Good day, everyone. Thank you for standing by. Welcome to Yum China Fourth Quarter and Fiscal Year 2021 Earnings C onference 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. 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. 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. Joey Wat, and our CFO, Mr. Andy Yeung. 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. Our actual results may differ materially from these forward-looking statements. All forward-looking statements should be considered in conjunction with the cautionary statement in our earnings release and the risk factors included in our filings with SEC. 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. 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 will open the call to questions. You can find a webcast of this call in a PowerPoint presentation, which contain operational and 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. Yep, Joey? Thank you, Michelle. Hello, everyone, and thank you for joining us today. In the fourth quarter, multiple waves or 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 disruptions. For example, during the lockdown in Xi'an, our excellent supply chain team shield 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. We also provided free meals to frontline medical and social workers as a token of our appreciation. We consider 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 careers in times of uncertainty. Therefore, this year, we enhanced the medical insurance coverage for our RGMs, restaurant management teams, and supervisors. These greater benefits cover around 100,000 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. We opened over 1,800 stores. That is equivalent to five new stores per day, compared to three new stores per day just a year ago. On a net basis, we add over 1,200 stores. KFC continued to demonstrate remarkable growth and resiliency. System sales grew 8% in 2021. The brand opened more than 1,200 stores, entering 160 new cities in 2021. More than half of new stores were in lowest tier cities, but we're also adding store density in higher tier cities. The business contribute to the majority of Yum China's profits. Pizza Hut came back stronger, achieving same-store sales growth of 7% for the full year. We are happy to see the growth was driven by transaction volume increase of over 10%. Pizza Hut opened over 300 stores, a record opening since 2016. The brand also strengthened its bottom line with full year segment operating profit up 77%. These results reflect the remarkable improvement over the past few years. 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. As regional outbreaks surged, November same-store sales were down by 19 year-over-year or approximately 20% compared to November 2019. Same-store sales improved slightly in December but were still more than 10% below both prior year and 2019 levels. Authorities implement mass testing, regional lockdowns, and stringent travel measures nationwide. These significantly impact the overall restaurant industry and our business. At the height of the outlook, nearly 300 of our stores were temporarily closed or only provide delivery and takeaway services. More importantly, reduced social activities, less traveling, and softened consumption impact foot traffic across our brands. Let me share with you the key actions we took to stabilize our business. First, we drive traffic and sales with great product and value. The ability to innovate is one of our core competitive advantages. We again launched over 500 new or upgraded product last year. At KFC, new categories such as beef burgers and whole chicken have received great customer feedback. Beef burger sales in a fourth quarter exceed CNY 300 million and account for 3% menu mix. Juicy whole chicken, another successful limited time offer promotion, and therefore, we are putting it on permanent menu this year. We also partner with popular Chinese brands Zhou Hei Ya from Hubei and Wenheyou from Hunan to design innovative new menu items. Customers love the chicken and duck sandwich, and spicy crayfish wrap we launched in the quarter. Beyond national launches, in 2021, KFC launched 12 local dishes in regional markets. We expand offerings from breakfast to late night snacks. Beef and lamb kebab from Northwestern China, Xibei kaorou chuan, and cold noodles with sesame sauce from Wuhan liangmian, are among customer favorites. We have a mechanism to roll out successful regional offerings to more places or even nationwide. Wuhan hot dry noodle, Wuhan reganmian, last year was a big hit. At Pizza Hut, we launched special winter theme pizzas for the holiday season featuring Greek cheese, tiger prawns, and filet mignon. We also offered more flexibility to our customers, allowing them the option to trade up pizza toppings, which translated into higher average ticket. In response to weakened consumption, we increased value promotions across our brands. For example, at KFC and Pizza Hut, we built on our well-established promotion mechanism, Crazy Thursday and Scream Wednesday to offer effective value promotions while minimizing margin impact. Second, we capture home consumption demand with off-premises services for both KFC and Pizza Hut. In the fourth quarter, delivery continued to be a key growth driver, mitigating the drop in dine-in traffic. Delivery grew 60% in 2021 compared to 2019 and contributed to approximately 32% of sales. Combined with takeaway, off-premise services represented more than half of our sales. Driving profitable growth in off-premise occasions is core to our strategy. Our new retail products are designed to capture home consumption demand by leveraging our online and offline channels. We add more food choices and tripled sales to over CNY 500 million within 2021. Lastly, we unleashed the power of digital in customer service and operations. The KFC and Pizza Hut loyalty program exceeds 360 million members as of the end of 2021. It is $60 million or 20% more than the year before. Member sales account for approximately 60%. We continuously enhance our super apps to address the needs of customers and improve their digital experience. For example, KFC's personalized menu display and Pizza Hut's order together feature. With enhanced digital capabilities, digital sales exceed $7 billion or over 85% in 2021. We empowered our RGMs with in-store digitization using AI, automation, and IoT. At KFC, our system assesses real-time store-level inventory and automatically dispatches coupons to digital ordering users 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. These technologies 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. We expand the Lavazza portfolio from four to 58 last year, covering all tier-one cities and leading tier-two cities such as Hangzhou, Wuhan, Changsha. We continue to enrich our food offerings and tap into lifestyle merchandisers to drive further growth. In 2022, we will open more stores to increase our coverage. COFFii & JOY total revenue increased both year-over-year and compared to pre-COVID levels as same-store sales grew by over 30% last year. We end the year with 36 new stores with improved store economics reflecting improved fundamentals. KFC KCOFFEE sold 117 million cups in 2021, representing a 22% growth compared to 2020. Taco Bell store count tripled last year from 