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Krause Fund ResearchFall 2011

Consumer Discretionary

Recommendation: BUY

Analysts

Kaila [email protected]

Adam Hasselquist

[email protected]

Andrea [email protected]

Lisa [email protected]

Company Overview

Founded in 1997 and headquarted in Louisville, Kentucky,Yum! Brands (YUM) operates as a series of quick-servicerestaurants and is a world leader in the fast-food industry.The company develops, operates, franchises, and licenses itsrestaurants, which produce and sell a variety of food items.As of year-end 2010, YUM operated 30,900 internationalunits, in 123 countries and territories, under the KFC, PizzaHut, Taco Bell, Long John Silvers, and A&W All-AmericanFood Restaurants brands. In September 2011, YUM sold itsLong John Silvers and A&W restaurants to A Great

American Brand LLC, and is now focusing on expanding itscurrent brands into China.

Stock Performance Highlights52 week High $57.7552 week Low $46.27Beta Value 0.86Average Daily Volume 5.068M

Share HighlightsMarket Capitalization $24.33BShares Outstanding 460.50 MBook Value per share $4.32EPS (2010) $2.55P/E Ratio 20.73Dividend Yield 1 90%

Yum! Brands(NYSE: YUM)

November 11, 2011

Current Price $55.81Target Price $63-69

A Brand New Strategy

YUM, a leader in the fast-food industry, is an attractiveinvestment primarily because of its recent global expansion.While about 36% of revenue in 2010 is from the company-owned China Division, we predict that by 2015 upwards of 50%of profits are likely to be from Asia.

There is opportunity for YUM to further expand intoemerging markets, especially finding opportunity in its KFCbrands, which has added 650 more international restaurants thanMcDonalds over the past 5 years. Additionally, Taco Belldemonstrates investment potential as it is the fastest-growinginternational restaurant brand.

YUM is looking to expand into five new markets: Germany,France, Russia, Africa, and India, and boast profit growth to $1Bby 2015 (15% emerging markets, 6% in developed markets).

As GDP forecasts and consumer spending forecasts remainvolatile, we conclude YUM to be a good investment as itprovides a pocket-friendly dining solution.

YUM is positioned to gain from a heightenedunemployment rate as high unemployment will allow for less

expensive labor and a greater consumer base as consumers movefrom more expensive dining to fast-food options. Due topreviously mentioned economic factors, we forecast anapproximate 30% increase in YUMs gross margin.

One Year Stock Performance

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Based on our valuation analysis, we conclude thatYum! Brands (YUM) is undervalued at its currentprice of $55.81. Our BUY investment recommendation

is stems from company-specific factors such as newbusiness initiatives to further increase new unitopenings and expand into emerging markets.Additionally, YUM has consistently returned capital toshareholders in the form of both buybacks anddividends, as reflected in the recent companyannouncement (3Q11) of a 14% increase in quarterlydividend1, a trend we expect to continue. Furthermore,

a slow, but steady, economic recovery is likely tobenefit the quick-service restaurant industry. We haveinstituted a target price range of $63.00 to $69.00based on our valuation models, which represents a12.88% to 23.63% premium on the current marketprice.

Although the United States is not officially in a periodof recession, it is showing signals of a recessionalrecovery. The Gross Domestic Product grew only2.5% compared to the historical quarterly GDP growthof 3.28%2. We expect the GDP to grow slowly in thenext quarter and in the future and consumer confidence

to improve. The current and predicted increases incommodity prices are, and will be, unfavorable for therestaurant industry. However, the cost of commodityprice increases will be offset by the highunemployment rate, which benefits the restaurantindustry.

Real Gross Domestic Product (GDP)The real Gross Domestic Product, or GDP, is oftenused as an indicator of a countrys standard of living asit measures the value of all goods and servicesproduced in a given year3. Within GDP, we find itmost relevant to focus on consumption, which includesboth health care and consumer discretionary spending

and composes about 70% of the U.S. GDP4. Consumer

Figure 1

Source: William Blair Monthly Morsels Report

The Federal Reserve estimates the U.S. GDP will risebetween 2.5% to 2.9% next year, down from the Juneprediction of 3.3% to 3.7%5. Due to the U.S. economygrowing 2.5% in the third quarter of 2011, comparedto 1.3% in the second quarter, we conquer with theFederal Reserves estimate. We expect growth toimprove slightly to 2.7% for 2012 year, the midpoint

of the Federal Reserve prediction. We foresee that theGDP will continue growing at slow and steady rateinto the future due to a gradual improvement inconsumer spending but will be offset by the expectedimpact of low government spending.

The moderate increase in GDP will positively impactthe consumer discretionary industry. We conclude thatquick-service and fast-casual restaurants will primarilybenefit from the steady but small GDP growth. Thegeneral public will likely spend less on high-enddining, and opt for less expensive food options. YUMis well-positioned to benefit from these dining habitsas consumers that have chosen to eat at home willlikely stay cautious but begin to eat at quick-serviceand fast-casual restaurants.

UnemploymentThe restaurant industry is positively affected by anincrease in the unemployment rate due to the fact thatwages are a significant expense. When theunemployment rate is low, restaurants often have toraise wages to retain and attract workers. High

Investment Thesis

Economic Outlook

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that within the next six months, the unemployment ratewill remain steady or gradually increase to 9.3% atmost. We also predict that the number of jobs will staythe same while the labor pool will continue to grow,but that the unemployment rates will begin to lower to

8% in the next two years as the economy begins torecover.

YUM will benefit from the high unemployment rate,which will control wage inflation and cause consumersto switch from specialty and casual dining to quick-service and fast-casual restaurants.

Figure 2

Source: NetAdvantage9

Consumer Price Index (CPI)The consumer price index, which gauges the change in

price of consumer goods and services, is the primarymeasure of inflation10. Generally, the CPI increases onan annual basis; however, there was a minor decline inCPI from 2008 to 2009 due to the recession. Sincethen, the CPI has increased by 1.6% from 2009 to2010 and the first 9 months of data for 2011 showconsistent increases from the previous year11. TheFederal Reserve has announced it will continue to holdinterest rates near zero until mid-2013 and becauseinterest rates and inflation have an inverse relationship,the Federal Reserves decision will likely contribute toa higher percentage increase in CPI for the next 2years. We foresee the CPI will continue to increaseby .5%-1% as the prices of goods and servicescontinue to rise.

