Yum! Brands 2010 Annual Customer Mania Report Board of Directors Senior Officers
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On The Ground Floor of Global Growth Building The Defining Global Company That Feeds the World Yum! Brands 2010 Annual Customer Mania Report Board of Directors Senior Officers David C. Novak 58 David C. Novak 58 Chairman, Chief Executive Officer and President, Chairman, Chief Executive Officer and President, Yum! Brands, Inc. Yum! Brands, Inc. Jing-Shyh S. (“Sam”) Su 58 Jing-Shyh S. (“Sam”) Su 58 Vice Chairman, Yum! Brands, Inc. Vice Chairman, Yum! Brands, Inc. Chairman and Chief Executive Officer, Chairman and Chief Executive Officer, Financial Highlights Yum! Restaurants China Yum! Restaurants China (In millions, except for per share amounts) Year-end 2010 2009 % B/(W) change David W. Dorman 57 Graham D. Allan 55 Non-Executive Chairman, Chief Executive Officer, Yum! Restaurants International Company sales $ 9,783 $ 9,413 4 Motorola Solutions, Inc. Franchise and license fees and income 1,560 1,423 10 Scott O. Bergren 64 Total revenues $ 11,343 $ 10,836 5 Massimo Ferragamo 53 Chief Executive Officer, Pizza Hut U.S. and Chairman, Ferragamo USA, Inc., Yum! Innovation, Yum! Brands, Inc. Operating Profit $ 1,769 $ 1,590 11 a subsidiary of Salvatore Ferragamo Italia Net Income – Yum! Brands, Inc. $ 1,158 $ 1,071 8 Jonathan D. Blum 52 J. David Grissom 72 Senior Vice President, Chief Public Affairs Officer, Diluted Earnings Per Common Share before Special Items (a) $ 2.53 $ 2.17 17 Chairman, Mayfair Capital, Inc. and Yum! Brands, Inc. (a) Special Items Earnings Per Common Share (0.15) 0.05 NM Chairman, The Glenview Trust Company Reported Diluted Earnings Per Common Share $ 2.38 $ 2.22 7 Emil J. Brolick 63 Bonnie G. Hill 69 Chief Operating Officer, Yum! Brands, Inc. $ 1,968 Cash Flows Provided by Operating Activities $ 1,404 40 President, B. Hill Enterprises, LLC and President of LJS/A&W (a) See page 29 of our 2010 Form 10-K for further discussion of Special Items. Robert Holland, Jr. 70 Anne P. Byerlein 52 Managing Director and Advisory Board Member, Chief People Officer, Yum! Brands, Inc. (a) Essex Lake Group, P.C. Average US Sales per System Unit Christian L. Campbell 60 Kenneth Langone 75 Senior Vice President, General Counsel, Secretary and (In thousands) Founder, Chairman, Chief Executive Officer Chief Franchise Policy Officer, Yum! Brands, Inc. (b) Year-end 2010 2009 2008 2007 2006 5-year growth and President, Invemed Associates, LLC KFC $ 933 $ 960 $ 967 $ 994 $ 977 – Richard T. Carucci 53 Jonathan S. Linen 67 Chief Financial Officer, Yum! Brands, Inc. Pizza Hut 855 786 854 825 794 1% Advisor to Chairman, American Express Company Taco Bell 1,288 1,255 1,265 1,147 1,178 2% Greg Creed 53 Thomas C. Nelson 48 Chief Executive Officer, Taco Bell (a) Excludes license units. (b) Compounded annual growth rate. Chairman, Chief Executive Officer and President, National Gypsum Company Roger Eaton 50 Chief Executive Officer, KFC U.S. and Thomas M. Ryan 58 Yum! Operational Excellence, Yum! Brands, Inc. Contents Chairman of CVS Caremark Corporation and CVS Pharmacy, Inc. W. Lawrence Gathof 49 Dear Partners ............................................................................1 Vice President and Treasurer, Robert D. Walter 65 Yum! Brands, Inc. Winning Big in China! .............................................................4–5 Founder and Retired Chairman/CEO, Building Strong Brands Everywhere ..................................... 6–7 Cardinal Health, Inc. Patrick Grismer 49 Improving US Brand Positions ..................................................8–9 Chief Planning and Control Officer and Driving Long-Term Shareholder Value........................................ 10 Senior Vice President, Yum! Brands, Inc. Timothy P. Jerzyk 58 Senior Vice President, Investor Relations Yum! Brands, Inc. ABouT The pApeR useD foR This Report Muktesh (“Micky”) Pant 56 The inks used in the printing of this report contain an average of 25% - 35% vegetable oils from plant President, Yum! Restaurants International and derivatives, a renewable resource. They replace petroleum based inks as an effort to also reduce President Global Branding, Yum! Brands, Inc. volatile organic compounds (VOCs). The cover and first 14 pages of this report were printed using FSC-certified paper made with 50% recycled content including 24% post-consumer waste. David E. Russell 41 Vice President - Corporate Controller, Yum! Brands, Inc. Dear Partners, I’m especially pleased to report 2010 was another year of significant progress toward achieving our future back vision to be THE DEFINING GLOBAL COMPANY THAT FEEDS THE WORLD. This is a goal that reflects our intentionality to lead the way in defining how to truly build a superlative global company, a company that sets the example others want to emulate. Of course, a bold and admittedly audacious goal like this has to be backed up by a track record of impressive performance. And, perhaps even more importantly, it