12 to 37. We took actions to fine-tune the business and make the brand more approachable for Chinese consumers. Pilot tests on smaller formats has shown improved unit economics. This year, we will continue to refine the formula for long-term success, just as we have done with KFC and Pizza Hut over the years. Our Chinese cuisine brands Little Sheep and Huang Ji Huang faced a particularly adverse situation during COVID-19. A large number of their stores are located in northern and western China, where cases were concentrated. East Dawning was also hit hard due to their transportation location focus. After a careful review, we decided to wind down the operation in 2022 and focus resources on our Hot Pot brand. Before I pass the call to Andy, I want to emphasize that we face enormous uncertainties and headwinds from the external environment, but we have the ability to embrace change and to innovate and adapt accordingly. We continue to focus on the key levers I just mentioned to drive sales and protect our profit in the short term. We are also building our core capabilities to strengthen our market leadership for long-term sustainable growth. I'm confident that we can emerge from this challenging period even stronger. With that, I will turn the call over to Andy. Andy? Thank you, Joey, and hello, everyone. The COVID situation caused a great deal of volatility to our operations in 2021. We delivered strong performance in the first half of the year when COVID condition was relatively stable. In the second half of the year, our business was significantly affected by regional outbreaks and tighter public health measures. Despite the challenges, on a full year basis, revenue reached $9.9 billion. System sales grew 10% in constant currency. We reported operating profit of $1.4 billion and adjusted operating profit of $766 million. In 2021, we received roughly $90 million less in one-time relief from the government and landlords compared to 2020. If we remove the one-time relief from the equation, our adjusted operating profit would be up 20% year-over-year. This result reflects the volatilities arising from COVID, but also reflects the resiliency of our business and tremendous effort our team has put in. We have accelerated store openings in the past few years. We maintain a healthy store payback period of two years for KFC and three years for Pizza Hut, despite the impact from the pandemic. Even newer stores opened in the first half of 2021 have performed well. The majority of them achieved monthly breakeven within the first three months. There are still a lot of white space opportunities in China, especially in lower-tier cities. Small store formats enable us to expand more flexibly. The reduced store size, combined with other cost reduction initiatives, enable us to decrease CapEx per store by around high single digits year-over-year. We will continue to apply a disciplined and systematic approach in our store opening process to ensure we open promising and high-quality stores. Now, let me review our fourth quarter financial results. Even with the repeated outbreaks since mid-October, fourth quarter revenue grew 1% in reported currency to $2.3 billion and remained profitable. System sales were down 3% year-over-year, mainly due to the same-store sales decline, partially offset by new unit growth. Like prior quarters, we are providing pro forma measures here for convenient comparison with 2019. KFC's same-store sales were approximately 88% of the prior year's level and 85% of the 2019 level. With same-store traffic approximately 80% of 2019 level, average ticket grew roughly 6% versus 2019, mainly due to the increased mix, partially offset by increased discounts. Pizza Hut same-store sales were approximately 92% of the prior year and 88% of the 2019 level. Same-store traffic at approximately 96%, close to 2019 level. While the average ticket was down by about 8%. This was driven by the increased mix in delivery, which has a lower average ticket than dine-in. KFC was more affected than Pizza Hut in the fourth quarter due to KFC's having a higher store mix in transportation and tourist locations. This location experienced a sharp decline in sales, down approximately 40% on a two-year basis. The fourth quarter is seasonally the smallest quarter for our sales and margins, so the sales deleveraging impact on margins is more prominent. Restaurant margin was 7.5%, down 760 basis points compared to last year. This was mainly caused by significant sales deleveraging, cost inflation, more value promotion, as well as higher delivery costs due to increasing sales in delivery volume. Let me go through each expense line item. Cost of sales was 32.5%, 150 basis points higher than last year. This was mainly due to increased value promotions to drive customer traffic and upgraded packaging to phase out plastic. Cost of labor was 27.9%, 370 basis points higher than last year. This is due to sales deleveraging, wage inflation of 6%, delivery volume increase, resulting in higher delivery rider costs and higher staffing levels as more staff were scheduled to implement increased safety protocols. Occupancy and other was 32.1%, 240 basis points higher than last year. This is mainly attributable to the sales deleveraging impact. In addition, utility prices went up by double digits starting in December. G&A expenses increased 7% year-over-year in constant currency, mainly due to increased compensations and benefit expenses, as well as the impact of consolidating Hangzhou KFC. Compared to last year, we received $10 million less relief from the government and landlords. Proactive cost management and productivity enhancement enable us to partially mitigate the headwinds and achieve a profitable quarter. Operating profit was $633 million. Adjusted operating profit was $16 million. The difference is mainly due to the non-cash gain of $618 million from the fair value evaluations of Hangzhou KFC. In December, we completed the investment in Hangzhou Catering and now own approximately 60% of Hangzhou KFC directly and indirectly. Other than this non-cash gain, the impact from consolidating Hangzhou KFC was small, as the transaction was completed only on December 10. Effective tax rate was 25.1%. Net income was $425 million, and adjusted net income was $11 million. This includes a mark-to-market investment loss of $9 million in Meituan, in contrast to a gain of $23 million in the fourth quarter of 2020. Let us now turn to our outlook for 2022. First, we expect stringent health measures to remain in effect in the near future. The development of COVID remains highly uncertain, as we have seen last year. In January, apart from the Delta variant outbreak, Omicron cases also spread to important cities such as Beijing, Shanghai, Tianjin, and Shenzhen. Over 500 of our stores were temporarily closed or only provided delivery and takeaway services at the 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, same-store sales are still down year-over-year and remain volatile. Second is on the weakening macro. As the government has recently mentioned, China's economic development is facing triple pressure from demand contraction, supply shocks, and the weakening expectations. Therefore, we will continue to focus on providing our customer exceptional value to drive traffic. On the cost side, inflation