FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 Adjusted Normalised NPAT {A} $284m $250m $369m $472m $589m $634m Revenue {B} $6,905m $6,934m $6.909m $6,752m $7,144m $7,774m Net Profit Margin {A}/{B} 4.11% 3.66% 5.38% 7.02% 8.27% 8.16%
There has been a change in the definition of 'Revenue' for FY2018. There are two additional categories being:
1/ 'Revenues from transactions with franchisees and unconsolidated affiliates'. YUMC operates a central procurement model. The company purchases centrally from suppliers all food and paper products, then on sells and delivers those to all restaurants, including franchisees and unconsolidated affiliates.
2/ 'Other Revenues': Primarily includes revenue generated from YUMC's mobile e-commerce platform
To preserve any statistical comparative worth with previous years, I have not added in these two additional revenue categories.
Inflation in China is around 2%. The smallest gain in margin (we are leaving out the drop in FY2018) has been from FY2016 to FY2017. 2% of 7.02% (margin for FY2016) is 0.14 percentage points. That means as long as the FY2017 margin is greater than 7.02% + 0.14% = 7.16%, then our requirement is satisfied. The actual margin is 8.27%, so our requirement is met, and has been met over the FY2017/FY2016, FY2016/FY2015 and FY2015/FY2014 'year on year' comparisons. The decrease in margin over the latest year does not invalidate this company's ability to increase margins for an extended period over the last five years.
Conclusion: Pass Test
SNOOPY
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