts.

Speaker 4: So, you know, I think, you know, if you, the way I look at it, the situation right now is that sure, you know, in a short term, we have co big, we have some of the macro hat wins. So it's short term a bit more.

I think if you will.

The way I look at it the situation right now is that sure in the short term we have Colby we have some of the macro headwinds.

So.

Now I'll turn a little bit more cautious.

Speaker 4: But we are very confident in our operation, our brand, our product, and consumer priorities. I think we have demonstrated it, we have the largest customer membership base, six months, been growing 20% from last year. Now membership accounts more than 60% of our sales.

We are very confident in.

Our operation our brands our products and consumer.

Laura I think have demonstrated employee we have the largest customer membership base.

<unk> been growing 20%.

From last year.

Our membership model.

Sure.

And so we're confident.

Speaker 4: And so we're common on our operation, our brand and customer base and the products that we have, the new opportunity that Joey have mentioned. And then in the longer term, I think we still are very optimistic about the opportunity here in China. And that's why we're investing not only in store network extension but building our capabilities in digital infrastructure and stuff.

Our brand and customer base.

Products that we have the opportunity to Joe you have mentioned.

And then in the longer term I think we.

We still are very optimistic about opportunity in China, and Thats, why we are investing but always install network expansion, but building our capabilities in digital infrastructure and subcontract and so hopefully that gives you some perspective.

Speaker 4: So, hopefully that gives you some perspective on how we look at the market and the situation here.

How we look at the market situation here in China.

Speaker 3: Thank you, Andy. Thank you, Andy. And thank you, Lillian. Lillian, I say I'll just like to summarize. Again, the management thinking is very clear in this. We cannot, you know, we don't have the crystal ball towards the COVID situation, but we are very clear about our focus. What do we need to do?

Thank you. Thank you Andy Thank you Andrea and thank you Lillian.

I would just like to summarize again, the management and King is very clear and then we cannot.

We don't have the crystal ball.

Towards the Covid situation, but we are very clear about our focus.

What do we need to do.

Speaker 3: Again, three focus, resilience, growth and strategic mode. Very important.

Again, three focused resilient growth and strategic very simple resilience as Andy talked about is the resilience of our operating team.

Speaker 3: resilience as Andy talk about is the resilience of operating team.

Speaker 3: We are fast, we are responsive, and our team after two years training, even done to each market level,

We are fast we are responsive.

And our team after two years training.

Even down to each market level.

Yeah.

Speaker 3: Shanghai market, Beijing market, Guangzhou market, that's the national policy, national strategy, that's the local strategy, I'll tell you what to do.

Shanghai, Beijing Guangzhou market.

That's the national policy and national strategy that the local strategy.

No what you do.

Speaker 3: in terms of growth, two sorts of growth very clear and dimension. The product, you know, in terms of new category like beef burger, whole chicken. Why whole chicken is important because it's also home consumption, right, which is a trend.

So growth to saw some growth there.

Andy mentioned the product.

In terms of new category like beef Burger chicken Y hotel kind of important because it's also home consumption right, which is a trend.

Speaker 3: the local innovation, the partnership with Joe Herr will help you or the Wuhan Legane, etc. It's something exciting, interesting fun to try the traffic and we focus on the value.

The local.

Nation.

The partnership with <unk> will help you.

Or the government et cetera.

Something exciting interesting fun to drive the traffic and we focus on the value we.

Speaker 3: We have done incredibly good job in terms of delivering our saving. What we can save and pass on the saving to customers through value. Right now the...

We have done.

Incredibly good job in terms of delivering lifesaving, what we can say and pass on the savings to customers do value right now.

Speaker 3: The signature value campaign like Crazy Thursday and Screen Wednesday is something working very well. And then the other source of growth is the off-premise demand, the delivery, the takeaway, the home consumption retail. The home consumption retail for for Saufang, which is our own retail brand and KFC and Peter Hart.

The signature value campaign at Crazy Thursday, and Scream Wednesday is something.

Working very well and then the other it's also growth is the off premise demand.

The delivery the takeaway.

The home consumption retail to home consumption retail.

For cell phone.

Which is our own retail, Brian and Kathy and Pizza hut tripled to over 500 $500 million in 2021 alone and then last is the strategic moat, which is the digital 7 billion on digital sales also being in the $60 million membership and not surprising.

Speaker 3: Triple 2 over 580 million in 2021 alone.

Speaker 3: And then last is the strategic mode, which is the digital, our 7 billion digital cells, our 360 million membership and our surprising. You know, our ability in terms of, in terms of getting the scale, getting the efficiency and also our ability to replace our core space and remain competitive in the long term, in terms of building our own infrastructure.

Our ability.

In terms of.

In terms of getting the scale getting that efficiency and also our ability to rebase, our cost base and remain competitive in the long term.

In terms of building out infrastructure.

Speaker 3: They all help our business. So the focus is very, very clear. If I could just mention another thing about how do we utilize our quotability to grow the business.

That all helps.

Our business does the focus is very very Korea.

If I could just mentioned.

The thing about.

How do we utilize our core capabilities to grow the business. For example, we use our hybrid delivery model all right to deliver the new retail it makes sense. We have the right is in our stores already and we utilized.

Speaker 3: For example, we use our hybrid delivery model, our own rider, to deliver the new retail. It makes sense. We have the riders in the stores already, and we utilize the rider to deliver the new retail to our customer directly. Service is good, reliable, and cost is slow. That hopefully gives you a sense of management very clear focus on resilience growth and multi-strategy.

The rider to two to deliver the new retail to our customer directly service is good reliable and cost is slow.

So that hopefully gives you a sense of management very clear focus on resilient growth in multi strategy.

Speaker 3: given uncertainties and the evolving situation of COVID. Thank you, Nellie.

Given the uncertainties.

And the evolving situation with Covid. Thank you Lillian.

Thank you for the questions. Our next question comes from Shell Paul <unk> from Citi. Please go ahead.

Speaker 1: Thank you for the questions. Our next question comes from Siob Paul Wei from City. Please go ahead.

Speaker 6: Good morning, Joey and the microchairs in the focusing on your operation of a store in terms of people model. You guys have long pre-for self-operating stores to ventanting our stores.

Good morning Julien.

My questions are focusing on your accretion of a story in terms of people model.

You guys have long proof for self help produce stores to franchisees our stores given all of the three the situation could lead you have a better infrastructure supply chain Central will you consider fracturing franchising out more store looking forward versus.

Speaker 5: giving all the fluid situation cool beat, you have a better infrastructure, supply chain, and so on. Will you consider...

Speaker 6: Scratching, French hiding out more stored looking forward versus the

Speaker 6: Self-operating most of stores you can forward and also A classic Carifying the the target of tar your new opening target for the year So your target new store opening one to 1.2000 this year including only self-operating stores or including both franchise the store and self-operating stores Thank you

Our self are pretty most of stores looking forward and also a.

Classic clarifying the target of your new opening target for the year. So your target new store opening one to one two thousands this year, including at least self operating stores or including both franchises to work and self operated stores. Thank you.

Sure what the new store target includes a franchising stores as well and go back to your.

Speaker 3: The new store target includes the franchise in stores as well. And go back to your questions, the first part of your question.

Question.

The first part of your question the majority of the new store will still be equity stalled because the payback is so good.

Speaker 3: The majority of the new store will still be equity store because the paper is so good. However, as you can see, over the years right now the mix of our franchise store has increased, especially after the acquisition of Huang Si Huang, I think it's in the mid-teens already.

However, as you can see over the years right now the mix of our franchise franchise store is.

It has increased especially after the acquisition once you hired I think is in the mid teens already.

Speaker 3: But going forward, we will be quite open-minded about the franchising option. And we always think open-minded about it. We do it when it spreads. So in terms of the franchising strategy, the free focus.

Going forward well.

It will be.

Quite open mind about the franchising optional and we'd always be open minded about it we do it when it's right. So so in terms of the.

Our franchising strategy definitely focus.

Speaker 3: One is we do the franchising in some remote locations, such as Tibet or Qinghai. You can imagine why, because it's more normal efficient to manage that way instead of managing all the way from the headquarters.

One is where do the franchising in some remote locations such as Tibet Arching home you can imagine why because it's more efficient.

To manage it that way instead of managing all the way from the headquarter.

Speaker 3: Secondly, it's channel. So the strategic channels such as the highway, highway service center, etc. So these are very sensible franchising opportunities.

Secondly channel.

So the strategic channels such as the.

Highway.

Service Center et cetera. So these are very sensible franchising opportunity.

And then the third thing I would like to mention is the ability.

Speaker 3: And then the first thing I would like to mention is the ability to use technology to help manage the franchising system. We have been very cautious about the franchise.

The ability to use technology to help manage on the franchising system, we have been very cautious about the franchising.

Speaker 3: strategy as you can imagine, you know, there are a lot of advantage of the franchising strategy in China But there are also a lot of challenges in terms of

Strategy as you can imagine there are a lot of advantage of the franchising strategy in China, but they're also a lot of challenges in terms of the quality of many of the of the service that we care most about but right now with the end to end digitization process going on.

Speaker 3: the quality of the...

Speaker 3: of the service that we care most about. But right now with the end-to-end digitization process going on with the IoT, with the automation ability to ensure...

With the Iot with the automation.

Our ability to.

To ensure good store operation among the franchisees. So has improved significantly in the last few years, so that said and they give us better comfort and hopefully I messed up better comfort that when we.

Speaker 3: So operation among the franchising store has improved significantly in the last three years. So that certainly give us better comfort and hopefully I messed up that comfort that when we, you know, open mind about franchising strategy, it does not mean that we compromise on the quality of the service. We don't.

Apple open minded about franchising strategy. It does not mean that will compromise on quality office of adult.

Speaker 3: and particular intensive product as well. So I think we have a few more questions. Let's move on to the next one.

In particular in terms of product as well so I think we have.

Few more questions lets move on to the next one.

Before we move away from I, just wanted to jump in there they are clarified.

Speaker 4: Before we move on to the next one, I just want to jump in there. Yes. Clarified. You know, the number that we talk about, the net is the net new stall that we opened, not the gross number of stalls. And the net new stall open, we expect is about 1,200, which include both franchise and equity stalls. And as Joey mentioned, most of them is going to be our own equity stall.

The number that we talked about the net use of net new store that we opened up the gross number of sales and net new store open. We expect is about 1002 1200, which include.

Both franchise and equity so as Joey mentioned most of them is going to be on every sale.

Thank you.

Thank you next question comes from Dubai.

Speaker 1: Thank you. Next question comes from the mind of Anne Ling of Jeffries. Please go ahead.

<unk> of Jefferies. Please go ahead.

Speaker 7: Hi, thank you. The first question for Andy, regarding the cost trend moving forward, I might have missed it, but would you share a vested cost trend or your cost increase expectation for commodity cost staff and also the occupancy cost for the whole year of year 2022, as well as first quarter, 22.

Hi, Thank you.

So first question for Andy.

Regarding the cost trend.

Moving forward I might have missed it but I would just share with us the cost trends or your cost.

Increased expectation for commodity costs.

Staff and also the occupancy cost for the whole year of 2022, as well as first quarter plenty too.

Speaker 4: Sure. So, okay. So, I think, you know, if you look at, you know, obviously right now we look at the globally, we see commodity price inflation. You know, if you look at China Sea, Sea, Strategic Energy Tax Exchange Centre, we see the numbers of fossil end up communities,

Sure so.

Okay. Okay. So.

So I think if you look at.

Obviously right now we look at the.

Globally, we see commodity price inflation.

If you look at <unk>.

Energy costs are up double digits.

Speaker 4: Now, obviously, without doing anything, we were promising that most of you missing a digit at least for commodity prices of all now still.

Obviously without doing anything.

We publicly.

Both mid single digits.

For commodity prices.

I'll now.

Speaker 4: And then also, if you have a class of labor, there's two components that driving it. One is obviously, as we have mentioned in last year, we have to increase the wages at the market level at the small level. And so we're likely going to continue to see meet to high single digit wage increase and which is a normalized rate for China.

And then also if you look at cost of labor.

There's two components to driving it one is obviously as we have mentioned.

Last year, we have increased.

Wages.

At the market level.

The cell level, and so likelihood of proteins in the mid to high single digits.

The wage increase.

This is a normalized grateful in China.

Speaker 4: And also we've also a little bit increased, I mean, right across as we come here to see delivery as a growth driver and a growth driver will fly safely. So the mixed shifted delivery will increase, delivery calls there as well. Now on occupancy and on a side, one thing is

And also we see a little bit increase in <unk> costs as we continue to see delivery as a growth driver in the growth there with.

So the mix shift to delivery with increased recall there now.

Now on the.

Occupancy.

Auto side.

Sure.

One thing is.

Speaker 4: energy cause in China, the Defeat employees have increased by double digit since December . That's obviously response to some of the power shortage that we have experienced in the summer and trying to encourage more production.

Energy costs in China due to purely price have.

Kris by double digits since December .

That's obviously a response to some of the power shortage that we have experienced.

December and tried to encourage more production and more production.

Speaker 4: and more, more, more deductions in more savings energy. So, you know,

Savings energy.

Violence that market dynamics.

Speaker 4: And so all in all, I think we're looking at some commodity inflation labor have.

So all in all I think we're looking at.

Some commodity.

<unk> labor headwinds.

Speaker 4: Now, again, also on the Martin side, the biggest impact on Martin is actually self leverage and delivery of these things. So I hope we'll have an impact.

No.

Again.

The other market side, the biggest impact on margin is actually south.

Average is deleveraging.

Same store growth would have an impact on that.

Speaker 4: But we're nothing to be obviously. We have a very good team and they're in a lot initiative to try to fight this happening obviously. One is to protect margins and one of the ways to offer products with a wider pricing range. A lot of people upgrade, but also, then provide a lower entry prices for new cuts.

But.

But we're not things you obviously, we have a very good team in that initiative.

To quantify this headwind obviously.

One is to protect margins.

To offer.

With a rider correctly, which allow people to upgrade but also new Hawaii.

Enterprises for new customers.

Speaker 4: Now we also want to leverage our scales and surprising efficient.

Also want to leverage our scale and supply chain efficiency.

Speaker 4: The lesson that inflation repression, as we have mentioned on the repair remark, is that including

To lessen the inflationary pressure as we have mentioned on the prepared remarks is that including.

Speaker 4: raise a ciento converter h b

Absolutely nothing.

More favorable.

Price win where the market.

Right.

Speaker 4: We will also have, you know, try to look into how to increase our efficiency and utilization of the ingredients that we have, right? A trick in, you know, how do we use the phone trick and, you know, do a product trick and, and think for our bees, right? To count how we can utilize the product that create products. And that, you know, that's our customer like and they also give us, you know, good money.

We will also have.

Try to looking at how to increase our efficiency and utilization.

The agreement that we have a chicken how do we use the full chicken, which.

Which is the same for our beef right now how we can utilize the product at a great product.

Yes.

First of all alike, and but also gives us good margin.

Speaker 4: We also have to obviously, you know, a team of surprising and other people in the brand that will be able to rebate an overall call.

We also have.

Let's see.

A team of.

The pricing and the other people in the brand.

Into Rebating overall costs.

Speaker 4: and then also increase the efficiency of our labor. And that technology, as we have always mentioned, is an important part of labor productivity improvement. That's why we're investing as we have mentioned, EUMOR, you know, a billion dollar in IT investment and the show with the investment, and then a billion dollar in supply chain infrastructure over the next few years. So I think on or, you know, we try to drive that labor productivity, to use, you know, process of regular efficiency.

And then also increase the efficiency of our labor in that technology as we have always mentioned that important.

Labor productivity improvement Thats, why we are investing as we measured the $1 billion in it investments.

We feel that with the investments and then ended up at $1 the pricing infrastructure over the next few years. So.

All in all.

<unk>.

We try to drive that labor productivity.

Process officially efficiency.

Speaker 4: to reduce, raise, and whatnot. And then we also, you know, we're continue to try to improve and utilize our membership program, which is one of the largest in the world, 361 members, into drive marketing.

Use base.

No.

And then we also will continue to try to improve and utilize our membership program, which is one of the largest in the world 360 remember.

And to drive marketing efficiency.

Speaker 4: and then also drive member frequencies, span, and overall self. And so this is how we look at a commodity pressure, and then how we manipulate how we respond to it.

And then also drive member frequencies spend overall sales and so this is how we look at the commodity.

Pressure.

And then how we.

Appreciate how we respond to it.

Speaker 7: God, God it. And just to clarify, you know, for this commodity cost increase, estimate that you provide low to medicinal digits or the labor cost of mental high-stingled digits increase, that's for the efficiency exercises, correct?

Got it and just to clarify for this commodity cost increases.

Thank you for what like low to mid single digit or the labor cost of mid to high single digit increase that's up.

For the.

Efficiency exercise is that correct.

Speaker 4: Well, you know, like the commodity prices are sales, you know, in the marketplace is, you know, they have increased by double digits. And so obviously, we're... Oh.

Well like the commodity prices a thousand really the marketplace.

Increased by double digits and so obviously.

Could you give us that.

