Good day, and thank you for standing by. Welcome to Yum China's fourth quarter and fiscal year 2025 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your first speaker today, Ms. Florence Lipp, Senior Director, Investor Relations of Yum China. Please go ahead.

Thank you, operator. Hello, everyone, and welcome to Yum China's fourth quarter 2025 earnings conference call. With me on the call are our CEO, Ms. Joey Watt, and our CFO, Mr. Adrian Ding. Before we begin, I'll remind everyone that our remarks and investor materials contain forward-looking statements. These are subject to future events and uncertainties, and actual results may differ materially. Please refer these forward-looking statements together with the cautionary statement in our earnings release and the risk factors included in our SEC findings. We'll also be talking about non-GAAP financial measures. We encourage you to review the comparable GAAP measures along with the reconciliation of non-GAAP and GAAP measures provided in our earnings release, which is available on our Investor Relations website at ir.yamchina.com. You can also find both a webcast replay and a PowerPoint presentation on our IR website. Please note that all year-over-year growth rates discussed today exclude the impact of foreign currency unless we mention otherwise. With that, I will now turn the call over to Joey Watt, CEO of YamChina. Thank you.

Hello, everyone, and thank you for joining us. I would like to start by saying thank you to our team for delivering strong results this year, especially in such a dynamic market. In 2025, we opened more than 1,700 net new stores, taking our total to over 18,000 stores across more than 2,500 cities. our focus on both system cells growth and same-store cells growth is paying off same-store cells growth has been positive for three consecutive quarters system cells growth improved sequentially in quarter four reaching seven percent our dual focus on innovation and operational efficiency also boost our healthy margins. OP margin expanded year-over-year in every quarter of 2025, reaching 10.9% for the full year. It is the highest level since our US listing, excluding special items. Operating profit grew 11% to $1.3 billion dollars for the full year and was up 23% year-over-year in quarter four. By brand, both KFC and Pizza Hut exceed our expectations in 2025. KFC's solid momentum continued with system sales growth reaching 8% in quarter four and 5% for the full year Pizza Hut transformed its menu and operations resulting in 16% same-store transaction growth and 20% operating profit growth in 2025 while we accelerated growth we also returned 1.5 billion dollars to shareholders in 2025 through dividends and share with purchases which is around eight to nine percent of our current market cap let me share a few key highlights from our core initiative and then I'll hand it over to Adrian to go through our results in more detail first we continue to delight our customers with year-round innovation launching about 600 new or upgraded items annually at the same time we stay laser focused on our hero products which are significant drivers of sales and repeat purchases these items have a loyal fan base that is also highly receptive to the new innovations they inspired at KFC our hero inspired innovations include spicy original recipe chicken and crackling golden chicken wings in 2025 hero products accounted for one-third of KFC sales and together with their inspired innovations, they delivered high single-digit sales growth. At Pizza Hut, we sold over 200 million pizzas in 2025. The pizza category continued to grow strongly. Our newest thin crust pizza, Zou Zuo Bao Di, perfectly crispy with plenty of toppings, has earned top reviews and become our best-selling crust. It now accounts for one out of every three pieces sold and is bringing more customers, especially younger ones, into our stores. Second, we focus on delivering great value for money and emotional value on top of serving good food. As we shared at our investor day, our pricing strategy has been crucial to our success and has helped us deliver 12 consecutive quarters of same-store transaction growth. Total transactions grew 8%, exceeding 2 billion transactions in 2025. Emotional value matters, too. Last year, we partnered with 70 leading IPs in gaming, animation, and sports. Whether tied to the latest hits or tapping into childhood memories, these collaborations help us engage customers and capture additional traffic. Beyond thinned toys and special packaging, we decorated select stores and pop-up stores to make the experience more fun for our customers third we capture new opportunities through front-end segmentation and back-end consolidation our multi-brand portfolio diverse modules and food offerings help us reach more customer segments and serve a wide range of occasions on the back end we We foster synergies by sharing and centralizing resources in and across stores, regions, and even brands. Side-by-side modules K-Coffee Cafe and K-Pro are scaling quickly, reaching 2,200 and 200 KFC locations, respectively. They drive incremental sales and profit with light investment. Last year, we also piloted the Gemini model, which places KFC and Pizza Hut stores side by side to support entry into lower tier cities. With a cap of 0.7 to 0.8 million yuan for a pair of stores, it's a very attractive model for franchisees. We opened around 40 pairs of Gemini stores last year and expect to ramp up openings in 2026. Fourth, we are adopting an equity and franchise hybrid model to drive faster and more efficient store openings. We see great potential for growth in China. Recently, I visited Chongqing, China's largest city by population with over 30 million people in this wide brand market I saw a strong appetite for affordable good food KFC's density there is only four store per million people well below the average of 17 in tier 1 and 2 cities or Shanghai's 28 with menu innovation and multiple store formats we are confident we can continue to expand our market share in China to capture incremental opportunities in lower tier cities remote areas and strategic locations we began accelerating franchise expansion in 2024 the franchise mix of net new openings for KFC and Pizza Hut increased from 25% in 2024 to 36% in 2025. Equity stores remain the core of our business, representing over 80% of our store portfolio. The payback period of our new stores remain healthy at around two years for KFC and two to three years for Pizza Hut. Last but not least, we are embracing Gen AI across our business to drive growth and efficiency. In our restaurants, we are piloting QSMART and a Gen AI assistant that integrates operation data such as labor and inventory. It identifies potential issues, recommends actions, and implements. For example, QSmart can detect staffing shortage, propose replacement staff, and initiate calls to them. This helps our RGM save time, make informed decisions, and run restaurants more smoothly. And in January, we rolled out SmartK, our AI ordering agent, to all KFC Super App users. SmartK helps customers place orders. This feature has already been used by 2 million members, especially those who order breakfast and coffee. Customers respond positively to the ad convenience and customized suggestions. At our Investor Day in November last year, we introduced our RGM 3.0 strategy which takes a balanced approach across all three aspects of resilience growth and moat we also outlined our plans for our next phase of growth including expanding to over 30,000 stores by 2030 we are confidence that we can continue our rapid growth while improving profitability and returning capital to shareholders let me now turn the call over to Adrian thank you Joey let me now update key highlights by brand