Commodity Prices/ Producer Price Index (PPI)The Producer Price Index measures the change in inputcosts for producers and can be adjusted to include onlythe change in commodity prices12. Variations incommodity prices influence operating margins and

sale prices, as food inputs account for 33 cents ofevery dollar and are a significant expense forbusinesses in the restaurant industry13.

Due to a rise in demand for many agriculturalproducts, commodity prices will increase14. One of thecommodities that will increase is corn, because ofrising demand for fuel made from corn and

governmental pushes to develop corn based fuel. Wepredict that in the next 6 months the PPI andcommodity prices will rise 2%-3% and the price ofbeef will rise 11%-14%. In the long-run, the PPI andcommodity prices are expected to decrease by 1%;however, commodities such as beef and dairy areexpected to increase in price, as shown in Figure 3below.

Figure 3

Source: NetAdvantage

Since quick-service restaurants do not have a lot ofpricing power, YUM will have difficulty raising pricesto offset the cost increases, which may result in marginpressure. YUM can negotiate with suppliers or take atemporary price cut. In addition, Taco Bell, Pizza Hut,and KFC can alter input quantities in certain productsto reduce spending on inputs.

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long-run, the CCI is expected to rebound due predictedslow improvement of economic conditions. Thenormalization of data that was skewed due to recentannouncements about the S&P 500 and US debtceiling will also slightly raise the Consumer

Confidence Index.

As illustrated in Figure 4, a slight increase in theConsumer Confidence Index directly affects YUMssales as consumers will be more likely to choose TacoBell, KFC, and Pizza Hut, instead of dining at home. Ifthe increase in consumer confidence is higher thanexpected in the coming years, this may potentially hurt

YUM. If consumers are optimistic about the future,they may be less likely to dine at fast-food restaurantsand prefer more upscale establishments.

Figure 4

Source: Blair Monthly Morsels Report

With sales of $1.7 billion a day and a 49% share of thefood dollar, the restaurant industry is a highlycompetitive, profitable segment of the service sector.

As of November 2011, the restaurant industry has amarket cap of $619 billion and displays trends that willcontinue its success with a focus on health,convenience, and value17.

Because the consumer discretionary industry iscyclical we expect recent economic conditions to

from dining at home to quick-service and fast-casualrestaurants.

HealthConsumers are becoming increasingly concerned about

the nutritional value of the foods they eat, which isaffecting the restaurant industry. In response to thedemand for nutritious and low calorie foods,restaurants have been improving their menu items toproject a healthy image and stay competitive. Quick-service restaurants have included healthier options tochange previous perceptions about fast-food.

YUM, specifically, currently offers nutritionalbrochures available in stores or by company website18.As of 2007, all Taco Bell and KFC restaurants in theU.S. use zero grams of trans fat cooking oil17.

TechnologyThe increase in consumer use of technology hasaffected the restaurant business as well. The restaurantindustry has seen an increase in leveraging the internetto make the experience for customers moreconvenient18. Consumers can now go online to look atnutrition information, view menu items, and order theirfood before they arrive at the restaurant. There are alsoapplications for smartphones that research caloriecounts and nutrition facts. Restaurants are alsoutilizing technology for advertising on Facebook andother social media outlets.

YUMs restaurants, specifically Pizza Hut, offer appsto make the customers experience as fun andconvenient as possible. Pizza Huts app allows thecustomer to order based on nutrition information,previous orders, and most popular menu items.

A Growing Demand

We anticipate that demand for quick-servicerestaurants will continue to increase for the rest of2011 and into 2012 since they have become competentalternatives to full-service restaurants by offering tastyvalue menu items. YUM has satisfied the increasingdemand as KFC, Pizza Hut, and Taco Bell all offerl i l i

Industry Analysis

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ConcentrationThe restaurant industry contains very few chain andfranchised companies and about 48% of small-scalebusinesses operations with 9 or fewer employees. Theconcentration has increased slightly due to the recent

Wendys and Arbys merger and the private equityacquisition of Burger King19. We expect industryconcentration to continue to increase in the next fewyears and global expansion to play a role in the level ofconcentration. While competition is high and barriersto entry are low, franchised operations generallycompete on a higher level and account for about 65%of total industry revenue19. Food courts and airport

establishments are also increasing in popularity, whichis likely to increase competition.

We conclude YUMs diversified product lines willallow it to prosper despite that increasing marketconcentration.

ProfitabilityCompanies in the restaurant industry compete on acost basis strategy and strive to have higher margins sohaving effective cost controls is a major key toprofitability. Because consumer spending has declinedsince the recession, pricing is competitive and costs arestill high as illustrated in Figure 5, creating a generallylow-margin environment19.

Figure 5

Source: www.ibisworld.com

International Competition and MarketsGlobalization in the restaurant industry is low andmost companies are not focused on expanding

YUM!, Inc, a Louisville, Kentuckybased quick-service restaurant company,franchises and licenses brands like KFC,

Pizza Hut, Taco Bell, Long JohnSilvers, A&W, Pasta Bravo, Wing

Street, and East Dawning. Though all of the mentionedbrands contribute to YUMs success, KFC, Pizza Hut,and Taco Bell account for the largest share of YUMsoverall profit. YUM is one of the leading operators inthe quick-service restaurant industry and operates in110 different countries.

Corporate StrategyYUMs corporate strategy encompasses four differentgoals; build leading brands across China in everysignificant category, drive aggressive internationalexpansion and build strong brands everywhere,dramatically improve U.S. brand positions,consistency and returns, and drive industry-leading,

long-term shareholder and franchisee value19

.

Aspromised in their vision statement, YUM continues itsadvancement into China and plans to expand beyondthe already existing 3700 locations. To continue itsinternational growth, YUM expects to double thenumber of KFC restaurants in Africa to 1,200. Tofortify and improve its brands, the company willdevelop more healthy choices and alter menu items tosuit the time of day.

Financial summaryYUM continue to improve its financial standing with a21% third quarter profits increase with sales totaling$3 billion. Further demonstrating YUMs success is its15% dividend increase in the 2010 fiscal year. YUMplans to continue expanding internationally, which willincrease sales.

Products and MarketsYUM consists of three operating segments: YUM!U.S., YUM! China, and YUM! International20. YUMis the worlds largest chain restaurant company withnearly 38,000 restaurants in over 110 countries and

Company Specific Analysis

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Figure 6

Source: Krause Fund Research

Outside the United States, YUM has openedapproximately four new restaurants per day in 2011,becoming a leader in international retail development.KFC is the world's most popular chicken restaurant inits category and the number one quick-servicerestaurant brand in mainland China today. In order toremain competitive, YUM must continue to focus its

marketing efforts on maintaining a vibrant globalbusiness by building leading brands across China otherinternational markets.