is on the rise globally. Commodities such as chicken feet, beef, and cheese, as well as energy prices have increased double digits. Our team is taking initiative to rebase our cost structure and to improve efficiency, including locking in prices when they are relatively more favorable, innovating menu items to fully utilize all parts of chicken and cattle, expanding our supplier base, especially local suppliers. With this initiative, we expect to partially mitigate the rising costs, but we will still face commodity price pressures this year. Additionally, the increase in delivery sales mix will increase rider costs. We maintain a very strong balance sheet with approximately $4 billion cash and short-term investments. We resumed share repurchases in the third quarter of 2021. Approximately $617 million remain available for future share repurchases under the authorization. We will continue to return excessive capital to shareholders. We anticipate opening approximately 1,000-1,200 net new stores as we increase density in higher tier cities and capture white space in lower tier cities. We'll continue with our disciplined approach of opening high-quality new stores. We expect our capital expenditures in 2022 to be in the range of $800 million-$1 billion. The majority of this is allocated to store opening and remodeling. We are stepping up investment in supply chain, infrastructure, and digital as part of our long-term capital allocation, as outlined in the Investor Day last September. These investments are essential to driving the long-term sustainable growth of our business. With that, I will pass you back to Michelle to start the Q&A. Michelle? Thanks, Andy. We'll now open the call for questions. In order to give as many people as possible the chance to ask questions, please limit your questions to one at a time. Desmond, 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 stand by while we compile the Q&A roster. The first question comes from the line of Brian Bittner from Oppenheimer. Please go ahead. Your unit openings during a time of heightened uncertainty for the business. I realize the returns are still very strong, as you outlined in your prepared remarks and as you outlined in your presentation. Can you talk to us, what specifically is driving this big step up in unit openings? 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. Thank you, Brian. For our focus on new store opening, the management team has been very transparent about the way that we are thinking. I think it's 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 RGM, the resiliency, the growth and the moat. Even for new store opening, our thinking are still the same. In a way, resilience might be even more important than growth. Once we achieve resiliency, then we really will push to growth. That's sort of the holistic thinking and specifically why we are still opening that many stores. As you have mentioned earlier, Brian, in your question, the most important criteria is whether we are getting the payback that we are looking for. The answer is yes. For KFC, we're still getting the payback within two years. For Pizza Hut, actually improved in the past five years because Pizza Hut this year will open more stores than any other year since 2016. Actually, the net new store opening is more than all the stores we have opened in the last three years. It has improved. The payback 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 a payback almost as good as KFC. That's the key criteria. When we can get the payback, then we should open stores while our operating team can handle. That's point two. One is our thinking, our strategy. Two is our requirement of the payback. Third, where are the opportunities? Well, the opportunities are still in lower tier city as I mentioned earlier. For KFC alone, we enter 160 new cities. For these new cities, KFC brand is very strong, and there's very limited sales transfer because it's brand new. Then, also the other area is the channel opportunities such as highway station, service center, et cetera. There's particular opportunity in franchising as well. Then for Pizza Hut, you know, obviously the white space is even larger because Pizza Hut is only in a few hundred cities in China right now. Even for the existing cities we are in, we see the opportunity to open more stores to increase the store density. When the store density improves, it has the other benefit to our delivery business, because the average distance of the delivery rider has shortened and the convenience has improved. And that both work for the customer because they get better service, and for it works for the operating costs because the average delivery cost is actually improved too. That gives you a sense of where are the opportunities. In terms of how COVID gave us more opportunity in store opening, in a way, yes, because I think during good times, when the market is growing, it's much harder to see the resiliency of Yum China business. During bad times, particularly in the last two years, landlords can see that very clearly. You know, we have become an even more popular tenant for landlord across all tier cities. Not only we can deliver good profit and secure job opportunity to our shareholder and to our employee, but we also can deliver reliable rent, rental income to landlords. You can imagine why we are a popular tenant, and therefore, you know, a significant percentage of the lease we are talking about, you know, 70%, 80% of our lease have certain sales, the rent is calculated based on percentage of sales, which give us the flexibility and resiliency in terms of our cost structure. I hope that give you some more color in terms of the new store opening. We never chase other specific numbers, 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. Thank you for the questions. Next question comes from the line of Christine Peng from UBS. Please go ahead. Hi, management, thank you for the presentation. I have a question regarding the delivery competition landscape. In 2021, we noticed that McDonald's initiated a much more upgraded version of the app, you know, in China, enabling its digital strategy expansion in the country. Can you share with us more colors you have observed in terms of the delivery competition landscape in the whole Chinese restaurant industry, particularly considering McDonald's new strategy? Thank you. Christine, we have been putting delivery at very high priority in our business since a long, long time ago. As you can see, compared to 2019, our delivery business has grown even stronger, as you can see from our number. You know, 660% full year delivery growth versus 2019. For KFC alone is 70% +, and then Pizza Hut, 37%. 