starting with KFC in 2025 KFC opened 1349 new stores bringing this total to to nearly 13,000 locations. System sales grew 5%, and restaurant margins expanded 50 basis points to 17.4%. Same-store sales growth turned positive for three consecutive quarters. In quarter four, system sales growth sequentially improved to 8% year over year. Same-store sales grew 3%, and same-store transactions increased by 3% year over year. Ticket average was flat, as growth in smaller orders was offset by the increase in delivery source mix, which carries a relatively higher ticket average. KFC's side-by-side modules are rolling out rapidly. K-Coffee Cafe tripled its footprint from 700 locations in 2024 to 2,200 locations in 2025. While expanding to more locations, we also increased per-store daily cup sold by 25 percent year-over-year. Menu innovation has been key in driving repeat purchases. Last year, we launched a new product every week on average. K-Coffee cafes generated a mid-single-digit sales uplift for their parent KFC stores, and were confident in its future expansion. K-Pro added more than 200 locations in just one year. This light-new concept offers grain and pasta bowls and superfood smoothies. Backed by KFC's trusted quality and strong value for money, K-Pro has resonated well with consumers and generated a double-digit sales uplift in its parent KFC stores. We aim to double KPRO's footprint to more than 400 locations in 2026, focusing on higher-tier cities. Now, moving on to Pizza Hut. In 2025, Pizza Hut opened a record 444 net new stores, raising its total to 4,168 stores. Restaurant margins improved by 80 basis points to 12.8%, bringing its OP margin to 7.9%, the highest level since our 2016 listing. In Quarter 4, system sales grew 6% year-over-year, up from 4% in Quarter 3. Same-short sales grew 1%, positive for the third consecutive quarter. Same-short transactions increased 13%, growing double digits for the fourth consecutive quarter. Ticket average was 69 yuan, down 11% year-over-year, reflecting our mass market strategy. Last year, Pizza Hut entered more than 200 new cities. About half of these, around 100 new cities, adopted the WoW format. We continue to refine the SOAR format and test different service models. The capex for a standalone new WoW store is around 0.65 to 0.85 million yuan. With lower capex, streamlined operations, and a simplified menu, WOW enables us to penetrate previously untapped locations, especially in lower-tier cities. We saw improving restaurant margins and a solid estimated payback period of two to three years for the new WOW stores, in line with the average new stores for Pizza Hut. Our emerging brands are also making steady progress. Lavaza opened 34 net new stores, including its first store in Hong Kong, taking its total store count to 146. Same-store sales growth turned positive in 2025, and overall store economics improved meaningfully. Its latest light model requires only 0.5 million yuan in capex, roughly half the cost of the previous formats. Its retail business of packaged coffee products, the other growth engine, delivered over 40% sales growth and more than doubled operating profit year-over-year in 2025. Let me now go through our quarter four P&L. System sales grew 7% year-over-year and same-store sales grew 3%. Our restaurant margin was 13.0%, 70 basis points higher year-over-year, mainly due to improvements in cost of sales and occupancy and other cost ratios. Cost of sales was 31.6%, 30 basis points lower year-over-year, mainly due to the favorable commodity prices and supply chain efficiency gains. We share some of these savings with our consumers in the form of great value for money. Cost of labor was 29.4 percent, 120 basis points higher year-over-year. While overrider costs were higher due to a higher delivery mix, we maintained non-rider costs as percent of sales at relatively stable levels through operational efficiency gains despite wage inflation. Occupancy and other was 26.0 percent, 160 basis points lower year-over-year, mainly due to sales leverage, store capex optimizations, and better rent. Our OP margin was 6.6 percent, 80 basis points higher year-over-year. Operating profit was $187 million, growing 23 percent year-over-year. Net income was $140 million, 22% higher year-over-year. Excluding our investment in Meituan, net income grew 14% year-over-year. Our investment in Meituan had a negative impact of $0.5 million in Q4 compared to a negative impact of $9 million in Q4 last year. As a reminder, we recognized $11 million