Speaker 4: use that. Rageers, we're expecting a normalized rate of mid-to-high single digits. So, and then, you know, for, you know, we're also, you know, to S-ci, we also as a special last year. We begin to face out plastic off to the country and then we have rolled out last year and then we continue to roll out more market.

The ratio as we are expecting a normalized rate of mid to high single digits.

So so.

Then for.

We are also we also hesitant, especially last year, we began to phase out process.

Through the country and then we have rolled that out last year that will continue will open more market.

This year.

Speaker 7: God it's got it. And my second question is on the store opening, the 1,200 net store opening, I understand that majority of the store opening will be under KFC brand, but would you share with us like, what is your estimate, oh your budget for like La Vaza, your other coffee brands, as well as pizza hard, which I believe like last year they use resumed the store opening client for a piece of it as well. So maybe you can share with us the store opening client moving forward for the other brand.

Okay got it got it and my second question is on the store openings.

1002.

1200 net store opening.

Just stand out majority of the store opening will be under the KFC brand preclude you.

Share with us.

What is your estimate of your budget for <unk>.

Let lovaza.

Your other coffee brands as well.

Pizza Hut, which I believe last year, you received the store opening plans for two side as well. So maybe you can share with US just opening plan moving forward for the other brands.

Sure So I think.

Speaker 4: Sure, so I think, you know, like if you bring it down, obviously, KFCs view, you know, the very important and largest friends for us, definitely not for the majority of the start opening, but if you are pizza hard because you know, impunes economic, you know, economics at Pizza hard saw, you know, is also have accelerated start opening.

If you break it down obviously you have the view there.

Importantly, our largest brand for us for the majority of opening but if you at pizza hut because of the improved economics unit economics.

At Pizza hut saw.

He is also have accelerated store openings last year.

Speaker 4: In fact, you know, if you look at Peter Hut, it opened, you know, 335 new store, higher things, you know, 2016.

In fact, if you look at Pizza Hut is open.

335.

The new store, our highest since 2016.

Speaker 4: And if you look at the net, you know, start increase of 235 last year, is I think if I'm wrong correctly, it's a combined point of the previous three year. And so, and so I think, you know, just obviously we play in Pongro, especially with, you know, the success of the satellite storm model. La Baza is also, you know, have, you know,

And if you look at the net.

The increase of 235 last year.

I think if I remember correctly is the combined.

Of the three year total.

And so.

And so I think.

Obviously, we play in Paraguay, especially with the success of the satellite store model.

Lavazza is also have.

No.

Speaker 4: It would say it's like, you know, at the beginning of last year, we have about, you know, a pin of year we have four stars.

I would say is like at the beginning of last year, we have about.

You would have postal.

Speaker 4: We have opened up 50-some stops and obviously it's still a pretty new brand in China, but we have expanded the drive-enture with La Vazsir in the last year.

We have opened up.

Could be some store and now we and.

And obviously.

It's still a pretty.

New brand in China, but we have expanded the joint venture with Novartis there.

Last year.

Speaker 4: We have quick plans for the brand as we have mentioned. We give more it as our third growth engine.

We have great plans for.

For the brand as we have mentioned, we we view as our.

The growth engine.

Speaker 4: So so now we're not only in

So that will be not only in the.

Speaker 4: you know, the top tier cities, the tier one cities, but also in several tier two cities. We'll continue to look into, you know, experimenting with different, you know, small formats and then expand to more market. And then for Brian , I think we have all seen, you know, pretty good, you know, membership growth. And so as such, you know, we will expect, you know, boxes to open more store.

The top tier cities the tier one cities, but also in several tier two cities will continue to looking to experiment with different store formats, and then expand to more market.

Brian I think we have always been pretty good.

Our membership growth.

And so as such we would expect.

Buyback was to open more store this year.

Speaker 4: And single Taco Bell is like a brand that we did not talk as much, but we also opened some 20-some stalls last year at Taco Bell. Again, it's one of the highest sales for opening in many years.

And people talk about it you can only upfront that we did.

If you look at them as much but.

We also opened some 20 comfortable.

Last year at Taco Bell.

Hi.

For opening many years got it.

Speaker 4: So I think we in turn of all opportunities going back there, it's...

Right.

So I think I think we in total of all but really I think going back there.

It's how we utilize.

Speaker 4: how we utilize the store format to target the market, how we able to take some cost initiatives we've designed the format of the store, at the manual at the store, that allow us to open some more effectively. And I think the store's smaller format right now, it's very key to overall development across all this.

The store format to use two targeted market.

Are we able to take some cost initiatives, we've deferred the format of the store the menu at a scale that allow us to open some more flexibility and I think thats smaller format right now is kind of like Q.

Q2 overall development across August .

Speaker 4: So next this time we'll have a look at it, you know, the key, the key is going to still be CFC, the empty task and then coffee, and then, you know, and the other single of the business.

The same with how we look at it.

<unk>.

The key the key is going to still be KFC.

Okay.

Sure.

Not a cyclical business.

Okay.

Thank you.

Yes.

Speaker 1: Thank you for the questions. We have a question from the light of Michelle Qing of Coleman. Thanks, please go away.

Thank you for the questions. We have a question from the line of Michelle Cheng of Goldman Sachs. Please go ahead.

Speaker 3: Hi, Joey and thanks for taking my questions. I still want to follow up a little bit on the course from. So if we look at the occupancy in other course, it seems that the delivery impact is more significantly. You mentioned the energy cost has contributed these increase. But I remember in the past few years, these items actually drive a lot of...

Hi, Joey Andy Thanks for taking my questions.

Wanted to follow up a little bit on the cost from so if we look at the occupancy and other costs. It seems that the deleverage impact more significantly.

You mentioned.

Energy cost has contributing these increased I remember in the past few years. These items actually drive a lot of interest.

Speaker 8: So can you still give us more color? Take a side that you energy cause, like rental...

Just again, so can you still give us more color take aside that your energy cost like rental.

Speaker 8: other cost items, whether there's anything we see more pressures in the near time. And on top of that, weight cost, so I think the big total order already contributing like the cost to 90% of the sales. So is there any further room to say the like labor, staff number, per per store or any like a delivery efficiency again, we can expect going forward. Thank you.

Other cost item, whether there is anything we see more pressure in the near term and on top of that on wage costs.

I think the big holders already contributing close to 90% of the sales. So is there any further room to say, though like neighbor staff number plus the work or any like a delivery efficiency again, we can expect going forward. Thank you.

Hi, Michelle yes. Thank.

Speaker 4: I'm a show. Yeah, thank you for your questions. In terms of O and O, I think obviously, you know, one thing that point out is to be price increased because, you know, it's obviously a government policy change that, you know, we see double digit increase and we should be price.

Thank you for your questions until OLED, Oh, I think obviously wasn't in port outs to the price increase because obviously a.

Government policy change and double digit increases will be prices.

Speaker 4: The other one is obviously ran as we have mentioned as well, even though we have high percentage of our store have a component, almost 80% of our store have a component of WebMoran. But there's also a fixed component of that. And so when there's a South Leveraging, genuinely, we see impact on all and all as a percentage of revenues. So that's what's. So that's what's.

The other one is obviously the brand as we have mentioned that folks even though we have high percentage.

So I'll have the components almost 80% also have a component of rebel Ren.

But there is also fixed.

And so when there's a south deleveraging generally we see impactful at all.

As a percentage of.

Revenue and so that's what.

The key driver for that.

Speaker 4: The other one is in term of

The other one.

Yes.

In term of.

Our labor productivity improvement I think obviously.

Speaker 4: our labor for security improvement. I think obviously, some of these improvements, you can see on the start, for example, using digital app or computer, to make orders and make digital payments. And so I think that's that, I think that's what I was quite bit already. But there's also things that you don't see that digital actually have a lot in labor for the chip.

Some of this improvement you can see on the thought for example.

Average.

Orders in <unk> payments.

And so I think that I think.

Well quite a bit already but there's also things that either for you that digital actually we have a lot of labor productivity. We have mentioned before we have.

Speaker 4: We have mentioned before, we have the pocket manager that helps our store manager to manage it so more efficiently, that more real time information. It also helps them to do staff scheduling. We continue to invest in IoT to automate our kitchens and also our inventory time and all that.

The pocket manager to help us.

They'll measure.

Medical is still more efficiently get more real time information.

Also help them to do their scheduling.

We continue to invest in the Iot ultimately our.

Kitchens.

And also our inventory count at all that I think.

Speaker 4: I think, you know, right now, I think digitization is moving alone, only investing in the fund and with the customer, but more moving into the kitchen and all more into our supply chain. And in our back office, right, so supply chain will continue to, you know, invest over there, in terms of routing, in terms of, you know, integration with suppliers that allow us to do better forecasts, demand, and policy.

Right now I think the utilization moving not only investing in the front end with the customer, but more moving into the kitchen and into our supply chain.

Back office right. So supply chain continued to you.

Invest over there in Europe .

Routing in terms of.

Integration with suppliers that allow us to better forecast men of management.

Speaker 4: and then also you know a pack of it, you know, as I mentioned before.

And then also in our back office.

I've mentioned before we.

Speaker 4: We have a three-year disaster program, for example, for our financial department, right, to go into our office, then you process and then link up the data at all.

We have a three year the classical relative several units will offer less department.

Forward to automate manual process.

The data is at the holding company.

Speaker 4: And then also in the delivery side, right? As Joey has mentioned, you know, not only we use delivery to better optimize the killing of, you know, our food production, but also, you know, better routing for our rider. Also, you know, more, more, more optimized tracings design.

And then also on the delivery side do we have mentioned not only we use delivery to better optimize the queuing up.

For production, but also better routing four hour.

A rider also.

More optimized trade zone.

Besides.

Speaker 4: as well as potentially having other product community such as key times and also new retail to basically better use wise, the wider that we have.

As well as potentially.

Having other product initiatives such as.

<unk> <unk> and also do retail to basically better utilize the wider that we have so there's a lot of way to look at labor productivity improvement.

Speaker 4: So there's a lot of ways to look at laborable or the tools to improvement. And if you look at overtime, we have done, you know, quite well despite, you know, deliver increase and all that. We have seen labor calls as a percentage of over-or-wrap news before the pandemic, relatively stable. And you know, it's given me enough time. I think, you know, we're able to continue to improve the laborable activities to offset, you know, some of these, you know, near-term shop.

And if you look at over time.

We have done quite well despite the deliberate increase in all that we have seen labor cost as a percentage of overall revenues before the pandemic are likely to be stable.

Given enough time, I think we're able to continue improve favorable fifties to offset some of these.

Yes.

Near term shock from Covid.

Speaker 3: I think in the long term, I would like to comment to think Michelle, one is in a way, if you think about it, our expansion of delivery business helped reduce the rent.

I think in the long time, I would like to comment two things Michelle.

One is.

In a way.

Do you think about it our expansion will deliver business helped reduce the rent.

Thinking about this right because we're not all of our business continue to grow it means the location of the new store location.

Speaker 3: about this, right? Because when our deliver business continues to grow, it means the location, the new stall location.

Speaker 3: We don't need to be in the prime time prime area. We can compromise a little bit and there are hopes. So the saving of the rental expenses helps the delivery costs. Point one, point two, in terms of riders.

We don't need to be in the <unk> Prime area, we can comprehend compromise a little bit and hoped so the saving of the rent rental expenses helped.

Delivery cost side.

0.2 in terms of ride it.

Speaker 3: The way that we look at the right of course is also show our mentality, our philosophy in resilience and strategic mode because...

The way that we look at the variety of course, it's also show our.

Mentality, our our philosophy, Inc. In resilience and strategic moat because because.

Speaker 3: The fact is, our renault, the cause of air-rich order.

The first is.

Our right now the cost of average order.

The cost of delivery by the per order is higher than our platform.

Speaker 3: The cause of delivery ride per order is higher than the preface.

Speaker 3: And we understand that we have the option, but we keep it this way because our riders right now will deliver better quality of service.

And we understand that we have the option, but we keep it this way because our riders right now deliver better quality of service.

Speaker 3: So when it comes to cost, quality first, then we work on the cost line. And instead of pushing down to pay the right or left, because if you pay them less, they go, right? They leave. We make sure that they pay well, but then we leverage our right to deliver higher average ticket items, such as newly-

So when it comes to cost.

First that.

We work on the cost side.

And is that are pushing them to pay the rather less because EBIT. If you pay them that they go back to me.

We make sure that they pay well, but then we leverage our rider to deliver higher average ticket item.

You add new retail.

Speaker 3: So that's the way that we think about the core structure of the delivery right aside as well. Thank you, Michelle.

So that's the way that we think about the cost structure.

Of the delivery by this side as well thank you Michelle.

Yeah.

Okay.

Speaker 1: The last questions will come from Waterloo from CME International. Please go ahead.

The last question will come from water from CMS.

International Please go ahead.

Speaker 9: Hi, hello, Hi Andy and Joey. Can you hear me?

Hi, Hello, Hi, Andy and Joey can you hear me.

Hi, Walter we can hit.

Speaker 9: Okay, thank you so much for the chance to ask questions. So my question is about your ticket size. If we take out the positive impact from the increased delivery sales mix, what's the KFC average ticket? It's still increasing in the last quarter. And given the industry dynamics and the outlook in the FY122, do you think it is still suitable for KFC and Pissar to increase the average ticket?

Okay. Thank you so much for the chance to ask questions.

So my question is about the ticket size.

If we take out the positive impact from the increased sand.

Delivery sales mix.

KFC.

Average ticket, it's still increasing.

Last quarter and given the in the industry.

Industry dynamics and outlook into <unk>.

<unk> do you think it is still.

Sure.

For KFC and Pizza hut to increase the average ticket.

Speaker 9: or perhaps the reduction of the level of promotions. This is the

Perhaps the reduction of the therefore promotions.

This is the first question.

Speaker 4: Hi, Laura. Yeah, so let me adjust a little bit about the TA situation and TA situation, obviously, or CAPC and PISA had a slightly different, for CAPC, the delivery actually increased the take of average. So the makeshift delivery actually would help them over the data, normal.

Yes, So let me address a little bit about the.

Ta situations situation often see.

<unk> Pizza hut slightly different.

Four.

KFC.

Delivery.

Actually increase to think of the average so the mix shift to delivery actually.

We'll help them a little bit there normally.

Speaker 4: When you know these just kind of opposite you know as piece of heart because because generally it's also we have been you know a place for you know gathering to the activities and so you know the diner actually will have to take it you know every space higher than the group size so when there's a micks ship there that would have new all right

When are these just kind of opposite.

Because you guys generally historically, we have been.

A place for gathering activities and so.

The diagnostic workup of ticket.

Average base higher than what we thought so when there is a mix shift there that would have to deal with that.

Sure.

Speaker 4: Now I think the questions regarding I think the ticket average and higher lower I think is really depend on a couple of things too. If one is after the promotional activity, tell me.

I think the.

Questions.

Regarding I think ticket average.

Hi, and lower I think it is.

Really depends on a couple of other things too is one is also the promotional effort.

Speaker 4: obviously right now, we have more camping public. The other one is that over a piting strategy, I think it's important for us to look at the pricing, especially in face of concrete uncertainty and right-wing inflation in some of the consumer sentiment. So we want to make sure that what we offer is quick volume to our customers.

Obviously right now.

We have full company public.

One is that you know over pricing strategy.

I think it's important for us to look at.

Pricing, especially in face of uncertainty and rising inflation and some of the consumer sentiment so want to make sure that.

What we offer is quick value to our customers.

Speaker 4: And so, as we mentioned, you know, how do we protect our minds?

And so.

As we mentioned as you know.

Yes.

How do we protect our margins.

As Julia franchises will do so.

Speaker 4: Joey, especially I just gonna do, you know, so I'll play it again. All the good product, you got?

Say it again.

I'll have a good product.

All of that will cover a wider range, both higher priced oil price because value is different right.

Speaker 4: All of that cover a wide range, both high price, low price, because value is different.

Speaker 4: Get a one is, you know, again, leverage our supply chain and supply chain efficiency, our scale to sort of like, you know, to have that cost-contative vantage, to make it more powerful.

The other one is again leverage off of pricing and supply chain efficiency.

Gail.

It's kind of like to have that cost competitive advantage.

To make it more partners.

Speaker 4: You know one is you know, in hands obviously, you know, the usage of our response.

One is and hence obviously.

The usage of the App.

Resources.

Speaker 4: the mid that we have to reduce waste waste. You can both, for example, we turn it into a product that's hand-pop load with consumers.

Moving to the meat that we have.

True.

Reduced base station like you can both a couple with her into our product portfolio with consumer.

Speaker 4: We also want to continue to give back technologies to improve efficiency support of kids. And then, remember your program.

We also want to continue to invest in technology to improve.

Efficiencies and productivity right. So and then membership programs very importantly.

Speaker 4: So, remember, the program continued to help us to drive spending. So, if you look at our FCE, please help remember, if you have a privileged member subscription, generally that customer, that member spends quite as much as not a member. So, a lot of things that we would like to do, so the ticket average, one of the more.

The new membership program continued to help us to drive spending.

If you look at our if people if I remember.

If you have a privilege member subscriptions generally that customer that member spend twice as much. So a lot of things that we want to do.

So the ticket average.

Okay.

