Pizza Hut 2005 Annual Report Download - page 5

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We฀are฀committed฀to฀make฀East฀Dawning฀a฀success฀and฀
believe฀it฀could฀be฀our฀highest฀potential฀concept฀given฀
the฀obvious฀mass฀appeal฀of฀Chinese฀food.฀
As฀I฀said฀in฀last฀year’s฀letter,฀one฀thing฀I’m฀sure฀of฀is฀
that฀we’ll฀have฀our฀ups฀and฀some฀unforeseen฀downs,฀but฀
there’s฀not฀a฀shred฀of฀doubt฀in฀my฀mind฀that฀one฀day฀we฀
will฀have฀more฀restaurants฀in฀China฀than฀we฀do฀in฀the฀U.S.฀
That’s฀my฀story฀and฀I’m฀sticking฀to฀it!
CHINA฀ DIVISION฀ KEY฀ MEASURES:฀ +20%฀ OPERATING฀ PROFIT฀
GROWTH;฀+22%฀SYSTEM฀SALES฀GROWTH;฀+400฀NEW฀UNITS/YEAR.
Drive฀Profitable฀
International฀฀
Expansion
#2
Our฀Yum!฀ Restaurants฀International฀Division,฀which฀
includes฀ over฀100฀ countries฀and฀territories฀outside฀
of฀China฀and฀ the฀U.S.,฀ had฀another฀ very฀good฀year.฀
For฀the฀sixth฀straight฀year฀we฀opened฀over฀700฀restau-
rants.฀In฀so฀doing,฀we฀generated฀+6%฀system฀sales฀
growth.฀YRI฀now฀generates฀$372฀million฀in฀operating฀
profit,฀ continuing฀ its฀ consistent฀ record฀ of฀ growing฀
operating฀profits฀at฀least฀10%.฀
The฀foundation฀of฀this฀consistent฀growth฀comes฀from฀the฀
competitive฀advantage฀of฀ the฀infrastructure฀ we฀already฀
have฀in฀place.฀For฀this฀we฀are฀largely฀indebted฀to฀PepsiCo฀
who,฀prior฀to฀our฀spin-off฀in฀1997,฀invested฀40฀years฀and฀
billions฀ of฀ dollars฀ to฀ establish฀ the฀ global฀ network฀ we฀
inherited.฀We฀now฀have฀over฀11,000฀restaurants,฀88%฀of฀
which฀are฀owned฀and฀operated฀by฀our฀700+฀franchisees.฀
Thankfully฀for฀us,฀the฀reality฀is฀it฀would฀take฀the฀same฀time฀
and฀commitment฀for฀our฀competition฀to฀reach฀our฀size฀and฀
scale.฀The฀only฀exception,฀of฀course,฀is฀McDonald’s,฀which฀
makes฀$2฀billion฀outside฀the฀U.S.,฀which฀only฀reinforces฀
the฀potential฀we฀have฀to฀grow฀two฀already฀popular฀global฀
brands,฀ KFC฀ and฀ Pizza฀ Hut,฀ not฀ to฀ mention฀ our฀ other฀
brands฀down฀the฀road.฀
There’s฀no฀question฀YRI฀is฀a฀diverse,฀high฀return฀busi-
ness.฀Witness฀that฀we฀grew฀franchise฀fees฀by฀17%฀and฀
the฀fact฀that฀KFC฀and฀Pizza฀Hut฀opened฀730฀new฀units฀
across฀ six฀ continents,฀ with฀ very฀ little฀capital฀ spending฀
on฀our฀part.฀We’re฀focused฀on฀profitably฀driving฀interna-
tional฀expansion฀in฀three฀global฀arenas฀—฀franchise-only฀
markets,฀established฀company-operations฀markets,฀and฀
emerging,฀less-developed฀markets.฀
When฀you฀examine฀our฀franchise-only฀business,฀you’ll฀
see฀we฀have฀nearly฀5,000฀restaurants฀generating฀$170฀mil-
lion฀ in฀ operating฀ profit.฀ These฀ businesses฀ had฀ another฀
outstanding฀year฀in฀2005,฀with฀system฀sales฀and฀operating฀
profits฀both฀achieving฀double฀digit฀growth฀versus฀prior฀year.฀
Double฀ digit฀ growth฀ without฀ capital฀ spending฀—฀I’ll฀ take฀
it!฀I฀want฀to฀especially฀recognize฀the฀following฀franchise฀
business฀units฀for฀their฀exceptional฀system฀sales฀growth:฀
Asia฀+8%,฀Caribbean/Latin฀America฀+10%,฀Middle฀East฀
Northern฀Africa฀+17%฀and฀South฀Africa฀+20%.
We’re฀focusing฀our฀international฀company฀equity฀in฀
countries฀where฀we฀are฀building฀scale฀and฀expect฀to฀pro-
duce฀excellent฀returns฀over฀the฀long฀term.฀The฀largest฀of฀
these฀markets฀is฀the฀U.K.฀where฀we฀have฀almost฀1,400฀
KFCs฀and฀Pizza฀Huts฀contributing฀$100฀million฀in฀operat-
ing฀profits.฀While฀our฀business฀in฀the฀U.K.฀has฀achieved฀a฀
15%฀growth฀rate฀over฀the฀last฀five฀years,฀profits฀declined฀
in฀2005฀due฀to฀a฀difficult฀retail฀environment,฀the฀subway฀
terror฀incident฀that฀occurred฀in฀London,฀and฀below฀expec-
tations฀ on฀ operational฀execution.฀ However,฀ our฀brands฀
there฀are฀fundamentally฀well฀positioned฀in฀their฀catego-
ries฀and฀our฀teams฀are฀focused฀on฀turning฀the฀business฀
around.฀At฀the฀same฀time,฀I’d฀like฀to฀give฀a฀special฀pat฀on฀
the฀back฀to฀our฀team฀in฀Mexico,฀which฀turned฀in฀a฀sensa-
tional฀year.฀
While฀we฀have฀obviously฀grown฀our฀core฀business,฀we฀
also฀have฀been฀making฀targeted฀investments฀to฀develop฀
new฀ markets,฀ with฀ a฀ particular฀ focus฀ on฀ building฀ local฀
capability฀ in฀ India,฀ Russia฀ and฀ Continental฀ Europe.฀ In฀
India,฀we฀are฀already฀the฀fastest฀growing฀restaurant฀com-
pany.฀Pizza฀Hut฀ is฀the฀ number฀one฀ most฀ trusted฀ brand฀
Yum!฀Restaurants฀฀
International฀now฀generates฀฀
$372฀million฀in฀operating฀profit,฀฀
continuing฀its฀consistent฀record฀of฀
growing฀operating฀profits฀฀
at฀least฀10%.
Yum!฀Brands,฀Inc.฀ ฀ ฀ |฀฀฀3.