Welcome to the Yum! China Experience

Welcome to the Yum! China Experience

Introduction Tim Jerzyk Vice President, Investor Relations

Information herein is as of February 1, 2005 This announcement contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements include those identified by such words as may, will, expect, project, anticipate, believe, plan and other similar terminology. These forward-looking statements reflect management s current expectations regarding future events and operating and financial performance and are based on currently available data. However, actual results are subject to future events and uncertainties, which could cause actual results to differ from those projected in this announcement. Factors that can cause actual results to differ materially include changes in global and local business, economic and political conditions in the countries and territories where Yum! Brands operates, including the effects of war and terrorist activities; changes in currency exchange and interest rates; changes in commodity, labor and other operating costs; changes in competition in the food industry, consumer preferences, spending patterns and demographic trends; the impact that any widespread illness or general health concern may have on our business and the economy of the countries in which we operate; the effectiveness of our operating initiatives and advertising and promotional efforts; newproduct and concept development by Yum! Brands and other food-industry competitors; the success of our refranchising strategy; the ongoing business viability of our franchise and license operators; our ability to secure alternative distribution to our restaurants at competitive rates and to ensure adequate supplies of restaurant products and equipment in our stores; publicity that may impact our business and/or industry; severe weather conditions; effects and outcomes of legal claims involving the company; changes in effective tax rates; our actuarially determined casualty loss estimates; changes in legislation and governmental regulations; and changes in accounting policies and practices. Further information about factors that could affect Yum! Brands financial and other results are included in the company s Forms 10-Q and 10-K, filed with the Securities and Exchange Commission. 3

China s Results & Potential Brought Division Status 2004 F Chairman, CEO NEW China Division International Division Taco Bell Pizza Hut KFC Long John Silver s/ A&W ---------- Multibranding $200+ million Op Profit 350+ New Units 4

China Headlines the Yum! Growth Story 1 Build Dominant CHINA Brands 2 Drive PROFITABLE International Growth 3 Run GREAT Restaurants 4 Multibrand GREAT Brands 5

Build Dominant Brands in China Sam Su President, Yum Restaurants China

Despite Success, a Big Opportunity Remains China s Urban Consumers: 500 million YUM! U.S.A. U.S. Population: 290 million YUM! CHINA 7

And Deserves a Big Goal To become the best restaurant company not only in China but the world. Yum! Restaurants China Team Mission Statement At PepsiCo Spin-off (October 1997) 8

Key Decisions Stand Out in China s Success Moved KFC: Mainstream QSR positioning Grew people capability ahead of the business Invested early in distribution capability Spread KFC to many cities Pizza Hut: 5 star experience at 3 star price 9

Accelerating but Focused on Profitability Always New System Restaurant Openings Record Openings Operating Profit ($million) 39% CAGR 12 8 16 7 266 302 302 354 39 56 63 12 0 16 1 206 '99 '00 '01 '02 '03 '04 '99 '00 '01 '02 '03 '04 Includes mainland China, Thailand, KFC Taiwan 10

Leadership: 17 Years in the Making #1 QSR #1 Casual Dining Life is tastier with KFC Happy Moments at Pizza Hut AUV = $1.2 million AUV = $1.1 million 11

With a Sustainable Competitive Advantage Outstanding Tenured Team on the ground in Shanghai Brand Positioning & Menu Vision Nationwide Distribution System - Yum controls Unit Economics that support expansion Largest Retail Development capability $60+ million G&A commitment more when factoring in our partners 12

Neither Satisfied nor Finished Pizza Hut Home Service Taco Bell Grande East Dawning 13

Brand Building Angela Loh Chief Marketing Officer Yum! Restaurants China

Category Leaders #1 QSR #1 Casual Dining Life is tastier with KFC Happy Moments at Pizza Hut AUV = $1.2 million AUV = $1.1 million 15

Brand Outperforms Competition in Key Attributes Food-related attribute has strongest correlation with overall satisfaction KFC achieves a win on 6 of top 7 highest correlated attributes 16

Building a Big Brand at KFC Community Involvement In-Store Experience Menu designed for Broad Appeal World Class Operations 17

New Product Pipeline Support All Categories Permanent offerings and limited-time-only news Balanced across all dayparts Breakfast Core eating occasions (lunch, dinner balance) Snacks, desserts 18

Community Involvement, not Gimmicks First Light Foundation Awarding scholarships, building schools Chicky school program 3-on-3 Basketball tournament Year 1 9,000 teams in over 150 cities! 19

Staying Ahead of Trends Balanced Eating and Lifestyle Health and Nutrition Council Health and Nutrition White Paper Health and nutrition leaflet Grassroots sports program 20