Got it very clear.

Speaker 9: Got it very clear. And my next question is about your performance during the Chinese New Year. How was it compared to the last quarter? And it seems the number of travelers returning home had increased versus last year as well. So was that the positive to your business at the transportation hubs or how does it impact your overall business? And then how do you see this domestic traffic and trends going into the next two quarters?

And my next question is about your performance during the Chinese new year.

How is it compared to last quarter and it seems the number of travelers returning home has to increase versus last year as well. So what's that net positive to your business at the transportation hubs or how does it impact your overall business and then how do you see this domestic traveling trends going into the next to two.

Quarters.

Right, So I think.

So.

Speaker 4: This year, Chinese New Year is a little bit earlier than last year. Obviously, in last year, it was mostly in middle of February . For Chinese New Year, this year is the beginning of February or Chinese New Year. So in January , we just see a modest improvement, especially compared to the fall quarter. But as I mentioned on the very mark,

This year Chinese new year is a little bit earlier than last year.

Obviously.

Last year it was mostly in <unk>.

February .

Yes.

February Chinese new year.

So in January we did see.

A modest improvement sequentially compared to the fourth quarter.

But as I mentioned on the prepared remark.

Speaker 4: for the comparable Chinese New Year period, which is basically for the Chinese New Year, 10 days, 15 days, you want to try to feel you're in 15 days. After the Chinese New Year, for that comparable period, as a little far we still in middle of it. And so far we see that still down year over year.

For the comparable Chinese new year period, basically for the Chinese new year 10 days 15 days.

After the Chinese new year.

For that comparable period at least of are we assuming mid August .

We see that this deal.

Year over year.

Speaker 4: And, you know, the in-hub chapel, I think, you know, there's count patterns probably different, you know, compared to last year, but I think overall, if you look at, you know, the overall chapel and whatnot, I think it will still come to some time for the church to be able to, you know, to recover to any, you know, reasonable level of peace to compare.

And they know charcoal I think thats competitive probably a bit different compared to last year I think.

Overall, if you look at the.

The overall travel.

Yes.

I think we will see some to confront.

The offices.

You can recover.

Reasonable level.

Two compared to the pre COVID-19 levels.

Speaker 4: So you know the way we look at it is that it's likely down year over year compared to last year

So.

We look at it is like the third year over year compared to last year.

Speaker 4: But still there's a good deal of uncertainty. And we have launched different campaigns obviously. When we go into the Chinese New Year, if there's quite a bit of uncertainty, in terms of travel, because you know, you see, you know, authorities have encouraged folks to stay put, stay in the cities, to locally celebrate China two years. But you know, the pandemic, not only for several years, so I think there's also uncertainty about how people respond to that.

But still there's a good deal of uncertainty and we have launched different campaigns, obviously when we go into.

The Chinese new year.

There's quite a bit of uncertainty in terms of travel because.

We do see.

All of these have encourage folks to stay put famous cities to locally celebrate Chinese new year.

But.

Notwithstanding this up years. So I think that's also got uncertainty.

You have all that how people respond to that.

Speaker 4: So we have this only conditionally planned and we will continue to respond to changes in the market and what we're doing.

So we have defended traditionally plan.

We will continue to respond to changes in the market.

Got it.

Thank you for the questions.

Speaker 1: I'll now like to call back to the management for closing remarks.

I would now like to hand, the call back to the management for closing remarks.

Speaker 2: Thank you for joining the call today. We look forward to speaking with you on the next earnings call. Have a great day. Thank you, everyone.

Thank you for joining the call today, we look forward to speaking with you on the next earnings call have a great day.

Thank you everyone. Thank you. Thank you.

Speaker 1: This concludes today's conference call. Thank you for participating. You may now disconnect.

This concludes today's conference call. Thank you for participating you may now disconnect.

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Speaker 1: Good day everyone, thank you for standing by. Welcome to Yam China 4 Quatsa and fiscal year 2021 earnings conference call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you need to press star one on your telephone.

Good day, everyone. Thank you for spending volume welcome to Yum, China's fourth quarter and fiscal year 2021 earnings conference call. At this time all participants are in a 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 one on your.

Telephone please be advised that today's conference is being recorded.

Speaker 1: Please be advised that today's conference has been recorded. If you require any assistance during the call, please press R0. I will now like to hand the conference over to your first speaker today, Ms. Michelle Shen, IR Director. Thank you, please go.

You require any assistance during the call. Please press star zero.

I would like to hand, the conference over to your first speaker today, Ms. Michelle Qi IR director. Thank you. Please go ahead.

Speaker 2: Thank you, Desmond. Hello, everyone. And thank you for joining the Young China's fourth quarter, 2021 earnings conference call. Joining us on today's call are our CEO , Ms. Jo Yuwa and our CFO , Ms. Andy Yu. Before we get started, I'd like to remind you that our earnings call and investor presentations contain forward-looking statements which are subject to future events and uncertainties.

Thank you Hello, everyone and thank you for joining Yum, China's fourth quarter 2021 earnings conference call joining us on today's call our CEO Ms. Joey Wat and our CFO Mr. Andy 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 uncertainties, our actual results may differ materially from these forward looking statements. All forward looking statements should be considered in conjunction with the cautionary statements in our earnings release and the risk factors included in our filings with SEC.

Speaker 2: Actual results make different material from the school we're looking for.

Speaker 2: All four were looking statements should be considered in conjunction with the cautionary statement in our earnings release and the risk factors included in our fighting with SE.

Speaker 2: Please call, also includes certain non- GAAP financial measures. You should carefully consider the comparable GAAP measures . Reconciliation of non-gap and GAAP measures is included in our earnings release.

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.

Speaker 2: Today's call includes three sections. Joe, you will provide an update regarding our performance over these past year and it reviews key actions. 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 and a PowerPoint presentation, which contain operational and the financial information for the quarter on our IR website. Now, I would like to turn the call over to Ms. Joe, you want. CEO of Yum China.

Today's call includes three sections Joey will provide an update regarding outperformance over this past year and that review key actions. Andy will then cover the financial performance and outlook in greater detail. Finally, we will open the call to questions. You can find the webcast of this call and a powerpoint presentation, which contains.

<unk> operational and the financial information for the quarter on our IR website now I would like to turn the call over to MS. Joey Wat CEO of Yum, China Joey.

Speaker 3: Thank you, Michelle. Hello, everyone, and thank you for joining us today. In the fourth quarter, multiple ways are outbreaks across the nation, significantly impact our business. I would like to express my heartfelt gratitude to all of our employees for taking the right actions to ensure customer safety and minimize business disruption.

Thank you Michelle Hello, everyone and thank you for joining us today.

Fourth quarter multiple waves of outbreaks across the nation significantly impact our business.

I'd like to express my heartfelt gratitude to all of our employees, while taking the right actions to ensure customer safety and minimize business disruptions.

Speaker 3: For example, during the lockdown in Xi'an, our excellent supply chain team shielded us from major disruptions. Our operation teams to immediate actions to quickly resume delivery and take away. They provide vital services to the community in this time of need. We also provided free meals to frontline medical and social workers as a token of our appreciation.

Sample during the lockdown in CN excellent supply chain team shoot us from major disruptions.

Our operation teams took immediate actions to quickly resume delivery and takeaway.

They provide vital services to the community in this time of need.

Also provided free meals to frontline medical and social workers as a token of appreciation.

Speaker 3: We consider people to be a critical pillar of our sustainability strategy.

We can see the people to be a critical pillar of our sustainability strategy, we aim to have a workplace.

Speaker 3: We aim to have a workplace where employees can thrive while protecting them and supporting their careers in times of uncertainty.

Employees can thrive, while protecting them and supporting their careers in times of uncertainty.

Speaker 3: Therefore, this year, we enhanced medical insurance coverage for our RGM, restaurant management teams, and supervisors. These great benefits cover around 100,000 frontline employees.

Therefore, this year, we enhance that medical insurance coverage for all G M restaurant management teams and supervisors.

It is great to benefit cover around 101000 frontline employees.

Despite the challenging environment for the full year, we grew revenue by 19%, we delivered operating profit of $1 4 billion or $766 million, excluding special items.

Speaker 3: Despite the challenging environment, for the full year, we grew revenue by 19%. We delivered operating profit of 1.4 billion or 766 million excluding special items.

Speaker 3: We opened over 1,800 stores. That is equivalent to five new stores per day.

Opened over 1800 stores.

That is equivalent to five new stores per day.

Speaker 3: compared to three new stores per day just a year.

Compared to three new stores per day, just a year ago.

Speaker 3: On the net basis, we add over 1200 stores.

On a net basis.

At over 1200 stores.

Speaker 3: CFC continue to demonstrate remarkable growth and resilience.

KFC continue to demonstrate remarkable growth and resiliency.

Speaker 3: System sales grew 8% in 2021.

System sales grew 8% in 2021.

Speaker 3: The brand opened more than 1,200 stores, entering 116 new cities in 2021. More than half of new stores were in lower tier cities, but we also adding store-density in higher tier cities.

<unk> opened more than 1200 stores entering 116, new cities in 2021.

More than half of new stores, bringing lowest tier cities, but we also adding store density in higher tier cities.

Speaker 3: the business, contribute to the majority of young China's profit. Peace out.

The business concept built to the majority of young China profit.

Pizza hut came back stronger.

Speaker 3: achieving single cells growth of 7% for the four years.

Achieving same store sales growth of 7% for the full year.

Speaker 3: We are happy to see the growth was driven by transition, volume increase of over 10%.

We are happy to see the growth was driven by transaction volume increase of over 10%.

Speaker 3: Pizza Hut opens over 300 stores, a record opening since 2016.

Pizza hut opened over 300 stores.

Opening since 2016.

Speaker 3: The brand also strengthened its bottom line with full-estatement operating profit up 77%.

The brand also strengthened its bottom line with full year segment operating profit up 77%.

Speaker 3: These results reflect the remarkable improvement over the past few years.

These results reflect a remarkable improvement over the past few years.

Speaker 3: Now let me provide some color on the fourth quarter. During the National Day holiday in early October , we saw a sequential recovery from the third quarter.

Now, let me provide some color on our fourth quarter.

During the National day holiday in early October we saw a sequential recovery from the third quarter.

Speaker 3: As regional outbreaks surged, November seemed to ourselves were done by mid-teens year over year, or approximately 20% compared to November 2019.

As a regional outbreak searched November same store sales were down by mid teens year over year.

Or approximately 20% compared to November 2019.

Speaker 3: Simp those cells improve slightly in the sample, but will still more than 10% below both prior year and 2019.

Same store sales improved slightly in December , but we're still more than 10% below both prior year and 2019 levels.

Speaker 3: Authorities implement mask testing, regional lockdown, and stringent travel measures nationwide.

Authorities implement mass testing regional lot die and stringent travel measures nationwide.

Speaker 3: These significantly impact the overall restaurant industry in our business. At the height of the outlook, nearly 300 of our stores were temporarily closed, or only provide delivery and take-away.

These significantly impact the overall restaurant industry and our business at.

At the height of the outlook nearly 300 of our stores were temporarily closed.

Only provide delivery and takeaway services.

Speaker 3: But more importantly, reduced social activities, less traveling and softened consumption, impact switch traffic across up.

But more importantly, reduced social activities, less traveling and soft and consumption impact foot traffic across our brands.

Let me share with you the key actions, we took to stabilize our business.

Speaker 3: Let me share with you the key actions we took to stabilize our bus.

Speaker 3: First, we drive traffic and sales with great product and value.

We drive traffic and sales with great product and value.

Speaker 3: The ability to innovate is one of our core competitive events.

The ability to innovate is one of our core competitive advantages, we again launched over 500, new or upgraded product last year.

Speaker 3: We again launched over 500 new or upgraded product line.

Speaker 3: At KFC, new categories such as beef burgers and whole chicken have received great customer feedback. Beef burger sales in a four quarter exceed 300 million R&B and account for 3% manual mix.

At KFC, Neil categories, such as beef burgers and whole chicken have received great customer feedback.

<unk> sells in a full quarter exceed 300 million RMB and accounted for 3% menu mix.

Juicy whole chicken and not as successful limited time offer promotion and therefore, we are putting it on permanent menu this year.

Speaker 3: Juicy whole chicken had another successful limited time over promotion and therefore we are putting it on permanent manual this year.

Speaker 3: We also partner with popular Chinese brands, Zoheya from Poobay, and Wang He-Yong from Poonam, to design innovative new menu items.

We also partner with popular Chinese brands.

From Keybanc.

<unk> from Kona to design innovative new menu items.

Speaker 3: Customers love the chicken and duck sandwich and spicy crayfish wrap will launch in a quarter

Customers love, the chicken and that sandwich, and spicy crayfish Rep will launch in a quarter.

Beyond National launches in 2021, Cathy launched 12 local dishes in regional market.

Speaker 3: Beyond national launches, in 2021, KFC launched 12 local dishes in regional markets. We expand all rings from breakfast to late night snacks.

Pam offerings from breakfast to late night snack.

Speaker 3: Steve and Len Kapoff from North Western China, Xi Bei, Kaolo Chuan, and co-new those with Sesame Sauce from Wuhan, Wuhan, Liangmian, are among customer-favorites.

Steve and Lance kebab from northwestern China, Shire, Colo Swan and KOL noodles with Sesame thoughts from me.

Yes.

Among customer favorite.

Speaker 3: We have a mechanism to roll out successful regional offerings to more places or even nation-wide. Wuhan Hot dry noodle, Wuhan Le Gainmei, Laxia was a big hit.

We have a mechanism to roll out successful regional offerings to more places or even nationwide Wow.

Dry noodle look on there last year was a big hit.

Speaker 3: A piece of heart will launch special winter theme pieces for the holiday season featuring great pieces, tiger prongs and filet mignon.

At Pizza Hut, we launched special wind has been pizza for the holiday season, featuring great Chief Hydro pronged and Filet Mignon.

Speaker 3: We also offered more flexibility to our customers, allowing them the option to trade up pizza toppings, which translated into higher average tickets.

We also offer more flexibility to our customers, allowing them the option to trade up pizza toppings.

<unk> translated into higher average ticket.

In response to weakened consumption, we increase value promotion across our brands.

Speaker 3: We increase value promotion across our brand.

Speaker 3: For example, the KFC and Peter Hut would go on our well-established promotion mechanism, create the Thursday and screen Wednesday to offer effective value promotion. While...

For example, our KFC and Pizza hut.

Our well established promotion mechanism Crazy Thursday, and Scream Wednesday to offer effective value promotion.

I'll minimizing margin impact.

Speaker 3: Second, we capture home consumption demand with all premises services for both KFC and P.

Second we catch a home consumption demand with off premise visits for both KFC and Pizza hut.

In the fourth quarter.

Speaker 3: The delivery continues to be a key growth driver, mitigating the drop in dying traps.

<unk> continued to be a key growth driver mitigating the drop in dining shopping.

Speaker 3: delivery grew 60% in 2021 compared to 2019 and Contribute to approximately 32% of self

Delivery grew 60% in 2021 compared to 2019 and contra built to approximately 32% so.

Speaker 3: combined with takeaway of premise services represented more than half of ourselves.

Combined with takeaway off premise services.

Presented more than half of ourselves.

Driving profitable growth.

Speaker 3: All premise vocations is core to our strategy.

In off premise occasions is core to our strategy.

Speaker 3: Our new retail product are designed to capture home consumption demand by leveraging our online and offline channels.

Our new retail products are designed to capture home consumption demand by leveraging our online and offline channels.

Speaker 3: We add more foot choices and trivote sales to over 500 million R&B within 2021.

We add more food choices and tripled sells to over 500 million RMB within 2021.

Speaker 3: Lastly, we unleash the power of digital in customer service and operation.

Lastly, we at least the power of digital in customer service and operations.

Speaker 3: The CARF-Z and Peace-A-Hart Loyalty Program exceed 360 million members as of the end of 2021.

The KFC and Pizza hut loyalty program <unk> 360 million members as of.

At the end of 2021.

Speaker 3: It is 16 million or 20% more than the year.

It is $60 million or 20% more than the year before.

Speaker 3: Members, those are currently for approximately 60%.

Remember sales accounted for approximately 60%.

Speaker 3: We continuously enhance our super app to address the needs of customers and improve their digital experience.

We continuously enhance our super apps to address the needs of customers improved our digital experience with.

Speaker 3: For example, KFC's personalized manual display and pizza has ordered to get a beach.

For example, Kfc's personalised menu display and pizza hut in order to get a feature.

Speaker 3: With enhanced digital capabilities, digital sales exceed $7 billion USD or over 85% in 2021.

With enhanced digital capabilities digital sales exceed $7 billion or over.

85% in 2021.

Speaker 3: We empower our RGM with install digitalization using AI, automation, and IoT. It keeps seeing our system access real-time store-level infantry and automatically dispatch its coupons to digital ordering users to reduce food weight.

We empower our algae and with install digitization using AI automation and Iot.

Can't see a system that is.

Real time store level inventory.

Automatically dispatches coupons, so digital ordering use that to reduce food waste.

We also introduced a quality control system to automatically evaluate the quality of food products based on the color shape et cetera et cetera.

