yum 12 /10/08a
TRANSCRIPT
WELCOME
2008 Investor Update
December 10, 2008
WELCOME!
Investor Update MeetingDecember 2008
Tim JerzykSVP Treasurer/Investor Relations
Information herein is as of 12/10/08
This presentation will include forward-looking
statements that reflect management’s
expectations based on currently available data.
However, actual results are subject to future
events and uncertainties. The information in the
presentation related to projections or other
forward-looking statements may be relied on
subject to the safe harbor statement posted on our
Web site: www.yum.com.
What To Expect In 2009 . . .
Driven by:
Strong International New Unit Development
Continued Growth in Global Same-Store-Sales
Industry-Leading ROIC
At least 10% EPS Growth
YUM Shareholder Payout
Meaningful Dividend . . . 27% Increase
Share Buy Backs . . . . . nearly $1.7BN
Total Shareholder Payout . . . $2.0BN
Leader in Shareholder
Payout Among Global Consumer
Companies
2008
Source: JPMorgan; Defined as last twelve months (LTM )dividend and share repurchase payout as % of average market cap over the past four quarters.
Yum! Leads in Shareholder Payout
2.3%
2.6%
3.6%
5.5%
5.9%
6.9%
7.3%
7.7%
7.8%
12.5%
14.4%
Q3 2008 LTM
Longer Term, Since 2004 . . .
Reduced share count by 20%
Nearly quadrupled quarterly dividend
Increased debt by $2.0BN
Dramatically extended debt maturities with low-cost debt
2004 2008
Earlier Debt Profile
. . . . . .
Maturities:2 to 8 years
2004
1.0 BNRevolver
Dramatically Extended Maturities
. . . . . .
Maturities:3 to 29 years
2008
1.0 BNRevolver
1.5 BN
New Term Loan $375MM
3-Year Term Loan $375MM
3-Year Revolver 5-Year
New Debt Since 2004
10-Year Bond 6.25% $300MM
10-Year Bond 6.25% $600MM
30-Year Bond 6.875% $600MM
$1.0 BN $1.5 BN
Libor + 35 BPS
2006
2007
2007
Libor + 150 BPS2008
1,2191,170
672
155
47
150113
244
452
304
Nearly 700
'98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 YTD
U.S. Refranchising Update
2008 is the most since 1999
1998 – 2008# of Units
Continued Strong Cash Generation
Forecast($ million)
2008 2009
Cash Flow from Operations 1,455 1,553
CAPEX (900) (900)
Refranchising & Sale of PP&E 295 300
Option Proceeds 90 80
940 1,033
Dividends (321) (360)
Excess Free Cash Flow 619 673
2009 Cash Priorities
Build Liquidity, Maintain Flexibility
Debt Reduction, Share Buy BacksSecond Half of 2009?
No Share Buy Backs Planned
Summary
No Near-Term Debt Maturity Issues
Strong Balance Sheet
Substantial Cash Generation
Agenda
Welcome . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tim Jerzyk
Strategic Update . . . . . . . . . . . . . . . . . . . . . . . . . . . . . David Novak
Road Map to At Least 10% EPS Growth in 2009 . . . Rick Carucci
BREAK
Q&A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . David NovakRick Carucci
Wrap Up . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . David Novak
ADJOURN
Agenda
Financial Modeling and Q&A Session . . . . . . . . . . Rick CarucciTim JerzykTed KnopfLarry GathofDave Russell
Global Growth & Cash Machine
David NovakChairman and CEO
Investor Update MeetingDecember 2008
The Yum! Update
Driving Shareholder Value
Same-Store-Sales Growth
New Unit Growth
High Returnson Invested Capital
#1 Leading International Developer
New Permanent Sales Layers
Industry Leading Returns
Driving Global Growth
More Balanced OptionsMulti-DaypartsMulti-ProteinsDestination Desserts and BeveragesEveryday Value
Mainland China
Yum! Restaurants International
Taco Bell International
PHDEast Dawning
Contemporary Assets
GrowExistingAssets
DriveGlobalGrowth
EstablishNew Global
Brands
KeyGrowthDrivers
20 Straight Quarters of GlobalSame-Store-Sales Growth
3% 3%
2%
3%
4% 4%
3% 3%
’04 ’05 ’06 ’07 Q1 Q2 Q3 Q4 F
Worldwide Same-Store-Sales Growth
2008
Yum! is the #1 international retail developer!
Record International New Unit Openings
1,077
1,189 1,181
1,3581,445
’04 ’05 ’06 ’07 ’08 F
YRI 895
China 550
9.5%
10.6%
10.6%
12.5%
13.9%
14.7%
15.5%
16.9%
Source: JPMorgan; LTM after-tax EBITR/Average Capital adjusted for operating leases less excess cash.
