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Yum! Brands to share split strategy insight with investors

Yum! Brands will discuss further details of its planned separation into two independent publicly-traded companies during its annual investor conference today in Plano, Texas.

December 10, 2015

Yum! Brands will discuss further details of its planned separation into two independent publicly-traded companies during its annual investor conference today in Plano, Texas.

The company will outline how the transaction will enable Yum! to transform from one company, with a previous growth target of at least 10 percent EPS, into two companies targeting an estimated 15 percent shareholder return per year, according to a company press release.

Yum! intends to return up to $6.2 billion of capital to shareholders between the separation announcement date of Oct. 20, 2015, and the actual separation, which is expected to be completed by the end of 2016.

In connection with today's conference, Yum! Brands also confirmed its forecast of about flat to low single-digit positive full-year 2015 EPS growth, excluding special items; provide an operating profit outlook for 2016; and report China same-store sales for November.

"We continue to make solid progress on our planned separation into two independent, publicly-traded companies — Yum! Brands and Yum! China — each with compelling growth strategies, distinct investment characteristics, and optimized capital structures," said Greg Creed, Yum! Brands CEO. "We believe this transaction is a classic example of 'one plus one equaling more than two' as it will enable each company to realize its full potential and achieve greater value on a standalone basis. By optimizing our capital structure, we will move from a previous growth target model of at least 10 percent EPS delivered by one company, to building two, strong, independent companies that each have the potential to deliver an estimated 15 percent annual shareholder return," said Creed. "Additionally, I'm very pleased to announce we intend to return up to $6.2 billion of capital to shareholders prior to the completion of the separation, reflecting our ongoing commitment to generate increased returns for shareholders while underscoring our confidence in Yum!'s long-term growth prospects and strong financial position."

"This is an exciting time for our company, and I'm confident the completion of this separation transaction will result in two unique and attractive investment opportunities for all our shareholders," said Creed.

Yum! China Highlights — Beginning 2017

• Targeting ongoing EPS growth of approximately 15 percent annually after the separation.
• Premier independent restaurant company in China, with exclusive rights to the KFC, Pizza Hut and Taco Bell brands in China and the opportunity to add new brands.
• Industry-leading development capability, supply chain infrastructure and brand strength in the world's fastest-growing major economy.
• Opportunity to triple unit count over the long term, with current new-unit economics delivering approximately three-year pre-tax cash paybacks.
• Capacity to support substantial same-store sales growth.
• No significant external debt and significant free cash flow, enabling shareholder cash returns and investment in new growth engines.
• Strong and experienced management team led by Micky Pant.

New Yum! Brands Highlights — Beginning 2017

• Targeting ongoing shareholder return of approximately 15 percent annually after the separation.
• Intends to be 96-percent franchised by the end of 2017, with operating margins and capital expenditures consistent with a reduced ownership business model.
• Targeting a sustained leverage ratio of approximately five times EBITDA which supports substantial ongoing capital returns.
• Diversified model with three category-leading brands.
• Opportunity to triple unit count over the long term driven by emerging market strength.
• Significant headroom for same-store sales growth.
• Will receive an agreed license fee of 3 percent of system sales for KFC, Pizza Hut and Taco Bell in China - with no initial fees for new units opened in China.
• Management team led by Greg Creed.

2016 Operating Profit Growth Targets

• Yum! Brands currently expects to grow operating profit in constant currency of 10 percent in 2016 with the following targets by division, excluding special items:

China Division — 10 percent

KFC Division — 10 percent

Pizza Hut Division — 5 percent

Taco Bell Division — 6 percent

• 53rd week benefit to overall operating profit: 1.5 percent (not included in growth rates above).
• Currently estimating negative impact of 2 percentage points to operating profit from foreign currency translation.
• The company is guiding on overall operating profit (vs. its customary EPS) given the significant return of capital anticipated in 2016 with timing and pricing yet to be determined.
• Operating profit growth targets assume no impact from separation.

November 2015 China Division Sales

• Yum! Brands' China Division's November same-store sales declined an estimated 3 percent year-over-year, including a 1-percent decline at KFC and a decline of 9 percent at Pizza Hut.
• The company is reiterating its guidance for fourth-quarter China Division same-store sales growth of 0 to 4 percent, with positive same-store sales growth at KFC and negative same-store sales at Pizza Hut.