less in interest income in Q4 this year due to a lower cash balance, resulting from the cash we returned to shareholders and lower interest Diluted EPS was $0.40, 29% higher year-over-year, or up 21% year-over-year, excluding our investment in Meituan. For the full year, system sales grew 4%, and same-store sales grew 1%. Restaurant margin was 16.3%, 60 basis points higher year-over-year. Both KFC and Pizza Hut's restaurant margin improved year-over-year. G&A expenses were 4.9% of revenue, 10 business points lower year-over-year. Operational efficiency gains more than offset higher performance-based compensation in the Operating profit grew 11% to $1.3 billion. Diluted EPS was $2.51, growing 8% year-over-year, or 14%, excluding our investment in Meituan. Total capex was $626 million. Capital efficiency improved. ROIC reached 17.3%, up from 16.9% in 2024. Let's now turn to capital returns to shareholders. We're on track to return a total of $4.5 billion to shareholders from 2024 to 2026. That is $1.5 billion each year. In 2025, we returned $353 million in cash dividends and $1.14 billion in share repurchases. In 2026, we remain committed to returning $1.5 billion to shareholders while raising our quarterly dividend by 21 percent from $0.24 to $0.29. At $0.29 per quarter, the payout ratio will exceed 45 percent of our 2025 diluted EPS, with an annual dividend totaling around $400 million. We have also initiated a $460 million share repurchase plan for the first half of 2026. With these arrangements, we are well positioned to deliver on our commitment for the year. Starting in 2027, as outlined at our 2025 investor day, we plan to return approximately 100% percent of annual free cash flow after subsidiary dividend payments to non-controlling interests. And this is expected to translate into an average annual return of $900 million to $1 billion-plus in 2027 and 2028, and exceed $1 billion in 2028 and onward. These commitments are supported by our healthy cash position and robust cash generation. In 2025, we generated $840 million in free cash flow, an increase of 18 percent year over year, and ended the year with $2.0 billion in net cash. Now moving on to our 2026 outlook, we're confident we will reach more than 20,000 stores in 2026. This means opening over 1,900 new stores, with 40% to 50% coming from franchisees for both KFC and Pizza Hut. We will continue to deepen our presence across China, especially in lower tier cities and strategic locations, using a variety of store formats. With lower capex per store and a higher franchise mix, we expect the total capex to stay in the range of $600 million to $700 million this year. As for other financial metrics, we expect our growth in 2026 to be consistent with our three-year guidance shared at our investor day, that is, same store sales index of 100 to 102, mid to high single-digit system sales growth, high single-digit operating profit growth, double-digit EPS growth, and a slight improvement in restaurant margin and OP margin for Yum China. As activity on delivery platforms remain dynamic, we have factored in different scenarios and are confident that the impact on our businesses will be limited due to our balanced and disciplined approach. Our full-year projections are based on our current plans and have not assumed any changes in macro. Any improvement would represent potential upside. We will continue to track the progress of our new store opening, module development and rollouts, and other core initiatives, and provide updates as we go. For quarter one, we're working hard to deliver our fourth consecutive quarter of positive same-store sales growth and 13 consecutive quarter of positive same-store transaction growth. On margins, we face a tough year-over-year comparison. First, rider costs are the biggest headwind, driven by a higher delivery sales mix. Delivery mix increased from 42% in Q1 to 53% in Q4 last year, and is expected to grow further. Second, the benefit from lower commodity prices will be smaller than before. Additionally, last year's base already reflected significant benefits from Project FreshEye and RedEye. KFC's restaurant margin was already 1928%, and Pizza Hut's restaurant margin improved 190 basis points year over year in Q1 last year, setting a high base for Q1 this year. We'll focus on efficiency and sales leverage, and strive to maintain Yum China restaurant margin and OP margin roughly in line with the prior year period in Q1. With that, let me pass it back to Zhou Yi for her remarks on the Chinese New Year.