Restaurant Industry Leader in ROIC
2008 ROIC
Driving Shareholder Value
Same-Store-Sales Growth
New Unit Growth
High Return on Invested Capital
Executed with Consistency
AND
7th Straight Year ofDouble-Digit EPS Growth
+13% +13%
+15%
+13%+14%
+15%
+12%
’02 ’03 ’04 ’05 ’06 ’07 ’08 F
Targetat least
10%
Earnings Per Share Growth
Note: Prior to special items. 2005 growth rate is also prior to the impact of expensing stock options.
2009Getting Better and Better
What’s New for China in 2009
Dramatically ImproveU.S. Brand Positions,
Consistency and Returns
Drive Aggressive International
Expansion and BuildStrong Brands
Everywhere
Build Leading Brands Across CHINA
in Every Significant Category
Drive Industry-Leading, Long-Term Shareholder and Franchisee
Value
Leading Competitor
The QSR brand I like most 58%* 41%
Not the traditional Western QSR &Driving a new direction for China
53%* 41%
KFC #1 Brand in China
Note: Percentages for Top 2 BoxesData source: BIT Oct. 2008, by CBC *Significant difference,N=1900 in 47 cities 95% confidence level
Q4 2008Brand Attributes
Mainland ChinaWestern QSR
# of Restaurants
Competitive PositionContinues to Strengthen
Building New Permanent Sales Layers
Chicken Fish BeefShrimp
Multiple Proteins…
Building New Permanent Sales Layers
Breakfast
“It’s easy to have a GOOD breakfast at KFC” Expanding to 65 cities
Delivery
…AND Multiple Dayparts
Mainland ChinaWestern Casual Dining
# of Restaurants
Competitive Position Continues to Strengthen
Already broadened menu from 76 to 102 items
…Work in Progress
Enhanced Casual Dining Experience
Pasta & Rice Drinks/Coffee SweetsAppetizers Pizza
Building Emerging Brands
Opened in Beijing, Guangzhou
Building commissary platform
Optimizing cost structure
75 Units in 11 Chinese cities
4 new cities in 2008
Pizza Hut Home Service
East Dawning
The Leading Western Retail Developerin Mainland China
Yum! China DivisionNew Unit Development
297357
409 396
506550
’03 ’04 ’05 ’06 ’07 ’08 F ’09 F
At least500
Note: This includes KFC Taiwan and Thailand.
Strategic Position Has Never Been Better
CountrywideDistribution
System
TargetedManufacturing
Unmatched Development
Capability
UnparalleledTalent &
Experience
National Scale — 500 Cities
What’s New for YRI in 2009
Dramatically ImproveU.S. Brand Positions,
Consistency and Returns
Drive Aggressive International
Expansion and BuildStrong Brands
Everywhere
Build Leading Brands Across CHINA
in Every Significant Category
Drive Industry-Leading, Long-Term Shareholder and Franchisee
Value
Consistent Growth From YRI Development
+780 +785+852 +895 +900
'05 '06 '07 ’08 F '09 F
YRINew Builds
+4% +3% +4% +4%Net Unit Growth +4%
93% 94% 94% 95%+% from Franchisees 95%+
Broad-Based YRI Development
Total UnitsNet Unit Growth
Asia 4,064 +4%
Canada 1,236 +1%
Europe 1,126 +9%
Latin America 1,060 +4%
Middle East 1,046 +13%
South Africa 555 +11%
Franchise Markets
9,087 +6%
YRI Total Units 12,900 +4%
Development by Region
Development coming from:
Over 75 countries
Over 200 franchisees
Top 4 countries: IndonesiaMalaysiaSouth AfricaSaudi Arabia
2008 F
+9%+10%
+9%+8%
+7%+8%
'06 '07 Q1 Q2 Q3 Q4 TD
YRI System-Sales Growth (%)Local Currency Basis
Consistent System-Sales Growth
2008
+2%
+4%
+6%
+4%
+3-4%
'05 '06 '07 '08 F '09 F
…and Consistent Same-Store-Sales Growth
YRISame-Store-Sales Growth %
Building New Permanent Sales Layers
Rapid expansion as global launch begins in 2009
Over 1,000 KFC stores by year end 2009
YRI2009
Building New Permanent Sales Layers
South Africa Mexico Hong Kong
Global Roll-Out for 2009
Value
Mexico
Indonesia
Building Emerging Brands
Opened in Dubai64 units in 11 countries
YRI: Stable Growth
Nearly 90% franchisedOver $650 million in fees
Total operating profit of over $500 million
Sales momentum
Strong unit economics and well-capitalized franchisees
2009: More of same . . . unit development and same-store-sales growth
What’s New for U.S. in 2009
Dramatically ImproveU.S. Brand Positions,
Consistency and Returns
Drive Aggressive International
Expansion and BuildStrong Brands
Everywhere
Build Leading Brands Across CHINA