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, the digital... We call it digital operation team that work with our store operating team to ensure the seamless experience online and offline for our delivery business. That helps a lot because one is about the digital experience. Two is we have people working together with the store team to deliver the services. That will include the membership engagement too, right? That's the second bit. The third bit, which is rather unique to Yum China, it's not only unique, probably the only one. We have our own hybrid delivery model, which we have been building, well, actually from the very beginning, but we insist on building our own rider capability. That can be understood right now, I think if we use the framework that we share again in our Investor Day, the resilience, the growth and the moat. This is the moat, the strategic moat, is our own long-term competitive advantage with our delivery rider, the hybrid model. While we work with the platform to source traffic, we rely exclusively on our own rider to deliver the product. That has multiple advantages. One is the quality. The quality, the percentage of service complaint is much lower, which we have experienced when we convert the Pizza Hut delivery from the past version to current one. When we took the delivery rider service back in-house, we see the drop of the customer complaint and thus the sales increase. That give us a very unique advantage in our delivery business. Net-net, it has been a very important part of business. It has become even more important in the last two years given the COVID situation. We have very unique resiliency to grow the business, and in the long term with our unique capabilities that give us strategic moat to continue to deliver good services to our customers. Thank you, Christine. Thank you for the question. Next question comes from the line of Chen Luo of Bank of America. Please go ahead. Hi, management team. Happy Chinese New Year. I've got a follow-up question on our new store opening. 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? Meanwhile, we understand that although the store payback period for new stores could be still pretty impressive, the new stores may actually create a cannibalization to the existing stores. It may also create additional resources requirement in terms of management attention. With this factor in mind, if our same-store sales growth remain under pressure for the coming 12 months because of the COVID impact, is there any chance for us to consider to slow down our store expansion, temporarily? Thank you. Luo Chen, thank you. Our staff or resources, you know, we manage to handle it quite all right. As you can see, over actually since 2014 and 2015, despite the growth of our same-store sales. Despite the growth of our new stores, from 7,000+ stores right now is 11,000 stores, we managed to maintain the total number of stores of staff in our system at 420,000+. We increased the stores, but without increasing the total number of staff. What is the delta here is automation and AI and digital. You know, particularly right now with our store base, we can train our staff to meet the new store opening demand. If we cannot do it, if we somehow see the challenge in terms of quality of the staff in the new store, then we will adjust our pace of new store opening, of course. With that, I pass the question to Andy, and Andy can comment about the other numbers impact from the new stores. Andy? Yeah. Thanks, Joey. So, Luo Chen, happy New Year. So first of all, I wanna say a little bit about, you know, obviously echo what Joey has mentioned, you know, in terms of new store openings. China is still growth market. And, you know, there's lots of white space, especially in lower tier cities and recently urbanized area. I think sometimes, we encourage, you know, investors and analysts to look more into the system sales, rather than SSG. Especially, you know, in over the past two years, you know, on a quarter-on-quarter basis, we see a lot of volatility because of COVID development. As we have mentioned, over the past two years, we expect the recovery from COVID, you know, to take time, non-linear and uneven. You know, it still remains the case right now. In terms of our store opening, we're very disciplined. You know, as we have disclosed in our prepared remarks, you know, we apply discipline, you know, valuations process, and to determine our investment. That's why we continue to have consistent payback for KFC, two years. For Pizza Hut, three years. You know, for Pizza Hut satellite store, it's close to two years. These are very good return on investment. We're very comfortable, you know, with our strategies and also in terms of the quality of our store. As I mentioned, even the newest store that we have opened in the first half of 2021, they are also performing well, despite, you know, the overall impact from pandemic. Majority of them are reaching breakeven just, you know, first few months of opening. Now, in terms of cannibalization, I think, you know, certainly, you know, new store opening sometimes will transfer some sales, especially in delivery, to, you know, the newer store. But, you know, we have been growing our store network over the past, you know, 30 some years. If you look back, before the pandemic, we're growing, and right now we're growing. We're just very consistent and very disciplined, in the way how we deal with it. You know, we have experienced dealing with, you know, normalized SSG impact from new store opening. The other one is that, you know, when we look at opening a new store, you know, we also capture incremental sales and profits, you know. It also provides, Joey mentioned, positive network effects on delivery and takeaway business. Given the pandemic and some of changes, we are also, you know, start redefining our store network. As Joey mentioned, we look at, you know, East Dawning, for example. We have wind down the operations because its concentration on short-term logistics hub. It allows us to open more locations that better serve off-premise dining, for example. All in all, I think, if you you know take a step back you know in terms of a longer-term view as we do you know we obviously are investing to build up continue to enhance our resiliency. We are positioning ourselves for growth and capturing the market opportunity. If you look at you know what we are able to achieve this year you know despite you know some of these very challenging environments, we are able to generate you know on a full year basis revenue of $9.9 billion. We grow our system sales by 10% in constant currency. We also you know achieve and increase our operating profit you know on a record basis $1.4 billion. On adjusted basis, you know, our operating profit was $766 million. That's the resiliency, you know, despite the significant impact on the pandemic, very good. I think in terms of normalization and new store opening, obviously we'll continue to review that, but I think we're pretty confident in the strategy that we have right now. Thank you, Andy. Luo Chen, I think I'll just make one more comment because there's such a strong interest in our new store opening. For our new store, particularly in lower tier city, it has lower CapEx. We have differentiating pricing strategy, means the price will be lower compared to tier one city. We even have differentiated menu. We will have some special, very special, incredibly good value for money product in that menu only. We also leverage franchisee to help us as well. So that help. Just in terms of the numbers and in terms of modeling, I just wanna draw your attention to one number historically, CapEx number. You know, our new store opening has increased a lot, and that might, you know, might be the reason that gives some of you some concern. If you look at our CapEx numbers historically, 2016, we spent $436 million on CapEx. That's the year we got independently listed. We opened with that amount