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NOT YOUR ORDINARY RESTAURANT COMPANY David C NOT YOUR ORDINARY RESTAURANT COMPANY David C. Novak Chairman & Chief Executive Officer December 7, 2004 The Dynasty Model OurOur PassionPassion OurOur FormulaFormula forfor SuccessSuccess Customer Mania . People Capability first . act as ONE SYSTEM to put a YUM satisfied customers and profitability follow on customers’ faces around the world HowHow WeWe LeadLead 1. Be a Customer Maniac 2. Know and Drive the Business 3. Build and Align Teams HowHow WeWe WinWin Differentiate Lead the way Drive explosive Convert Run Great the brands in in global cash flow Restaurants everything we multibranding expansion into high value do innovation HowHow WeWe WorkWork TogetherTogether Our HWWT Leadership Principles Our Franchise Partnership Pact YUM! — Track Record of Performance ShareholderShareholder CommitmentCommitment .. .. .. AtAt LeastLeast +10%+10% AnnualAnnual EPSEPS GrowthGrowth Ð 2002 +13% Ð 2003 +13% Ð 2004 +14% Strong Cash Flow & High ROIC +16% Cash Flow from Operating Activities ($ million) 5-Year 1,185 CAGR 832 565 '99 ’01 ’04 F ROIC 17% 18% 18% YUM! 2004 F ; Met our EPS commitment of at least +10%. Again ; Record cash from operating activities ; 4th consecutive year to open 1,000+ international new restaurants ; . Includes industry-leading restaurant openings in China, 325+ ; 3% Global same-store-sales growth, 3% U.S. same-store-sales growth ; Record share buy back, $575 million ; Meaningful dividend initiated ; Early redemption of $350 million, May 2005 bonds ; Investment-grade balance sheet YUM! — How We Are Organized 2004 F Chairman, CEO NEW Long John Silver’s/ China International Taco Bell Pizza Hut KFC A&W Division Division ---------- Multibranding 5% 5% (2)% SSS 500+ $200+ million +18% SSS Growth Growth, Multibrand Op Profit Profit SSS Growth Building a Additions 350+ New Units Growth Turnaround 700+ New Units 2004 F Four Major Opportunities 11 BuildBuild DominantDominant CHINACHINA Brands Brands 2 Drive PROFITABLE International Growth 3 Run GREAT Restaurants 4 Multibrand GREAT Brands YUM! China Division — Rapid Growth New System Restaurant Openings Operating Profit ($million) Record Openings 350+ R $200+ 302 302 AG % C $161 266 39 $120 167 $56 $63 128 $39 '99 '00 '01 '02 '03 '04 F '99 '00 '01 '02 '03 '04 F Includes People's Republic of China, Thailand, KFC Taiwan YUM! China Division — 2004 F $200+ million Operating Profit 15% of YUM! Total 1,640+ KFCs 220+ Pizza Huts in three countries 20% Restaurant Margin 20+% ROIC $590 million in Assets China Market Growth — Here’s Why Ð #1 QSR Brand #1 Casual-Dining Brand Outstanding Tenured Team on the Ground in Shanghai Highly Educated Workforce $61 million G&A, 13,000+ Employees Largest Retail Development Capability Own Nationwide Distribution System China Market Distribution System — Countrywide 0 00 0 0 0 Beijing 0 0 0000 0 00 0 0 0 Shanghai 0 00 21 Warehouses/450+ Employees China Market Æ Two Power Brands #1 QSR #1 Casual Dining “Life is tastier with KFC” “Happy Moments at Pizza Hut” AUV = $1.2 million AUV = $1.1 million China Market Developing Concepts Taco Bell Grande Pizza Hut Home Service East Dawning China Market Dominance Restaurants as of Q3 ’04 1,121 2004 F Openings Approx. 600 KFC 275 QSR McD 100 136 5 PIZZA HUT 39 Casual Dining ? 0 YUM! China UndeniableUndeniable CompetitiveCompetitive AdvantageAdvantage HugeHuge GrowthGrowth OpportunityOpportunity Someday . YUM! U.S.A. China Urban Population: 500+ million U.S. Population: 290 million YUM! CHINA Four Major Opportunities 1 Build Dominant CHINA Brands 22 DriveDrive PROFITABLEPROFITABLE InternationalInternational Growth Growth 3 Run GREAT Restaurants 4 Multibrand GREAT Brands YUM! International Division — High-Return Growth 2004 F $328 million Operating Profit +10% 5-Year CAGR $376 million Franchise Fees, nearly 600 Franchisees 700+ New Restaurants Opened, 4th Consecutive Year 85%+ Franchise/Joint-Venture Development New Restaurants Opened in 50+ Countries 18% ROIC YUM! International Division Growth — Here’s Why #1 International Brands Chicken Pizza Malaysia South Korea 6,080 KFC System Restaurants 4,503 Pizza Hut System Restaurants in 86 countries, territories in 84 countries, territories 6 continents 6 continents Note: Data for 2004 F YUM! International Division — Success Factors Strong Local, Self-Sufficient Teams 80%+ Ownership Is Franchise/Joint Venture Established Supply Chains Over $270 million G&A Invested Asia — Significant Profit Contributor Only Two True International Restaurant Players International Operating Profit Estimates 1. McDonald’s $1.2 billion KFC 2.2. $328 million 3.3. Pizza Hut (Int’l Division ‘04 F, excludes China) 4. YUM! China Division $200+ million 5. Burger King 6. Subway 7. Domino’s Approximately 8. Starbuck’s $50 million 