Pizza Hut 2007 Annual Report Download - page 9

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7
#4.
Drive Industry-
Leading,
Long-Term
Shareholder
and Franchisee
Value.
Any way you lookat it
Yum! Brands is an
incredible cash machine,
with each of our
divisions generating
free cash flow.
In addition to pursuing profit and new unit growth, we continue to pursue refranchising. We
have successfully executed this concept since we started ourcompany.If we can run our
stores well and provide great returns to our shareholders, we’ll own the restaurants ourselves.
If our company operations are notgetting margins that well exceed our cost of capital, we’ll
sell ourrestaurants to franchisees who can do a better job of running them. Taco Bell has
earnedthe right to own, so we will only marginally reduce its ownership overtime, continuing
to own about 25% of the system. On the other hand, we will be taking total U.S. ownership
down from 22% to possibly lessthan 10% by owning fewer Pizza Huts, KFCs andLJSs.
The goal for this realignmentis to improve operations with franchisees, increase ourfocus
on brand building, and in so doing, generate proceeds that allow us to reinvest in growth
opportunities that improve shareholder returns.
Ihave to acknowledge there are those who are skeptical about our ability to transform our
U.S. business. Of course, seeing is believing. This only motivates our U.S. teams more and
now we have to walk the talk. Given the transformational strategies we’ve developed and
plan to implement over the next couple of years, we feel like we’re playing on abig stage
with a winning hand no one sees. As Isaid in December at our annual investor conference,
our U.S. business is an outstanding “value investment” with tremendous asset leverage
opportunity, and we are committed to winning big by unlocking this value over thenext two
to three years.
U.S. BRANDKEY MEASURES: 5% OPERATING PROFITGROWTH; 2–3% SAME STORE
SALES GROWTH
The good news is we already are a leader in Return On Invested Capital (ROIC), not
only amongrestaurant companies but among large-cap global retailers and consumer
packaged companies as well. So, we’re goingforward from a position of real strength.
Any way you look at it, Yum! Brands is an incredible cash machine, with each of our
divisions generating free cash flow— or effectively funding their own capital investments.
As this capital is deployed to high-return opportunities— for example, new restaurants in
China, where the cash payback is only two years— we expect total returns to remain
strong. These returns will further improve as we continue to refranchise restaurants,
which will increase ourfranchisefees— currently amounting to $1.3 billion— with minimal
capital investment.
We’re proud of the fact that we are one of the few companies that can CONTINUE to
make significant capital investments year after year (in the $600 to $750 million range),
ANDmake great investments in large scale buybacks (reducingoutstanding shares by
6% in 2007), ANDpay a meaningful dividend (2%) ANDgrowEPSin the double digits.
I think it’s safe to say there are not many companies doing this.
ROIC AND STRONG SHAREHOLDER PAYOUT KEY MEASURES: 18% ROIC; 3-4% REDUCTIONS
OF SHARES OUTSTANDING;2% DIVIDEND TARGET