Yum China: Announces Business Update

Shanghai / CN. (yb) Yum China Holdings Inc. updated stakeholders on the impact of the coronavirus (Covid-19) situation. The current Covid-19 situation is one of unprecedented scale and impact, and first and foremost we want to give thanks and appreciation to all the medical personnel, government workers, volunteers and other frontline workers who have put public health and safety above their own in fighting this global pandemic. At Yum China, our commitment has been to safety above all else — safety for our employees, as they operate in this difficult environment; and safety for our customers, as they place their trust in our products and services.

We are seeing early signs of recovery, as business gradually resumed and people returned to work in China. However, restaurant traffic is still heavily impacted as people continue to implement social distancing measures.

Stores Gradually Re-opening

Yum China is gradually re-opening stores across China when possible and appropriate to do so, on a partial or fully operational basis. Store closures peaked in February with approximately 35 percent of restaurants closed. For the restaurants that have remained open, some stores provide only delivery and takeaway services and/or have shortened operating hours. Almost all stores that remained open experienced significant declines in traffic. As previously disclosed, same-store sales declined 40 percent to 50 percent during the Chinese New Year holiday period, compared to the comparable period in 2019.

In recent days, approximately 95 percent of our stores in China are either partially or fully open. Approximately 10 percent to 20 percent of open stores provide only delivery and takeaway services, and some stores continue to have shortened operating hours. Traffic at open stores is recovering slowly and remains well below pre-outbreak levels. The pace of recovery varies by region and is slower during weekends as people avoid going out. In recent days, same-store sales were down approximately 20 percent. Sales performance fluctuates as the recovery is uneven, and the situation continues to evolve.

Delivery Gaining Traction

During the outbreak, food delivery became an even more popular option, and consumers are often turning to established restaurant brands with the highest food safety standards. Yum China pioneered contactless delivery in late January to enhance preventative health measures. That service proved popular with customers and has supported the delivery business during this period of reduced dine-in traffic. Delivery sales grew year over year, and its mix as a percentage of Company sales approximately doubled during this period. The Company subsequently launched contactless pick-up and corporate catering services as highly sanitary options for consumers and corporate customers. The Company also launched a community delivery service for quarantined communities, especially in heavily affected areas.

Support for Employees and the Community

We make sure our employees, customers, shareholders and communities are well taken care of. Our employees are the backbone of our business, and the Company continued to provide much needed support to them during this difficult period, including virus outbreak safety training and provisions of masks. We honored commitments for scheduled hours even as stores were closed, as well as overtime and holiday pay. We encouraged our employees to look after each other, especially the frontline staff. For example, the Company matched donations from office employees to support frontline staff and their families affected by Covid-19.

The Company strengthened medical insurance coverage for staff and their families in the case of infection or suspected infection. In addition to the family care program for restaurant general managers and their family members in place since 2018, the Company is extending family care coverage to restaurant management team members and their family members in 2020. We are going above and beyond others in the market by increasing the age cap to 75 for employees’ parents and 22 for their children.

In addition, Yum China is providing support to medical workers on the frontlines of combatting the outbreak. The Company donated RMB 3 million to support hospital workers in Wuhan. Since January 27, KFC and Pizza Hut have provided over 145,000 free meals to over 1,350 hospitals and community health centers in more than 28 provinces across mainland China. Little Sheep donated 20,000 instant hot-pots to organizations actively involved in efforts to fight the outbreak.

Committed to Long-Term Growth in China

New store openings are paused due to outbreak-related traffic restrictions and reduced availability of construction workers. The Company will continue to monitor the situation and work with local authorities, resuming new store openings when conditions allow.

In response to sharply reduced sales, the Company quickly implemented measures to control costs, including managing inventory down in order to reduce write-offs, and dynamically scheduling employees to reflect reduced volumes and increased safety protocols.

As we navigate this difficult and evolving situation, Yum China will maintain an open and transparent dialogue with our stakeholders. Core to our principles is a focus on our employees and customers, and their well-being will be of utmost priority. The Company is resilient, and while setting the right expectations for near-term results, we will reinforce and build on our strengths of execution and innovation.

Despite a challenging start to the year, Yum China is here for the long run, and will ensure that it remains well-positioned for the long-term growth opportunities in China.