Thank you, Adrian. Let me share a few thoughts on the Chinese New Year, our key trading window of the year. Chinese New Year falls on February 17, considerably later than in most years. our teams have prepared comprehensive scenario plans by the week and even daily people will soon be traveling and gathering for the holiday season our brands are focusing on their signature products to capture the heavy traffic during Chinese New Year while maintaining strong operational efficiency As KFC, buckets have long been our Chinese New Year signature, offering exciting food and abundant value. This year, in addition to our classic golden buckets and wind buckets, we are introducing, for the first time, peanuts and sunflower seed mini buckets, hua sen guazitong. These packaged snacks honor Chinese traditions and help create a festive Chinese New Year atmosphere. At Pizza Hut, we are focusing on one of our hero products, the Super Supreme Pizza. This time we are adding new choices by pairing it with our classic Balinese and trendy salted egg yolk toppings. customers can also top up the pizza with a mountain of crunchy potato chips and rich sauce these offerings are available in combos designed for family and friends gatherings and to drive ticket average overall for this Chinese New Year we are executing according to our plans. Trading year to date has been in line with our expectations. With that, I would like to wish everyone a happy and prosperous year of the horse. Now, let me pass it back to Forint.

Thanks, Joey. Now we will open the call for questions. In order to give more people the chance to ask questions, please limit your questions to one at a time. operator, please start the Q&A.

Thank you. We will now begin the question and answer session. To answer the question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. A moment for our first question. Our first question comes from the line of Michelle Chang from Goldman Sachs. Please go ahead, Michelle?

Hi, Joy, Asia, Florence, and congrats for the very strong results and ended 2025 with these impressive numbers. My question is about pricing. We noticed that you raised the delivery menu price recently, and earlier we also hear some other brands are raising the price. So, can you comment your expectation on the pricing trend, including any changes in your and market promotion activities and how these will be reflected in the same store sales growth especially we should have a pretty easy base for the first quarter on both same store sales growth and overall sales last year first quarter and separately if i may uh regarding delivery mix we noticed that delivery mix increased quite a lot but uh the margin is still pretty good uh so unlike other kind of catering business which uh has been suffering from higher delivery mix the lower margin and for PISA how we even see payroll cost is down in fourth quarter so can you still elaborate a little bit more on how we should think about 2026 delivery mix and impact on the margin thank you very much thank you michelle uh let me take the price of price and your agent can answer the second one um the the price increase for kfc it was a mild adjustment it only affects the delivery menu and it has no change to die-in and take away and we we also did not make any change to the signature campaign such as the crazy Thursday or the weekend buy more save more and the price increase helped absorb some rider cost increase because of higher delivery mix with that said we remain committed to offering great value for money something we have done consistently for a long time and therefore we are very committed to it and that was thoroughly discussed in our investor day together with our good food and emotional value the primary goal of the price of our of our business of our commitment is to still to drive traffic so we are still targeting 13 consecutive quarter of same-store transaction growth and fourth quarter of same-store

