Pizza Hut 2004 Annual Report Download - page 3
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BUILDDOMINANT
CHINABRANDS
There’s nothing like making a strategic investment in
therightplaceattherighttimeandthat’sexactlywhat
we’vedoneinChina.WithKFCandPizzaHut,wealready
have the dominant brands in the fastest growing econ-
omyintheworldpopulatedwith1.3billionpeople.Tobe
morespecific,KFChas1,243quickservicerestaurants
comparedtoapproximately600forMcDonald’s.PizzaHut
has171casualdiningrestaurantsandthereisnoother
substantialcasualdiningchaininChina.
Wehaveanoutstandingtenuredteam,whichhasworked
together for over ten years building the business from
scratch.OurChinaDivisionnowgeneratesover$1billion
inrevenueand$200millioninoperatingprofit,upover
20% versus a year ago. What’s more, it is our highest
return international equity business with a +20% store
levelmargin.Infact,Chinahasgrown tothepointthat
theteamwillnowreportintoYum!asaseparateoperat-
ingdivision.
Considerthepowerfulcompetitiveadvantageswehavein
China.Weuniquelyownourownfooddistributionsystem
thatgivesuscoverageineverymajorChineseprovinceand
hasallowedustoexpandKFCtoover280cities.Wealso
have one of the largest real estate development teams
ofanyretailerintheworldthatopenedupover350new
restaurantsin2004.
Our Chinaoperations are best inclass. In fact,81% of
ourrestaurantmanagershaveatleastacollegeeducation
(therestarejustplainsmart!).Wealsohavehighlysought
afterjobswith13,000teammembers.Thisinvestmentin
infrastructurehasgivenusanincredibleopportunityand
I’mpleasedtoreport2004was
anotheryearwherewedemon-
stratedtheunderlyingpowerof
ourglobalportfolioofleading
restaurantbrands.
Fueled by continued profitable international expansion,
dynamicgrowthinChina,andstrongmomentumatTacoBell
andPizzaHutintheUnitedStates,weachieved15%earnings
persharegrowthpriortospecialitems.Highlightsinclude
anumberoffirsts:arecord$1.2billioninoperatingprofit;
arecord$1.1billionincashprovidedbyoperatingactivities
andarecord$1.0billioninfranchiseandlicensefees.
Wealsoreachedourgoaltoachieveaninvestmentgrade
rating from each major rating agency after paying off
nearly$3billionindebtthepastsevenyears.Armedwith
increasing cash flow and a powerful balance sheet, we
increasedourshareholderpayoutbyinitiatingthefirstdivi-
dendinourhistoryandbuyingbackarecord$569million
of Yum! shares. Given this overall strong performance,
oursharepriceclimbed37%in2004.We’repleasedour
annualreturntoshareholdersis22%forthefirsthalfof
thisdecade.
Most importantly, we remain confident we will continue
ourtrack record of growing earnings per share at least
10% each year. We have four powerfully unique growth
opportunities that differentiate us from the competi-
tionandbolsterourbeliefthatweareNotYourOrdinary
RestaurantCompany.Letmegiveyoumyperspectiveon
eachofthesestrategiesandhopefullyyouwillcometo
thesameconclusion.
DearPartners,
DavidC.Novak,ChairmanandChiefExecutiveOfficer,picturedin
hisofficeliterallyfilledfromfloortoceilingwith“customermaniac”
recognitionphotos.
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