With only a 1% increase in same store sales, YUMmust improve U.S. brand positions, consistency, andreturns. Taco Bell is currently the second mostprofitable quick-service brand in the U.S. behind

McDonald's. In order to stay competitive withMcDonalds, Taco Bell needs to expand its currentproduct lines and add a breakfast menu. If successful,Taco Bell and therefore YUM will gain customers thatpurchase breakfast, which will increase sales.

CompetitionBecause YUM competes in a global market, its main

competitors are quick-service franchise chains that aresimilarly moving into fast-growing internationalmarkets. Very few restaurants in the industry are bothinternational and franchised. The McDonaldsCorporation, with a current market cap of 92.15billion, remains a strong U.S. and internationalcompetitor Burger King Wendys/Arbys and

competitive advantage in its operating space. PizzaHut, KFC, and Taco Bell hold 14%, 40%, and 52% ofthe market share in the U.S. pizza, chicken, andMexican markets respectively. YUMs variedrestaurant concepts allow it to serve a larger customer

base by catering to different tastes.

International OperationsIn addition to a strong U.S. presence, these brands arealso widely recognized and purchased around theworld, especially in China. In 2010, YUM!International opened more than 1400 new restaurants.YUM has a presence in U.S., China, Australia,

Taiwan, Canada, Brazil, Singapore, South Africa,United Kingdom, Germany, India, Indonesia, andVietnam. This international presence allows YUM touphold its strong brand presence and continue to servea large, international customer base. One of YUMsstrengths is its already large presence in China, anemerging market with a constantly growing consumerbase. Currently, there are over 4,000 Pizza Hut andKFC restaurants in more than 700 cities across China.YUM is a pioneer of U.S. fast-food and delivery typerestaurants in China.

Weaknesses

Legal ProceedingsYUM is involved in lawsuits that may present thecompany in an unfavorable light. YUM is accused ofbreaching the California labor code, failing to

reimburse business expenses, and not providingcomplete vacation pay. In January of 2011, Taco Bell,which accounts for more than 60% of total domesticearnings22, was accused of using low-grade beef andalthough the lawsuit was dropped, we expect Taco Bellsales to continue to be negatively impacted into 2011.

Opportunities

Little Sheep AcquisitionIn one of the first successful acquisitions of a majorChinese restaurant chain, YUM was recently approvedby Chinese antitrust regulators to buy hot-potrestaurant operator Little Sheep Group Ltd. forapproximately US$860 million23. The acquisition will

b fi i l f YUM i h f i i

33%

38%

29%

Operating Profits by Division

YUM! US YUM! China YUM! International

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Frozen Retail ProductsYUM has an opportunity to fulfill customer desire forconvenient food by placing its products in the frozensection of grocery stores. Similar to California PizzaKitchens frozen pizza, Pizza Hut, Taco Bell, and KFC

can redesign some product lines especially for retailstore freezers. Putting products into grocery stores willnot only increase profits, but also raise brandawareness.

Threats

Availability of Alternatives

YUM has to compete with a large number of similar

restaurants both in and outside the U.S. YUM not onlyhas to compete with equally famous brands likeMcDonalds for customers, but also for real estate andcommercial space.

Health-conscious Consumers

As obesity awareness grows, there is an increasingpush to lead a healthier lifestyle. YUM may bethreatened by this rising trend because its brands arenot perceived as health leaders. YUM has to continueadding healthy alternatives to remain competitive andappeal to a wider range of consumers who now wanthealthy as well as quick and convenient.

Our YUM valuation analysis involved multipletechniques, including the discounted cash flow (DCF)model, the economic profit (EP) model, thefundamental P/E model, the relative valuation P/Eratio and the P/E to growth ratio (PEG). Thefundamental P/E model calculated a current targetprice of $69.19. This price suggests a premium of

approximately 26%. The DCF and EP models bothreturned a value of $63.13. The relative P/E analysiswas calculated using earnings estimates for companiesin the restaurant industry, and returned an averagevalue of $60.60. We feel that because since 2004YUM has consistently returned value to shareholdersth h h i h d i di id d th t

Key Assumptions

Revenue Decomposition

We broke down YUM revenue by average restaurantunit sales for both franchise and company-ownedstores in the United States, China, and YUM

International (YRI). Due to the relatively volatileearnings (from a positive 8.33% in 2008, down to anegative 4.14% in 2009, and back up to a 4.68% in2010), we decided a lower growth rate was relevant for2011E, and we project a gradual increase in sales upthrough 2015. We recognize that YUM seems to befocused on adapting a franchise business model in theUnited States based on historical unit growth so we

decreased our forecasted percent change in company-owned units while increasing the number of franchisedunits domestically. We grew forecasted revenues forthe YRI division, but focused growth on the Chinadivision, with reasonable but high growth rates of unitsin China of 13-14% per year for the next 5 years.Beyond 2015, it is likely that YUM will grow at 2%, arate slightly lower than our predicted U.S. GDPgrowth, as YUM will not be able to withstand growthhigher than the U.S. economy.

We forecast sales and franchise fees per store to onlyincrease slightly, as YUM is not likely to increase itsprices dramatically given the price sensitivity of itsprimarily low-income customers. We expect that theslight increases are reasonable given the recognizedvalue of the YUM restaurants.

Gross MarginOur gross margin projections for YUM are anotherimportant assumption in our valuation model. YUMgross margin has hovered around 27% for the last 3years. We project that gross margin will increase dueto lower payroll and employee benefits costs. Lowerpayroll and employee benefits costs are based on the

assumption that the unemployment rate will remainconstant, at most increasing to 9.3%. The highunemployment rate will result in cheap labor forYUM. Furthermore, the company has become moreprofitable in the past few years as it has been movinginto China, and the biggest cost shift has been in

ll ( f i h hi i l i

Valuation Analysis

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expenditures, we forecast lower stock repurchases. Wedid not forecast acquisitions, due to uncertainty,though the recent intent to acquire Little Sheep willeventually need to be factored into the future stockprice as the acquisition nears completion.

Weighted Average Cost of Capital

The WACC is a function of both external economicpredictions as well as company-specific characteristicsthat affect risk. By using the Capital Asset PricingModel (CAPM), we calculated YUM cost of equity.We assumed a risk-free rate equal to the yield of a 30-year U.S. Treasury bond, 3.1%, as of November 13,

2011. We used a beta of 0.86, which is calculatedusing weekly historical averages against the S&P500over the last 3 years. Our cost of equity assumption isequivalent to 6.81%.