9. Wendy’s or less 10. TGI Friday’s for each 11. Darden brand 12. Brinker’s 13. Outback Steakhouse International Division Expansion Potential: Significant International System Restaurants Today (thousand) 16+ YUM! 725+ new openings per year 6+ 4+ Long-Term Strategy — Leverage International Division Infrastructure Grow Established Brands sia one Sou Ind th K orea Develop Third Brand Long John Silver’s/A&W ? Long John Silver’s ? “TBD” . Create and/or buy, local chain ? YUM! International Division UndeniableUndeniable CompetitiveCompetitive AdvantageAdvantage UndeniableUndeniable GrowthGrowth Opportunity Four Major Opportunities 1 Build Dominant CHINA Brands 2 Drive PROFITABLE International Growth 33 RunRun GREATGREAT Restaurants Restaurants 4 Multibrand GREAT Brands Run Great Restaurants Execute with Urgency & Focus GREAT China Malaysia Good Taco Bell U.S. U.K. Mediocre Pizza Hut U.S. (last year) . Better this year KFC U.S. Poor (at spin-off) Long John Silver’s U.S. Steady Improvement Run Great Restaurants Opportunity % Restaurants with CHAMPS scores of 100% ’03 ’04 U.S. 49 53 International Division 55 60 China Division 67 72 Note: Company results as of Period 11 ’04 YTD Why It Is Important Run Trusted Consistent Great ==Customer SSS Restaurants Experience Growth Run Great Restaurants Executing . Focus on Getting Better and Better No capacity constraints in our restaurants Average Unit Volume U.S. Company Top 10% U.S. System Average Taco Bell $1.9 million $1.0 million Pizza Hut $1.4 million $0.7 million KFC $1.7 million $0.9 million Note: Top 10% as of Period 11 YTD; System as of ‘03 Four Major Opportunities 11 BuildBuild DominantDominant CHINACHINA Brands Brands 2 Drive PROFITABLE International Growth 3 Run GREAT Restaurants 44 MultibrandMultibrand GREATGREAT BrandsBrands Portfolio of Category-Leading Brands Four Category Leaders U.S. Category Market Share* 65% 15% 47% 35% System Restaurants 5,026 6,314 5,453 1,197 (Q3 ’04) System Average Unit Volume 1,000+ 800+ 900+ 650+ (’04 F, $ thousand) *Source: NPD Group Inc./CREST for 2003 YUM! U.S. Portfolio 2004 F +3% Blended Same-Store-Sales Growth $590 million Franchise Fees $750 million+ in Cash Flow from Operating Activities* 500+ Multibrand Additions Operating Profit Lower Due to Substantially Higher Commodity Costs *Estimated Taco Bell: The Bold Choice Positioning: When You Want to Step Up to the Freshest Ideas in Fast Food, Make the Bold Choice for Taco Bell Create a Exciting Improve Transform Powerful Brand Product News Price Value Asset Base Invitation What we said: Continue to build on Mexican inspired Create Big Bell Value Leverage TB/LJS as “Think Outside the Extensions Menu expansion vehicle Bun” campaign New proteins Near quick-casual Update the Bold Choice quality at QSR prices building image Progress/On Deck: Continue successful Continued successful Big Bell Value Menu Northeast TB/LJS plan creative campaign line extensions successfully rolled out underway Lifestyle-oriented More . Higher quality soft taco sponsorships and taco salad ThinkThink OutsideOutside TheThe BunBun Pizza Hut: Family Pizza People Positioning: “Family Sharing” Is Best with Pizza Hut Create a Exciting Improve Transform Powerful Brand Product News Price Value Asset Base Invitation What we said: Improve impact of Innovation leadership Traditional-value Company — delivery “Gather ’Round the pizza Franchise — dine in Good Stuff!” Progress/On Deck: TVCs consistently among “4forAll” launched “Full House XL” 270+ WingStreets “top recalled” Continued LTO launched Italian Bistro defined Significant increase in – 40+ Bistros open “Best for Family Sharing” ratings GatherGather ‘Round‘Round thethe GoodGood StuffStuff The KFC Situation Increasing chicken competition from McDonald’s and Wendy’s 20,000 incremental distribution points on strips Self-inflicted wounds Management turnover False start on Oven Roasted drove weak second-half calendar KFC Turnaround Plan 2004 Restructure (1)% to (2)% SSS New Leadership Team (President, COO, CMO, CFIO) New Field Ops Organization/Players New Advertising and PR Agencies Implemented YUM! best practices in marketing and product process Extensive brand positioning work U.S. Brands — What to Expect % Restaurants with 100% CHAMPS Score . Steady Improvement +1% to +2% Blended Same-Store-Sales Growth +5% to +7% Operating Profit Growth Continued Strong Cash Flow Earn the Right to Own in Every Restaurant YUM! U.S. Brand Portfolio UndeniableUndeniable BrandBrand LeadershipLeadership UndeniableUndeniable CashCash FlowFlow fromfrom PortfolioPortfolio YUM! Multibrand Innovation KFC/Taco Bell Proved the Case Expanded Options . Long John Silver’s/A&W and Now Testing for Long-Term Pasta Bravo Acquisitions Optimization Internal Innovation WingStreet Pizza Hut Italian
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