Pizza Hut 2011 Annual Report Download - page 11

I want to give you
my perspective
about our successful
evolving and enduring
business model.
Our philosophy is pretty simple. We reduce company
ownership in highly penetrated or under-performing
markets, and we increase exposure in emerging and
under-penetrated markets.
By following this philosophy and due to strong
execution by our Division teams, our business model
has evolved. Today over 70% of our operating profit
is generated by our international businesses. We
ended 2011 with over $1.5 billion in operating profit
in China and YRI. Ten years ago, we made about
$315 million in these businesses combined, which
represented 30% of our profits at that time. The vast
majority of this growth was in emerging markets.
We continue to reduce our ownership in highly-
penetrated markets. In December, we completed the
sale of Long John Silver’s and A&W All American
Restaurants. The larger of these concepts, Long John
Silver’s, has about 97% of its restaurants in the U.S.
We are continuing our U.S. refranchising program.
Our plan is to retain about 5% ownership in KFC
and Pizza Hut and to be at this target ownership for
both brands by the end of 2012. We also recently
announced our plan to reduce Taco Bell U.S.
ownership from 23% to about 16% over the next
two years. We are fortunate to have great franchise
operators who have the capability to run these
restaurants extremely well. In return, we will collect
royalties and make our profit return more consistent.
We announced our decision in the third quarter of
2011 to refranchise our Pizza Hut UK business. We
have started the sale process and our intention is to
sell this business in 2012.
At the same time, we are aggressively growing
emerging and under-penetrated markets. While our
franchise partners fuel the majority of our new unit
growth outside China, we will also build company
units in international markets where we can achieve
scale, realize high growth, and yield high returns.
We’ve made three acquisitions in recent times that
meet our criteria. First, in 2010 we exercised our
option to take full management control of Rostiks-
KFC in Russia. During 2011, our first full year of
operations, results have been impressive. Russia had
the highest same store sales growth rates in all of
Yum! We’ve made significant progress re-branding
this business as a KFC brand. This has increased our
confidence that Russia will become a big business
for Yum!
Secondly, we bought out our largest KFC franchisee
in South Africa in the fourth quarter of 2011. This
acquisition provides a 68 store equity base in South
Africa to help fuel the high growth potential for the
rest of Africa.
And finally, we just completed the acquisition of
Little Sheep in China. We’re very excited to bring
our operating and development expertise to this
business.
The Little Sheep business will add about 5% to our
revenue base in China for 2012. When you take into
account transaction and transition costs, we expect
only a modest profit impact in 2012.
Looking back and forward, I am very confident in the
sustainable and growing strength of our business
model. We believe that the investing decisions we
are making will set us up for success now and for
the long term. We will continue to invest in under-
penetrated markets with a long runway for growth,
deploying capital in our existing asset base that
generates high returns, and leverages these assets
with additional sales layers and dayparts to generate
same store sales growth.
There’s no question in our minds that our business
model is evolving and enduring. In fact, our robust
EPS model gives us a clear capability to sustain our at
least 10% growth model well beyond 2020.
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