has to be supported by an increasing capability and the potential to keep it going. To this end, we have clearly established an ability to deliver consistently strong results, even in the extremely challenging economic and macro environment we continue to face. As a matter of fact, in 2010 we achieved 17% Earnings Per Share (EPS) growth, excluding special items, representing the ninth straight year that we exceeded our annual target of at least 10%. In fact, 17% EPS growth is our best in the last decade and what makes this even more impressive is that it was driven by a 15% increase in operating profit prior to foreign currency translation, including gains across all three of our business divisions. As I look back on the past year, I’m really proud of what we accomplished. We grew worldwide system sales by 4%, prior to foreign currency translation, and once again proved to be one of the leading retail developers of units outside the United States as we opened nearly 1,400 new units, the tenth straight year we’ve opened more than 1,000 new units. At the same time, we are making major progress building incremental dayparts and sales layers in each of our businesses. We also improved worldwide restaurant margins by 1.3 percentage points, and operating profits grew 15%, prior to foreign currency translation and special items, generating $1.16 billion in net income and nearly $2 billion in cash from operations. Importantly, we continued to be an industry leader with Return on Invested Capital (ROIC) of 20%+. As a result, our share price jumped 40% for the full year. Over the longer term, we take special pride that our five year average total return, including stock appreciation and dividend reinvestment, is 18% versus the S&P average of 2%. Our strong cash flow generation, combined with our disciplined approach with deploying capital, allowed us to increase our dividend 19%, to an annual rate of $1.00 per share. But the most important point I want you to take away from this letter is that all our Company’s leaders and teams know what we accomplished in the past is just that — yesterday’s newspaper. We clearly realize it’s up to us to write David C. Novak new headlines of winning performance. And as you read this report, I think Chairman & Chief Executive Officer you will have reason to share our belief that even though we’ve made a lot of Yum! Brands, Inc. headway, we have barely scratched the potential of our opportunity and are on the ground floor of global growth. And we are going all out to attack it. First let me share with you how we intend to become the Defining Global Company That Feeds The World. It starts with the fact we are already a truly global growth company, with approximately 65% of our profits coming from outside the United States, including commanding positions in China and the emerging markets. With our leading global brands, 1.4 million system wide team members around the world already operating in over 110 countries and territories, powered by a powerful financial capability, we have everything it takes to make it happen. Our intent is to continue to drive shareholder value and as we do, make the world a better place by building our company around three principles: Creating a famous recognition culture where everyone counts. We founded this company on the belief that the best way to get results is by having fun recognizing others and operating with a deep-seated conviction that everyone at every level can truly make a difference. Other companies are already best practicing Yum! for our culture, and the experiences we share are enriching lives. To keep building on this fundamental strength, we continue to drive what we call our How We Win Together principles featured on page 13. For example, our Presidents and General Managers have spent this past year personally teaching all our Restaurant Support Center teams our “Achieving Breakthrough Results” tool kit and we are now in the process of rolling out the training to all our Restaurant General Managers and franchise partners. I believe this may be the single largest cultural cascade in business and I’m certain it will drive our future success. Additionally, we have created an online network coined “iCHING” to leverage our scale and share best practices, creating explicit know how so we can get things done right the first time and accelerate speed to market. These initiatives are providing a work environment that is proving to be a magnet to retain and attract the best talent, which we all know, is the name of the game. Building dynamic, vibrant brands everywhere with one system operational excellence as our foundation. Each of our brands make the world a better place by standing for something unique and purposeful: Taco Bell is fuel for the pioneering spirit by offering unbelievable value; KFC creates joyful eating experiences because it tastes better than good; Pizza Hut promotes social interaction by creating favorite moments for you and the people you love to be around.