The pre-tax cost of debt assumption, 6.88%, is derivedfrom the long-term YUM debt issued that will maturein 26 years (11/15/2037). The current weight of debt isroughly 21%, and is not expected to changesignificantly at least until 2015. We used a 35%marginal tax rate.

Discounted Cash Flow and Economic Profit ModelsThe discounted cash flow (DCF) and economic profit(EP) models project a future stock price of $63.13.This price suggests a 15% upside over the currentstock price, utilizing a continuing value growth rate of

2%, slightly lower than our future prediction for GDP.We conclude that the DCF and EP models offer areasonable future stock price based on the fact that themodel highlights intangible intrinsic qualities that weassume to grow in the next five years.

Relative P/E and PEG RatiosIn our relative P/E and PEG analysis, we compared

YUM to eight peer companies within the restaurantindustry, based on similar qualities like a strong brandname and similar market capitalization. Aftercalculating the peer P/E ratios, the implied value is$59.76 and $61.41 using 2011E and 2012E P/E values.These prices are lower than the values produced using

h d l d l d h hi i i

its peers, resulting in a PEG ratio slightly below thepeer average.

Fundamental P/EWhen calculating our fundamental P/E analysis we

used our EPS estimates from the forecasted incomestatement and the dividend payout predictions from thecash flow statement. Using the 2% CV growth rate, aproxy for our predicted GDP growth, a CV return onequity (ROE) of 44.55%, and a cost of equity of6.81%, YUM share price is valued at $69.19. Weestimate this number is a good representation of thecompany since share repurchases and dividend

payments have historically been a significant portionof operations. We assume that share repurchases anddividend payments will remain an important part ofoperations in future, and estimate growth as thecompany experiences excess cash flow.

Due to the significant amount of assumptions in ourmodels, it is essential that we test the sensitivity of ourfinal target price to these assumptions. By performingthis analysis, we can comfortably select a target rangefor YUMs stock price.

Beta

Our sensitivity analysis demonstrates that even if themodel used an increased beta of 0.90, the target valueof the stock would remain relatively high compared toits current value. At a beta of 0.90, the target price forYUM is $63.11, a 14.14% premium.

CV GrowthThe continuing value growth rate is a criticalcomponent as it has a considerable impact on theresulting intrinsic value in our EP, DCF, and DDMvaluation models. Using a CV growth rate of 3.00%,the target value of YUM is $75.00. Although YUMhas outperformed the market during the recenteconomic downturn, we conclude that using a 3.00%growth rate is overly optimistic and a 2.00% growth

Sensitivity Analysis

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Revenue GrowthWe anticipate total revenue to grow at 8.19% inFY2015. Even with a modest 6.0% growth rate, thetarget value for YUM is $60.22, an 8.92% premium.Although with the slow economic recovery and

continued success in foreign markets, a moreoptimistic assumption would have YUMs totalrevenue growing at 10.0%, resulting in a target valueof $71.08. However, we feel that this assumption isoverly optimistic as competition continues to increasein foreign markets.

Company Restaurant Expenses as a % of Sales

For YUM, the FY2015 total company restaurantexpenses as a percentage of sales is 70.26%. Althoughthis represents a significant percentage, changes in thevalue do not have a significant impact on the targetvalue. This lack of sensitivity will reduce the targetvalue impact as YUMs expenses continue to increasedue to growth and expansion.

This report was created by students enrolled in theSecurity Analysis (6F:112) class at the University ofIowa. The report was originally created to offer aninternal investment recommendation for the Universityof Iowa Krause Fund and its advisory board. Thereport also provides potential employers and otherinterested parties an example of the students skills,knowledge and abilities. Members of the Krause Fundare not registered investment advisors, brokers orofficially licensed financial professionals. Theinvestment advice contained in this report does notrepresent an offer or solicitation to buy or sell any ofthe securities mentioned. Unless otherwise noted, factsand figures included in this report are from publicly

available sources. This report is not a completecompilation of data, and its accuracy is not guaranteed.From time to time, the University of Iowa, its faculty,staff, students, or the Krause Fund may hold afinancial interest in the companies mentioned in thisreport.

Important Disclaimer

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Sources

1) Forbes.

2) Trading Economics.

http://www.tradingeconomics.com/united-states/gdp-growth

3) Investopedia Real GDP.http://www.investopedia.com/terms/r/realgdp.asp#axzz1dYnVMytY

4) South Carolina Department of Employment and

Workforce.http://dew.sc.gov/

5) Huffington Post.http://www.huffingtonpost.com/2011/11/02/federal-reserve-gdp-forecast_n_1071987.html

6) Forecasts.http://www.forecasts.org/unemploy.htm

7) Thompson One.http://phx.corporate-ir.net/

8) Bloomberg.http://www.bloomberg.com/markets/economic-calendar/

9) Net Advantage.http://www.netadvantage.standardandpoors.com/NASApp/NetAdvantage/simpleSearchRun.do?ControlName=IndustriesSurveySearch

10) Investopedia - CPI.

http://www.investopedia.com/terms/c/consumerpriceindex.asp#axzz1dYnVMytY

11) Bureau of Labor and Statistics CPI.ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt

16) Fast Casualhttp://www.fastcasual.com/article/113013/Market-Force-restaurant-study-reveals-jump-in-consumer-

confidence

17) Yahoo! Finance Industry Center.http://biz.yahoo.com/ic/712.html

18) YUM Company Website.http://www.yum.com/company/nutrition.asp

19) YUM Company Website.http://www.YUM!.com/investors/vision_strategy.asp

20) YUM Company Website.http://investors.yum.com

21) YUM! Brands Investor Presentation.