of money; we opened 575 stores. By 2020, we opened twice as many stores. Our CapEx is $419 million, which is less than 2016. What it means, our efficiency of new store has improved significantly, right? On top of that, by 2021, we increased the new store to 1,800. Our CapEx increased a bit more, I mean 50% more, $689 million. The bulk of it is also going to digital and infrastructure as well. Going forward, for the coming year, Andy just mentioned $800 million-$1 billion. Half of it, or already more than half of it will be on new store opening. That's the way that we looked at it. Number of new stores is one thing, but the key thing is the efficiency, and the total amount allocated CapEx. That's resiliency and our ability to continue to get more efficiency out of CapEx and open new store. In the long term, it becomes strategic model of our business. Thank you. Thank you for the question. Next question comes from the line of Lillian Lou of Yum China. Please go ahead. Thanks a lot, Joey and Andy. Since we talk a lot about the new store opening, maybe switch gear a little bit on the another driver for the revenue growth. Despite that Andy said that we need to focus on sales growth, less on same-store sales growth. I think a little bit color can you provide why in fourth quarter, the same-store sales growth trend quite similarly in August? 'Cause I remember in August, our same-store sales growth also down like mid-teens. And by that time, I think the number of cities that is 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 development. I know that this situation will be challenging to predict, but standing at the current situation, what do you think is the most possible scenario for our same-store sales growth trend if the COVID continues like the current level? Thank you. Andy? Hi, Lillian. I think Q4 is actually probably the worst in non-COVID conditions since the first quarter 2022. I think it's pretty obvious to most folks here in China. You know, we have a Delta variant outbreak, and then later on in the year, we're also going to see Omicron cases popping up here in China. Now, cases is you know case load may be one, and it's quite disruptive here because you know obviously in China here you know generally we have very stringent health measure and try to you know sort of like you know achieve a dynamic zero cases for you know for for COVID. That rely on a lot of these you know health restriction measure. If you look at the outbreak in this case and also the widespread, it's the worst, you know, since the first quarter 2020. As we have mentioned in our press release, you know, in the same trend, we've seen some recovery from the summer outbreak, you know, in October. But then we see significant impact from, you know, the outbreak in November, you know, and then, you know, a little bit recovery in December, but still was down double digits. Obviously, as we have mentioned, when we look at COVID, it's gonna introduce volatilities in our operations. We have, you know, told investors and analysts, and internally as well, that we need to have scenario analysis and preparations, contingency plan to deal with, you know, when time is good, how we can execute well and, you know, capture more market opportunities. When, you know, situation become more challenging, how we can rely on our resiliency and our operations and ensure that, you know, even in bad time, we're able to make profit. I think, you know, for the fourth quarter, that's what we do. I think it's worthwhile to step back because, you know, from a quarter-over-quarter basis, it's very hard, or even month-to-month basis, to predict what's gonna happen, you know, with COVID. If we step back for the full year, you know, as I mentioned, you will see, you know, a little bit better picture, right? Despite the volatilities, you know, and the challenging environment that we operate in 2021, we're able to grow, you know, our revenue, able to grow, you know, our system sales, even grow our profit, operating profit. I think, you know, in a sense, I think, you know, sometimes we need to take a little bit, but we also have to accept the fact that, you know, with COVID, you know, there will be some uncertainty. Now, in terms of SSG and then also profit, you can see that, you know, like, when the situation stabilized, we're able to execute very well in the first half, and even, you know, the second half in 2020. Now, obviously, when things are challenging, you know, we continue to rely on our team, our operations, our brand, our product and customer, and our digital and delivery. So, it's very hard for me to, you know, provide, you know, guidance on, you know, the COVID development and related SSG impact. But as we have mentioned, you know, the biggest impact on SSG right now, the volatility is because of COVID. You know, I am confident because over the last couple years, you know, we do both in terms of, you know, authorities and in terms of our RGM, our operational team, we learned something, you know, over the past two years, how to respond, you know, to when there's a COVID outbreak, and then try to mitigate, you know, some of those impacts. You know, I think, you know, the way I look at it, the situation right now is that, sure, you know, in the short term, we have COVID, we have some of the macro headwinds, so it's in short term a little bit more cautious. You know, we are very confident, you know, in our operations, our brand, our products and consumer loyalties. I think, you know, have demonstrated amply. We have the largest, you know, customer membership base, 360 million, been growing, you know, 20%, you know, from last year. Now membership accounts for more than 60% of our sales. We're confident on our operation, our brand and customer base, and the product that we have and the new opportunity that Joey have mentioned. In the longer term, I think, you know, we still are very optimistic about opportunity here in China. That's why we're investing not only in in-store network expansion but building our capabilities in digital infrastructure and supply chain. Hopefully that give you some perspective on, you know, the way we look at the market and the situation here in China. Thank you. Thank you, Andy, and thank you, Lillian. Lillian, I think I would 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? Again, three focus, resilience, growth and strategic mode. Very simple. Resilience, as Andy talk about, is the resilience of operating team. You know, we are fast, we are responsive, and our team, after two years training, even down to each market level, you know, like, Shanghai market, Beijing market, Guangzhou market, that's the national strategy, that's the local strategy, our team know what to do. In terms of growth, two sources of growth, very clear, as Andy mentioned. 