Speaker 3: We also introduced a quality control system to automatically evaluate the quality of food products based on the color, shape, et cetera.

Speaker 3: These technologies improve both the customer experience and our operating efficiency. Now I would like to briefly update you on our emerging brand.

This <unk> improve both the customer experience and operating efficiency.

Now I would like to briefly update you on our emerging brands.

Coffee business is gaining momentum.

Speaker 3: We expand the La Baza portfolio from 4 to 58 lush.

We expand the Lovaza portfolio from four to 58 last year.

Speaker 3: covering all T1 cities and leading tier 2 cities such as Hanzhou, Wuhan, Changsha.

I'll bring all tier one cities and leading tier two cities such as Hangzhou Hun Tun shot.

Speaker 3: We continue to enrich our food offerings and tap into lifestyle merchandises to drive the growth.

We continue to enrich our offerings and tap into lifestyle merchandisers to drive further growth in.

Speaker 3: in 2022, we will open more stores to increase our company.

In 2022, we will open more stores to increase our coverage.

Probably enjoy total revenue increased both year over year and compared to pre COVID-19 levels and zinc sales grew by over 30% last year.

Speaker 3: Corby enjoyed total revenue increase both year over year and compared to pre-COVID levels. I think ourselves grew by over 30% last year.

We end the year with 36, new step 36 stores with improved store economics, reflecting improved fundamentals.

Speaker 3: We end the year with 36 stores with improved store economics, reflecting improved fundamentals.

Kim K coffee, so 117 million cups in 2021.

Speaker 3: Just pay coffee, so 117 million cups in 2021, representing a 22% growth compared to 2020. Takobou Storkan Tribal last year.

Representing a 22% growth compared to 2020.

Taco Bell still comp tripled last year from 12 to 37.

Speaker 3: We took actions to find tune the business and make the brand more approachable for Chinese consumers.

We took action to fine tune the business and make the brand more approachable for Chinese consumers.

Speaker 3: Pilot test is on smaller formats has shown improved unit economy.

Pilot tests on smaller format has shown improved unit economics.

Speaker 3: This year, we will continue to refine the formula for long-term success, just as we have done with KFC and Pisa her over the years.

This year, we will continue as we refined our formula for long term success, just as we have done with KFC and pizza hut over the years.

Speaker 3: Our Chinese cuisine brands little sheep and Huang Jihuan face a particularly adverse situation during COVID-19. A large number of their stores are located in Northland and Weston, China. Workplaces were concentrated.

Chinese kissing brands little sheep, LNG, one faced a particularly adverse situations during COVID-19.

Large number of their stores are located in northern and Western China.

This will concentrate.

<unk> was also hit hard due to a desk transportation locations book.

Speaker 3: East Darning was also hit hard due to the transportation location.

Speaker 3: After a careful review, we decided to wind down the operation in 2022 and focus resources on our hop-hop.

The careful review, we decided to wind down the operation in 2022 and focus resources on IHOP pulp trends.

Speaker 3: Before I pass the call to Andy, I want to emphasize that we face enormous uncertainties and help wins from the external environment.

Before I pass the call to Andy I want to emphasize that we faced enormous uncertainties and headwinds from the external environment, but.

Speaker 3: But we have the ability to embrace change and to innovate and adapt accordingly.

But we have the ability to embrace change and to innovate and adapt accordingly.

Speaker 3: We continue to focus on the tea levers, I just mentioned, to drive sales and put care of profit in a short time.

Continue to focus on the tea leaves I, just mentioned to drive sales and profit in the short term.

Speaker 3: We are also building our core capabilities to strengthen our market leadership for long-term sustainable growth.

We are also building our core capabilities to strengthen our market leadership for long term sustainable growth.

Speaker 3: I'm confident that we can emerge from this challenging career even stronger. With that, I will turn the call over to...

I'm confident that we can emerge from this challenging period even stronger.

With that I will turn the call over to Andy Andy.

Speaker 4: Thank you, Joey, and hello, everyone. The COVID situation caused a great view of the COVID-19 to our operations in 2021. We delivered strong performance in the first half of the year when COVID conditions was remarkably stable. In the second half of the year, our business was significantly affected by regional outbreaks and tighter public health measures.

Thank you, Joe and Hello, everyone.

Kovac situations caused a great deal of Bob <unk> to our operations in 2021, we delivered strong performance in the first half of the year when COVID-19 conditions with markedly stable in.

In the second half of the year, our business was significantly affected by regional outbreak and tighter public health measures.

Despite the challenges on a full year basis revenue reached $9 9 billion.

Speaker 4: Despite the challenge on a full year basis, we have a new rich 9.9 billion dollars.

System sales grew 10% in constant currency.

Speaker 4: System cells grow 10% in constant current.

Speaker 4: We reported a phone profit of $1.4 billion and a just a open profit of $766 million.

We reported operating profit of $1 4 billion.

And adjusted operating profit of $766 million.

In 2021, we received at roughly $19 million less onetime relief from the government and landmark.

Speaker 4: In 2021, we received it roughly $19 million less in one time relief from the government and then law, comparing to 2020.

Comparing to 2020.

If we remove the onetime relief.

Speaker 4: If we remove the one time released from the equation, our adjusted oven profit will be up 20% year over year.

On the accretion.

Just that operating profit will be up 20% year over year.

This result reflects the volatility arising from Covid.

Speaker 4: This results reflect the vitalities of writing from COVID, but also reflects the resiliency of our business and tremendous efforts our teams put in.

It also reflect the resiliency of our business and tremendous effort our team has put in.

We have accelerated the opening in the past few years.

Speaker 4: We have a service door opening in the past few years.

We maintain a healthy store payback period of two years okay.

Speaker 4: We maintain a healthy stall payback period of two years for KFC and three years for Pisa Hut despite the impact from the pandemic.

Three years for Pizza hut despite.

Despite the impact from the pandemic.

Speaker 4: Even newer stores open in the first half of 2021 have performed well.

Even newer stores opened in the first half of 2021 and perform well.

Speaker 4: In majority of our time, I achieved monthly break even within the first three months.

A majority of them achieved monthly breakeven within the first three months.

We are still a lot of white space opportunities in China, especially in lower tier cities.

Speaker 4: There are still a lot of white space opportunities in China, especially in lower tier cities.

Speaker 4: More Star format enable us to expand more festivals.

Small store format that enable us to expand more effectively.

Speaker 4: The reduced source size, combined with other cost reduction initiatives, enable us to decrease cat mix per store by around high single digit E over year.

The reduced our site combine it with other cost reduction initiatives enable us to.

The decreased capex per store by around high single digit year over year.

We will continue to apply a disciplined and systematic approach.

Speaker 4: We will continue to apply a discipline and systematic approach in our store opening process.

Opening partner.

Speaker 4: To ensure we open, commenting and high quality.

Sure, we opened promising and high quality stones.

Speaker 4: Now, let me review our fourth quarter financial itself.

Now, let me review, our fourth quarter financial results.

Speaker 4: even with the repeated outbreaks since mid October .

Even with the repeated outbreaks since mid October .

Speaker 4: First quarter revenue, who 1% in reply current.

Fourth quarter revenue grew 1% and we put a currency too.

Speaker 4: to $2.3 billion and we make possible.

$2 3 billion.

And we made possible.

Speaker 4: System cells were down 3% over year, mainly due to the same cell decline, partially offset by new unit growth.

System sales were down 3% year over year, mainly due to the same store sales decline.

Shall we offset by new unit growth.

Like five quarters, we are providing pro forma measures here for convenient comparisons with 2019.

Speaker 4: Like five quarters, we are awarding performer measures here for convenient for Paris in 2019.

Kfc's same store sales were approximately 88% of the prior year's level.

Speaker 4: KFC's same source dose were approximately 88% of the prior years level. And 85% of...

And 85% of the 2019 level.

Speaker 4: We have seen so traffic at approximately 80% of 2019 level. Every stake at rule roughly 6% versus 2019. Mainly due to the increased in the results remix, partially offset but increased.

We have seen store traffic approximately 80% of 2019 level.

Average ticket grew roughly 6% versus 2019.

Mainly due to the increase.

Partially offset by increased discounts.

This had same store sales were approximately 92% of the prior year and 88% of the 2019 level.

Speaker 4: These have same soft sales were approximately 92% of the prior year, and 88% of the 2019 level.

Speaker 4: Same-store traffic at a approximately 96% close to 2019 level, while the average ticket was...

Same store traffic and approximately 96% close to 2019 level.

While the average ticket.

Was down by about 8%.

Speaker 4: This was driven by the increased mix delivery, which has a lower average thickness than 19.

This was driven by the increased mix and delivery, which has a lower average ticket than tightening.

Speaker 4: Here, here, see what's more accepted than either hands in the control port.

Kathy KFC was more effective than pizza hut in the fourth quarter.

Speaker 4: Due to KFCs having a highest dorm mix in transportation and tourist location.

Due to <unk>, having a higher skill mix in transportation and tourist locations.

Speaker 4: This location experienced a sharp drop decline in sales down approximately 40% on a two year being.

This location experienced a sharp decline in sales.

Approximately 40% on a two year basis.

Speaker 4: The fourth quarter is seasonally the smallest quarter for ourselves and magic.

The fourth quarter is seasonally smallest quarter.

Our sales and margins.

Speaker 4: So the sales delivery impact on margins is more prominent. Restaurant margin was...

So the sales deleveraging impact on margin is more permanent.

Restaurant margin was seven 5%.

Speaker 4: down to 160 basis points compared to last.

Down seven to 160 basis points compared to last year.

This was mainly caused by significant sales deleveraging.

Speaker 4: This was mainly caused by significant sales de-leveraging, caused inpatient.

Both in patients.

Speaker 4: more valuable motion, as well as higher delivery costs, due to increasing sales in delivery volume. Let me go through each expense-line item. How's that?

More value promotion as well as higher delivery costs due to increasing so.

Delivery volume.

Let me go through each expense line item.

Cost of sales was 32, 5%.

150 basis points higher than last year.

Speaker 4: It was mainly due to increased valuable motions to dry customer traffic and upgraded packaging to face our traffic. Crossup labor was 27.9%. What does that talk about? Do you hear that?

This is mainly due to increased value promotions to drive customer traffic.

And upgraded packaging too faced out.

Yeah.

Cost of Labor was 27, 9%.

370 basis points higher than last year.

This is due to sales deleveraging.

Speaker 4: Ration inflation of 6% delivery volume increased, resulting in higher delivery right across and higher staffing levels as more staff were scheduled to implement increased safety protocols. A few things can see another was 30.

Wage inflation of 6%.

<unk> volume increased resulting in higher delivery right of course.

And higher staffing levels as more staff with scheduled to implement increased safety protocols.

Occupancy and other was 32, 1%.

240 basis points higher than last year.

Speaker 4: this is mainly an attribabal to the sense

This is mainly attributable to the sales deleveraging impact.

Speaker 4: In addition, UDLF rises when up by double digits, starting in December .

In addition.

<unk> prices went up by double digits starting in December .

Speaker 4: GNA expenses increase 7% year-over-year in cotton trunks.

G&A expenses increased 7% year over year in constant currency.

Speaker 4: mainly due to increased commutations and benefit expenses, as well as the impact of consolidating control care.

Mainly due to increased compensation and benefit expenses as well as the impact of consolidating Hangzhou carefully.

Compared to last year, we received.

Speaker 4: Compared to last year, we received $10 million less, we'll be from the government in landlord.

$10 million less will be from the government and level.

Speaker 4: for active cost management and for the 50 enhancements enable us to partially of a mitigate the hat mean and achieve a possible quarter. Offering profit was $633 million.

Proactive cost management and productivity enhancements enable us to partially mitigate the headwinds and achieve a profitable quarter.

Operating profit was $633 million.

Adjusted operating profit was $16 million.

Speaker 4: The difference is mainly due to the non-cash gain of 618 million dollars from the fair-video-reviguation.

The difference is mainly due to the noncash gain of $618 million.

From the fair value revaluation of.

Hangzhou KFC.

In December we completed the investment in Hangzhou catering and now own approximately 60% of Hangzhou KFC directly and indirectly.

Speaker 4: In December , we completed the investment in Hangzhou catering and now, on approximately 60% of Hangzhou KFC directly and indirect.

Other than these noncash gains the <unk>.

Speaker 4: Other than this non-cash gain, the impact from consolidating counter-cfc was small as the transaction was completed only on December 10th. If I could tax rate was 25.1%, net income was 400%.

From consolidating Hangzhou KFC was small.

The transaction was completed only on December 10th.

The effective tax rate was 25, 1% net.

Net income was $475 million.

And adjusted net income was $11 million.

Speaker 4: This includes a market market investment loss of $9 million in May.

This include a mark to market.

Investment loss of $9 million.

You made one.

Speaker 4: In contrast to a gain of 23 men down on the fourth quarter of 2020.

In contrast to a gain of $23 million in the fourth quarter of 2020.

Let's now turn to our outlook for FY 2022.

Speaker 4: Let's now turn to our alo for 2022.

Speaker 4: First, we expect stringent health measures to remain in effect in the near future.

First we expect stringent health measures remain in effect in the near future.

Speaker 4: The development of COWIT remains highly uncertain as we have seen last year. In January ,

The development of Colgate remains highly uncertain.

We have seen last year.

In January a part of the Delta vary of the outbreak.

Speaker 4: Homeicron cases also spread to impon city such as Beijing, Shanghai, Tianjin, and Xinjiang.

Let me from cases also spread two important cities such as Beijing <unk>.

Hi, Tien tsin as engine.

Speaker 4: I'm gonna 500 out of stores. We're temporarily closed.

Over 500 stores were temporarily closed.

Speaker 4: or only provided delivery and take away services that are being in January . Think about sales in January .

Sure.

Only provided delivery and takeaway services at a peak in January .

Same store sales in January improved modestly.

From the fourth quarter.

Comparing to the comparable Chinese new year holiday period in 2021.

Speaker 4: comparing to the comparable Chinese New Year holiday period in 2021.

Speaker 4: Same source cells are still down year over year and remain a mile-tile. Second is on the weakening MACB-

Same store sales are still down year over year and remains volatile.

Second is on the weakening method.

As the government has recently mentioned.

Speaker 4: China's economic development is facing triple pressures from demand contraption, supply shock, and the weakening expectations.

China's economic development is facing triple pressure from demand contraction.

Russia.

And the weakening expectations.

Therefore, we will continue to focus on providing our customer exceptional value to drive traffic.

Speaker 4: Therefore, we will continue to focus on providing our customer exceptional value to drive traffic. On it.

On the cost side.

Inflation is on the rise globally.

Commodities, such as chicken beef.

Speaker 4: Commodities such as chicans cheese, ease and cheese as well as energy prices have increased double digits.

Beef and cheese as well as energy prices have increased double digits.

Our team is taking initiative to re.

Speaker 4: Our team is taking initiative to rebase our course structure and to improve efficiency, including...

We base, our cost structure and to improve the efficiency.

Including.

Speaker 4: Locking in prices when they are obviously more favorable.

Locking in prices when they are relatively more favorable.

Speaker 4: Innovating manual items to fully utilize all part of chicken and cow Expanding our supplier rates, especially local suppliers.

Innovating menu items to fully utilized.

Chicken in cattle.

Expanding our supplier base, especially local supplier.

Speaker 4: We have this initiative. We expect to partially mitigate the right in cost, but we will still.

With these initiatives, we expect to partially mitigate the rising cost.

But we will still.

Faced commodity price pressures this year.

Additionally.

Speaker 4: The increase in delivery sales mix will increase wider costs.

The increase in delivery sales mix will increase wider pulp.

We maintain a very strong balance sheet with approximately $4 billion cash and short term investments.

Speaker 4: We maintain a very strong balance sheet with a possibly $4 billion cash and short company back.

Speaker 4: We will soon share your purchases in the third quarter of 2021.

We resumed share repurchases in the third quarter's 2021.

Speaker 4: Apocryme 617-month-dollar remain available for future share repurchases under the authorization. We will continue.

Approximately $617 million remained available for future share repurchases under the authorization.

We will continue to return excess capital to shareholders.

Speaker 4: Re-intestate. Opening approximately 1,000 to 1200 net news stars.

We anticipate opening approximately 1002 1200 net new stores.

Speaker 4: as we increase stability in higher tier cities and capture white space in lower tier cities.

We increased density in higher tier cities and capture the white space in there.

Lower tier cities.

Speaker 4: We will continue with a disciplined approach of opening high quality news.

We will continue with our disciplined approach of opening high quality useful.

We expect our capital expenditures in 2022 to be in the range of $800 million.

Speaker 4: We expect our capital expenditures in 2022 to be in the range of $800 million to $1 billion.

Two 1 billion.

Speaker 4: The majority of this is allocated to start opening and we model.

The majority of this is allocated to store opening and we modeling.

We are stepping up investment and supply chain infrastructure and digital.

Speaker 4: We are stepping up investment in supply chain infrastructure and digital. It's part of our long-term capital allocation as highlighted in the October of 2019.

Part of our long term capital allocation as highlighted in the Investor Day last September .

This investment of your social.

Speaker 4: This investment are essential to driving the long-term, sustainable growth of our business.

Two driving the long term sustainable growth business.

