Month: September 2023

SHANGHAI, September 5, 2023 /3BL/ – Yum China Holdings, Inc. (NYSE: YUMC and HKEX: 9987, “Yum China” or the “Company”) has unveiled a landmark accomplishment in its efforts to reduce greenhouse gas (GHG) emissions. As of July 2023, its company-owned logistics center in Nanning, Guangxi province is completely powered by renewable energy.

Based on the Company’s market assessment, Yum China’s Nanning logistics center stands out as the first cold chain logistics center in China to fully operate on carbon-neutral power. This achievement aligns with the Company’s objective to achieve net-zero value chain GHG emissions by 2050. Furthermore, this shift to green energy operation was achieved without increasing utility costs, further cementing Yum China’s leadership in GHG emissions reduction within the restaurant industry in China.

“The inauguration of our fully green-powered logistics center in Nanning marks a significant milestone in Yum China’s sustainability journey,” said Joey Wat, CEO of Yum China. “It’s a meaningful achievement that emphasizes our responsibility to our planet and showcases what’s possible for the future of our industry.”

This milestone complements Yum China’s ongoing renewable energy transition efforts in its restaurants and supporting facilities. By the end of 2023, Yum China is estimated to have a total annual green power consumption of about 10 million kWh, encompassing logistics centers and restaurants within the Company’s operational control. Roughly 70 stores in Zhejiang, Anhui and Shanxi provinces are expected to complete a full transition to green energy in the fourth quarter of 2023. Utilizing a diverse range of green power trading models, Yum China is accelerating renewable energy adoption across its restaurants nationwide.

To meet increasing demands for renewable energy in the years to come, Yum China plans to generate its own power from distributed photovoltaics (DPV) while supplementing with green power purchases. By 2025, all newly-built Yum China logistics centers are expected to use solar power generated from rooftop DPVs. Plans are currently underway to install DPVs in the Company’s Nanning (Guangxi) logistics center and in its upcoming Nanxiang (Shanghai) logistics center. As in-house green energy production capability increases, Yum China is bolstering its energy storage capacity to optimize utilization. The Company also has been driving low-carbon transformation across its entire value chain through the launch of a Distributed Photovoltaic and Virtual Green Power Purchase Alliance with 40 key suppliers in May 2023.

These efforts collectively illustrate Yum China’s steadfast approach to explore and invest in affordable, reliable, and scalable renewable energy opportunities to support its ongoing low-carbon transition.

Forward-Looking Statements

This press release contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements generally can be identified by the fact that they do not relate strictly to historical or current facts and by the use of forward-looking words such as “expect,” “expectation,” “believe,” “anticipate,” “may,” “could,” “intend,” “belief,” “plan,” “estimate,” “target,” “predict,” “likely,” “will,” “should,” “forecast,” “outlook,” “look forward to” or similar terminology. These statements are based on current estimates and assumptions made by us in light of our experience and perception of historical trends, current conditions and expected future developments, as well as other factors that we believe are appropriate and reasonable under the circumstances, but there can be no assurance that such estimates and assumptions will prove to be correct. Forward-looking statements are not guarantees of performance and are inherently subject to known and unknown risks and uncertainties that are difficult to predict and could cause our actual results or events to differ materially from those indicated by those statements. We cannot assure you that any of our expectations, estimates or assumptions will be achieved. The forward-looking statements included in this press release are only made as of the date of this press release, and we disclaim any obligation to publicly update any forward-looking statement to reflect subsequent events or circumstances, except as required by law. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. You should consult our filings with the Securities and Exchange Commission (including the information set forth under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations ” in our Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q) for additional detail about factors that could affect our financial and other results.

About Yum China Holdings, Inc.

Yum China is the largest restaurant company in China with a mission to make every life taste beautiful. The Company has over 400,000 employees and operates over 13,000 restaurants under six brands across 1,900 cities in China. KFC and Pizza Hut are the leading brands in the quick-service and casual dining restaurant spaces in China, respectively. Taco Bell offers innovative Mexican-inspired food. Yum China has also partnered with Lavazza to develop the Lavazza coffee concept in China. Little Sheep and Huang Ji Huang specialize in Chinese cuisine. Yum China has a world-class, digitalized supply chain which includes an extensive network of logistics centers nationwide and an in-house supply chain management system. Its strong digital capabilities and loyalty program enable the Company to reach customers faster and serve them better. Yum China is a Fortune 500 company with the vision to be the world’s most innovative pioneer in the restaurant industry. For more information, please visit http://ir.yumchina.com.

Investor Relations Contact:

Tel: +86 21 2407 7556 / +852 2267 5801

IR@YumChina.com

Media Contact:

Tel: +86 21 2407 7510

Media@YumChina.com

By Daniel C. Roarty, CFA| Chief Investment Officer—Sustainable Thematic Equities and Ben Ruegsegger, CFA| Portfolio Manager—Sustainable US Thematic; Senior Research Analyst—Sustainable Thematic Equities

There’s a big buzz around artificial intelligence (AI) and its potential to change the world. But much less has been said about its energy footprint. Companies that help solve this energy conundrum could enable a sustainable future for this burgeoning technology—and create opportunities for equity investors.