in Every Significant Category
Drive Industry-Leading, Long-Term Shareholder and Franchisee
Value
Pizza
Mexican Food
Fried Chicken
Transforming Our U.S. Business
HMR
FROM TO
HMRPizzaPastaChicken
Mexican-InspiredPowerhouse
Fried, Grilled,Value and Portable
Building New Permanent Sales Layers
Frutista Freeze
Add SIX NEW Flavors
Why Pay More! Fresco Dinner
More NewsMore New Products
Test in Early 2009for Possible Launch
Test in Early 2009for Possible Launch
2009
Fiesta Meals . . . to go
“Make Every NightTaco Night”
Building New Permanent Sales Layers
Value Pasta Balanced Options Wings
Testing More Options More Options National Launch National Launch
2009
Kentucky Grilled Chicken
Building New Permanent Sales Layers
Winning concept and product test results
Overcomes key “fried only” consumer barrier
Proven operating platform
Better economics than fried
Longest Market Test in KFC History
KFC SnackersOriginal Recipe
Honey BBQ
2 Biscuits
2 Apple Turnovers
Value Drink
Side Salad
Toasted Wrap
Snack BoxesPopcorn Chicken
3 Hot Wings
Snack Size Bowl
Honey BBQ Sandwich
99¢
$1.49
$1.99
Successfully Tested in 3 Markets
First NationalKFC Value Menu
Building New Permanent Sales Layers
FRESH Advertising:
Makes me start thinking of
KFC in a different way
Much better opinion of KFC
Tells me something interesting
Not typical of fast food advertising
+18 pts.
+17
+18
+18
vs. KFC Average
Reinforcing the Core
Prepared “FRESH”
Early Test Results Are Encouraging
Source: Company focus group study
US Brands: Even Better Operations
2009
Drive Thru: Accuracy with Speed
Grilled to Order – “Hot”
Fast & on time
Nice . . . Little Red Book . . .Culture of Hospitality
Taste
Renewed focus and investment in BASICS
Launching new sales layers
Dramatically reduced cost structure . . . ~$60 million
Investments in KFC operations
Successfully executing refranchising program . . . Nearly 700 unitsin 2008, +500 in 2009
Executing U.S. Business Transformation
2009
15% U.S. Operating Profit Growth
What’s New in 2009
Dramatically ImproveU.S. Brand Positions,
Consistency and Returns
Drive Aggressive International
Expansion and BuildStrong Brands
Everywhere
Build Leading Brands Across CHINA
in Every Significant Category
Drive Industry-Leading, Long-Term Shareholder and Franchisee
Value
Track Record of Expanding ROIC
17.7%
18.0%
18.3%
18.6%
18.9%19% 19%
’03 ’04 ’05 ’06 ’07 ’08 F ’09 F
YUM ROIC
Note: Details of calculations in APPENDIX
Driving ROIC Higher
Continue to refranchise U.S. to 10% or less ownership . . .+3 pts. benefit to YUM ROIC
New permanent sales layers, increasing asset utilization around the world
Allocating more CAPEX to high-return markets
China, YRI emerging markets
…Half of our 2009 profit growth already in-placeRecord YRI & China 2008 new units…in the groundSignificant U.S. G&A cost savings…$60 million
2009 YRI and China new unit development on track
Sales layer initiatives will be more broad-based
Improved KFC U.S. Performance
We’re Confident About 2009. . .
AND
AND
AND
Road Map At Least 10% EPS Growth in 2009
Rick CarucciChief Financial Officer
Investor Update MeetingDecember 2008
Yum! On-Going Growth Model
Profit Growth Target
EPSImpact
China Division +20% +7%
YRI +10% +4%
U.S. Division +5% +3%
At least 10%
2009 Challenges
Challenging consumer environment at home and abroad
Significant forex downside for YRI
Tight and expensive credit markets
2009 Opportunities
Record international development
U.S. restructuring and G&A cost savings
Lapping KFC U.S. 2008 results
2009 Road Map to At Least 10% EPS Growth
2009
On-Going Before Forex After Forex
China Division 20% 15% to 20% 15% to 20%
YRI 10% 10% ~(5)%
U.S. Division 5% At least 5% ~15%
Before G&A Savings
After G&A Savings
Operating Profit Growth
China Division Profit Model
Unit Growth
Same-Store-Sales
Growth
G&A Leverage
Guidance of 15% to 20%Profit Growth in 2009
Widespread KFC Development in Mainland China
TierNumber Of Cities
2008FTotal Units
2008FNew Units
1 4 629 77
2 26 710 97
3 43 353 66
4 85 361 74
5, 6 318 343 88
TOTAL 476 2,396 402
Great ReturnsStrong Pipeline for 2009!