Speaker 2: With that, I will pass you back to Michelle to stop the Q&A. Michelle? Thanks, Andy. We'll not open the call for questions. In order to give as many people as possible the chance to ask questions, please send your questions to one at a time. Desmond, please start the Q&A.

With that I will pass you back to Michelle to start the Q&A Michel Thanks, Andy <unk> will now open the call for questions in order to give as many people as possible the chance to ask questions. Please limit your portion to one at a time assessments. Please start the Q&A.

Thank you very much as a reminder to ask a question you would need to press star one on your telephone to withdraw your question press the pound or hash key please standby, while we compile the Q&A roster.

Speaker 1: Thank you very much. As a reminder to ask questions, you will need to press star one on your telephone. To withdraw your question, press the power O Hatchkey. Please standby while we compile the Q&A roster.

Yes.

Yeah.

The first question comes from the line of Brian .

Speaker 1: The first questions comes from the live op-bribe beatner from Oppenheimer. Please.

From Oppenheimer. Please go ahead.

Speaker 5: You're unit openings during a time of heightened uncertainty for the business. And I realize the returns are still very strong as you outlined in your repair remarks and as you outlined in your presentation. But can you talk to us what specifically is driving this big step up?

David.

You did openings during a time of heightened uncertainty for the business and I realize the returns are still very strong as you outlined in your prepared remarks, and as you outlined in your presentation.

But can you talk to us what specifically is driving this big step up in unit openings and it appears it's a trend that is continuing in 2022 based on your outlook. So it wasn't just a one time situation in 2021 talk about the dynamics behind this strategy do you believe the Cove.

Speaker 5: in-unit openings. And it appears it's a trend that is continuing in 2022 based on your outlook. So it wasn't just a one-time situation in 2021. Talk about the dynamics behind this strategy. Do you believe the COVID environment has opened up an elevated amount of development opportunities? Just any type of additional color on this new level of unigrowed would be helpful. Thank you.

That environment has opened up.

Elevated amount of development opportunities.

Any type of additional color on this new level of unit growth would be helpful. Thank you.

Thank you Brian .

Yes.

For for our focus on new store opening.

Speaker 3: For our focus on new store opening, the management team has a very transparent about the way that we are thinking. I think it's, we lay out very clearly in our yesterday that when we,

The management team has been very transparent about the way that we're thinking I think is.

We lay out very clearly in our Investor day that when we.

Speaker 3: look at how to operate this business in a short and long term, we focus on three things. The algae and the resilience, the growth and the growth. So even for a new store opening, we are thinking, I still think, in a way resilience might be even more important than growth. But once we achieve resiliency, then we really will push to growth.

Look at how to operate this business in the short term long term, we focus on three things the algae the resiliency the grid.

And a moat so even for new store opening.

We are thinking the same.

<unk>.

Wei resilience might be even more important than growth, but once we achieve resiliency and we really are.

We're push to grow.

Speaker 3: So that's all of the holistic thinking. And specifically, why we are still opening that many stories. As you have mentioned earlier, Brian , your question.

So that's sort of the holistic thinking and specifically why we are.

Are you opening that many store as you have mentioned earlier right in your question.

Speaker 3: The most important criteria is whether we are getting the payback that we are looking for and the answer is yes.

Most important criteria is whether we are getting the payback that we're looking for and the answer is yes.

Speaker 3: For KFC, we still getting the paper within two years for pizza actually improved. In the past, we, in the past.

Full KFC, we still getting the payback within two years.

For pizza actually improve.

In the past.

In the past.

Speaker 3: five years because pizza this year will open more stores than any other year since 2016. Actually the net new store opening is

Five years.

Because this year, we opened most of them.

Other yeah since 2016.

Actually the net new store opening is.

Speaker 3: more than all the stories we have opened in the last three years.

More than all the stores, we have opened in the last three years.

Speaker 3: It has improved. The paper has improved now to three to four years, well, two to three years, from three to four years to two to three years. Particularly the satellite store, we can get the paper almost as good as the KFC.

So it has improved the paper has improved now to to.

Three to four yes, two to three years from three to four years, that's over three years.

Thats all I still.

We can get a payback almost as good as the KFC.

F C.

Speaker 3: So that's the key criteria. And when we can get the payback then, we should open stores.

So that's the that's the key criteria and when we can get the payback then wish you open stores.

Speaker 3: while our operating team can handle. So that's point two. One is our thinking of strategy two is

While our operating teams can handle.

So thats going to them one is the our thinking our strategy is to is.

Our requirement of the paper and said where are the opportunities well the opportunities are still in lower tier city as the as I've mentioned earlier.

Speaker 3: our requirements of the paper and third. Where are the opportunities? Well, the opportunities are still in lower tier city as I mentioned earlier.

Speaker 3: obayiously alone we enter 160 new city.

Kathy along we enter 160 new cities.

Speaker 3: So for these new cities, Kelsey Brand is very strong and that's very limited cell transfer because it's brand new.

So for these new cities.

Kathy brand is very strong and Thats very limited sales transfer because it's brand new.

Speaker 3: And then also the other area is the channel opportunity such as highway station, service center, etc. And there's a particular opportunity in franchising as well.

And then also the other area is the.

The channel opportunities such as highway stations.

Our service center et cetera.

And that particular opportunity and franchising as well.

Speaker 3: And then for Pizza Hut, obviously the white space is even larger because we're only in few, Pizza is only in few hundred cities in China right now.

And then for Pizza hut.

Obviously, the white space is even.

Even larger because we are only infield piece is only a few hundred cities in China right now and then even for the existing cities, we are and we see the opportunity to two.

Speaker 3: And then even for the existing cities we are in, we see the opportunity to...

Speaker 3: to open more soil to increase the soil density. When the soil density improves, it has the other benefit to our delivery.

Open more sort of increased us so at density.

When the thought density improve it has the added benefit to our delivery business because the average distance of the delivery rider has shortened and convenience has improved.

Speaker 3: because the average distance of the delumirator has short

Speaker 3: and the convenience has improved. And that will...

And at that point.

Speaker 3: work for the customer because they get right service and for it was for the operating course because the average delivery course is actually

For the customer it sounds like everybody else does it but it was more the operating cost because the average delivery cost.

It actually improve too.

Speaker 3: So that gives us the sense of where are the opportunities.

So so that gives you a sense of.

What are the opportunities.

Speaker 3: And in terms of how COVID gave us more opportunity in slow opening, in a way, yes, because I think during good time, when the market is growing, it's much harder to see the resiliency of the China business. And during bad times, particularly in the last two years, landlords can see that very clearly.

And then in terms of how Covid give us more opportunity.

And so opening in a way yet because.

I think there are some good time when when when the market is growing.

Much harder to see the resiliency of Yum, China business and during that time, particularly in the last two years landlord can see that very clearly.

Speaker 3: So, you know, we have become even more popular tenant for land or across all tier cities.

So we have become even more popular 10 of Orlando across all tier cities.

Speaker 3: Not only we can deliver good profits and secure job opportunity to our shareholders and our employees, but we also can deliver reliable rents, rental income to landlords.

Not only we can deliver good profit and <unk> opportunity to our shareholders and to our employees.

But we also can deliver reliable rent rental income to landlords.

Speaker 3: So you can imagine why we are a popular tenant. And therefore, a significant percentage of the leads, we are talking about 70, 80% of our leads have certain cell, the rent is calculated based on percentage of cells, which give us the flexibility and resiliency in terms of our core structure.

So you can imagine why.

We are a popular tenants and therefore.

Select for the percentage of the leads we are talking about a seven.

70, 80% of our leads have set them.

Rent is calculated based on a percentage yourself, which gave us the flexibility and resiliency.

In terms of our cost structure. So I hope that gives you.

Speaker 3: So I hope that give you some more color in terms of the new store opening. We never changed after specific number and we emphasize it again and again and again, but when we can get the payback two to three years, which is fantastic, then we'll open the store when we see the opportunity. Thank you, Brian .

Some some more color in terms of the new store opening.

We never changed the specific number and we emphasize it again and again and again.

But when we can get the payback two to three year Richardson testing.

Then we will open this fall when we see the opportunity.

Thank you Brian .

Thank you for the questions.

Speaker 1: Next question comes from the light of Christine, paying from UBS. Please go ahead.

Next question comes from July Christine Peng from UBS. Please go ahead.

Speaker 7: Hi, Nancy, thank you for the presentation. So I have a question regarding the delivery competition landscape.

Hi management. Thank you for the presentation. So I have a question regarding the delivery competition landscape.

Speaker 8: In 2021, we noticed that Madonna initiated a much more upgraded version of the app in China, enabling its digital strategy extension. In the country, so Kiyushia, with more colors, you have observed incomes of the delivery competition landscape in a whole Chinese restaurant industry, particularly considering Madonna's new strategy.

In 2021 with notice that Mcdonnell initiated a much more upgraded version of the App.

In China, enabling its digital strategy extension in the country. So can you share with US more colors you have observed in terms of the labor competition landscape in the whole Chinese restaurant industry particular.

Considering Mcdonald's new strategy. Thank you.

Speaker 3: Christine, we have been putting delivery at very high priority in our business since a long, long time ago.

Christine.

Have being.

Putting delivery a very high priority in our.

Business.

Since a long long time ago.

And as you can see compared to 2019.

Speaker 3: And as you can see, compared to 2019, our delivery business has grown even stronger. As you can see from our number, you know, 60% four year delivery growth was 2019, and then for KC, along is 70% plus, and then a PTA at 37%.

Our delivery business.

Has grown.

Even stronger.

As you can see from our number.

60%.

Full year delivery growth.

<unk> was the 2019, an ampoule Cassie along is 70% plus and then pizza.

<unk>, 37%.

Speaker 3: So that give you a sense. We are very focusing on the app to improve the convenience, both in terms of the app experience, but also it might not be so clear to our investor that we also have a team.

So that gives you gives you a sense.

We we.

Focusing on the App.

To improve the convenience.

Both in terms of the App experience.

But also.

It might not be so clear.

To our investors that we also have a team.

Speaker 3: Digital, we call it Digital Operation Team that work with

The digital we call it digital operation team.

That work with our store operating team too.

Speaker 3: our store operating team to ensure the seamless experience online and offline.

And ensure the seamless experience online and offline.

Our delivery business.

Speaker 3: So that helps a lot because one is about the digital experience. Two is we have people working together with the storm team to deliver the service.

So that helps a lot because one is about the digital experience we.

We have people.

Working.

Together with the star team to deliver the services and that will include the membership engagement too right. So that's the second thing the third set which is rather unique.

Speaker 3: And that will include the membership engagement too. So that's the second bit. The third bit, which is rather you need to Yom Chana, it's not only you need probably the only one, we have our hybrid delivery model. We...

Yum, China is not only unique probably the only one we.

We have our own.

A hybrid delivery model.

We have been building since 2000 teeth, well actually from the very beginning.

Speaker 3: We have been building since 20th, well, actually from the very beginning, but we, we insist on building our...

We insist on building our.

Speaker 3: their own writing capability, s

Our underwriting capability.

And that that can be understood right now I think if we use the the framework.

Speaker 3: That can be understood right now. I think if we use the framework that we share again in the university, the resilience, the growth, and the mook, and this is the mook, the strategic mook, is our own long term, competitive advantage without delivery, right?

We share again in Investor day, the resilience the growth and the moat and this is the marked that strategic moat is our own long term competitive advantage with our delivery rider the hybrid model, while we worked with the <unk> to soft traffic.

Speaker 3: Hybrid model. While we work with the plform to source traffic, we rely exclusively our own rider.

We rely exclusively on rider.

Speaker 3: to deliver the product. And that has multiple advantages. One is...

To deliver.

The product and that has.

Multiple advantages.

One is the quantity.

Speaker 3: the quality, the percentage of service complaint is much lower, which we have experienced when we convert the piece of heart delivery from the past version to current one, when we took the delivery, rise of service back in house, we see the drop of the customer complaint and the sales increase.

The quality of the percentage of surface.

<unk> is much lower.

We have experienced when we convert the pizza hut.

Deliveries from from.

The possible Ocean to current one when we took the delivery right. The service back in house, we see the drop off the cuff.

Customer complaint and thus the sales increase.

So that gave us a very unique advantage.

Speaker 3: So that gives us a very unique advantage in our delivery business. So, not that, it has been a very important part of business. It has become even more important in the last two years.

In on delivery.

So net net.

He has a.

It has been a very important part business has become even more important in the last two years.

Speaker 3: given the COVID situation. And we have very unique resiliency to grow the business and the long term with our unique capabilities that give us strategic mode to continue to deliver good services to our customers. Thank you, Christine.

Given the Covid situation and we have very unique.

Resiliency to grow the business.

The long term with our unique capabilities that give us strategic moat to continue to deliver good services to our customers. Thank you Christine.

Speaker 1: Thank you for the questions. Next question comes from the light or chunball off bang off amrator. Please go ahead.

Thank you for the questions.

Next question comes from the line of <unk> Bank of America. Please go ahead.

Speaker 6: Hi Management team happy Chinese New Year. So I've got a follow-up question on our new store opening So as we're accelerating our new store opening place are we seeing any challenges in terms of training the right store managers and hiring additional staff?

Hi.

Management team happy Chinese new year, So I've got a follow up question on our new store opening.

No.

Leveraging our new store opening pace.

Seeing any challenges in terms of training.

Our store managers and hiring additional staff.

Speaker 6: Meanwhile, when a standard, although the store payback period for new stores could be still pretty impressive, the new stores may actually create a kind of validation to the existing stores.

Meanwhile, we understand.

Although it is a store payback period for new stores could be still pretty impressive.

The new stores may actually clean cut utilization to make just some stores.

Speaker 6: and it may also create additional resources, requirement in terms of management attention. So with this factor in mind, if our same stores sales growth remains under pressure for the coming 12 months because of the COVID impact.

<unk> may also create additional.

The resources requirement in terms of management attention.

<unk>.

In mind is our.

Our same store sales growth.

And the pressure for the coming 12 months because of the call. The impact is there any chance for us to consider to slowdown our store expansion temporarily.

Speaker 6: Is there any chance for us to consider to slow down our thoughts of action temporarily? Thank you.

Okay.

Let's turn.

Speaker 3: Thank you. Our staff or resources, you know, we manage to handle it quite all right. And as you can see, over actually since 2014 and 2015, despite.

Thank you.

Our stop all resources.

We are we made.

To handle it quite alright, and as you can see our.

<unk> actually since 2014 and 2015.

Despite the.

Speaker 3: the growth of our same store sales, despite the growth of our new stores, from 7,000 plus store right now is 11,000 store. We managed to maintain the total number of staff in our system at 420,000.

The growth of our same store sales.

But the profile of new stores.

From 7000 per store right now is a 11000, so we managed to maintain.

Maintain the total number of staff in our system at 428000.

Speaker 3: So we increase the store, but we've still increasing the total number of staff. And what is the Delta here is the automation and AI and digital.

So we increased the store, but without increasing the total number of stops and what is the delta here is the automation and AI in digital.

Speaker 3: so You know particularly right now with our

So.

Particularly right now with our.

Speaker 3: So based, we can train our staff to meet the new store opening demand. And if we cannot do it, if we somehow see the challenge in terms of quality of the staff and the new store, then we will adjust our pace of new store opening, of course.

Stoping, we can train.

Our staff to meet the new store opening demand and if we cannot do it if we somehow see the see the see the challenge in terms of quality of the stuff in the news in the new store that we will adjust our pace of new store opening of course.

Speaker 3: So with that, I passed the question to Andy and Andy can comment about the other numbers impact from the news source, Andy.

So with that I pass the question to Andy and Andy can comment about the other number impact from the new stores Andy.

Thanks Joey.

So happy new year.

Speaker 4: to a lot of new year. So first of all, I want to say a little bit about, obviously, EchoWat, Joy have mentioned, in terms of news for opening, China still growth markets, and let's not do white space, especially in both EU cities, and recently urbanized areas. And so, I think sometimes we encourage, invested and elders to look more into the system cells rather than as a

First of all I want to say a little bit about obviously echo what do we have mentioned in terms of new store openings.

China is a growth market.

And there's lots of white space.

Especially in lower tier cities and recently urbanized area and so I think some time.

We encourage investors and analysts to look more into the system cells rather than SSG.

Speaker 4: especially in over the past two years, on the coil of databases, we see a lot of autility because of COVID-19. As we have mentioned over the past two years, we expect to recover from COVID to the time, the on-linear and uneven. So you know, it still remains the case right now.

Especially over.

For the past two years.

The cohort basis, we see.

See a lot of volatility because the Cove development.

As we have mentioned.

Over the past two years, we expect the recovery from Covid.

At the time.

Non linear.

And uneven so it still remains the case right now.

Speaker 4: In terms of our store opening, we're very disciplined. As we have this close, we're very marked. We apply different evaluations.

In terms of our store opening with that discipline.

As we have disclosed in our prepared remarks.

We are quite disciplined.

Valuation.

Devaluations.

Speaker 4: possible and to determine our investment. That's why we continue to have consistent payback for two years.

And to determine our best but that's why we continue to have consistent payback.

Two years.

