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This announcement contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements include those identified by such words as may, will, expect, project, anticipate, believe, plan and other similar terminology. These “forward-looking” statements reflect management’s current expectations regarding future events and operating and financial performance and are based on currently available data. However, actual results are subject to future events and uncertainties, which could cause actual results to differ from those projected in this announcement. Factors that can cause actual results to differ materially include changes in global and local business, economic and political conditions in the countries and territories where Yum! Brands operates, including the effects of war and terrorist activities; changes in currency exchange and interest rates; changes in commodity, labor and other operating costs; changes in competition in the food industry, consumer preferences, spending patterns and demographic trends; the impact that any widespread illness or general health concern may have on our business and the economy of the countries in which we operate; the effectiveness of our operating initiatives and advertising and promotional efforts; new-product and concept development by Yum! Brands and other food-industry competitors; the success of our refranchising strategy; the ongoing business viability of our franchise and license operators; our ability to secure alternative distribution to our restaurants at competitive rates and to ensure adequate supplies of restaurant products and equipment in our stores; publicity that may impact our business and/or industry; severe weather conditions; effects and outcomes of legal claims involving the company; changes in effective tax rates; our actuarially determined casualty loss estimates; changes in legislation and governmental regulations; and changes in accounting policies and practices. Further information about factors that could affect Yum! Brands’ financial and other results are included in the company’s Forms 10-Q and 10-K, filed with the Securities and Exchange Commission.
Information herein is as of February 1, 2005
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Chairman,CEO
ChinaDivision
InternationalDivision Taco Bell Pizza Hut KFC
Long John Silver’s/
A&W----------
Multibranding
2004 F
China’s Results & Potential Brought “Division” Status
$200+ millionOp Profit
350+ New Units
NEW
5
China Headlines the Yum! Growth Story
4Multibrand
GREATBrands
3Run
GREATRestaurants
2Drive PROFITABLE
InternationalGrowth
1Build Dominant
CHINABrands
11Build DominantBuild Dominant
CHINACHINABrandsBrands
7
YUM! CHINA
YUM! U.S.A.
U.S. Population:290 million
China’s Urban Consumers: 500 million
Despite Success, a Big Opportunity Remains
8
“To become the best restaurant company not only in China but the world.”
Yum! Restaurants China
Team Mission Statement
At PepsiCo Spin-off (October 1997)
And Deserves a Big Goal
9
Key Decisions Stand Out in China’s Success
Moved KFC: Mainstream QSR positioning
Grew people capability ahead of the business
Invested early in distribution capability
Spread KFC to many cities
Pizza Hut: 5 star experience at 3 star price
10
Accelerating but Focused on Profitability Always
New System Restaurant Openings Operating Profit($million)
39 56 63
120161
206
'99 '00 '01 '02 '03 '04
128167
266302 302
354
'99 '00 '01 '02 '03 '04
39% CAGR
Includes mainland China, Thailand, KFC Taiwan
Record Openings
11
Leadership: 17 Years in the Making
“Life is tastier with KFC”
AUV = $1.2 million
“Happy Moments at Pizza Hut”
AUV = $1.1 million
#1 QSR #1 Casual Dining
12
With a Sustainable Competitive Advantage
Outstanding Tenured Team– on the ground in Shanghai
Brand Positioning & Menu Vision
Nationwide Distribution System - Yum controls
Unit Economics that support expansion
Largest Retail Development capability
$60+ million G&A commitment– more when factoring in our partners
15
Category Leaders
“Life is tastier with KFC”
AUV = $1.2 million
“Happy Moments at Pizza Hut”
AUV = $1.1 million
#1 QSR #1 Casual Dining
16
Brand Outperforms Competition in Key Attributes
Food-related attribute has strongest correlation with overall satisfaction
KFC achieves a “win” on 6 of top 7 highest correlated attributes
17
World Class Operations
Building a Big Brand at KFC
Community Involvement
In-Store Experience
Menu designed for Broad Appeal
18
New Product Pipeline Support All Categories
Permanent offerings and limited-time-only news
Balanced across all daypartsBreakfast
Core eating occasions (lunch, dinner balance)
Snacks, desserts
19
Community Involvement, not Gimmicks
First Light FoundationAwarding scholarships, building schools
Chicky school program
3-on-3 Basketball tournamentYear 1 — 9,000 teams in over 150 cities!