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. The local innovation, you know, the partnership with Zhou Hei Ya, you know, or the Wuhan reganmian, et cetera, is something exciting, interesting, fun to drive the traffic. We focus on the value. We have done incredibly good job in terms of delivering or saving what we can save and pass on the saving to customers through value. Right now, the signature value campaign like Crazy Thursday and Scream Wednesday is something working very well. The other source of growth is the off-premise demand, the delivery, the takeaway, you know, the home consumption retail. The home consumption retail for Shao Fan Fan, which is our own retail brand, and KFC and Pizza Hut tripled to over $500 million in 2021 alone. Last is the strategic mode, which is the digital $7 billion of digital sales, 360 million memberships, and our supply chain. You know, our ability in terms of getting the scale, getting the efficiency, and also our ability to rebase our cost base and remain competitive in the long term, in terms of building our own infrastructure, that all helps our business. The focus is very clear. If I could just mention another thing about, how do, we utilize our core capability to grow the business. 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 low. That hopefully give you a sense of management's very clear focus on resilient growth and mode strategy, given the uncertainties and the evolving situation of COVID. Thank you, Lillian. Thank you for the questions. Our next question comes from Xiaopo Wei from Citi. Please go ahead. Good morning, Joey and Andy. My question is focusing on your operation of the store in terms of business model. You guys have long preferred self-operating stores to franchising out stores. Given all the fluid situation COVID, you have a better infrastructure, supply chain, et cetera. Will you consider stretching franchising out more stores looking forward versus self-operating most of stores looking forward? Also, clarifying your new opening target for the year. So, your target new store opening 1,000-1,200 this year, including only self-operating stores or including both franchised stores and self-operating stores? Thank you. Xiaopo, the new store target includes the franchising stores as well. Go back to your questions, the first part of your question. The majority of the new store will still be equity store because the payback 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-10s already. Going forward, we'll be quite open mind about the franchising option. We always been open mind about it. We do it when it's right. In terms of the franchising strategy, there are three focus. One is we do the franchising in some remote locations such as Tibet or Qinghai. You can imagine why, because it's a lot more efficient to manage it that way instead of managing all the way from the headquarters. Secondly is channels. So the strategic channels such as the highway service center, et cetera. So, these are very sensible franchising opportunities. And then the third 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 franchising strategy. As you can imagine, you know, there are a lot of advantages of the franchising strategy in China. There are also a lot of challenges in terms of the quality of the management of the service that we care most about. Right now, with the end-to-end digitization process going on, with the IoT, with the automation, our ability to ensure good store operation among the franchised stores has improved significantly in the last few years. That certainly gives us better comfort, and hopefully it gives us better comfort that when we, you know, are more open-minded about franchising strategy, it does not mean that we compromise on the quality of the service. We don't. Particularly in terms of product as well. I think we have a few more questions. Let's move on to the next one. Before we move on to the next one, I just want to jump in there. Yeah. To clarify. You know, the number that we talk about, the net is the net new store that we opened, not the closed number of store. The net new store opened, we expect is about 1,000-1,200, which include, you know, both franchise and equity store. As Joey mentioned, most of them is gonna be our own equity store. Thank you. Sorry. Thank you. Next question comes from the line of Anne Ling of Jefferies. Please go ahead. Hey. Hi, thank you. The first question is for Andy. Regarding the cost trend, moving forward, I might have missed it, but would you share with us the cost trend or your cost increase expectation for commodity cost, staff, and also the occupancy cost for the whole year of 2022 as well as first quarter 2022? Sure. I think, you know, if you look at, you know, obviously right now we look at globally, we see commodity price inflation. You know, if you look at chicken, beef, cheese, energy costs are up double digits. Now, obviously, without, you know, doing anything, you know, we're probably looking at, you know, low- to mid-single-digit at least, you know, for commodity prices overall now still have. And then also, you know, if you look at cost of labor, you know, there's two components that's driving it. One is obviously, as we have mentioned, in last year, we have to increase, you know, the wages, you know, at the market level at, you know, at the store level. We're likely gonna continue to see mid- to high-single-digit wage increase and which is a normalized rate for China. And also, we probably see a little bit increase in rider costs as we continue to see delivery as a growth driver and continue to grow very rapidly. The mix shift to delivery will increase, you know, delivery costs there as well. Now, on the occupancy and other side, you know, one thing is energy costs. In China, the energy price have increased by double digits since December. You know, that's obviously a response to, you know, some of the power shortage that we have experienced in the summer and try to encourage more production in... More savings in energy to balance that market dynamic. All in all, I think, you know, we're looking at, you know, some commodity inflation labor headwinds. Now, again, also in the on the margin side, the biggest impact on margin is actually sales leverage and deleverage. You know, obviously same store growth would have an impact on that. But, you know, we're not sitting still obviously. We have a very good team, and there's been a lot of initiative to try to fight this headwind, obviously. One is, you know, to protect margins, and one way is to offer, you know, products with a wider pricing range, allow people to upgrade, but also, you know, provide, you know, a lower entry prices for new customers. Now, we also want to leverage our scales and supply chain efficiency to lessen the inflationary pressure. As we have mentioned on the prepared remarks, you know, that including potentially locking in more favorable a price when, you know, when the market, you know, opportunity arrives. We will also have you know try to look into how to increase our efficiency and utilizations, you know, of the ingredient that we have, right? A chicken, you know, how do we use the full chicken, you know, do a part of the chicken and same for a beef, right? The cow, how we can utilize different part of that and create products and that, you know, that our customer like and but also gives us, you know, good margins. We also, you know, have obviously, you know, a team of supply chain and other people in the brand to look into reducing overall costs, and then also increase the efficiency of our labor. 