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Yum! Brands Symbol: YUM Jiawei Chen & Tianran Chen Revised by: Ryan Comisky March 31 2009. Agenda. Industry overview Company overview Competitors Thesis points 1. Global 2. Management 3. Cash flow advantage Financial Data Risk factors. Industry overview. - PowerPoint PPT Presentation
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Yum! Brands
Symbol: YUMJiawei Chen & Tianran Chen
Revised by: Ryan Comisky March 31 2009
Agenda Industry overview Company overview Competitors Thesis points
1. Global
2. Management
3. Cash flow advantage Financial Data Risk factors
Industry overview
U.S: 945,000 restaurants $552 billion in annual sales.
Quick Service Restaurants (QSR) consist of 72.8 % of the whole industry revenues.
Advantage of economies of scalelow priced value meals
Fierce competition
Company Overview
World’s largest quick service restaurant (“QSR”) company based on number of system units
1997 spin-off of PepsiCo forms Tricon
2002 changed its name from TRICON Global Restaurants, Inc. to YUM! Brands, Inc.
Five concepts
KFC: chicken.
Pizza Hut : quick-service pizza
Taco Bell: Mexican-style food
LJS: seafood categories
A&W
Business structure
* Company-operating units
* Independent franchisees or licensees
Units Distribution
3 segments: 1. United States - 20,000 units 2. YUM Restaurants International
(YRI) – 13,000 units 3. China – 3,600 units
More than 36,300 units in more than 110 countries and territories
Competitor
McDonald’s
Domino’s Pizza
Burger King
Thesis points 1) Global distribution system which has
great potential
2) Strong management team and energetic company culture
3) Strong cash flow
Thesis I: Strong overseas growth potential
world-wide revenue distribution(unit: million)
2008 2007 2006
US$441
04518 4952
YRI$237
52507 1826
China$205
82075 1587
The China Division and YRI have been experiencing dramatic growth and now represent nearly 60% of the Company’s
operating profits
I. Global Development---Rapid Growth in China
Mainland China -rapidly growing economy -population of 1.3 billion
KFC -Leading QSR 2500 units in 500 cities
-Yum! opens nearly one new KFC every day in mainland China (Q4 2008)
Pizza Hut -Western-style casual dining restaurants -400 in 100 cities -the first restaurant chain to introduce pizza
Long Term GOAL
at least 20,000 units in mainland China.
2008 2007 2006 2005China division
system sales growth31% 31% 26% 13%
SO, why is Yum! successful?
Competitive advantages: 1. Food Quality and Flavor!
2. Product Strategy: localization
-Foreign brand with Chinese Character
-Promote new product every months
-Combine Chinese dining tradition
3. Marketing the Brand
- Make restaurant a social communication place
- Modern lifestyle behind the food
Not a Coincidence!!
Survey Q: Why do you go to KFC or Pizza Hut?
A: Food Flavor and Quality: 85%
Eating Environment: 43.6%
Convenience: 38.2%
Price: 25.5%
Follow trend or advertisement: 0%
Manager telephone interview
Q: In your opinion, what is the main reason that Yum! Brands can be successful in China?
A: 1. Quality
2. Food Flavor 3. Service: targeted to different age populations - Birthday party - Student discount
Can the success continue in the future?
-Yes!
1. Low individual visiting frequency for existing customers
consistent and stable consumption pattern
Survey Q: How often do you eat in these restaurants?
KFC Occasionally: 57.4%
Pizza Hut Occasionally: 83.3%
2. Large Potential Market for Lower Income Population
Survey Q: How much do you spend on average every time you go to KFC? A: 15-25 RMB—2.2-3.6 Dollar 56% 25-50 RMB—3.6-7.1 Dollar 36.4%
Pizza Hut? 30-50 RMB—4.3-7.1 Dollar 34.5% 50-80 RMB—7.2-11.4 Dollar 34.5%
Survey Q: If there is an economic crisis, how will it influence your consumption in these restaurant?
No Change: 55.6% Both decrease: 27.8% Decrease in Pizza Hut, no change in KFC: 13%
What’s more…….New Brand, New Product
Pizza Hut Home Service (pizza delivery) East Dawning (Chinese food)
20% shares of Little Sheep Company, a Chinese Hotpot system restaurant
Joining Hotpot
II. Overseas--International
YRI Revenues: $3.0 billion
Operating Profit: $528 million (2008) 9 straight years of opening over 700 new
restaurants. Company expects to continue to
experience strong growth in new markets, including India, France, and Russia.
Increase of Percentage In Franchise Fees Around The Globe (in 2008)
Asia (excluding China) 19% Latin America 12% Middle East Northern America 32% South Africa 32%
India
Interview Indian students at UVa
- Develop in recent years
- Localization of food, offer vegetarian options
- Welcomed by young people
- Large growing potential
USA
Highly competitive marketplace
Slower profit growth
But continues to produce strong cash flows.
Furthermore . . .
Multibranding, should strengthen volume sales
Refranchising company-owned restaurants. By the end of 2010, management hopes to own less than 10% of its U.S. restaurants (down from 20%)More cash flow
Thesis II. Management
Core CHAMPS – Cleanliness, Hospitality, Accuracy,
Maintenance, Product Quality and Speed of Service
Various senior operators visit the company’s restaurants from time to time to help ensure adherence to system standards and mentor restaurant team members.
VAR about Management
- “Challenging”
- “Systematic”
- “Like a family”
Thesis III: Strong Cash Flows
In 2009, it is important to note that management does not need to access the credit markets to finance their company
Strong cash flow and balance sheet provide them with the flexibility to successfully navigate through these challenging financial times.
3 Year Cash Flow Breakdown
2008 2007 2006
Cash flow by operating activities
1521 1551 1257
Repayments of long-term debt
(268) (24) (211)
Capital spending
(935) (726) (572)
Cash and Cash Equivalents
$216 $789 $319
Financial Data
Last Trade:27.65 Market Cap(bil) 12.68B P/E 14.5 EPS (ttm):1.96 P/S Ratio 1.09 5-Y Avg Ann Return 6.91% Annual Dividend $0.76 Dividend Yield 2.6% Beta 1.09
the cumulative total return
2008 Highlights· Worldwide system sales growth of 7% - same store sales growth of 3%+ international
development of 1,495 new units
· Worldwide operating profit growth of 8%
• An industry leader with return on invested capital (ROIC) of 20%.
Earnings per share (EPS) for the previous four quarters: $1.90
Worldwide Operating Profit growth: 11%
PE ratio: 14
Stock price declines compared to 2008
2006 has the same stock price
Risk Factors Operating results are closely tied to the
success of the Concepts’ franchisees.
Nature and volatility of the foreign currency markets
Influence by commodity price
Risk, but also OPPORTUNITY!
Foreign currency factor can be a great advantage for Yum! Brands
US Dollar depreciation relative to RMB
more of an opportunity than risk
Questions?