simple simple growth in quarter one and so far the the trading has been in line with expectation so so overall in short in the short term and long term I hope this demonstrates our confidence in our business model Adrian yeah sure Michelle on your second question regarding margin outlook and also the delivery mix I guess very briefly on delivery mix outlook for 2026 we do expect you know further increase in mix for delivery for full year 2026 I mean our delivery growth has been you know pretty solid for the past of more than ten years and for the past one year given the dynamics and delivery aggregators our goals have been predicted particularly high which has proven you know pretty big surge in delivery mix I think from you know 48 40 42 percent for last year to around 48 percent for the full year 2025 so it's a pretty significant increase and for the full year 2026 you know we do believe regardless of the delivery aggregator subsidy dynamics we do expect that the delivery mix will search further and then in terms of the margin impact on young China and the two brands as we mentioned in the prepared remarks we We expect a full-year restaurant margin, low-key margin, to slightly improve year-on-year, and we are confident to achieve and deliver that. Specifically on two brands, for KFC, we expect a full-year restaurant margin to remain relatively stable year-over-year. It's already a very healthy level, and as you may recall, during our investor day three months ago, we actually give long-term guidance for KFC's restaurant margin, which is to be relatively stable over the long term, as well, at a healthy level. For Pizza Hut, we expect the full-year restaurant margin to slightly improve from 2025 level, with streamlined operation, offsetting higher delivery costs and a higher base year over year. I would like to reiterate that for quarter one specifically, we face a tougher year-on-year comparison, as we mentioned in the prepared remarks. There are different factors that we mentioned in terms of meaningful delivery mix increase and thereby the greater cost increase correspondingly and also the tailwind from favorable commodity prices gradually reduce and also the quarter one last year is a really high base with KFC's restaurant margin being as high as 19.8% and Pizza Hut's restaurant margin improved by 190 basis points year-over-year in quarter one last year so both brands has really high base and obviously our guidance for the quarter one margin being kind of stable has accounted for the price increase on delivery platforms for KFC. And lastly, I think you asked about how do we understand each line of the key cost line items for FUIA 2026. For COS, cost of sales, we expect it to remain relatively stable. There will be tailwind for commodity prices, but the tailwind will be smaller, and we will pass, you know, good value for money to our consumers. So COS will be relatively stable for Yum China and for KFC and Pizza Hut. For COL, cost of labor, obviously, we face continual headwinds from the higher rider costs as a result of the higher delivery mix expected for this year as well. And we aim to maintain the long rider cost stable, offsetting the low single-digit wage inflation through more streamlined operations. And lastly, on O&O occupancy and other costs, we continue to explore optimization opportunities and expect O&O, as a percent of sales, to keep improving year-over-year for the full year 2026, which is supported by store capex optimization and better rent. So, hopefully that addressed your question. Thank you, Michelle.

Thank you so much, Joy and Adrian, and wish you a great 20th year. Thank you.

Thank you. we will now take our next question from chen luo from bank of america please go ahead chen hi joey and florence uh congrats again on the strong result in fact today uh is lee chun in in china and or for those uh foreign investors it actually stands for the first day of spring so china consumption has been in winter for too many years and our strong result has uh fortunately brought us a touch of warmth and my question is more on the sale side i noticed that our ssg has actually edged up higher in q4 versus q3 despite the fact that the online delivery subsidy intensity has eased a little bit q on q what have we done differently to boost ssg in q4 and also as we are already into the previous season can you actually share with us some color on the year-to-date trading environment understand that we have the calendar distortion so any comparison based on the lunar calendar will be helpful and lastly I noticed that for SSG for the system sales and revenue growth, usually in previous quarters, revenue growth would be slower than the system sales growth. But in Q4, on the constant currency basis, both numbers came in around 7%. How to reconcile the Q4 pattern versus the previous few quarters? That's all my questions. Thank you.