Speaker 4: and for his hard three years and you know for his entire life thought it's close to two years these are very very good returns on investment so we're very comfortable you know without strategies and also in terms of the quality of the store as I mentioned even the newest store that we have opened in the first half 2021 they're also performing well

And for three years.

Highlight though is close to two years.

Very good.

Vestments so.

We're very comfortable with our strategies and also in terms of volume as I mentioned, even the newest though that we have opened in the first half of 2021. They are also performing well despite the.

Speaker 4: despite the overall impact on the pandemic. The majority of them are reaching for events in the first few months of the open.

The overall.

In fact, the pandemic a majority of them are reaching breakeven.

First few months of opening.

Speaker 4: Now in terms of generalization, I think, you know, certainly, you know, new start opening, sometimes we'll transfer some cell, especially in delivery to, you know, to the new store. But, you know, we have been growing our store network.

I can talk otherwise station I think.

Totally new store openings sometime returns with themselves, especially in delivery.

To do so.

But.

We have been growing our store network.

Speaker 4: over the past 30-some years. And if you look back before, the pandemic we're going, and right now we're going, we just very consistent, very disciplined.

Over the past 30, some years and if you look back before the pandemic. We are growing right now which is very consistent with discipline.

Speaker 4: in the way how we do it. So we have experience doing with normalized SSG impact from new start-ups.

A way how we deal with it.

So we have extensively with normalized SSG.

Impact from new store openings.

Speaker 4: The other one is that when we look at opening a new store, we also capture incremental sales in profit. And then it also, for what I've shown you mentioned, passive network effects on delivery and take away business. So, you know,

The other one is that when we look at.

Opening a new store.

We also captured incremental sales and profit.

And then also pull as Joey mentioned positive network effects on delivery and takeaway business.

So.

And.

Speaker 4: Given the pandemic and the summer changes, we're also, you know, so we're defining our thought that we're, as Joey mentioned, we look at, you know, these darling, for example, we have wind down the operations because these concentrations on traffic are really low, this is hot. So, you know, and then allow us to open more location that better serve off-premise signing.

Given dependent I'm, making this number changes we're also.

So it will be signing our installed that Joey mentioned as we look at.

Selling for example, we have wind down the operations because this concentration of transmission and looked at the comp.

So and then and then allow us to open more locations that better serve.

Off premise side for example.

Speaker 4: And so, oh and oh, I think if you, if you, you know, take a step back, you know, in terms of a long term view as we do, you know, we obviously are investing to build up, continue to enhance our resiliency, but we're all positioning ourselves for growth and capturing the market opportunity.

And so all in all I think if you if you take a step back.

Income up.

Longer term view as we do.

We obviously are investing to view up proclivity, hence influences, but we are positioning ourselves for growth and capturing the market opportunity and if you look at what we're able to achieve this year.

Speaker 4: And if you look at what we have able to achieve this year, despite some of these very challenging environments, we are able to generate all the four-year basis revenue of $9.9 billion.

Some of this.

As far as the environment.

We're able to January .

On a full year basis revenue of $9 $9 billion, and we grew our system by 10% in constant currency.

Speaker 4: And we grow our systems sales by 10% in closing current.

Speaker 4: And then we also, you know, achieved and increased the other profit on a offer on a required basis $1.4 billion on a adjusted, you know, basis, you know, our profit was $766 million. And that's...

And then we also.

Achieved an increase of our auto profit.

Although we have basis $1 $4 billion on adjusted.

Basis operating profit was $766 million.

Yes.

Speaker 4: You know, that's the reason why this, you know, despite, you know, the significant impact on the pandemic. Very good. So I think internalization and useful opening, obviously, we'll continue to review that, but I think we're pretty confident in that strategy that we have.

That's definitely something.

Okay.

Despite the significant impact on this pandemic.

So I think in talking about our patients.

And you're still opening obviously will continue to review that but I think we're pretty confident chassis that we have with them.

Thank you Andy I think I'll, just make one more comment because there's such a strong interest in our new store opening.

Speaker 3: Thank you and I just made one more comment because there's such a strong interest in our new store opening.

Speaker 3: For our new store, particularly in Lower TSC, it has lower capes.

For our new store, particularly in lower tier city it has lower capex.

Speaker 3: We have differentiating pricing strategy, means the price will be lower compared to Tion City. We even have differentiated manual. We will have some special, very special, incredibly good value for money product in that manual only. And we also leverage French ID to help us as well. So that helped. But

We have differentiating pricing strategy means.

The price will be lower.

Compared with Q1 city, we even have differentiated menu, we will have some special very special incredibly good value for money product in that menu oney and we also leverage franchisee.

To help us as well.

So if that helps but just in terms of the numbers and in terms of malls I mean, I just wanted to draw your attention to one number historically kept that capex number.

Speaker 3: in terms of the numbers and in terms of modeling, I just want to draw your attention to one number, historical capital capital number.

Speaker 3: You know, our new store opening has increased a lot, and that might be the reason that that gives some of you some concern. But if you look at our cap-tack number, historically, 2016.

New store opening has increased a lot and that might.

It might be the reason that that.

Some of you some concern, but if you look at all Capex number historically 2016.

Speaker 3: We spent 436 million on capital. That's the year we got independent. And we left it. We opened, we got amount of money. We opened 575 stores. Bye.

We spent 436 million on Capex, that's the year, we got we got independent analyst.

Open with that amount of money, we opened 575 stores.

By 2020.

Speaker 3: We open twice as many doors. Our capper is 490 minutes, which is not done 20 seconds.

We open twice as many so our Capex is 419 million, which is down.

2016, so what it means.

Speaker 3: So what it means, our efficiency of new store has improved significantly.

Our efficiency of new store has improved significantly.

Speaker 3: Right? And on top of that, by 2021, we increased the new store to 1800. I'll kept that increase a bit more.

Right and on top of that at.

500000, Tony why we increased the new thought to 1800, Oh kept us increase a bit more.

I mean, 50% more 689 billion.

Speaker 3: I mean 50% more, 689 million, but 689 million. But the bulk of it is also going to digital and infrastructure as well. So going forward, going forward, for the coming year, Andy just mentioned 800 million to a billion.

689 million, but the bulk of it is also going to digital and infrastructure.

As well so going forward going forward.

Well for the coming year, Andy just mentioned 800 millions of failure.

Speaker 3: half of it or slightly more than half of it will be on new store opening so

All of that offsetting more than half of it will be on new store openings. So.

Speaker 3: So that's the way that we looked at it. A number of use though is one thing, but the key thing is the efficiency and the total amount allocated to capital.

So so that's the way that we looked at it.

Number of new store is one thing, but the key thing is the efficiency.

Total amount allocated to capex.

Speaker 3: and that means the LENG and the ability to continue to get more efficiency all of CAPPASS and open new stores. In the long term, it becomes strategic mode of office.

That resiliency and ability to to to continue to.

To get more efficiency, all capex and opened a new store in a long time it becomes strategic multiple offices.

<unk>.

Speaker 1: Thank you for the questions. Next question comes from the Lionel Lillian though of your China. Please go ahead.

Thank you for the question next question comes from <unk>, China. Please go ahead.

Yeah.

Speaker 7: Thanks a lot, Joe, YNND. Since we talk a lot about the new store, open you may be split here a little bit on the another driver for the revenue growth despite that and he said that we need to focus on sales growth. That's on same sales growth. But I think a little bit of color can you provide?

Thanks, a lot Julian that the things that we talk a lot about our new store opening maybe switch gears a little bit.

Another driver for us for the revenue growth despite that Andy said that we need to focus on sales growth same store sales growth, but I think a little bit color can you provide.

Speaker 7: Why in fourth quarter the same style growth, same style growth trend quite similarly in August because I remember in August I was in same style growth also down like a meeting

Why in fourth quarter, the same store growth same store sales growth trend. Similarly in August because I remember in August our sales same store sales growth also Tom <unk>.

Speaker 7: And by that time, I think the number of cities that is median or high-risk cities the number actually the way higher than fourth quarter. So trying to understand the dynamic, the impact to our same-star sales growth from this COVID-19.

And by that time, I think the number of Cds.

That is a medium or high risk cities, the number actually is way higher than fourth quarter.

So trying to understand the dynamic the impact to our same store sales growth from this COVID-19 development and I'll say I know that this situation really challenging to predict but.

Speaker 11: And also, I know that this situation will be challenging to predict, but...

Speaker 11: And if standing at the current situation, what do you think is the most possible scenario for our same sales growth trend if the COVID continues like the COVID?

Standing at the current situation what do you think is the most possible scenario for our same store sales growth trend if the Colgate continues like the courage.

Level. Thank you.

Andy.

Speaker 4: Yeah hype event mm i think

Yes, hi.

Hum.

I think.

Q4 is actually I believe.

Speaker 4: Q4 is actually probably the in-hub public conditions. The worst thing is the first quarter, 2022. I think it's pretty obvious to most folks here in China. We have a Delta variant outbreak, and then later on of the year, we also seem to see almost on cases popping up here in China.

Perfect conditions.

Since the first quarter of 2022, I think it's pretty obvious to.

Most folks here in China.

We have a delta varian outbreak.

And then later on the year, we're also going to see Omnicom cases popping up here in China.

Speaker 4: Now cases, you know, case load may be one and it's quite effective here, because obviously in China here, you know, generally we have our stringent health measure and try to, you know, so like, you know, achieve a dynamic zero cases for COVID. And so that we rely on a lot of this, you know, health restriction of measure.

Cases is case low maybe one and is quite disruptive here, because obviously truck in China here.

Generally we have very stringent health measure.

Try to.

Sorry.

She is a dynamic.

Zero cases four.

For for Covid, and so that rely on a lot of help.

Turning to measure.

Speaker 4: So but now last if you look at the outbreak in the case and also the widespread is the worst first quarter 2020

So, but nonetheless, if you look at the outbreak in the case and also the widespread is the worst.

Since the first quarter 2020.

Speaker 4: So as we have mentioned in our press release, in the state chain trend, we see some recovery from the summer outbreak in October . But then we see that can impact the outbreak in November .

So as we have mentioned in our press release.

<unk> trend.

We've seen some recovery from the summer.

In October .

But then we see significant impact from the outbreak in November .

Speaker 4: And then a little bit of recovery in December , but still a sound double pitch.

And then a little bit recover in December , but steel is down double digits.

Speaker 4: Now, obviously, as we have mentioned, when we look at...

Now.

Obviously.

As we have mentioned.

When we look at.

Sure.

Speaker 4: COVID is going to introduce virtual leads in our operation.

Colby this is going to introduce volatility in our operation and we have co investor and analyst and in total we asked about that we need to have narrow and analysis and preparation potentially would you plan to deal with.

Speaker 4: We have told investor and analysts and told us about that we need to have now and now that and preparation content is planned to deal with. When time is good, how we can execute well and capture more market opportunities. Situation becomes more challenging, how we can rely on resiliency and operation, and ensure that even in best time we're able to make profit.

Tommy is good how we can execute well and kept.

Capturing more market opportunity.

Situation become more challenging however, we can rely on <unk> operations and ensure that even better and we're able to make profit.

Speaker 4: And so I think for the first quarter, that's what we do, but I think it's well-wild to step back because from a quarter of a quarter basis, very hot or even months, months basis, to predict what's gonna happen with COVID. But if we step back for the whole year, as I mentioned, you would see a little bit of data picture.

And so I think for the fall.

For the fourth quarter, that's what we do but I think it's worthwhile to step back because we know from a quarter over quarter basis.

Or even month to month basis to predict what's going to happen.

With Covid.

We step back for the full year as I mentioned you will see.

A little bit better picture despite.

Speaker 4: Despite the volatility and charging involvement that we operate in 2021, we're able to grow our revenues, able to grow our systems sales, even grow our profit.

Despite the volatility in the challenging environment that we operate in 2021.

<unk> able to grow our revenues to grow.

Sick themselves.

Even grow out.

Okay.

Speaker 4: And so I think, you know, in the sense, I think, you know, sometimes we need to take a little bit more, but we also have to accept the fact that, you know, with COVID, you know, that will be something.

And so I think.

In a sense I think sometimes we need to take a little bit worse, but we also have to accept the fact that with COVID-19 .

Be some uncertainty.

Speaker 4: Now in tab up SSG and then also profit. You can see that when the situation is stabilized.

Now how about SSG and then also pop as you can see that when the situation stabilizes.

Speaker 4: We're able to actually wear a lot with the first half, and even the second half in 2012.

Able to execute very well.

And even the second half in 2020.

Speaker 4: Now, always be when things are challenging, we continue to rely on our team, our operations, our brand, our product and customer, and our digital and delivery. So the East Square is kind of hard for me to provide guidance on the COVID development and we get an SSG impact. But as we have mentioned, the biggest impact on SSG right now, the volatility is because of COVID.

Obviously when things are challenging we continue to rely on our team our operations are Brian and I'll put it in customers' digital and delivery.

So so.

Yes.

For me to provide.

Guidance on corporate development and.

SSG impact, but as we have mentioned the biggest impact on the SSG way, though the volatility because of Covid.

Speaker 4: And so, but, you know, I'm confident we go over the last couple of years, you know, we do both in terms of, you know, authorities and in terms of our RGM, our operational team, we learn something, you know, over the past two years, how to respond, you know, to when there's a correct outbreak. And then try to mitigate some of those impacts.

And so but I am confident as we go over the last couple of years, we do a bolt on to him.

Although these in turn them off of our Rgs our operational team.

We learned something over the past two years trying to respond to when does of course outbreak.

And try to mitigate some of those impacts.

Speaker 4: So, you know, I think, you know, if you, the way I look at the situation right now is that sure, you know, in the short term, we have Colby, we have some of the Macklehead wins. So it's short term a bit more.

I think if you will.

The way I look at it the situation right now is that sure in the short term we have Colby we have some of the macro headwinds.

So.

Now I'll turn a little bit more cautious.

Speaker 4: But we are very confident in our operations, our brand, our products, and the consumer of our priorities. I think we have demonstrated empathy. We have the largest customer membership base, as the management has been growing, you know, 20% from last year. Now membership accounts more than 60% of our sales.

We are very confident in.

Our operations are Brian our products and consumer.

Laura I think have demonstrated employee we have the largest customer membership base.

<unk> been growing 20%.

Last year.

Our membership model.

Sure.

And so we're confident.

Speaker 4: And, you know, so we're common on our operation, our brand and customer base and the product that we have, the new opportunity that Joey have mentioned. And then in the longer term, I think, you know, we still are very optimistic about the opportunity in China. And that's why we invest in not only in our expansion but building our capabilities in digital infrastructure and so.

Our brand and customer base.

Products that we have the opportunity to Joe you have mentioned.

And then in the longer term I think we.

We still are very optimistic about opportunity in China and Thats why we are investing the always install network expansion, but building our capabilities in digital infrastructure and supply chain and so hopefully that gives you some perspective.

Speaker 4: And so, hopefully that gives you some perspective on how we look at the market and the situation here.

How we look at the market situation here in China.

Speaker 3: Thank you Andy. Thank you Andy and thank you Lillian. Lillian, I think I'll just like to summarize again the management thing is very clear in this. We cannot, you know, we don't have the crystal ball towards the COVID situation but we are very clear about our focus. What do we need to do?

Thank you. Thank you Andy Thank you Andrea and thank you Lillian.

I would just like to summarize again, the management and King is a very clear and then we cannot.

We don't have the crystal ball.

Towards the Covid situation, but we have very clear about our focus.

What do we need to do.

Speaker 3: Again, three focus, resilience, growth and strategic mode. Realism.

Again, three focused resilient growth and strategic moat very simple resilience as Andy talked about is the resilience of our operating team.

Speaker 3: resilience as Andy talk about is the resilience of operating team.

Speaker 3: We are fast, we are responsive, and our team after two years training, even done to each market level,

We are fast we are responsive.

And our team of the two years training.

Even down to each market level.

Speaker 3: the Shanghai market, Beijing market, Guangzhou market, that's the national strategy, that's the local strategy, I'll tell you what to do.

Shanghai, Beijing Guangzhou market.

The national policy and national strategy that the local strategy.

No what you do.

Speaker 3: in terms of growth, two sorts of growth very clear and dimension. The product, you know, in terms of new category like beef burger, whole chicken. Why whole chicken is important because it's also home consumption, right, which is such a trend.

In terms of growth two sorts of growth there Andy.

Andy mentioned the product.

In terms of new category like beef Burger chicken why don't you kind of important because it's also home consumption right, which is a trend.

Speaker 3: the local innovation, you know, the partnership with Joe Herr will help you or the Wuhan Legane, et cetera. It's something exciting, interesting fun to try the traffic and we focus on the value.

The local innovation.

The partnership with Johanna will have.

On the handler Gardner et cetera.

Something exciting interesting fun to drive the traffic and we focus on the value we.

Speaker 3: We have done incredibly good job in terms of delivering our saving. What we can save and pass on the saving to customers through value. Right now the

We have done.

Incredibly good job in terms of delivering life saving what we can say and pass on the savings or customer value right now.

Speaker 3: The signature value campaign that crazy Thursday and screen Wednesday is something working very well. And then the other source of growth is the off-premise demand, the delivery, the takeaway, the home consumption retail. The home consumption retail for South China, which is our own retail brand. And KFC and Peter Hart.