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, a few more, you know, billion dollars in IT investment and digital capability investment and then another $1 billion in supply chain infrastructure over the next few years. I think, all in all, you know, we try to drive that, you know, labor productivities, you know, process operational efficiency, to reduce waste and what not. We also, you know, continue to try to improve and utilize our membership program, which is one of the largest in the world, 360 million members, and to drive marketing efficiency, and then also drive member frequency, spend, and overall sales. This is how we, you know, look at commodity price pressure and inflation, how we respond to it. Got it. Just to clarify, you know, for this commodity cost increase estimate that you provide, like low- to mid-single-digit or the labor cost of mid- to high-single-digit% increase, that's before your efficiency exercise, is that correct? Well, you know, like the commodity prices itself, you know, in the marketplace is, you know, they have increased by double digits. Obviously- Oh. We're taking to reduce that. Wages, we're expecting a normalized rate of mid- to high-single digits. So, you know, for, you know, we also, you know, through FI, as we have mentioned last year, we began to phase out profit all through the country. We have rolled that out last year, and then we continue to roll out to more markets this year. Okay. Got it. My second question is on the store opening. The 1,000 to 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, you know, what is your estimate or your budget for, like, Lavazza, your other coffee brands, as well as Pizza Hut, which I believe like last year you resumed the store opening plan for Pizza Hut as well. Maybe you can share with us the store opening plan moving forward for the other brands. Sure. I think, you know, like if you break it down, obviously KFC is, you know, the very important and largest brand for us. It's gonna have for the majority of, you know, store opening. But if you have Pizza Hut because, you know, improved economics, unit economics, at Pizza Hut store, you know, it also have accelerated, you know, store openings last year. In fact, you know, if you look at Pizza Hut, it opened, you know, 335 new stores higher since, you know, 2016. If you look at the net, you know, store increase of 235 last year, is I think if I remember correctly, it's a combined of the previous three-year total. I think, you know, Pizza Hut obviously will play an important role, especially with, you know, the success of the satellite store model. Lavazza is also, you know, I would say is like, you know, at the beginning of last year, we have about, you know, at beginning of the year, we have four stores. We have opened up, you know, 50-some stores, and now we, you know. Obviously, you know, it's still pretty, you know, new brand in China. But no, we have expanded the joint venture with Lavazza, you know, last year. We have great plans, you know, for the brand. As we have mentioned, we earmark it as our third growth engine. Now we're not only in the top tier cities, the tier one cities, but also in several tier two cities. We'll continue to look into experimenting with different store formats and then expand to more markets. For the brand, I think we have also seen pretty good membership growth. As such, we will expect Lavazza to open more stores in this year. I think what Taco Bell is like a brand that we did not talk as much, but we also opened some 20-some stores last year at Taco Bell. Again, it's one of the highest store openings, you know, in many years, combined. I think in terms of overall opportunity, going back there, you know, is how we utilize, you know, the store format, you know, to target a market. How we're able to take some cost initiative. We designed the format of the store and the menu at a store that allow us to open store more effectively. I think the smaller store format right now is sort of like, you know, very key to overall development across all these brands. That's generally how we look at it. You know, the key is going to still be KFC, and then Pizza Hut, and then coffee, and then, you know, and our similar business. Thank you. Thank you for the questions. We have a question from the line of Michelle Cheng of Goldman Sachs. Please go ahead. Hi, Joey and Andy. Thanks for taking my questions. I still want to follow up a little bit on the cost front. If we look at the Occupancy and Other costs, it seems that the deleverage impact is more significantly. And you mentioned the energy cost has contributing this increase. I remember in the past few years, these items actually drive a lot of efficiency gain. Can you still give us more color, take aside the energy cost, like rental, other cost items, whether there's anything we see more pressures in the near term? On top of that, on wage cost, so since the digital orders are already contributing, like, close to 90% of the sales, so, is there any further room to save the, like, labor staff number per per store or any, like a delivery efficiency gain we can expect going forward? Thank you. Hi, Michelle. Yeah, thank you for your questions. In terms of O&O, I think, you know, obviously, you know, one thing to point out is [true price] increase because, you know, it's obviously a government policy change that, you know, we've seen double-digit increase when you [true price] it. The other one is obviously rent. As we have mentioned to folks, even though we have high percentage, you know, of our store have a component, almost 80% of our store have a component of, you know, variable rent. But you know, there's also a fixed portion of that. When there's sales leverage, you know, generally, we see impact on O&O as a percentage of revenues. That's what, you know, the key driver for there. The other one is, you know, in terms of our labor productivity improvement, I think, you know, obviously, you know, some of these improvements you can see in the store, you know, for example, you're using digital app or kiosk to make orders and make digital payments. I think that rollout quite a bit already. You know, there are other things that you do not see that digital actually helps a lot in labor productivity. We have mentioned before, you know, the Pocket Manager that helps, you know, our Store Manager to manage the store more efficiently, get more real-time information, you know, it also helps them to do staff scheduling. We continue to invest in IoT to automate, you know, our kitchens and also our inventory count and all that. Right now, I think digitization is moving not only investing in the front end with the customer, but more moving into the kitchens and more into our supply chain and in our back office, right? Supply chain, we continue to invest over there, you know, in terms of routing, in terms of integration with suppliers that allow us, you know, to do better forecast demand and cost management. Also in our back office, as I have mentioned before, we have a three-year digital program, for example, even for our finance department, right? We need to automate the new process, and then link up, you know, the data across the company. Then also the delivery side, right? As Joey have mentioned, you know, not only we use delivery to better optimize the queuing of, you know, our food productions, but also, you know, better routing for our rider. Also, you know, more optimized trace on design, as well as, you know, potentially having other product initiatives such as, you know, teatime, you know, and also new retail to basically better