22) Forbes.http://finapps.forbes.com/finapps/BuyHoldSellAnalysis.do?tkr=YUM

23) Wall Street Journal Onlinehttp://online.wsj.com/article/SB10001424052970204554204577024720189263442.html

24)FranchiseDirect.

http://www.franchisedirect.com/foodfranchises/healthfoodrestaurantfranchiseindustryreport/14/265

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Yum!BrandsIncRevenueDecomposition

FiscalYearsEndingDec.31

2008 2009 2010 2011E 2012E 2013E 2014E 2015E

UnitedStates

CompanyOwned

BeginningofYearUnits 3896 3314 2800 2484 2236 2012 1791 1594

EndofYearUnits 3314 2800 2484 2236 2012 1791 1594 1418

%Change

in

Units

14.94%

15.51%

11.29%

10.00%

10.00%

11.00%

11.00%

11.00%

AverageUnits 3605 3057 2642 2360 2124 1901 1692 1506

Sales

(inthousands) 4410 3738 3355 3057 2806 2562 2326 2112

%ChangeinSales 2.39% 15.24% 10.25% 8.89% 8.20% 8.68% 9.22% 9.22%

SalesPerUnit 1223 1223 1270 1295 1321 1348 1375 1402

%ChangeinSalesPerUnit 9.77% 0.04% 3.85% 2.00% 2.00% 2.00% 2.00% 2.00%

%ofTotalRevenue 39.01% 34.50% 29.58% 26.66% 23.38% 20.08% 16.99% 14.26%

Franchised&Licensed


EndofYearUnits 16476 16865 17033 17459 17895 18432 18985 19555

%ChangeinUnits 1.01% 2.92% 2.36% 2.50% 2.50% 3.00% 3.00% 3.00%

AverageUnits 16243 16671 16949 17246 17677 18164 18709 19270

FranchiseandLicenseFees 722 735 765 778 813 836 861 886

%Change 5.56% 1.80% 4.08% 1.75% 4.46% 2.75% 3.00% 3.00%

FeesPerUnit

(Inthousands) 44 44 45 45 46 46 46 46

%Change 3.52% 0.81% 2.37% 0.00% 1.92% 0.00% 0.00% 0.00%

%ofTotalRevenue 6.39% 6.78% 6.74% 6.79% 6.78% 6.55% 6.29% 5.99%

Yum!BrandsInternational(YRI)

CompanyOwned


EndofYearUnits 1982 2000 1559 1606 1654 1704 1755 1807

%ChangeinUnits 20.71% 0.91% 22.05% 3.00% 3.00% 3.00% 3.00% 3.00%

AverageUnits 1812 1991 1780 2045 1630 1679 1729 1781

Sales

(Inthousands) 2657 2053 2347 2601 2094 2179 2266 2358

%ChangeinSales 5.98% 22.73% 14.32% 10.84% 19.50% 4.03% 4.03% 4.03%

SalesPerUnit 1466 1031 1319 1272 1285 1298 1311 1324


%ofTotalRevenue 23.50% 18.95% 20.69% 22.69% 17.45% 17.07% 16.56% 15.92%

Franchised&Licensed


EndofYearUnits 11331 11804 12853 13239 13636 14045 14466 14900

%ChangeinUnits 11.70% 4.17% 8.89% 3.00% 3.00% 3.00% 3.00% 3.00%

AverageUnits 10738 11568 12329 13046 13437 13840 14255 14683

Franchiseand

License

Fees

(Inthousands) 675 660 741 784 808 844 870 896

%Change 15.98% 2.22% 12.27% 5.82% 3.00% 4.53% 3.00% 3.00%

FeesPerUnit 63 57 60 60 60 61 61 61

%Change 6.52% 9.24% 5.34% 0.00% 0.00% 1.49% 0.00% 0.00%

%ofTotalRevenue 5.97% 6.09% 6.53% 6.84% 6.73% 6.62% 6.35% 6.05%

ChinaDivision

CompanyOwned


EndofYearUnits 2272 2866 3228 3648 4122 4699 5357 6107

%ChangeinUnits 8.86% 26.14% 12.63% 13.00% 13.00% 14.00% 14.00% 14.00%

AverageUnits 2180 2569 3047 3066 3885 4410 5028 5732

Sales

(Inthousands) 2776 3622 4081 4188 5413 6269 7289 8476

%ChangeinSales 33.78% 30.48% 12.67% 2.63% 29.25% 15.80% 16.28% 16.28%

SalesPerUnit 1274 1410 1339 1366 1393 1421 1450 1479


%ofTotalRevenue 24.56% 33.43% 35.98% 36.53% 45.11% 49.12% 53.25% 57.23%

Franchised&Licensed


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Yum!BrandsIncIncomeStatement


AllNumbersinMillions

2008 2009 2010 2011E 2012E 2013E 2014E 2015E

TotalSales/Revenue 11304 10836 11343 11466 12000 12761 13689 14810

Foodandpaper 3239 3003 3091 3215 3408 3680 4048 4655

PayrollandEmployeeBenefits 2370 2154 2172 2174 2131 2088 2067 2069

Occupancyand

other

operating

expenses 2856 2777 2857 3000 3150 3307 3473 3681

TotalCompanyRestaurantExpenses 8465 7934 8120 8389 8688 9076 9588 10406

GrossProfit 2839 2902 3223 3078 3312 3686 4101 4404

SG&AExpense 786 641 688 712 760 742 666 631

Depreciation 542 553 565 546 498 518 594 629

AmortizationofIntangibleAssets 14 27 24 21 21 22 22 22

Franchiseandlicenseexpenses 99 118 110 100 90 96 110 133

Closures

and

impairment

(income)

expenses 43 103 47 49 58 57 60 63Otherexpenses(income) nonrecurring 162 130 20 89 90 72 58 77

OperatingIncome(Loss) 1517 1590 1769 1739 1975 2324 2707 3001

InterestExpense,net 226 194 175 247 274 202 166 165

IncomebeforeTaxes 1291 1396 1594 1492 1701 2122 2541 2836

IncomeTaxProvision 319 313 416 388 442 552 661 737

NetIncomeincludingnoncontrollinginterest 972 1083 1178 1104 1259 1570 1881 2099

NetIncomenoncontrollinginterest 8 12 20 15 15 15 15 15

NetIncome

YUM!