The signature value campaign at Crazy Thursday, and Scream Wednesday is something.

Working very well and then the other source of growth is the off premise demand.

The delivery the takeaway.

The home consumption vetoed the home consumption retail.

For cell phones.

Which is our own retail, Brian and Kathy and Pizza hut tripled to over 500 $500 million in 2021 alone and then last is the strategic moat, which is the digital <unk> 7 billion on digital sales also being in the $60 million membership and not surprising.

Speaker 3: triple to over 585 million in 2021 alone.

Speaker 3: And then, a lot is the strategic mode, which is the digital, seven billion digital cells, 360 million membership and our suppression. You know, our ability in terms of getting the scale, getting the efficiency and also ability to replace our core space and remain competitive in the long term, in terms of building our own infrastructure.

Our ability.

In terms of.

In terms of getting the scale getting that efficiency and also our ability to rebase, our cost base and remain competitive in the long term.

In terms of building our own infrastructure.

Speaker 3: They all helped our business. The focus is very, very clear. If I could just mention another thing about how do we utilize our core capability to grow the business.

That all helps.

Our business does the focus is very very Korea.

If I could just mentioned.

The thing about.

How do we utilize our core capability to grow the business. For example, we use our hybrid delivery model all right to deliver the new retail it makes sense. We have the right is in our stores already and we utilize.

Speaker 3: For example, we use our hybrid delivery model, our own rider, to deliver the new retail. It makes sense. We have the riders in the stores already. And we utilize the rider to deliver the new retail to our customer directly. Service is good, reliable and cost is slow. So that hopefully gives you a sense of management very clear focus on resilience growth and multi-stuality.

The rider to two to deliver the new retail to our customer directly service is good reliable and cost is slow.

So that hopefully gives you a sense of management very clear focus on resilient growth in multi strategy.

Speaker 3: given the uncertainties and the evolving situation of COVID. Thank you, Nile.

Given the uncertainties and the evolving situation with Covid. Thank you Mindy.

Thank you for the questions. Our next question comes from Shell Paul <unk> from Citi. Please go ahead.

Speaker 1: Thank you for the questions. Our next question comes from Sealport Way from City. Please go ahead.

Speaker 6: Good morning, Joey and the, my question is focusing on your operation of a store in terms of people model. You guys have long pre-for self-operating stores, two ventanting out stores.

Good morning Julien.

My questions are focusing on your accretion of a story in terms of people model.

You guys have long proof for self all produced stores to franchisees outdoors.

Speaker 6: giving all the fluid situation cool lead, you have a better infrastructure supply chance actual. Will you consider scratching, front-tiding out more stored looking forward versus the...

Given all of the fluid situation could lead you have a better infrastructure supply chain Central will you consider.

Actually franchising out more store looking forward versus.

Speaker 6: Several pretty much of stores looking forward and I also A classic clarifying you the the target of tar your new opening target for the year

Our self are pretty most of stores looking forward and also.

Classic clarifying.

The target of <unk>.

Your new opening target for the year. So your target new store opening one to one two <unk> this year, including at least self operating stores or including both franchises to work and self operated stores. Thank you.

Speaker 6: So your target news store opening one to 1.2 thousand this year, including only self-operaing stores or including both French heads of stores and self-operative stores. Thank you.

Sure what a new store target includes our franchising stores as well and go back to your.

Speaker 3: The new store talk includes the franchise in stores as well. And go back to your question, the first part of your question.

Question.

The first part of your question the majority of the new store will still be equity stalled because the payback is so good.

Speaker 3: The majority of the new store will still be equity store because the paper is so good. However, as you can see, over the years right now the mix of our franchise store has increased, especially after the acquisition of Huang Ji Huang, I think it's in the mid-teens already.

However, as you can see over the years right now the mix of our franchise franchise store is.

It has increased especially after the acquisition once you hired I think it's in the mid teens already.

Speaker 3: But going forward, we will be quite open-minded about the franchising option. And we always think open-minded about it. We do it when it spreads. So in terms of the franchising strategy, there's three folks.

Going forward well.

It will be.

Quite open line up all the franchising optional and we'd always be open minded about it we do it when it's right. So so in terms of the.

Our franchising strategy definitely focus.

Speaker 3: One is we do the franchising in some remote locations, such as Tibet or Qinghai. You can imagine why, because it's more normal efficient to manage that way instead of managing all the way from the headquarters.

One is where do the franchising in some remote locations such as Tibet Arching home you can imagine why because it's more efficient.

To manage it that way instead of managing all the way from the headquarter.

Speaker 3: Secondly, it's channel. So the strategic channels such as the highway, highway service center, etc. So these are very sensible franchising opportunities.

Secondly channel.

So the strategic channels such as the.

Highway.

Service Center et cetera. So these are very sensible franchising opportunity.

And then the third thing I would like to mention is the ability.

Speaker 3: And then the first thing I would like to mention is the ability to use technology to help managing the franchising system. We have been very cautious about the franchise.

The ability to use technology to help manage on the franchising system, we have been very cautious about the franchising Ah.

Speaker 3: strategy as you can imagine, you know, there are a lot of advantage of the French-Chinese strategy in China, but there are also a lot of challenges in terms of

Strategy as you can imagine there are a lot of advantage of the franchising strategy in China, but there are also a lot of challenges in terms of the quantity of men.

Speaker 3: the quality of the service that we care most about. But right now with the end-to-end digitization process going on with the IoT, with the automation ability to ensure that the system is working.

Of the of the service that we care most about but right now with the end to end digitization process going on with the Iot with the automation.

Our ability to to.

To ensure good store operation among the franchisees store has improved significantly in the last few years, so that said and they give us that comfort and hopefully IMS a better comfort that when we.

Speaker 3: So operation among the franchising store has improved significantly in the last few years. So that certainly give us better comfort and hopefully I messed up better comfort that when we, you know, open mind about franchising strategy, it does not mean that we compromise on the quality of the service. We don't.

Aw open minded about franchising strategy. It does not mean that will compromise on quality of the service we don't.

Speaker 3: and particular intensive product as well. So I think we have a few more questions. Let's move on to the next one.

In particular in terms of product as well so I think.

We have a few more questions lets move onto the next one.

Before we move on I, just wanted to jump in the aircraft.

Speaker 4: Before we move on to the next one, I just want to jump in there. It's clarified. You know, the number that we talk about, the net is the net new store that we opened, not the close number of stores. And the net new store opened. We expect is about 1,200, which include both franchise and equity stocks. And as Joey mentioned, most of them is going to be our own equity store.

The number that we talked about the net use of net new store that we opened up the gross number of sales and net new store open we expect about 1200, which include.

Both franchise and equity so as Joey mentioned most of them is going to be home equity side.

Thank you.

Thank you next question comes from Dubai, and Lee of Jefferies. Please go ahead.

Speaker 1: Thank you. Next question comes from the mind of Anne Ling of Jeffries. Please go ahead.

Speaker 7: Hi, thank you. The first question for Andy, regarding the cost trend moving forward, I might have missed it, but would you share a vested cost trend or your cost increase expectation for commodity cost staff and also the occupancy cost for the whole year of year 2022, as well as first quarter, 22.

Yeah, Hi, thank you.

So first question for Andy.

Turning to cost trend.

Moving forward I might.

Have missed it but I would just share with us the cost trends or your cost.

Increased expectation for commodity costs.

<unk> and also the occupancy cost for the whole year of year 2022, as well as first quarter plenty too.

Speaker 4: Sure, so okay, okay, so So I think you know if you look at you know Obviously right now we look at the globally we see commodity price inflation You know if you look at can see these energy calls are up double

Sure so.

Okay. So.

So I think if you look at.

Obviously right now we look at the.

Globally, we see commodity price inflation.

If you look at <unk>.

Energy costs are up double digits.

Speaker 4: Now, obviously, without doing anything, we're promising that most of you missing your digits at least for commodity prices of all now still.

Now obviously without doing anything.

We will probably add.

Low to mid single digits.

For commodity prices.

Our analysis.

Uh huh.

Speaker 4: And then also, if you have a class of labor, there's two components that driving it. One is obviously, as we have mentioned in last year, we have to increase the wages at the market level, at the small level. And so we've likely only come to see meet to high single digit wage increase. And which is a normalized rate for China.

And then also if you look at cost of labor.

There's two components to driving it one is obviously as we have mentioned.

Last year, we have increased.

Wages.

At the market level.

Install level and so we're likely going to continue to see mid to high single digits.

Wage increase.

This is a normalized grateful in China.

Speaker 4: And also we've also a little bit increased, I mean, right across as we continue to see delivery as a growth driver and a growth driver will pass. So the mixed shifted delivery will increase delivery cost there as well. Now on occupancy and on a side, one thing is

And also we see a little bit increase in wider cost as we continue to see delivery as a growth driver innovative broker with buses through.

So the mix shift to delivery would increase if you will recall there as well.

No.

Occupancy.

Auto side.

Sure.

One thing is.

Speaker 4: energy cost in China, the Defeat employees have increased by double digit since December . That's obviously responsible to some of the power shortage that we have experienced in the summer and trying to encourage more production.

Energy costs.

China is the Gui price have increased by double digits since December .

That's obviously a response to some of the cost structures that we have experienced.

Summer and tried to encourage more production and more production.

Speaker 4: and more, more, more reductions in more savings energy. So,

Savings energy.

Balanced that market dynamic and.

Speaker 4: And so all in all, I think we're looking at some commodity inflation labor.

So all in all I think we're looking at.

Some commodity.

<unk> labor headwinds.

Speaker 4: Now, again, also on the Martin side, the biggest impact on Martin is actually self leverage and delivery of these things that we're all good to have an impact.

No.

Again.

The marketing side, the biggest impact on margin is actually south.

Average and deleveraging.

Same store growth would have an impact on that.

Speaker 4: But we're nothing still obviously. We have a very good team and they're in a lot initiative to try to fight this happening obviously. One is to protect margins and one of the ways to offer products with a wider pricing range. A lot of people upgrade, but also, don't provide a lower entry prices for new cuts.

But.

But we have nothing to do obviously, we have a very good team and a lot of initiatives too.

To try to fight this headwind obviously.

One is to protect margins.

To offer.

With a wider correctly, which allow people to upgrade but also look at what they're able to.

Enterprises for new customers.

Speaker 4: Now we also want to leverage our scales and supply chain efficient.

Also we want to leverage our scale and supply chain efficiencies.

Speaker 4: The lesson that inflationary pressure, as we have mentioned on the paper remarks, that that including...

To lessen the inflationary pressure as we have mentioned on the prepared remarks, including.

Speaker 4: We're actually looking at more favorable price when the market actually arrives.

We were lucky.

More favorable.

Price win where the market.

Right.

Speaker 4: We will also have, you know, try to look into how to increase our efficiency and utilization of the ingredients that we have. Right, a trick in, you know, how do we use the phone trick in, you know, the product tricking and paying for our fees, right, to count how we can utilize to the product that in great products. And that, you know, that our customer like and the author gives us, you know, good money.

We will also have.

Try to looking to how to increase our efficiency and utilization.

The agreement that we have a chicken how do we use the <unk> coverage.

Which is the same for our beef right now how we can utilize the product at a great product.

Thats.

Our customer like in but also gives us good margin.

Speaker 4: We also have obviously a team of surprising and other people with a brand that will be based on overall cost.

We also have obviously.

A team of the pricing and other people in the brand.

So we're going to rebate overall costs.

Speaker 4: and then also increase the efficiency of our labor. And you know, that technology, as we have always mentioned, is an important part of labor productivity improvement. That's why we're investing, as we have mentioned, EUMOR, you know, a billion dollar in IT investment and the show with the investment, and then a billion dollar in supply chain infrastructure over the next few years. So I think all in all, you know, we try to drive that labor portfolio of 50s, you know, process officially efficiency.

And then also increase the efficiency of our labor in that technology as we have always mentioned that important.

Labor productivity improvement that's why we are investing as we mentioned the $1 billion in it investments.

So the growth investments and ended up at <unk>.

The project infrastructure over the next few years so.

All in all.

We try to drive that labor productivity.

Process officially efficiency.

Speaker 4: to reduce waste and whatnot. And then we'll continue to try to improve and utilize our membership program, which is one of the largest in the world, 361 members, in to drive marketing.

Use base.

Sure.

And then we also will continue to try to improve and utilize our membership program, which is one of the largest in the world 360 remember.

To drive marketing efficiencies.

Speaker 4: and then also drive member frequencies span and overall self. So this is how we look at a commodity pressure, and then how we manipulate how we respond to it.

And then also drive member frequency spend overall sales and so this is how we look at a commodity.

Pressure.

And then how we.

Appreciate how we respond to it.

Speaker 7: God, God it. And just to clarify, you know, for this commodity cost increase, estimate that you provide low to net civil digital or the labor cost of net total housing or the just increase, that's for your efficiency exercise. Is that correct?

Got it and just to clarify for this commodity cost increases.

Thank you for what like low to mid single digit or the labor cost of mid to high single digit increase.

For the.

Efficiency exercise is that correct.

Speaker 4: Well, you know, like the commodity prices are sales, you know, in the marketplace is, you know, they have increased by double digits. And so obviously, we're

But like the commodity prices in the marketplace.

Increased by double digits and so obviously.

If you do that.

Speaker 4: use that. Rageers, we're expecting the normalized rate of mid-to-high single digits. So, and then, you know, for, you know, we're also, you know, to S-ci, we also, as we mentioned, last year, we beginning to face out plastic off through the country, and then we have rolled that out last year, and then we continue to roll out more markets.

Radio is we are expecting a normalized rate of mid to high single digits.

So so.

Then for.

We also through side, we have resident, especially last year, we began to phase out prostate.

All through the country and then we have rolled that out last year and then we'll continue we'll open more market.

Year.

Speaker 7: Got it. And my second question is on the store opening, the 1,200 net store opening, I understand that majority of the store opening will be under KFC brand, but would you share with us like, what is your estimate, or your budget for like La Vaza, your other coffee brands, as well as piece of hardwood, I believe like La Vaza used, to start opening, plan for a piece of hardwood as well. So maybe you can share with us the store opening plan moving forward for the other brand.

Okay got it got it and my second question is on the.

The store opening.

The 1002.

1200, net store opening I understand that majority of the store opening will be under the KFC brand preclude you share with us.

What is your estimate of your budget for.

Like Lovaza.

Your other coffee brands.

Pizza hut, which.

Last year, you've received the store opening plans for two side as well. So maybe you can share with us the store opening plan moving forward for the other brands.

Sure So I think.

Speaker 4: Sure. So I think, you know, like if you bring it down, obviously, KFCs view, you know, the very important and largest friend for us, definitely not for the majority of the opening. But if you are pizza hard because, you know, impunes economic, human economics, as pizza hard saw, you know, is also have accelerated, you know, start opening.

If you break it down obviously kathy's view.

Importantly, our largest brand for us is going to add for the majority of our openings, but if you are pizza hut, because improve economics unit economics.

At Pizza Hut store.

He is also have accelerated you'll start opening last year.

Speaker 4: In fact, you know, if you look at Peter Hut, it opened, you know, 335 new store, higher things, you know, 2016.

In fact, if you look at Pizza Hut is open.

335.

The new store, our highest since 2016.

Speaker 4: And if you look at the net, you know, start increase of 235 last year, is I think if I'm wrong correctly, it's a combined point of the previous three year total. And so, and so I think, you know, this obviously would play in Pongro, especially with, you know, the success of the satellite storm model. La Baza is also, you know, have, you know,

And if you look at the net.

The increase of 235 last year.

I think if I remember correctly is the combined.

Of the three year and so.

And so I think.

Obviously will play important, especially with the success of the satellite store model.

Lavazza is also have.

No.

Speaker 4: I would say it's like, you know, at the beginning of last year, we have about, you know, at the beginning of year, we have four stars.

I would say at least at the beginning of last year, we have about.

You would have postal.

Speaker 4: We have opened up 50 some stuff and now we obviously is still a pretty new brand in China But no, we have expanded the drive-ins with La Vazzaer last year

We have opened up.

Could be some store and now we and.

And obviously.

It's still a pretty.

The new brand in China, but we have expanded the joint venture with Novartis there.

Last year.

Speaker 4: We have quick plans for the brand as we have mentioned. We give more it as our third growth engine.

We have great plans for fall.

For the brand as we have mentioned we will be.

Our growth engine.

Speaker 4: So so now we're not only getting

So.

So that will be not only in the.

Speaker 4: you know, the top tier cities, the tier one cities, but also in several tier two cities. We'll continue to look into, you know, experimenting with different, you know, small formats and then expand to more market. And then before Brian , I think we have all seen, you know, pretty good, you know, membership growth. And so as such, you know, we will expect, you know, the vastness to open more store.

The top tier cities the tier one cities, but also in several tier two cities will continue to looking to experiment with different store formats and inexpensive mall market.

And then Brian I think we have all seen pretty good.

Our membership growth.

So as such we would expect.

Buyback was to open more store this year.

Speaker 4: And single tackle battle is a brand that we did not have as much, but we also opened some 20-some stalls last year at Taco Bell. Again, it's one of the highest views on opening in many years.

