LOUISVILLE, Ky. (Oct. 11, 2016) – Yum! Brands today is revealing strategic transformation plans to drive growth of KFC, Pizza Hut and Taco Bell brands following the separation of its China business at the end of this month. The announcement are taking place at its annual investor conference in New York City.
Yum! says it will outline a sharpening its focus on the development of its three iconic global brands, increasing its franchise ownership and creating a leaner, more efficient cost structure along with returning capital to shareholders.
“Our mission is to build the world’s most loved, trusted and fastest-growing restaurant brands,” said Greg Creed, CEO of Yum! Brands. “The transformation we are announcing today is a significant investment in our future designed to build and strengthen KFC, Pizza Hut and Taco Bell around the world and to create even more long-term value for our shareholders. As a ‘pure play’ franchisor, the transformed Yum! Brands will become more efficient and capital light with an optimized capital structure, improved cash flow and laser-like focus on our key strategies to drive same-store sales and new unit growth worldwide.”
Major features of the transformation and growth strategy involve being more focused, franchised and efficient.
Four growth drivers will form the basis of Yum! Brands’ strategic plans and repeatable business model to accelerate same-store sales growth and net-new restaurant development at KFC, Pizza Hut and Taco Bell around the world over the long term:
• Building Distinctive, Relevant Brands, by increasing investment in consumer insights, core product innovation, digital excellence and initiatives that strengthen the quality, convenience and appeal of the customer experience;
• Developing Unmatched Franchise Operating Capability, by strengthening how we equip and recruit the best restaurant operators to deliver great customer experiences, and build and protect our brands;
• Driving Bold Restaurant Development through partnerships with growth-minded franchisees who can expand and penetrate markets with modern restaurants, strong economics and value; and
• Growing Unrivaled Culture and Talent to strengthen the customer experience and franchise success with best-in-class people capability and culture.
Partnering with growth-minded franchisees, Yum! Brands says it will increase franchise restaurant ownership from 77 percent currently to 93 percent at the time of the separation of the China business to at least 98 percent by fiscal year ending 2018, with a focus on equipping and recruiting the best restaurant operators in the world to deliver great customer experiences and drive brand growth.
The company will revamp its financial profile, improving the efficiency of its organization and cost structure globally, by:
• Reducing annual capital expenditures from ~$500 million (2015 Pro Forma post-separation) to ~$100 million (FYE 2019);
• Reducing G&A by a cumulative ~$300 million by FYE 2019; and
Maintaining optimized capital structure of ~5.0x EBITDA leverage.
“The separation of our China business provided a once-in-a-lifetime opportunity to review our operating model and consider all possibilities available under our new structure,” Creed said. “The transformed Yum! Brands will maintain its geographic diversity with continued, meaningful exposure to the growth potential of the world’s largest consumer market, China, but with greater revenue stability by leveraging our four growth drivers. We will reinforce the distinctiveness of our brands and their relevance to customers, select the highest potential franchisees and help drive their success, expand more profitably in key markets across the globe and bolster training and talent initiatives to foster the culture that will be especially critical as we evolve into a highly franchised growth company.”
Capital return program
Following through on its previously announced plan to return $6.2 billion of capital to shareholders (excluding dividends) in connection with the separation of its China business, Yum! Brands has repurchased approximately $5.5 billion in shares at an average price of approximately $81, reducing its share count by approximately 16 percent as of Oct. 10. The company is also expanding its plan to return capital to shareholders and now expects to return a total of $13.5 billion (including dividends) between Q4 2015 and 2019.
Separation of the China business
After the separation of the China business, Yum China Holdings, Inc. will become a licensee of Yum! Brands in Mainland China. Yum China will have exclusive rights to KFC, China’s leading quick-service restaurant concept, Pizza Hut, the leading casual dining brand, and Taco Bell, which is expanding globally but is not yet in China. It will also own the Little Sheep and East Dawning concepts. Yum China has more than 7,300 restaurants and more than 400,000 employees in over 1,100 cities, and generated over $8 billion in system sales in 2015. The standalone company, Yum China, is expected to begin trading “regular way” on the New York Stock Exchange under the symbol “YUMC” on Nov. 1, 2016.
In addition to Creed and other senior Yum! Brands leaders, the Yum China leadership team will also speak at the investor conference about their growth plans, as described in a release issued separately today.
Yum! Brands Inc., based in Louisville, has more than 43,000 restaurants in almost 140 countries and territories. It ranks #218 on the Fortune 500 List with revenues of over $13 billion in 2015 and is one of the Aon Hewitt Top Companies for Leaders in North America. Worldwide, the Yum! Brands system opens over six new restaurants per day on average, making it a leader in global retail development.
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