Thank you. Let me make you comment on the trading in Chinese New Year and Asian can tackle the numbers. So overall the customer sentiment as we mentioned in our investor day we are seeing or we continue to see early signs of improving consumer sentiment which is good news. With that said Chinese New Year is a very key trading window. Heavy traffic concentrate into several days and it creates a very significant challenge to operation so we need to balance sales initiative with operational efficiency as wages are higher much higher during the public holidays point two is the Chinese New Year this year as you mentioned what is considerably later than most year and we actually had yet to reach the peak trading we call it in Chinese so we are climbing up the mountain but we have not reached a peak yet so it's slightly a bit early to make any big comment so so so all we can can see right now while sales is ramping up year-to-date trading has been in line with our expectation and And last but not least, we will continue our strategy to drive traffic, sales, and profit growth for the quarter, all three at the same time. We target to deliver our fourth concerted quarter of positive SSG and 13 concerted quarter of positive transaction growth, as I mentioned earlier.

Sure, sure. The second question regarding the comparison between revenue growth and system sales growth, yes, normally system sales growth should be slightly higher than revenue growth and that's mainly caused by the higher growth of the franchise business contributing fully to the system sales but only roughly half to the revenue. Sometimes you do see similar figure or even same figure for the growth of the two metrics that's you know partially also because of rounding as well but you know going forward I think generally speaking we do expect a slightly higher system source growth and revenue growth you know if we kind of disregard the rounding factor in it so hopefully that address your question what him and one more line is system sales growth when we open a lot of during the last quarter, it helps the number, particularly the quarter four is slightly smaller one.

Yeah, thank you.

Mark, got it. Thanks again, and congrats.

Thank you. We will now take our next question from Lillian Lu from Morgan Stanley. Please ask your question. Hello, can you hear me?

Yes, we can.

Okay, hey, Hey, Joey and Adrienne Florence, congrats again.

I have one question on Pizza Hut's sales momentum, because obviously it can actually still deliver very strong momentum in fourth quarter, higher than Pizza Hut's trend. And I recall on the invest, 2026 onwards, major sales growth will be mainly driven by, actual growth actually will be mainly driven by Pizza Hut, which should be growing at a faster rate than KFC. So we'd like to understand, in particular for 2026, what kind of incremental measures management plan to implement to drive up the Pizza Hut revenue or system sales momentum, which could be higher than KFC.

Thank you.

For Pizza Hut, first of all, Our core business continues to drive very nice growth and 2025 you will see we actually enter more than 200 cities and this is a very big number for Pizza Hut. And that was helped by the Pizza Hut model which alone entered into more than 100 cities because for a long time Pizza Hut city penetration was stuck at 900 cities but now we're in over a thousand cities and 2024 was the year we shared that we feel that Pizza Hut has reached the inflation point so 2024 was nice growth and 2025 with the help of a Pizza Hut Vow store also grow very nicely so that's one way and the other one I would like to mention is some additional color on the product so it's worth trying if you have not tried it yet is the handcraft thin crust pizza the new crust was really actually is really amazing and within very short time it accounts for one out of three pizzas sold and this is a very big number so now we have good variety of pizza crust with four choices the thin crust the pan the hand toss and stuff press and for those who spend a lot of time with pizza you will know that doing pizza crust is the real deal it's much harder than doing the topping and the other product with a highlight is burger we we have been selling burger for more than a year now And it's a single digit of our self-mix. So from the module to the key products, these are very exciting growth driver for 2025, and it will continue into 2026. And I think I'll pause here. Thank you, Lillian. Okay, thank you.

Thank you. We will now take our next question from Anne Ling from Jefferies. Please ask your question, Anne.

Hi, thank you, management team. A couple of questions here. So I'd like to check first regarding the company mentioned about the, you know, expanding or ramping up in year 2026, the Gemini stores. So just want to check whether we will have a figure, like, you know, how much more Gemini store they would plan to open. And you mentioned that, you know, there is a new format on the franchising, which is called equity franchise model. I'm just wondering whether it means that Pizza Hut will, sorry, I mean, Yum China will be investing in the franchise model, if you can elaborate that. And the second question is on the news, the coffee format, as well as the K-Pro.