396
506550
500+
’06 ’07 ’08 F ’09 F
2009: Another Year of Strong Unit Growth
China Division New Builds
293 348Mainland ChinaKFC New Builds
402 400+
Slower Pizza Hut Casual Dining Development in Tier 1 Cities
Modest Same-Store-Sales Forecast
Mainland China Same-Store-Sales Growth %
Challenging First Half 2009: Lapping +13% in 2008
1H ~3%
2H ~7%
Maintaining High Margins in 2009
Minimal New Pricing
Flat Commodity Inflation
Labor Inflation
Flat Marginsversus Prior Year
Mainland China 19%
China Division 2009 Profit Road Map
Unit Growth
Same-Store-Sales
Growth
G&A Leverage
At Least 12% +3 to +5% +1%
Guidance of 15% to 20%Profit Growth in 2009
YRI Division 2009 Profit Road Map
Unit Growth
Same-Store-Sales
GrowthOther
+10% Profit Growth in 2009
+4% +3% to +5% +1% to +2%
Unmatched Unit Growth Opportunity
4,606
3,272
Note: Units as of year-end 2007 using World Bank definitions of developing countries Source: Public disclosures
Developing CountriesTotal Units
2,839
+1,397 INCREASE
2002 2007
3,209
U.S. Division 2009 Profit Road Map
Margin Accretion
(KFC)
~15% Profit Growth in 2009
At Least +3% +4% +9%
Same-Store-Sales
Growth
G&A Cost Savings
Taco Bell and Pizza Hut Met U.S. Growth Target in 2008
Operating Profit Year-Over-Year Growth/(Decline)
2008 F
'08 F '09 F
$120
$60
Percent ChangeCommodities +10% +4%Labor +3% +3%Pricing ~5% +3-4%
Commodities ($ Millions)
U.S. Margins Impacted by Commodities …Partially Offset by Pricing
Mostly Carryover
Reducing Company Ownership to ~10%
Cumulative Financial Impact (estimate)
Margin Improvement ~2.5%
Op Profit Neutral to Slightly Dilutive
Pre Tax Proceeds(net of investments)
~$1.0 billion
Net Refranchising Gain ~$150 million
Yum ROIC + 3 points
22%
18%15%
~10%
’07 ’08 F ’09 F ’10 F
Company Ownership
U.S. Business
U.S. Brands
Optimized Organizational Structure
Yum!/Shared Services
Yum! Corporate
U.S. Shared Services
Key Priorities in New Structure
Focused on U.S. CompanyRestaurants
Will Reduce Size withRefranchising
Owns Consumer Insightsand Brand Building
Clear Responsibility for Development
One System Operations
Increased KFC Investment
Corporate Strategy
Public CompanyResponsibilities
Performance Management
Know-How Building for System-Wide Innovation
Talent Development
Culture Design & Evolution
CorporateU.S. Shared ServicesU.S. Brands
U.S. Division G&A Cost Savings $60 Million
($ millions)
'08 F Reported '08 F Restated '09 F
$485$530
$470
Like-for-Like Percent Change (11)%
$60 Million
Other Key Assumptions
2009 F
Share Reduction 2%
Tax Rate 27%
Interest Expense Down Slightly
Refranchising 500 Units
Yum! Global Key Metrics
Worldwide 2009 Improvement
Net Unit Growth +3%
System Sales Growth +9%
Franchise Fee Growth +11%
Restaurant Margin +1 point
Operating Margin +1 point
Note: System Sales Growth and Franchise Fee Growth on a local currency basis. Franchisee Fee Growth also excludes Special Items.
2009 Risks and Opportunities
Building on Our Consistent Track Record in 2009
+13% +13%
+15%
+13%+14%
+15%
+12%At least+10%
’02 ’03 ’04 ’05 ’06 ’07 ’08 F ’09 F
Earnings Per Share Growth
Note: Prior to special items. 2005 growth rate is also prior to the impact of expensing stock options.
Proactivelyplanned to cover risks
…Half of our 2009 profit growth already in-placeRecord YRI & China 2008 new units…on the groundSignificant U.S. G&A cost savings…$60 million
2009 YRI and China new unit development on track
Sales layer initiatives will be more broad-based
Improved KFC U.S. Performance
We’re Confident About 2009. . .
AND
AND
AND