Yum! Brands (YUM) Will Update on Planned Separation; China Comps Fell 3% in Nov.

Yum! Brands, Inc. (NYSE: YUM) will discuss further details of its planned separation into two independent publicly-traded companies, with strong growth prospects for each, during its annual investor conference today in Plano, TX. The Company will outline how the separation transaction will enable Yum! to transform from one company with a previous growth target of at least 10% EPS growth into two companies each targeting an estimated 15% shareholder return per year (EPS growth + Dividend yield). Furthermore, following through on its commitment to return substantial capital to shareholders in conjunction with its business separation, Yum! intends to return up to $6.2 billion of capital to its shareholders between the separation announcement date of October 20, 2015 and the actual business 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; provided an operating profit outlook for 2016; and reported China same-store sales for November, while reaffirming its fourth-quarter China same-store sales guidance.

“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 Chief Executive Officer. 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% EPS delivered by one company, to building two, strong, independent companies that each have the potential to deliver an estimated 15% annual shareholder return. Additionally, I’m very pleased to announce that 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.”

Mr. Creed concluded, “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.”

Today’s presentations can be followed live via webcast beginning at 9:45 EST at: http://edge.media-server.com/m/p/w7kec5dh.

Yum! China Highlights – Beginning 2017

• Targeting ongoing EPS growth of approximately 15% 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 pretax 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 (defined as EPS growth plus dividend yield) of approximately 15% annually after the separation
• Intends to be 96% 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 5X 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% of system sales for KFC, Pizza Hut and Taco Bell in China - with no initial fees for new units opened in China
• Strong and seasoned management team, led by Greg Creed

2016 Operating Profit Growth Targets

• Yum! Brands currently expects to grow operating profit in constant currency of 10% in 2016 with the following targets by division, excluding special items:
  • China Division: 10%
  • KFC Division: 10%
  • Pizza Hut Division: 5%
  • Taco Bell Division: 6%
  • 53rd week benefit to overall Operating Profit: 1.5% (not included in growth rates above)
• Currently estimating negative impact of 2 percentage points to operating profit from foreign currency translation
• Additional details behind these operating profit growth targets can be found at http://yum.com/investors/guidance.asp
• 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, Inc.’s China Division’s November same-store sales declined an estimated 3% year-over-year, including a 1% decline at KFC and a decline of 9% at Pizza Hut Casual Dining. The Company is reiterating its guidance for fourth-quarter China Division same-store sales growth of 0% to 4%, with positive same-store sales growth at KFC and negative same-store sales at Pizza Hut Casual Dining.

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