What is our plan for year 2026? and um whether like you know this attribute to uh like you know same cell sales growth you know how much is attribute to things with sales growth in year 2025. thank you um again i'll take the first question and adrian you can take the second one thank you and um so gemini store at the side by side kfc small town and pizza house also is a pair with their own separate entrance and counter however on the back we share the install resources the staff equipment rent and it's particularly effective to enter lower tier cities and the campus is good it's only point seven point eight million yen for care so very attractive for franchisee and and and and the sales is sort of the lighter version of the KFC small town and the lighter version of Pizza Hut Wow so we we would like to control the average payback estimate at about still at two years the menu will continue to be even simpler so KFC menu will be similar to the small town one Pizza Hut menu is only is probably only about 20 25 percent of the regular margin and we expect the margin contribution will be incremental and it's still early stage we only have 42 pairs right now very small number and we're testing it but we do expect the generalized model to improve its OP margin of our franchise business in the long term. And that's sort of the most updated progress of the Gemini store.

Yeah, sure. And I think you have a small question between the first one and the second one, which is what is the equity franchise hybrid model? Just to clarify, that is not a particular store model. It basically means the acceleration of franchising initiative for Young China. So, you know, in the future will become a business shifting from an equity-focused business on leads to a hybrid of equity franchise business.

So that's not a particular tool, just to clarify on that one.

And then your second question is basically regarding K Coffee Cafe and K Pro. You know, as we mentioned, K Coffee Cafe contributes mid-single digits of incremental sales to the parent KFC store, and K Pro, which is a reasonably new initiative, I mean, the K Pro model now is quite different from the like the older k-pro stores a years ago right so you know this new version of k-pro we opened more than 200 menu locations in the year 2025 and it's contributing double-digit incremental so for the parent store with incremental profits and but given it's only 200 locations or slightly more than 200 locations out of a 13,000 total store count for KFC. So you can imagine the K-Pro contribution to the same store sales there for KFC is rather limited. Similar for K-Coffee Cafe, actually, because if you think about K-Coffee as a whole, the menu mix for K-Coffee and K-Coffee Cafe altogether is roughly, you know, we mentioned previously, roughly 4% of KFC's menu mix. So, you know, the K-Coffee Cafe alone is even smaller. But we do have high hopes of both these two modules, you You know, when they grow bigger and bigger, when they have more locations, they will represent higher contribution to the same short sales growth of KFC. Thank you.

Thank you. Thank you. We will now take our next question from the line of Christine Peng from UBS. Please ask your question.

Thank you, management, for the opportunity to raise questions. So I have two questions. So, firstly, it's about KPRO. So, Adrian, can you provide us more details in terms of the economics of the KPRO model, such as ticket value, the margin profile, and most importantly, if you can provide some details in terms of the customer profile, you know, the kind of the differentiation from the major format of KFC. I think that would be very helpful to understand the module in a longer term. I think the second question is about the Pizza Hut launching burger. The question for Joey is that what's the management rationale behind this? Because obviously this is mostly targeted maybe like a single-person menu, and in terms of the product differentiation pricing strategies what are the differentiations from the KFC burger offering and and what's going to be you know the longer term you know development strategy for this category going forward thank you Christine for the K pro we we plan to double the number of store in 2026 so from 200 plus to to at least 400 and it it it offer a very good value for money for the light meal with very strong food safety as a brand and if the menu is very distinct you just need to cross the border and try and send them we have quite a few of those in Sengen. It offers energy bowls and smoothies. Smoothies are doing incredibly well there. In terms of the format, what else I can say is, again, it's consistent with our corporate strategy of front-end segmentation and back-end consolidation. So it has its own counter and seating space for customers. but we share the KFC store space membership equipment resources you name it and here's some interesting sort of context for the customer a significant portion of customers naming could be as high as 80 new or 90 percent of ourselves are from KFC members and this is a great example how our membership program is really helping our long-term and short-term business so it's alternative is an alternative for KFC members and that's right frequency the frequency so far is very pleasing to us because it gives very little psychological burden to people for the light meal option I guess and also you can imagine the office location work really well for the Kpro so we are hopeful for that and then let me move on to pizza burger we offer that for over a year now and it's different from KFC burger. It's different in both ways. The pizza burger, the bun is freshly made in the store with the same pizza crust dough, if that makes sense. So now you can probably understand why we are doing burger, because we have this lovely dough. We can make pizza dough, and we can also make burger bun. why not it tastes really good and then with very high quality meat and there are two flavor which fantastic is is the burger with pineapple fresh pineapple and also bolognese sauce which is quite creative why bolognese sauce is pizza pizza sauce it's a sauce that customers really love it's classic so so we have these these these this this category this new product a burger and you are absolutely right it was very well for the single person's offering and we can see the single person meal is opportunity for for Pizza Hut right now the base is low but for 2025 that one person meal is is growing at 50% five zero for Pizza Hut it's lovely so so we continue to do a bit more of that and and let's see what 2026 will bring us but again it's still early days it's only one year we'll continue to learn and do better for our customer thank you Christine.

