Business Overview - Yum China reported a system sales of $9.9 billion for the year 2021, establishing itself as the largest restaurant company in China with over 11,700 restaurants as of December 31, 2021[9]. - KFC, as the leading fast-food brand in China, had over 8,100 restaurants across more than 1,600 cities by the end of 2021, significantly outpacing its closest competitor[9]. - Pizza Hut is the largest casual dining brand in China, with over 2,500 restaurants in more than 600 cities as of the end of 2021, approximately six times the number of its closest competitor[10]. - Approximately 85% of Yum China's restaurants are owned and operated by the company, with the remainder being franchised[9]. - The company has exclusive operating rights for KFC, Pizza Hut, and Taco Bell in mainland China, excluding Hong Kong, Macau, and Taiwan[9]. Expansion and Growth Strategy - The company plans to focus on expanding its business in existing and new cities, capitalizing on the significant growth potential within China[9]. - Yum China aims to enhance its digital and delivery capabilities, as well as invest in technology and quality assets to improve restaurant performance[6]. - The company aims to expand its restaurant network to 20,000 locations, currently tracking over 1,100 potential sites without KFC or Pizza Hut[14]. - The company is exploring various new restaurant models to support further expansion, particularly in lower-tier cities[16]. - The company plans to continue investing in digitalization and supply chain improvements as key growth drivers[13]. Digital and Technological Initiatives - As of December 31, 2021, KFC and Pizza Hut had over 330 million and approximately 110 million members respectively, with digital ordering accounting for 86% of restaurant revenue[19]. - The company is focusing on enhancing its digital infrastructure and delivery capabilities to drive sales growth and improve operational efficiency[19]. - The company has invested in digital technology to modernize operations, opening digital R&D centers in Shanghai, Nanjing, and Xi'an in 2021 to enhance internal digital capabilities[32]. - The company has integrated mobile ordering and payment features into its super apps, with approximately 1,600 KFC restaurants in China implementing facial recognition payment by December 31[33]. - The company has developed and launched a digital wallet in collaboration with UnionPay to provide convenient payment options within a single application[112]. Supply Chain and Logistics - The company emphasizes the importance of logistics and supply chain management in its operational strategy to ensure efficiency and quality[6]. - The company collaborates with over 800 independent suppliers, primarily located in China, and employs more than 1,400 staff in its integrated supply chain management system[28]. - In 2021, the company established three new logistics centers to strengthen its supply chain network, utilizing 32 logistics centers for distribution to self-operated restaurants and franchisees[29]. - The company has implemented a centralized procurement model, allowing it to maintain quality control and achieve better pricing and terms through bulk purchasing[29]. - The company is subject to various regulatory risks, including potential tax liabilities related to acquisitions and compliance with food safety laws[84]. Financial Performance and Market Position - The total sales revenue of China's food service market in 2021 was approximately $738 billion, with the company holding the largest market share based on system sales[40]. - The company recorded a loss of $38 million and a gain of $104 million from equity securities investments in 2021 and 2020, respectively[133]. - The company recognized a gain of $618 million from the remeasurement of previously held 47% equity in a joint venture after acquiring control in the fourth quarter of 2021[134]. - The company has not experienced any significant violations of the master franchise agreement, and it actively monitors compliance with its terms[93]. - The company has paid a cash dividend of $0.12 per share quarterly since Q4 2018[200]. Employee Development and Corporate Culture - The company has a "Bench Planning" career development program that allows most operational leadership talents to grow internally, with graduates potentially becoming restaurant managers within two years[48]. - The company funded continuing education programs, with 3,800 employees receiving subsidies for higher education degrees by the end of 2021[51]. - The company has established the China Nutrition Society - Yum China Health Fund in collaboration with the China Nutrition Society (CNS) to improve nutrition for children in impoverished areas[63]. - The company has been recognized as an outstanding employer in China for four consecutive years, ranking among the top 20 employers in the restaurant sector[55]. - The company encourages and rewards employees for getting vaccinated against COVID-19 to ensure health and safety[54]. Environmental and Social Responsibility - The company aims to achieve net-zero emissions across its entire value chain by 2050, in line with the Science Based Targets initiative[57]. - The company has set a goal to reduce food waste by 10% per restaurant by 2030 compared to 2020 levels, promoting food bank initiatives and expanding biodiesel conversion projects[60]. - The company aims to achieve a 30% reduction in non-biodegradable plastic packaging by 2025 compared to 2019 levels[59]. - The company has faced challenges in sourcing alternative packaging materials to meet environmental standards, which may increase operational costs[147]. - The company is committed to reducing the weight of non-degradable plastic packaging by 30% by 2025, in response to increasing public concern over environmental sustainability[147]. Risks and Challenges - The company faces significant risks related to food safety and foodborne illnesses, which could adversely affect its reputation and business operations[84]. - The company is exposed to labor shortages and rising labor costs, which may affect operational efficiency[80]. - The company’s financial performance may be adversely affected by fluctuations in raw material prices[80]. - The company faces significant risks related to currency exchange fluctuations, as most of its revenue and costs are denominated in RMB[145]. - The company anticipates continued operational impacts from COVID-19, including potential government actions such as lockdowns and travel restrictions[90]. Regulatory and Compliance Issues - The company must comply with various tax obligations, including value-added tax, customs duties, and local taxes, which could further complicate its financial situation[120]. - The company is subject to various regulations regarding foreign investment and mergers, which may complicate future acquisitions[172]. - The company faces potential penalties and legal repercussions due to non-compliance with foreign exchange regulations in China, which may restrict its ability to make payments and receive dividends[166]. - The company is subject to increased public scrutiny regarding data security and privacy, which may raise compliance costs and risks[109]. - The company must ensure compliance with the National Foreign Exchange Administration's guidelines to avoid financial penalties related to foreign currency transactions[170].
百胜中国(09987) - 2021 - 年度财报