Brands,

Inc 964$

1,071$

1,158$

1,089$

1,244$

1,555$

1,866$

2,084$

EPS(basic) 2.03$ 2.28$ 2.44$ $ 2.37 $ 2.70 $ 3.36 $ 4.06 $ 4.56

CommonStockOutstanding(inmillions) 459 469 469 460 461 463 460 457

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Yum!BrandsIncBalanceSheet


AllNumbers

in

Millions

2008 2009 2010 2011E 2012E 2013E 2014E 2015E

Assets

Cash&cashequivalents 216 353 1,426 1,466 500 288 780 1,330

AccountsReceivables,Net 229 239 256 282 310 313 344 379

Inventories 143 122 189 208 229 274 329 395

PrepaidExpensesandothercurrentassets 172 314 269 296 325 358 394 433

DeferredIncomeTaxes 81 81 61 148 169 211 252 281

Advertisingcooperativeassets,restricted 110 99 112 113 118 126 135 146

Short

term

investments 0 0 0 0 0TotalCurrentAssets 951 1,208 2,313 2,513 1,652 1,570 2,235 2,965

NetProperty,Plant&Equipment 3,710 3,899 3,830 3,982 4,567 4,842 4,878 5,272

LTInvestment AffiliateCompanies 65 144 154 153 160 171 183 198

IntangibleAssets 940 1,102 1,134 1,247 1,372 1,509 1,660 1,826

Goodwill 605 640 659 659 659 659 659 659

NetOtherIntangibles 335 462 475 588 713 850 1,001 1,167

DeferredTaxAssets 300 251 366 319 364 454 544 607

Otherassets 561 544 519 571 420 510 548 592

TotalAssets 6,527 7,148 8,316 8,785 8,535 9,056 10,047 11,460

Liabilities&Shareholders'Equity

STDebt&Curr.PortionLTDebt 25 59 673 653 268 5 6 257

AccountsPayable 508 499 540 563 589 626 672 727

OtherCurrentLiabilities 1,075 1,006 1,154 1,106 1,158 1,231 1,320 1,429

IncomeTaxPayable 114 89 81 96 109 136 163 182

TotalCurrentLiabilities 1,722 1,653 2,448 2,417 2,123 1,998 2,161 2,594

LongTermDebt 3,564 3,207 2,915 3,327 2,674 2,406 2,401 2,395

Otherliabilitiesanddeferredcredits 1,349 1,174 1,284 1,310 1,336 1,363 1,390 1,418

TotalLiabilities 6,635 6,034 6,647 7,054 6,133 5,767 5,952 6,407

CommonStock 7 253 86 186 285 385 485 584

TreasuryStock 0 0 0 800 1,100 1,400 2,000 2,600

RetainedEarnings 303 996 1,717 2,479 3,350 4,439 5,745 7,203

Accum.Othercomprehensiveloss 418 224 227 227 227 227 227 227

TotalShareholders'Equity YUM!Brands,Inc. 108 1,025 1,576 1,638 2,308 3,197 4,002 4,960

Noncontrollinginterest 0 89 93 93 93 93 93 93

TotalShareholders'Equity 108 1,114 1,669 1,731 2,401 3,290 4,095 5,053

Liabilities&Shareholders'Equity 6,527 7,148 8,316 8,785 8,535 9,056 10,047 11,460

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Yum!BrandsIncHistoricalCashFlowStatement


All

Numbers

in

Millions

2006 2007 2008 2009 2010

OperatingActivities:

NetIncomebeforeExtraordinaries 824 909 964 1,083 1,158

Depreciation&Amortization 479 542 556 580 589

DeferredTaxes&InvestmentTaxCredit 30 95 1 72 110

OtherFunds 77 1 113 279 48

FundsfromOperations 1,350 1,355 1,408 1,456 1,685

ChangesinWorkingCapital 48 212 113 52 283

NetOperatingCashFlow 1,302 1,567 1,521 1,404 1,968

InvestingActivities:

CapitalExpenditures 614 742 935 797 796

NetAssetsfromAcquisitions 7 0 0 24 0

SaleofFixedAssets&Businesses 57 56 72 34 33

Purchase/SaleofInvestments 139 134 0 115 62

OtherFunds 227 120 222 175 246

NetInvestingCashFlow 476 432 641 727 579

FinancingActivities:

CashDividendsPaid 144 273 322 362 412

RepurchaseofCommon&PreferredStk. 983 1,410 1,628 0 371

SaleofCommon&PreferredStock 142 112 72 113 102

ChangeinCapitalStock 841 1,298 1,556 113 269

Issuance/Reductionof

Debt,

Net 252 831 375

332 313

OtherFunds 60 62 44 39 31

NetFinancingCashFlow 673 678 1,459 542 337

ExchangeRateEffect 8 13 11 15 21

NetChangeinCash 161 470 590 120 1,073

ChangeinCashandCashEquivalentsdueto

consolidationofentitiesinChina 17 17

TotalChange

in

Cash 161 470

573 137 1,073

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Yum!BrandsIncCashFlowStatement


AllNumbersinMillions

2011E 2012E 2013E 2014E 2015E

OperatingActivities:

NetIncome 1,089 1,244 1,555 1,866 2,084

Adjustmentstoreconcilenetincome:

Add:Depreciation 546 498 518 594 629

Add:AmortizationofIntangibleAssets 21 21 22 22 22

ChangesinWorkingCapital:

Increaseinreceivables 26 28 3 31 34

Increaseininventories 19 21 46 55 66

Increasein

accounts

payable 23 26 37 46 55

Increaseinincometaxpayable 15 13 27 27 19

Increaseinprepaidexpenses/othercurrentassets 27 30 33 36 39

Increaseinadvertisingcooperativeassets,restricted 1 5 8 9 11

Increase(decrease)indeferredtaxes 40 65 132 131 92

Increaseinotherliabilities 22 78 100 117 136

Increaseinotherassets 52 151 90 37 45

NetOperatingCashFlow 1,506 1,882 1,948 2,371 2,658

InvestingActivities:

(Increase)decreaseinshortterminvestments 0 0 0 0 0

(Increase)decreaseinLTInvestment AffiliateCompanies 1 7 10 12 15

CapitalExpenditures 698 1,083 793 629 1,023

Capitalizationofintangibleassets 134 146 159 173 189

OtherFunds

NetInvestingCashFlow 831 1,236 962 815 1,227

FinancingActivities:

Paymentsoflongtermdebt 412 653 268 5 6

Paymentsof

short

term

debt

20

385

263 1 251

Paymentsofdividends 327 373 467 560 625

ShareRepurchases 800 300 300 600 600

Proceedsfromissuanceofcommonstock 100 100 100 100 100

NetFinancingCashFlow 635 1,612 1,198 1,064 880

ExchangeRateEffect 0 0 0 0 0

NetChangeinCash 40 966 212 492 550

ChangeinCashandCashEquivalentsduetoconsolidationof

entities

in

China

0 0 0 0 0

TotalChangeinCash 40 966 212 492 550

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Yum!BrandsIncCommonSizeIncomeStatement


2008 2009 2010 2011E 2012E 2013E 2014E 2015E

TotalSales/Revenue 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

Foodandpaper 28.65% 27.71% 27.25% 28.04% 28.40% 28.84% 29.57% 31.43%

PayrollandEmployeeBenefits 20.97% 19.88% 19.15% 18.96% 17.76% 16.36% 15.10% 13.97%