Thank you, Joey. I'll take our next question from Ethan Wang from CLSA. Please go ahead, Ethan.

Good evening. My question is...

Sorry, Ethan, you might want to speak louder. We have hard time hearing you.

Sorry about that. Good evening. Yeah, hi. My question is on the delivery strategy. So if we take a relatively longer term of view, I know delivery is our key strategy to grow our sim store sales growth. We mentioned that in the rest today. But given what is happening in China, and especially last year, it seems likely that consumers also want dining experience when they do so much delivery. And in low-tier cities maybe consumers also want to do dining so I'm just wondering how do we think about the dining and the pickup consumption scenario going forward are we saying we still focus on delivery so that is the only focus or actually we're doing something on those two fronts that's my question thank you thank you even that's that's a good question as well so so as we have observed the over last 10 years trend as Adrian mentioned earlier the delivery continues to grow

so we we continue to expect expect it to to grow in 2026 too but but at the same time I'm with you too the die-in and takeaway will still continue too if I look at Pizza Hut the takeaway for example 2025 takeaway percentage compared to 2019 it almost doubled and I want to grow more for takeaway takeaway is a good business but at the same time die-in is still a important part of our business for KFC is still about 30% and Pizza Hut is over 40% or 45% so it's still a very important part and we still believe that the business will still be there in the long term but at the same time we are not judgmental we basically embrace whatever the customer preference in terms of delivery take away and dying and we strive to serve them well in all three channel and then we'll balance the cost structure to do the best we could so so yeah we we really open-minded and we'll do our best but dying will continue and in the lower tier city with die in be slightly higher to a certain extent in a sense that the ticket average the big big big all the big family consumption still is a is a gun shoe the one one last thing is you know how do we how do we balance the growth of delivery while the growth of delivery continues we protect the margin as you can see we have done it but at the same time we have new growth drivers such as or means like customer right now we see a growing in terms of car ownership right the power is growing and then the business related to that is growing too and then we will deliver the food closest to customers car and that is growing nicely now we have over 4,000 plus KFC store have that we call car I pick up so so we are doing a variety of the of the business to to to balance the sales growth Thank You Ethan Thank You Joey thank you our final question

for today comes from Sijia Lin from CICC please go ahead Sijia thank you for the last question thank you Joey an agent so my question is on the delivery platform subsidy we know it's very dynamic but could you provide a sense of how should we evaluate the trend and impact in 2026 and when the platform competition mitigate what measures will we take to attract customers back to our own channel thank you thank you so dear so on delivery platform and subsidy dynamics you know as we mentioned in the prepared remarks we have a different

scenarios planning for the subsidy how that evolved and regardless of what the scenario would be we believe and we're confident that the impact our business will be limited because of our discipline approach to drive sales at the same time to protect margin and price integrity and at the same time and that's kind of the short short-term horizon the long-term horizon is we do believe this whole delivery aggregator subsidy, as we previously mentioned, is good for the merchants, especially the larger merchants in the long run, because the merchants have choice of working with multiple parties. And also, you know, we can obviously take the opportunity to secure some long-term benefits, you know, during the subsidy war. So that's a response on both the short-term and long-term. And, you know, I think the natural question has always been in our margin, and as we demonstrated in the previous quarters, we were able to protect our margins, actually even slightly increase our margin, and that's why we're confident to give the guidance for the full year 2026. We have an improvement in restaurant margin and OP margin for Yum China slightly, but I would like to caution again, sorry to repeat myself, for quarter one, we face a tough comparison, and our guidance for quarter one is to stay roughly in line for restaurant margin, OP margin, year-over-year for quarter one. Thank you, Sijie.

Thank you, Adrian. Thank you, Adrian. This concludes our Q&A session. Thank you for joining the call today.

Thank you for your participation. In today's conference, this has concluded the program. You may now disconnect your lines.