20
Staying Ahead of Trends
Balanced Eating and Lifestyle
Health and Nutrition Council
Health and Nutrition White Paper
Health and nutrition leaflet
Grassroots sports program
21
World Class Operation
Pizza Hut, Casual Dining’s Leader
Communication
Complete casual dining experience
Menu structure
22
PH Menu Design Strategy
Pizza-centric sharable Food
Complete casual dining experience
Appetizer, soup, salad & dessert
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Complete Casual Dining Experience
Upscale décor package
With 5-star feel
Event driven in-store activities
Tailored daypart menu design
24
Inspiring Communication
Escape from daily routine/ordinary
Festival/holiday fun moment
Exotic/interesting
26
Supply Chain and Logistics a Core Strategy for China
Supply Chain Management Logistics
ProcurementVendor DevelopmentQuality Control
DistributionWarehousing
27
A Capability 17 Years in the Making
HUGE barriers to overcome
No history of QSR
Supply chain nonexistent
Low standards
Challenging logistics
28
Invested Early in Building a Supply Chain
Started in-house capability
Trained and developed suppliers
Introduced standards
A foundation ready for scale growth
29
9320
28
42
47
50280
’00 ’01 ’02 ’03 ’04
Be Where the Stores Are and Will Be
Supporting rapid business growth
Across all brands
Across expanding menus
Across all of China . . .
Cities with KFC Restaurants
Day 1 ’00 Now
30
Processed food, packaging
Premiums
Decor
Equipment Vehicles
We Manage the Vast Majority of Spend in China
Poultry
31
Strong Vendor Development Process
Only Yum! qualified suppliers
Up-front audits ensure Yum! standards met
Regular audits, annually at a minimum
Refresh supply-base pool, evaluate new vendors
Standards reinforced at 3 levels: Gov’t, Industry, Yum!
33
Building Logistics Capability Another Long Journey
Why we do it ourselves . . .
No qualified third-party provider
Recent entrants yes, but manufacturing focused
Three-temperature requirement – dry, chilled, frozen
Challenge of serving 1,000s of drop-off points
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Xingjiang
Tibet
Qinghai
Sichuan
Yunnan
Guizhou
Guangxi
Hainan
Guangzhou
Gansui
Ningxia
Shanxi
Inner Mongolia
Hunan
Hubei
Jiangxi
Fujian
Zhejiang
Taiwan
Henan
Anhui
Jiangsu
Shanxi ShandongHebei
Tianjin
BeijingLiaoning
Jilin
Heilongjiang
Shanghai
20+ Warehouses
Broad Coverage, Followed Growth in Inland Provinces
36
Going Forward
Continuous fine tuning
Even stronger supplier partnerships
Even stronger logistics infrastructure
World class restaurant sourcing and distribution
38
Rapid Expansion Story Will Continue
Category-leading, sought after Brands
Unit economics delivering excellent returns
Unrivaled Development capability
39
At KFC, Full Speed Ahead
New-unit volumes: U.S. $1 million
Cash investment significantlysignificantly below U.S. levels
New-store margins at today’s standard or better
Great returns
40
New-Unit AUVs Have Stabilized
80%
88%
100% 100%
’01 ’02 ’03 ’04
KFC New-Unit AUVs vs. Previous Year’s Openings
New Builds 151 226 230 284
41
Not Just a Big-City Story — Even Penetration
’02 ’03 ’04
% of New Builds by Tier
58 % 57 % 53 %Tier 1, 2
Tier 3
Tier 4Tier 5Tier 5 10 %
17 %
20 %
42
Big Cities, “Small Cities” Same Results
102%109%
115%
90%
Tier 2 Tier 3 Tier 4 Tier 5
AUVs vs. Tier 1 Standard
Ratio to Req’d return 2.4x 2.5x 3.0x 2.6x
43
Impact from Expansion Used to Our Advantage
Built into our economic model, strategically applied
Build adjacent units to relieve pending capacity constraints Optimize service levels
Operations teams ready for growthHigh post-launch sales retention
44
Rigor Every Step of the Way
Market mapping and trade-zone identification
Site selection and acquisition
Project approval
Construction and opening
Post-opening analysis
Feedback loop, huge catalog of learning
45
Slightly Different Twist at Pizza Hut
Deeper in big markets firstPace of acceptance and scale
Thoughtfully entering “Up and Coming” markets
No credible competition on the horizon
46
Unequaled Resource Commitments
Today . . . 400+ development professionals on the groundLargest in China by far
Extensive people development programsBuilding technical expertise and market knowledge
Incentive programs extract the best out of our teamsDevelopment and operations inextricably tied to each other