Pizza Hut 1999 Annual Report Download - page 6

Download and view the complete annual report

Please find page 6 of the 1999 Pizza Hut annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 72

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72

every day, and communicate this in everything we do. Following this strategy, transactions
turned positive with the launch of our freshly fried hot Chalupas late in the year. Having now
transformed the quality of Taco Bell food by reinventing the taco with our highly popular
Gorditas and Chalupas, Taco Bell will continue to feature more quality upgrades of existing prod-
ucts, like Enchiritos, burritos and nacho chips.
#2 International Growth: One of our greatest success stories this past year has been
the outstanding results we generated from our international business. In 1999,
Tricon achieved a 39% increase in international ongoing operating profit — the strongest increase in almost a
decade. Our strategy has been to focus equity (Tricon-owned restaurants) in about 10 key countries, while grow-
ing elsewhere around the globe with our growth-ready franchisees. This strategy is paying off. For example, our
KFC businesses in Mexico, Australia, the U.K. and China all are booming, as is Pizza Hut in China, Canada
and the U.K. In fact, one-fourth of our total ongoing operating profit in 1999 came from our international
business, and we expect it to grow on average at least 15-20% per year. We plan to build over
700 new restaurants across our system outside of the United States in 2000, on top of the 700
units we opened in 1999. We are convinced our international business will continue to be
a primary growth engine for Tricon in the years ahead. We’ve only begun to scratch the
surface of marketplace presence and the global popularity of our food is phenomenal.
#3 Multi-Branding and New Unit Expansion: Tricon is uniquely positioned to offer more than one brand under one roof,
providing customers an opportunity to please the entire family at one counter. We’ve proven the success of “2-n-1’s” — KFC/Taco
Bell Express…Taco Bell/Pizza Hut Express…and KFC/Pizza Hut Express. We’re going to accelerate building these restaurants,
increasing growth opportunities for our franchisees. We’re also still testing “3-n-1’s” — restaurants that serve all three of our
popular brands. Given our category leadership in pizza, Mexican-style food and chicken, no one else can offer this unique oppor-
tunity. We ended 1999 with over 700 multi-branded restaurants in the system. In 2000, we plan to build a total of about 1,300
multi-branded and single-branded restaurants across our system — 600 restaurants in the U.S.,
and an additional 700 international restaurants. This kind of growth will continue and we
expect it to increase as we go into the future.
#4 Margin Improvement: We will continue to leverage topline growth, productivity
improvements and cost savings to drive growth in base margins year over year. We achieved
over 125 basis points in margin improvement from base operations in 1999, on top of 70
basis points of improvement from base operations in 1998. Our ownership mentality is to run
each restaurant like it’s our only one, and that’s helped make our store margins industry com-
petitive. Importantly, improved margins have helped raise our Return On
Assets Employed from 10% to about 24% in just two years. We
expect to improve our base margins in 2000 by up to 20 basis points. With the added benefit of
refranchising, our margins should be up by about 50 basis points next year.
#5 Improved Cash Flow for Reinvestment: Our final performance driver is to continue to
achieve great results from our financial strategies, and, in turn, improve our cash flow, enabling
us to further reinvest in our business growth. We’ve taken a series of strategic actions to improve
our balance sheet and returns. In 1999, we sold over 1,400 restaurants to franchisees, reducing
company ownership of the system from 28% to 23%, closing in on our target of about 20%. Cash from
operations and this refranchising strategy generated over $1.5 billion in cash flow. This, in turn,
enabled us to pay down over $1 billion in debt last year. Significantly, we also reinvested about
$470 million in new and existing restaurants in 1999. We also bought back 3.3 million shares of our stock since September,
underscoring both our strong cash generation and confidence in our growth potential. Additionally, we’ve greatly improved our
4
TRI004 front.6b 03.04.00 3/13/00 3:06 PM Page 4