utilize the rider that we have. There's a lot of ways to look at labor productivity improvement. You know, if you look at overtime, you know, we have done, you know, quite well, despite, you know, delivery increase and all that. We have seen labor cost as a percentage of overall revenues, before the pandemic are relatively stable. Given enough time, I think, you know, we're able to continue to improve labor productivities, to offset, you know, some of these, you know, near-term shock from, you know, COVID. I think in the long term, I just would like to comment two things, Michelle. One is, in a way, if you think about it, our expansion of delivery business help reduce the rent. Think about it, right? Because when our delivery business continue to grow, it means the location, the new store location, we don't need to be in the prime-time prime area. We can compromise a little bit, and that helps. So, the saving of the rent, rental, expenses help the delivery, cost side, point one. Point two, in terms of riders, the way that we look at the rider cost is also show our mentality, our philosophy in resilience and strategic mode. Because the fact is our. Right now, the cost of average order, the cost of delivery rider per order is higher than a platform. We understand that. We have the option, but we keep it this way because our riders right now, they deliver better quality of service. When it comes to cost, quality first, then we work on the cost side. Instead of pushing down to pay the rider less, because if you pay them less, they go, right? They leave. We make sure that they pay well, but then we leverage our rider to deliver higher average ticket items, such as new retail. That's the way that we think about the cost structure of the delivery rider side as well. Thank you, Michelle. The last questions will come from Walter Woo from CMB International. Please go ahead. Hi. Hello. Hi, Andy and Joey. Can you hear me? Hi, Walter. We can hear you well. 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 self-delivery sales mix, was KFC average tickets still increasing in the last quarter? Given the in-industry dynamics and the outlook in the FY 2022, do you think it is still suitable for KFC and Pizza Hut to increase the average tickets? Or perhaps the reduction of the level of promotions? This is the first question. Hi, Walter. Yeah. Let me address a little bit about, you know, the TA situation. TA situation, obviously, for KFC and Pizza Hut are slightly different. You know, for KFC, the delivery actually increased the ticket average. The mix shift to delivery actually would, you know, will help them over there normally. It is just kinda opposite, you know, at Pizza Hut, because Pizza Hut generally, historically have been, you know, a place for, you know, gathering social activities. The dine-in actually have a ticket, you know, average that is higher than the delivery side. When there's a mix shift there, that would have, you know, an impact there. Now, I think you know the questions regarding I think ticket average and higher and lower I think is you know really depend on a couple other things too. One is also the promotional activities that we have. Obviously, right now you know we have more campaigns probably. The other one is that you know our pricing strategy. You know I think it's important for us to look at you know the pricing especially in the face of COVID uncertainty and rising inflation and some of the consumer sentiment. We wanna make sure that you know what we offer is good value to our customers. As we mentioned you know how do we protect our margins? You know, as Joey have mentioned, I'm just going to, you know, sort of say it again. offer good product to customers. All of that, you know, cover a wide range, you know, both high price, low price, because value is different from pricing. the other 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 competitive advantage, to make it more prominent. The other one is, you know, enhance obviously, you know, the usage of, you know, our resources, including the meat that we have, you know, to reduce wastage. Like chicken bowl, for example, we turn it into a product that's quite popular with consumers. We also want to, you know, continue to invest in technology to improve efficiency and productivity, right? The membership program is a very important thing. The membership program continue to help us to drive, you know, spending. If you look at, you know, our KFC for example member, you know, if you have a privileged member subscription, generally that customer, that member spend twice as much as non-member. A lot of things that we'll likely do, the ticket average is, you know, one of the moving parts. Got it, very clear. My next question is about your performance during the Chinese New Year. How was it compared to the last quarter? It seems the number of travelers returning home had increased versus last year as well. Was that a positive to your business at the transportation hubs, or how does it impact your overall business? Then how do you see this domestic traveling trends going into the next two quarters? Right. I think, you know, so this year Chinese New Year is a little bit earlier than, you know, last year. You know, obviously, you know, in last year it was mostly in, you know, the middle of, you know, February, you know, for the Chinese New Year. This year it's the beginning of, you know, February for Chinese New Year. In January, we did see, you know, a modest, you know, improvement sequentially compared to, you know, the fourth quarter. You know, as I mentioned on the prepared remarks, for the comparable Chinese New Year period, this is basically, you know, for the Chinese New Year, 10 days, 15 days before Chinese New Year and 15 days after the Chinese New Year, you know, for that comparable period, at least so far, we're still in the middle of it. You know, so far we see that it is still down year-over-year. You know, the amount of travel, I think, you know, the travel pattern is probably a bit different, you know, compared to last year. I think, overall, if you look at, you know, the overall travel, and whatnot, I think it will still take some time, for the transportation offices to, you know, to recover to any, you know, reasonable level to compare to the pre-COVID level. You know, the way we look at it is that it's likely down year-over-year compared to last year. But still there's a good deal of uncertainty, and we have launched, you know, different campaigns. Obviously, you know, when we go into, you know, Chinese New Year, there's quite a bit uncertainty, you know, in terms of, you know, travel because, you know, the, you know, we do see, you know, authorities have encouraged folks to stay put, stay in the cities to, you know, locally celebrate, you know, Chinese New Year. You know, the pandemic, you know, now extending to a third year, so I think, you know, there's also the uncertainty about like how people respond to that. We have different contingency plans, and we'll continue to respond to the changes in the market as what we... Thank you for the questions. I'd now like to hand the call back to the management for closing remarks. 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. This concludes today's conference call. Thank you for participating. You may now disconnect.