Pizza Hut, Casual Dining s Leader Communication Complete casual dining experience Menu structure World Class Operation 21

PH Menu Design Strategy Pizza-centric sharable Food Complete casual dining experience Appetizer, soup, salad & dessert 22

Complete Casual Dining Experience Upscale décor package With 5-star feel Event driven in-store activities Tailored daypart menu design 23

Inspiring Communication Escape from daily routine/ordinary Festival/holiday fun moment Exotic/interesting 24

Supply and Distribution Capability Lily Hsieh Chief Support Officer Yum! Restaurants China

Supply Chain and Logistics a Core Strategy for China Supply Chain Management Logistics Procurement Vendor Development Quality Control Distribution Warehousing 26

A Capability 17 Years in the Making HUGE barriers to overcome No history of QSR Supply chain nonexistent Low standards Challenging logistics 27

Invested Early in Building a Supply Chain Started in-house capability Trained and developed suppliers Introduced standards A foundation ready for scale growth 28

Be Where the Stores Are and Will Be Supporting rapid business growth Cities with KFC Restaurants Across all brands Across expanding menus 47 50 280 Across all of China... 93 20 28 42 Day 1 00 00 01 02 03 04 Now 29

We Manage the Vast Majority of Spend in China Poultry Processed food, packaging Decor Equipment Premiums Vehicles 30

Strong Vendor Development Process Only Yum! qualified suppliers Up-front audits ensure Yum! standards met Regular audits, annually at a minimum Refresh supply-base pool, evaluate new vendors Standards reinforced at 3 levels: Gov t, Industry, Yum! 31

Large-Scale Supply Base # Suppliers 550 + # SKUs 4,000 + Annual spend $400 million + 32

Building Logistics Capability Another Long Journey Why we do it ourselves... No qualified third-party provider Recent entrants yes, but manufacturing focused Three-temperature requirement dry, chilled, frozen Challenge of serving 1,000s of drop-off points 33

Logistics a Capability that Enables Rapid Growth 34

Broad Coverage, Followed Growth in Inland Provinces 20+ Warehouses Heilongjiang Jilin Xingjiang Tibet Qinghai Inner Mongolia Beijing Liaoning Hebei Tianjin Ningxia Shanxi Shandong Gansui Shanxi Henan Jiangsu Hubei Anhui Shanghai Sichuan Jiangxi Zhejiang Hunan Guizhou Fujian Yunnan Guangxi Guangzhou Taiwan Hainan 35

Going Forward Continuous fine tuning Even stronger supplier partnerships Even stronger logistics infrastructure World class restaurant sourcing and distribution 36

Development Capability Charles Jemley Chief Financial Officer Yum Restaurants China

Rapid Expansion Story Will Continue Category-leading, sought after Brands Unit economics delivering excellent returns Unrivaled Development capability 38

At KFC, Full Speed Ahead New-unit volumes: U.S. $1 million Cash investment significantly below U.S. levels New-store margins at today s standard or better Great returns 39

New-Unit AUVs Have Stabilized KFC New-Unit AUVs vs. Previous Year s Openings 100% 100% 80% 88% 01 02 03 04 New Builds 151 226 230 284 40

Not Just a Big-City Story Even Penetration % of New Builds by Tier Tier 5 10 % Tier 4 20 % Tier 3 17 % Tier 1, 2 58 % 57 % 53 % 02 03 04 41

Big Cities, Small Cities Same Results AUVs vs. Tier 1 Standard 10 2 % 109% 115 % 90% Tier 2 Tier 3 Tier 4 Tier 5 Ratio to Req d return 2.4x 2.5x 3.0x 2.6x 42

Impact from Expansion Used to Our Advantage Built into our economic model, strategically applied Build adjacent units to relieve pending capacity constraints Optimize service levels Operations teams ready for growth High post-launch sales retention 43

Rigor Every Step of the Way Market mapping and trade-zone identification Site selection and acquisition Project approval Construction and opening Post-opening analysis Feedback loop, huge catalog of learning 44

Slightly Different Twist at Pizza Hut Deeper in big markets first Pace of acceptance and scale Thoughtfully entering Up and Coming markets No credible competition on the horizon 45

Unequaled Resource Commitments Today... 400+ development professionals on the ground Largest in China by far Extensive people development programs Building technical expertise and market knowledge Incentive programs extract the best out of our teams Development and operations inextricably tied to each other 46

Well on Our Way Towards Commitments New Restaurant Openings 05 F KFC Pizza Hut Restaurants Taco Bell Grande Pizza Hut Home Delivery Other Segment(s) Yum! China Division 330+ 25+? 10+? 375+ 47