Industry News | October 12, 2016

Yum! Brands Outlines Growth Plans after China Separation

Partnering with growth-minded franchisees, Yum! Brands will increase franchise restaurant ownership. Pizza Hut

Yum! Brands, Inc. will announce at its annual investor conference in New York City the company’s strategic transformation plans to drive growth of its KFC, Pizza Hut, and Taco Bell brands following the separation of its China business, currently expected to be completed after the close of business on October 31. Yum! Brands will outline how the company is sharpening its focus on the development of its three iconic global brands, increasing its franchise ownership and creating a leaner, more efficient cost structure. The company will also provide an update for returning capital to shareholders.

“Our mission is to build the world’s most loved, trusted and fastest-growing restaurant brands,” says Greg Creed, chief executive officer of Yum! Brands. “The transformation we are announcing today is a significant investment in our future designed to build and strengthen KFC, Pizza Hut and Taco Bell around the world and to create even more long-term value for our shareholders. As a ‘pure play’ franchisor, the transformed Yum! Brands will become more efficient and capital light with an optimized capital structure, improved cash flow and laser-like focus on our key strategies to drive same-store sales and new unit growth worldwide.”

Major features of the company’s transformation and growth strategy involve being more focused, franchised, and efficient.

More Focused. Four growth drivers will form the basis of Yum! Brands’ strategic plans and repeatable business model to accelerate same-store sales growth and net-new restaurant development at KFC, Pizza Hut, and Taco Bell around the world over the long term. The company will focus on becoming best-in-class in:

Building Distinctive, Relevant Brands, by increasing investment in consumer insights, core product innovation, digital excellence and initiatives that strengthen the quality, convenience and appeal of the customer experience;

Developing Unmatched Franchise Operating Capability, by strengthening how we equip and recruit the best restaurant operators to deliver great customer experiences, and build and protect our brands;

Driving Bold Restaurant Development through partnerships with growth-minded franchisees who can expand and penetrate markets with modern restaurants, strong economics and value; and

Growing Unrivaled Culture and Talent to strengthen the customer experience and franchise success with best-in-class people capability and culture.

More Franchised. Partnering with growth-minded franchisees, Yum! Brands will increase franchise restaurant ownership from 77 percent currently to 93 percent at the time of the separation of the China business to at least 98 percent by fiscal year ending 2018, with a focus on equipping and recruiting the best restaurant operators in the world to deliver great customer experiences and drive brand growth.

More Efficient. The company will revamp its financial profile, improving the efficiency of its organization and cost structure globally, by:

Reducing annual capital expenditures from $500 million (2015 Pro Forma post-separation) to $100 million (FYE 2019);

Reducing G&A by a cumulative $300 million by FYE 2019; and

Maintaining optimized capital structure of 5.0x EBITDA leverage.

Creed continues, “The separation of our China business provided a once-in-a-lifetime opportunity to review our operating model and consider all possibilities available under our new structure. The transformed Yum! Brands will maintain its geographic diversity with continued, meaningful exposure to the growth potential of the world’s largest consumer market, China, but with greater revenue stability by leveraging our four growth drivers. We will reinforce the distinctiveness of our brands and their relevance to customers, select the highest potential franchisees and help drive their success, expand more profitably in key markets across the globe and bolster training and talent initiatives to foster the culture that will be especially critical as we evolve into a highly franchised growth company.”

Following through on its previously announced plan to return $6.2 billion of capital to shareholders (excluding dividends) in connection with the separation of its China business, Yum! Brands has repurchased approximately $5.5 billion in shares at an average price of approximately $81, reducing its share count by approximately 16 percent as of October 10. The company is also expanding its plan to return capital to shareholders and now expects to return a total of $13.5 billion (including dividends) between Q4 2015 and 2019.

After the separation of the China business, Yum China Holdings, Inc. will become a licensee of Yum! Brands in Mainland China. Yum China will have exclusive rights to KFC, China’s leading quick-service restaurant concept, Pizza Hut, the leading casual dining brand, and Taco Bell, which is expanding globally but is not yet in China. It will also own the Little Sheep and East Dawning concepts. Yum China has more than 7,300 restaurants and more than 400,000 employees in over 1,100 cities, and generated over $8 billion in system sales in 2015. The standalone company, Yum China, is expected to begin trading “regular way” on the New York Stock Exchange under the symbol “YUMC” on November 1,

News and information presented in this release has not been corroborated by QSR, Food News Media, or Journalistic, Inc.

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