What’s known as “generative” AI uses machine learning to generate content—including text, audio, video and images. OpenAI’s wildly popular ChatGPT is perhaps the most well-known example. There are countless applications for generative AI, from academic writing to audio and video editing to scientific research. Companies everywhere are hunting for AI applications that can enhance productivity and create business benefits in industries ranging from healthcare to investment management.

But here’s the rub: AI requires massive computational power to train models. And that raises a thorny issue—namely, the energy impact of AI.

Generative AI Is an Energy Hog

What’s behind the magic of machine learning? There are two primary stages. The first is training, which involves gathering information so that machines can learn everything possible to create a model. The second is inference, whereby the machine uses that model to generate content, analyze new data and produce actionable results.

All of this requires energy. The more powerful and complex the AI model, the greater the training time and energy required (Display).

OpenAI’s GPT-3 model is illustrative. The energy needed to train GPT-3 could power an average American’s home for more than 120 years, according to a report from Stanford University. Meantime, Bay Area chipmaker NVIDIA notes that energy requirements for training models that include transformers—a form of deep-learning architecture—have increased by 275 times every two years.

The Many Sources of Energy Consumption

AI’s energy consumption will come from many corners. In addition to training and running large models, the proliferation of AI-assisted products, including AI search and chatbots, will gobble up terawatts.

Increasingly complex models will, in turn, require the use of more specialized hardware, such as graphic processing units (GPUs). The good news is that GPUs deliver much more performance-per-watt than traditional central processing units (CPUs), which could offset the overall power requirements to train and run AI models.

Ultimately, these drivers of energy consumption will accelerate the construction of power-hungry data centers, which already account for nearly 1% of global energy use, according to the International Energy Agency. Even before AI began to take off, studies predicted a sharp increase in data center construction, driven by the energy needs of new technologies.

There’s also the issue of emissions to consider. In particular, investors are pushing companies to measure Scope 3 emissions—upstream and downstream emissions that can be difficult to quantify. As AI use increases, the Scope 3 emissions of all data users—including firms that traditionally have low carbon footprints—are likely to grow correspondingly.

How Are Companies Addressing the AI Energy Conundrum?

Fortunately, companies are beginning to address the enormous AI energy challenge. These include firms that are central to AI and those only nibbling at the periphery. We think investors should pay attention to three key areas:

Hardware and Software: Reducing AI-related energy use will require new processor architectures. US semiconductor makers like AMD and NVIDIA are focused on delivering more energy-efficient performance. In fact, AMD has set a goal of increasing the energy efficiency of its processors and accelerators used in AI training and high-performance computing by 30 times over a five-year period. According to NVIDIA, its GPU-based servers in some applications, such as large-language model training, use 25 times less energy than CPU-based alternatives. As GPUs from AMD, NVIDIA and others take share from CPUs in data centers, energy efficiency should increase even further.

Conserving energy will also require advanced transistor-packaging techniques. Technologies such as dynamic voltage frequency scaling and thermal management will be required to produce more efficient machine learning. We believe companies involved in semiconductor chip production and inspection, including Taiwanese chipmaker TSMC and Netherlands-based ASML, will have a significant role to play in bringing these new innovations to market.

Investors will also be hearing more about power semiconductors, which help improve the power management of AI servers and data centers. Power semiconductors regulate current and can lower overall energy use by integrating more functionality in smaller footprints. Firms like Kirkland, Washington-based Monolithic Power Systems and German semiconductor manufacturer Infineon Technologies are at the forefront of their development, in our view.

Improvements in Data Center Design: As AI adoption fuels the expansion of data center capacity, firms that supply data center components could reap benefits. Key components include power supplies, optical networking, memory systems and cabling. Tech companies that use the data centers themselves—think Amazon.com, Google and Microsoft—also have a strong incentive to continue improving data center design and energy consumption.

Coming full circle, AI itself is being used to optimize data center operations. In 2022, Google DeepMind released the results of a three-month experiment that involved training a learning agent called BCOOLER to optimize Google’s data center cooling procedures. The result: BCOOLER achieved roughly 13% energy savings—underscoring that energy efficiency is improving in data centers, even as their numbers grow.

Renewable Energy: Renewables made up 21.5% of US electricity generation in 2022, according to the Energy Information Administration. With 80% of the US power grid nonrenewable, near-term power could come from traditional fossil fuels.

But over time, AI demand could open the door for more renewable energy use. That’s especially true given that AI data centers will be operated by the likes of Microsoft and Google’s parent company, Alphabet, Inc., whose net zero policies are among the industry’s best. As a result, we expect that accelerated adoption of AI could improve the investment prospects of the entire renewable-power ecosystem.

Investing in Energy Solutions

In all these areas, we believe that investors should search for quality companies with a technological advantage, persistent pricing power, healthy free-cash-flow generation and resilient business models. Companies with strong fundamentals that are poised to participate in and benefit from increased demand for energy-efficient AI capabilities could provide attractive opportunities for equity investors with a sustainable focus and those with an absolute-return mandate.

As AI adoption accelerates and search engines are replaced by chatbots, the energy impact of this revolutionary form of machine learning should not be overlooked. Initiatives aimed at creating a more energy-efficient AI ecosystem might not be in the spotlight now, but they could eventually unlock attractive return potential for investors who can spot the potential solutions early.

Claire Walter, Research Analyst—Sustainable Thematic Equities, contributed to this analysis.

The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams. Views are subject to revision over time.

Learn more about AB’s approach to responsibility here