Pizza Hut 2007 Annual Report Download - page 4

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2
#1.
Build Leading
Brands Across
China in Every
Significant
Category.
We already have
established enormously
popular brands and
undeniable competitive
advantage in the
fast food and casual
dining categories.
Iknow you’d also agree there’snothing like atrack record of success to give you the con-
fidence you can keep on winning. That’s why I’m especially pleased to report we achieved
15% Earnings Per Share (EPS) growth for 2007, powered by simply sensational growth in
China, continued profitable international expansion, and strong, stable U.S. cash genera-
tion. That’sthe sixth straight year we’ve exceeded our+10% annual EPS target, proving
the underlying powerof ourglobal portfolio of leading brands enables us to deliver consis-
tent double-digit EPSgrowth. In so doing, we grewworldwide same store sales 3% and
strengthened ourclaim as the number one retail developer of new units outside the United
States by opening 1,358 stores, theseventh straight year we’ve opened up more than 1,000
new restaurants. With such powerful results, we generated record cash from operations
of over $1.5 billion and returned an all time high of nearly $1.7billion to our shareholders
through share repurchases and dividends. Additionally, we announced in October our plan
to substantially increase the amount of share buybacks over the next two years, repurchas-
ing atotal of up to $4 billion of the company’soutstanding common stock. Given this overall
performance, our share price climbed over 30% for the full year on top of 25% growth in
2006. We are especially gratified that ouraverage annual total return to shareholders is
18% since our spin-off.
But of course, all of this is yesterday’snewspaper. Continuing to win big in this tough,com-
petitive environment means we must attack our opportunities with even more purpose and
urgency.Let me assure you we are doing just that. We have fourpowerful growth opportuni-
ties that we believe make usnot only “Not Your Ordinary Restaurant Company,” but the most
uniquely positioned retailer in the world.
Here’s how we’re winning big:
Weare clearly making outstanding progress executing our breakthrough strategy of
building apowerful portfolio of brands in the world’s fastest growing economy, with
1.3 billion people. With KFC and Pizza Hut, we already have established enormously
popular brands and undeniable competitive advantage in the fast food and casual dining
categories. The numbers tell the story: KFC has 2,140 quick-service restaurants in mainland
China, more than McDonald’s, ournearest competitor. Pizza Hut has 351 casual dining
restaurants with no other significant Western casual dining chain in mainland China.
Like Ireported last year, the keytoour success is that we have an outstandinglocal team
that has worked together for over ten years to build these brands the right way from scratch.
Our China leaders started with the vision to become not only the best restaurant company
in China, but the best restaurant company PU [OL LU[PYL^VYSK. There’s no doubt in my
mind we are doing just that. Just ask any analyst, investor or consumer who has visited our
Chinese restaurants, and I’m betting they will tell you we are building best in class brands
and operations. What’smore,we are highly profitable, generating $375 million in operating
profit.That’s an amazing 30% growth in 2007 and a five year average annual growth rate
of over 25%. China is our highest returning international business with acash payback
on investments of lessthan two years which is whyweare investing our own capital to be
primarily company owned and operated. As we have built the business, we’ve put in place
aworld class infrastructure to give us a long-term competitive advantage. We uniquely own
our own food distribution systemthat has allowed us to expand KFC into 406 cities and