And people talk about it you can really upfront that we deliver.

As much but.

We also opened some 20 some soul.

Last year.

Taco Bell again is what it is.

Youre still opening.

Yes.

Speaker 4: So I think in terms of law, opportunity, I think going back there, it's...

Bye.

So I think I think we in total of all but certainly I think going back there.

How we utilize.

Speaker 4: how we utilize the store format to target the market, how we able to take some cost initiatives we've defined the format of the store, at the manual at the store, that allow us to open some more effectively. And I think the store's smaller format right now is very key to overall development across all these.

The store format to use two targeted market.

How are we able to take some cost initiatives, we've deferred the format of the store the menu at a school.

Now as to open some more effectively and I think that smaller format.

You sounded like it's very.

Q2 overall development across all these brands.

Speaker 4: So next this training, we have a look at it. You know, you know, the key, the key is still be CFC, the empty task and then coffee, and then, you know, and the other single other business.

Same with how we look at it.

<unk>.

The key the key is going to still be KFC.

Positive.

Obviously within the business.

Okay.

Thank you.

Yeah.

Speaker 1: Thank you for the questions. We have a question from the light of Michelle Qing of Coleman. Thanks, please go away.

Thank you for the questions. We have a question from the line of Michelle Cheng of Goldman Sachs. Please go ahead.

Speaker 8: Hi, Joey and thanks for taking my questions. I still want to follow up a little bit on the course from. So if we look at the occupancy and other costs, it seems that the delivery impact is more significantly. You mentioned the energy cost has contributed these increase. But I remember in the past few years, these items actually drive a lot of...

Hi, Joey Andy Thanks for taking my questions.

Wanted to follow up a little bit on the cost front. So if we look at the occupancy and other costs. It seems that the deleverage impact us more significantly.

And you mentioned.

Energy cost has contributing visa increased I remember in the past few years these items actually drive a lot of it.

Speaker 8: So can you still give us more color? Take a side that you energy cause like rental

Just again, so can you still give us more color take aside that your energy cost like rental.

Speaker 8: other cost items, whether there's anything we see more precious in the near time. And on top of that, a wage cost, so I think the digital orders are already contributing at the cost of 90% of the sales. So is there any further room to say the labor staff number per per store or any like a delivery efficiency again, we can expect going forward? Thank you.

Other cost item, whether there is anything we see more pressure in the near term and on top of that wage cost.

I think the big holders are already contributing at close to 90% of the sales. So is there any further room to say the like neighbor staff number of parts to work or any like a delivery efficiency can we can expect going forward. Thank you.

Hi, Michelle yes, thank you for your questions.

Speaker 4: I'm a show. Yeah, thank you for your questions. In terms of O and O, I think obviously, you know, one thing that point out is to be price increased because, you know, it's obviously a, a government policy. Change that, you know, you see double digit increase in the utility price.

OLED <unk> I think obviously wasn't in port outs to the price increase because.

Obviously a.

The government policy change that we've seen double digit increases will be prices.

Speaker 4: The other one is obviously ran as we have mentioned in folks, even though we have high percentage of our store have a component, almost 80% of our store have a component of WebMoran. But there's also a fixed component of that. And so when there's a South-Laraging, generally we see impact on all and all at the percentage of WebMoraners. So that's what's in it.

The other one is obviously the brand as we have mentioned that folks even though we have high percentage.

So I'll have the components almost 80% so I have a component of the web will read.

But there is also fixed.

And so when that south deleveraging generally.

See you.

<unk>.

As a percentage of.

Revenues and so that's what.

The key driver for there.

Speaker 4: The other one is in terms of

The other one is.

In terms of.

Sure.

Speaker 4: our labor for the human improvement. I think obviously some of these improvements you can see on the start, for example, you think digital app or computer and make digital payments. So I think that's that, I think it has been already. But there's also things that you don't see that digital actually have a lot in labor for the kids.

Labor productivity improvement I think obviously.

Some of this improvement you can see on the thought.

Example, using digital app or kiosk orders and mix of payments.

And so so I think that that I think it.

Well quite a bit already but there's also things that you laid out for you that digital actually help a lot and labor productivity. We have mentioned before we have.

Speaker 4: We have mentioned before, we have the pocket manager that helps our store manager to manage the store more efficiently that more real time information. It also helps them to do staff scheduling. We continue to invest in IoT to automate our kitchens and also our inventory count and all that.

The pocket manager to help us.

While measure.

Medicare so more efficiently that more real time information.

And also help them to do their scheduling.

We continue to invest in the Iot to ultimately our.

Kitchens.

And also our inventory count at all that I think.

Speaker 4: I think, you know, right now, I think digitization is moving only investing in the fund and with the customer, but more moving into the kitchen and all more into our supply chain and in our back office, right? So, supply chain is continuing to, you know, invest over there in terms of routing in terms of, you know, integration with suppliers that allow us to do better forecasts, demand and policy.

<unk>.

Right now I think the utilization moving not only investing in the front end with the customer, but more moving into the kitchens are Martin <unk> our supply chain.

In our back office right, so supply chain and continue to.

Invest over there.

In routing in terms of.

Our integration with suppliers that allow us to better forecast demand.

Management.

Speaker 4: and then also a pack of office, as I mentioned before.

And then also in our back office.

I've mentioned before we.

Speaker 4: You know, we have a three-year disaster program, for example, you put for our financial department, right? You go into our office, then you pause it, and then link up the data at the cost.

We have a three year program for several years for our finance Department.

As always to automate manual process.

And then laying up the data across the company.

Speaker 4: And then also in the delivery side, right? As Goye has mentioned, you know, not only we use delivery to better optimize the killing of, you know, our food production, but also, you know, better routing for our rider. Also, you know, more, more, more optimized tracings, design.

And then also the delivery side right as we have mentioned.

We use delivery to better optimize the queuing up.

For production, but also better routing for our.

A rider also.

More optimized trade zone.

Besides.

Speaker 4: as well as potentially having other product community of such as key times and also you retail to basically better use-wise the wider that we have.

As well as you know.

Potentially.

Having other product initiatives such as.

<unk> <unk> and also new retail to basically better utilize the wider that we have so there's a lot of way to look at labor productivity improvement.

Speaker 4: So there's a lot of ways to look at laborable, that's the improvement. And if you look at overtime, we have done, quite well, despite the lower increase and all that. We have seen labor calls as a potential over all revenues before the pandemic, relatively stable. And given enough time, I think we're able to continue to improve laborable activities to offset some of these near-term shops.

And if you look at over time.

We have done quite well, despite the deliberate increase and all that.

Have seen labor cost as a percentage of.

Overall revenues before the pandemic could be stable.

Given enough time I think we.

Able to participate in food safety.

Asset somewhat.

We had hoped.

Sure Colby.

Speaker 3: I think in the long term, I would like to comment to think Michelle, one is in a way, if you think about it, our expansion of delivery business helped reduce the rent.

I think in the long time, I would like to comment two things Michelle one is.

In a way if you think about it.

<unk> deliver business helped reduce the rent.

Thinking about it right because.

Speaker 3: in about this, right? Because when our deliver business continues to grow, it means the location, the new stall location.

The number of business continue to grow.

Yes.

The location of the new store locations.

Speaker 3: We don't need to be in the prime time prime area. We can compromise a little bit and their hopes. So the saving of the rental expenses helps the delivery costs. Point one, point two. In terms of riders.

We don't need to be in the pant on prime area, we can comprehend compromise a little bit and that helps so the saving of the rent rental expenses helped.

Delivery cost side.

0.2 in terms of ride it.

Speaker 3: The way that we look at the right cause is also show our mentality, our philosophy in resilience and strategic mode because...

The way that we look at the variety of course, it's also show our.

Mentality, our our philosophy in ink.

<unk> resilience and strategic because it.

Cause.

Speaker 3: The fact is our, we know the cause of air-rich order.

The first is.

Right now the cost of average order.

The cost of delivery by the per order is higher than our platform.

Speaker 3: The cause of delivery ride per order is higher than the preface.

Speaker 3: And we understand that we have the option, but we keep it this way because our riders right now make the liver better quality of service.

And we understand that we have the option, but we keep it this way because our riders right now to deliver better quality of service. So when it comes to cost.

Speaker 3: So when it comes to cost, quality first, then we work on the cost line. And instead of pushing down to pay the right or left, because if you pay them left, they go, right? They leave. We make sure that they pay well, but then we leverage our right to deliver higher average ticket items, such as newly-

What does he first then we work on the cost side.

And instead of pushing them to pay the rather less because EBIT if you paid unless they go right.

We make sure that they pay well, but down with leverage our rider to deliver a higher average ticket item.

You add the lethal.

Speaker 3: So that's the way that we think about the core structure of the delivery right aside as well. Thank you, Michelle.

So that's the way that we think about the cost structure.

Of the delivery Brad this side as well thank you Michelle.

Yeah.

Yeah.

Speaker 1: The last questions will come from Waterloo from CME International. Please go ahead.

The last question will come from water from CMS.

International Please go ahead.

Speaker 9: Hi, hello, Hi Andy and Joey. Can you hear me?

Hi, Hello, Hi, Andy and Joey can you hear me.

Hi, Walter.

Speaker 9: Okay, thank you so much for the chance to ask questions. So my question is about your ticket size. If we check out the positive impact from the increased delivery sales mix, what's the KFC average ticket is still increasing in the last quarter. And given the industry dynamics and the outlook in the FY22, do you think it is still suitable for KFC and Piss-Hart increased the average ticket?

Okay. Thank you so much for the chance to ask questions.

So my question is about the ticket size.

If we take out the positive impact from the increased sand.

Delivery sales mix.

KFC.

Ticket is still increasing in the last quarter and given the industry dynamics and outlook in FY 'twenty. Two do you think it is still some sugar coat.

<unk> is hard to increase the average ticket.

Speaker 9: or perhaps the reduction of the level of promotions. This is the

Perhaps the reduction of them therefore promotions.

This is the first question.

Yeah.

Speaker 4: Hi, Laura. Yeah, so let me address a little bit about the TA situation and TA situation, obviously, for CAPC and PISA has slightly different, you know, for CAPC, the delivery actually increased the take of average. So the makeshift delivery actually would, you know, will help them work with that. Normal.

Yes, So let me address a little bit about.

Keith situation and <unk> situation RPC for KFC and Pizza hut.

Any different.

Sure.

KFC.

Delivery actually increase to think of the average so the mixed shift to delivery accurately.

We'll help them a little bit there normally.

Speaker 4: when these kind of opposite, as pizza hut, because pizza genuinely, it's also we have been a place for gathering social activities. And so the diners will have to take it every space height and it will be size. So when there's a mixed shift there, then we have, you know,

When you just kind of opposite at pizza.

Pizza Hut is a journey.

Generally historically, we have been.

A faithful gathering activities and so.

The dynamics, we would have to take that.

Average base higher than what we thought so when there is a mix shift there that would have.

Speaker 4: Now I think the questions regarding I think the ticket average and higher lower I think is really depend on a couple of other things too. One is also the promotional activity.

No I think the questions.

Regarding I think ticket average and high end lower I think it is.

Really dependent on a couple of other things to it one is also the promotional effort.

Speaker 4: obviously right now, you know, we have more camping public. The other one is that over a piting strategy, you know, I think it's important for us to look at, you know, the pricing, especially in face of concrete uncertainty and rising inflation in some of the consumer sentiment. So we want to make sure that, you know, what we offer is quick volume to our customers.

Obviously right now.

We have bulk counting public.

The other one is that over pricing strategy.

I think it's important for us to look at.

Pricing, especially in face of Covid uncertainty and rising inflation and some of the.

The consumer sentiment so want to make sure that what we offer is quick value to our customers.

Speaker 4: And so, as we mentioned, you know, how do we protect our minds?

And so.

As we mentioned.

How do we put our margin.

<unk>.

As Julia franchises will do so I'll say it again.

Speaker 4: Joey, I just gonna do, you know, self-plate again. All the good product, you cut.

Have a great product.

All of that will cover a wider range, both higher price of oil price because value is difficult.

Speaker 4: All of that cover a wide range, both high price, low price, because value is different.

Speaker 4: Get a one is, you know, again, leverage off the piloting and the piloting efficiency, our scales to sort of like, you know, to have that cost-perfect advantage.

The other one is again leverage off of pricing and supply chain efficiency scale to sort of like.

To have that cost competitive advantage.

To make it more positive.

Speaker 4: Another one is, you know, intense obviously, you know, the usage of our resources.

One is hence obviously the.

Usage of the App.

Our resources, including the limit that we have.

Speaker 4: the meat that we have to reduce weigh-stage. You can both, for example, return it into a pot of, it's time to upload with consumers.

True.

<unk> base station.

You can both a couple with her into our product portfolio with consumer.

Speaker 4: We also want to continue to do advanced technologies to improve efficiency, support, and to remember your program.

We also want to continue to invest in technology to improve.

Efficiencies and productivity right. So and then membership programs very importantly, so the membership program continued to help us to drive.

Speaker 4: So, remember, the program continues to help us to drive spending. So, if you look at our FCE, please help remember, if you have a privileged member subscription, generally that customer, that member, spends quite as much as not a member. So, a lot of things that we would like to do, so the ticket average, one of the most.

Spending so.

If you look at our people if I remember.

If you have a privilege member subscriptions generally you've got customers that member spend twice as much as November so a lot of things that we could do so.

So every one of them.

Got it very clear.

Speaker 9: Got it directly. And my next question is about your performance during the Chinese New Year. How was it compared to the last quarter? And it seems the number of travelers returning home had increased versus last year as well. So was that the positive to your business at the transportation hubs or how does it impact your overall business? And then how do you see this domestic traveling and friends going into the next two quarters?

And my next question is about your performance during the Chinese new year.

How is it compared to last quarter and it seems the number of travelers returning home has increased versus last year as well. So what's that net positive to your business at the transportation hubs or how does that impact your overall business and then how do you see this domestic traveling trends going into the next two to four.

Losses.

Right, So I think.

So.

Speaker 4: This year, Chinese New Year is a little bit earlier than last year. I'll obviously, in last year, it was mostly in middle of February , for Chinese New Year and this year is the beginning of February or Chinese New Year. So in January , we did see a modest improvement, especially compared to the fall quarter. But as I mentioned on the pre-prepared mark,

This year Chinese new year is a little bit earlier than last year.

Obviously.

Last year it was mostly in legal.

February .

This year, the beginning of February where Chinese new year.

So in January we did see a modest improvement sequentially compared to the fourth quarter, but.

<unk> mentioned on the prepared remarks.

Speaker 4: for the comparable Chinese New Year period, which is basically not for the Chinese New Year, 10 days, 15 days, you're going to Chinese New Year and 15 days after the Chinese New Year. For that comparable period, as a little far we're still in middle of it. And so far we see that still down year over year.

For the comparable Chinese new year period is basically for the Chinese new year 10 days 15 days.

The day after the Chinese new year.

For that comparable period are we assuming mid August .

So far we see that this deal.

Yes.

Speaker 4: And you know, the, you know, chapel, I think, you know, there's, how patent is probably a bit different, you know, compared to last year, but I think overall, if you look at the, you know, the overall chapel, and what I think you'll see some time for the church, the day's hapsis, to, you know, to recover to any, you know, reasonable level of peace to compare.

And then travel I think competitive power, but difference compared to last year, but I think overall, if you look at.

The overall travel.

No.

I think we will see some to confirm.

For the purposes.

You can recover.

Reasonable level.

Two compared to the pre COVID-19 levels.

Speaker 4: So, you know, the way we look at it is that it's likely down year-to-year compared to last year.

So.

Way, we look at it is like be down year over year compared to last year.

Speaker 4: But still there's a good deal of uncertainty. And we have launched different campaigns obviously. When we go into the Chinese New Year, if there's quite a bit of uncertainty, in terms of travel, because you know, we do see, you know, all these that encourage folks to stay put, stay in the cities, to, you know, locally celebrate, you know, China's New Year. But, you know, the pandemic, now, it's ending for several years. So I think, you know, there's also, you know, uncertainty about how people respond to that.

But still as a quick deal uncertainty and we have launched different campaigns, obviously when we go into.

The Chinese new year.

Thats quite that uncertainty in terms of travel because.

We do see.

All of these have encourage folks to stay put into Cds to locally celebrate Chinese new year.

But.

The selling price up years. So I think that's also the uncertainty of our how people respond to that.

Speaker 4: So we have different strategic plans. We will continue to respond to changes in the market in what we're doing.

So we have different perpetually plan.

We will continue to respond to changes in the market.

With me.

Thank you for the questions.

Speaker 1: I'll now like to call back to the management for closing remarks.

I would now like to hand, the call back to the management for closing remarks.

Speaker 2: Thank you for joining the call today. We look forward to speaking with you on the next earnings call. Have a great day. Thank you, everyone.

Thank you for joining the call today, we look forward to speaking with you on the next earnings call have a great day.

Thank you everyone. Thank you. Thank you.

Speaker 1: This concludes today's conference call. Thank you for participating. You may now disconnect.

This concludes today's conference call. Thank you for participating you may now disconnect.