Occupancyandotheroperatingexpenses 25.27% 25.63% 25.19% 26.16% 26.25% 25.92% 25.37% 24.86%

TotalCompany

Restaurant

Expenses 74.88% 73.22% 71.59% 73.16% 72.40% 71.12% 70.04% 70.26%

GrossProfit 25.12% 26.78% 28.41% 26.84% 27.60% 28.88% 29.96% 29.74%

SG&AExpense 6.95% 5.92% 6.07% 6.21% 6.34% 5.81% 4.87% 4.26%

Depreciation 4.79% 5.10% 4.98% 4.76% 4.15% 4.06% 4.34% 4.25%

AmortizationofIntangibleAssets 0.12% 0.25% 0.21% 0.18% 0.18% 0.17% 0.16% 0.15%

Franchiseandlicenseexpenses 0.88% 1.09% 0.97% 0.87% 0.75% 0.75% 0.80% 0.90%

Closuresandimpairment(income)expenses 0.38% 0.95% 0.41% 0.43% 0.48% 0.45% 0.44% 0.43%

Otherexpenses(income) nonrecurring 1.43% 1.20% 0.18% 0.77% 0.75% 0.57% 0.42% 0.52%

OperatingIncome

(Loss) 13.42% 14.67% 15.60% 15.16% 16.46% 18.21% 19.78% 20.27%

InterestExpense,net 2.00% 1.79% 1.54% 2.15% 2.28% 1.58% 1.21% 1.12%

IncomebeforeTaxes 11.42% 12.88% 14.05% 13.01% 14.18% 16.63% 18.57% 19.15%

IncomeTaxProvision 2.82% 2.89% 3.67% 3.38% 3.69% 4.32% 4.83% 4.98%

NetIncomeincludingnoncontrollinginterest 8.60% 9.99% 10.39% 9.63% 10.49% 12.31% 13.74% 14.17%

NetIncomenoncontrollinginterest 0.07% 0.11% 0.18% 0.13% 0.12% 0.12% 0.11% 0.10%

NetIncomeYUM!Brands,Inc 8.53% 9.88% 10.21% 9.50% 10.36% 12.19% 13.63% 14.07%

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Yum!BrandsIncWeightedAverageCostofCapital(WACC)Estimation

CostofEquity:

RiskfreeRate 3.10%

Riskpremium 4.34%

Beta 0.86

CostofEquity 6.81%

CostofDebt:

PreTaxCost 6.88%

MarginalTaxRate 35.00%

CostofDebt 4.47%

TargetWeights:

Debt 7051 21.91%

Equity 25133 78.09%

Total 32185

WeightofDebt 21.91%

WeightofEquity 78.09%

WACC 6.3%

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Yum!BrandsIncValueDriverEstimation


2008 2009 2010 2011E 2012E 2013E 2014E 2015E

NOPLAT:

EBITA:

Revenue 11304 10836 11343 11466 12000 12761 13689 14810

Less:Foodandpaper 3239 3003 3091 3215 3408 3680 4048 4655

Less:PayrollandEmployeeBenefits 2370 2154 2172 2174 2131 2088 2067 2069

Less:Occupancyandotheroperatingexpenses 2856 2777 2857 3000 3150 3307 3473 3681

Less:SG&AExpense 1342 1221 1277 1278 1280 1281 1282 1283

Less:Franchiseandlicenseexpenses 99 118 110 100 90 96 110 133

Less:Closuresandimpairmentexpenses 43 103 47 49 58 57 60 63

EBITA 1355.00 1460.00 1789.00 1650.20 1884.57 2252.17 2649.48 2924.20

Less:AdjustedTaxes

IncomeTaxProvision 319 313 416 388 442 552 661 737

InterestExpense,net 226 194 175 247 274 202 166 165

IncomeTaxRate 35% 35% 35% 35% 35% 35% 35% 35%

AdjustedTaxes 398.10 380.90 477.25 474.26 538.05 622.53 718.78 795.24

DeferredTaxAssets 381.0 332.0 427.0 467.1 532.6 664.4 795.7 887.8

NOPLAT 936.90 1128.10 1216.75 1135.82 1281.08 1497.84 1799.40 2036.79

InvestedCapital:

NOWC:

CompanySales 11304 10836 11343 11466 12000 12761 13689 14810

Cash&cashequivalents 226 217 227 229 240 255 274 296

AccountsReceivables,Net 229 239 256 282 310 313 344 379

Inventories 143 122 189 208 229 274 329 395

PrepaidExpensesandothercurrentassets 172 314 269 296 325 358 394 433

Advertisingcooperativeassets,restricted 110 99 112 113 118 126 135 146

Less:AccountsPayable 508 499 540 563 589 626 672 727

Less:AccruedPayroll 376 342 357 362 373 384 395 407

Less:IncomeTaxPayable 114 89 81 96 109 136 163 182

NetOperatingWorkingCapital 118 61 75 108 152 181 246 334

Plus:NetPPE 3710 3899 3830 3982 4567 4842 4878 5272

Plus:PVofOperatingLeases 3085 3237 3463 3533 3603 3675 3749 3824

Plus:NetOtherIntangibles 335 462 475 588 713 850 1001 1167

Plus:Otherassets 561 544 519 571 420 510 548 592

Less:Otherliabilitiesanddeferredcredits 1349 1174 1284 1310 1336 1363 1390 1418

InvestedCapital 6,224 7,029 7,078 7,472 8,119 8,696 9,032 9,772

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Yum!BrandsIncValueDriverEstimation


2008 2009 2010 2011E 2012E 2013E 2014E 2015E

ROIC:

NOPLATt 937 1128 1217 1136 1281 1498 1799 2037

Divide:InvestedCapital(t1) 5987 6224 7029 7078 7472 8119 8696 9032

ROIC 15.65% 18.12% 17.31% 16.05% 17.15% 18.45% 20.69% 22.55%

EconomicProfit:

InvestedCapital(t1) 5987 6224 7029 7078 7472 8119 8696 9032

Multiply:

ROIC 15.65% 18.12% 17.31% 16.05% 17.15% 18.45% 20.69% 22.55%Less:WACC 6.30% 6.30% 6.30% 6.30% 6.30% 6.30% 6.30% 6.30%

EconomicProfit 560 736 774 690 810 986 1251 1468

FCF:

NOPLAT 937 1128 1217 1136 1281 1498 1799 2037

Less:ChangeinInvestedCapital 237 804 50 394 647 577 336 739

FCF 700 324 1167 742 634 921 1464 1297

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Yum!BrandsIncDiscountedCashFlow(DCF)ValuationModel


KeyInputs:

CVGrowth 2.0%

CVROIC 22.55%

WACC 6.30%

CostofEquity 6.81%

2011E 2012E 2013E 2014E 2015E

DCFModel:

NOPLAT 1136 1281 1498 1799 2037

ChangeinInvestedCapital 7472 8119 8696 9032 9772

ROIC 16.05% 17.15% 18.45% 20.69% 22.55%

NOPLAT 1136 1281 1498 1799 2037

Less:ChangeinInvestedCapital 394 647 577 336 739

FCF 742 634 921 1464 1297

CV 43190

CFtoDiscount 742 634 921 1464 43190

PeriodstoDiscount 1 2 3 4 4

DiscountFactor 1.06 1.13 1.20 1.28 1.28

PV(CF) 698 561 767 1146 33829

ValueofOperatingAssets 37001

ExcessCash 1199

ShortTermInvestments 0

LongTerm

Investments 154

OtherIntangibleAssets,net 475

Less:LongtermDebt 3588

Less:OtherlongtermLiabilities 1284

Less:PVOperatingLeases 3463

Less:EmployeeStockOptions 1344

ValueofEquity 29150.08

PartialYearAdjustment 0.91

11/28/2011 30815

Shares

Outstanding 460IntrinsicValueofStock 63.31

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Yum!BrandsIncEconomicProfit(EP)ValuationModel


KeyInputs:

CVGrowth 2.0%

CVROIC 22.55%

WACC 6.30%

CostofEquity 6.81%

2011E 2012E 2013E 2014E 2015E

EPMethod:

NOPLAT 1136 1281 1498 1799 2037

Beg.IC 7078 7472 8119 8696 9032

ROIC 16.05% 17.15% 18.45% 20.69% 22.55%

WACC 6.30% 6.30% 6.30% 6.30% 6.30%

EP 690 810 986 1251 1468

CV(t=6) 34117

Beg.IC 7078

EP 690 810 986 1251 1468PeriodstoDiscount 1 2 3 4 4

DiscountFactor 1.06 1.13 1.20 1.28 1.28

PVofEP 29886 649 717 821 980 26719

1.06 1.13 1.20 1.28 1.28

ValueofOperatingAssets 36964

ExcessCash 1199

ShortTermInvestments 0

Long

Term

Investments 154OtherIntangibleAssets,net 475

Less:LongtermDebt 3588

Less:OtherlongtermLiabilities 1284

Less:PVOperatingLeases 3463

Less:EmployeeStockOptions 1364

ValueofEquity 29093.12

PartialYearAdjustment 0.87

11/15/2011 30689

SharesOutstanding 461

IntrinsicValueofStock 63.17

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Yum!BrandsIncDividendDiscountModel(DDM)orFundamentalP/EValuationModel

FiscalYears

Ending

Dec.

31

2010 2011E 2012E 2013E 2014E 2015E CV

EPS $2.44 $2.37 $2.70 $3.36 $4.06 $4.56 $4.56

EPSGrowth 3% 12% 20% 17% 11%

KeyAssumptions

CVgrowth 2.00%

CVROE 45.55%

CostofEquity 6.81%

FutureCashFlows

P/EMultiple 19.87

EPS(nextperiod) $4.56

FutureStockPrice $90.57

DividendsPerShare $0.71 $0.81 $1.01 $1.22 $1.37 $90.57

PeriodstoDiscount 1 2 3 4 5 5

DiscountedCashFlows 0.66$ 0.71$ 0.83$ 0.94$ 0.98$ 65.15$

IntrinsicValue 69.27$

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Yum!BrandsIncRelativeP/EAnalysis

EPS EPS Est.Ticker Company Price 2011E 2012E P/E11 P/E12 5yrGr. PEG11 PEG12

MCD McdonaldSCorp 93.78$ $5.10 $5.71 18.4 17.9 9.02 2.04 1.99

DRI DardenRestaurantsInc 46.16$ $3.38 $4.29 13.7 12.0 11.78 1.16 1.02

CMG ChipotleMexicanGrillInc 310.47$ $6.42 $8.60 48.4 40.9 13.21 3.66 3.09

SONC SonicCorp

6.94$

$0.31

$0.65

22.4

11.8

10.24 2.19

1.15

PNRA PaneraBreadCo 138.92$ $4.58 $5.32 30.3 30.1 15.4 1.70 1.96

KKD KrispyKremeDoughnutsInc 6.70$ $0.26 $0.65 25.8 11.8 14.4 1.79 0.82

JACK JackInTheBoxInc 19.93$ $1.62 $0.65 12.3 34.6 12.7 0.97 2.72DPZ DominosPizzaInc 31.20$ $1.58 $1.88 19.7 18.3 10.0 1.97 1.83

Average 23.9 22.2 12.09 1.9 1.8

YUM Yum!BrandsInc 54.59$ $2.37 $2.70 23.1 20.2 13.31 1.7 1.5

ImpliedValue:

RelativeP/E(EPS11) $ 56.46

RelativeP/E(EPS12) 59.76$

PEGRatio(EPS11) 60.91$

PEGRatio(EPS12) 65.36$

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Yum!BrandsIncSensitivityAnalysis

Beta

66.16$ 0.70 0.75 0.80 0.86 0.90 0.95 1.0 66.16$ 6 0.00 % 6 3.33 % 6 6.66% 7 0.26 % 7 3.33 % 7 6.66 % 8 0.00 %

1.00% 71.47 67.67 64.19 60.39 58.06 55.34 52.81 6.00% 61.49 61.08 60.67 60.22 59.84 59.43 59.01

1.33% 73. 51 69.54 65.91 61.94 59.51 56.68 54.05 7.00% 64.22 63.80 63.39 62.94 62.55 62.13 61.72

1.66% 75. 88 71.69 67.87 63.71 61.16 58.19 55.45 8.00% 66.95 66.53 66.10 65.65 65.26 64.84 64.42

CVGrowth 2.00% 78. 76 74.29 70.23 66.16 63.11 59.98 57.09 RevenueGrowth 8 .19% 67.46 67.04 66. 62 66.16 65.78 65.36 64.93

2.33% 82. 09 77.28 72.92 68.20 65.32 61.99 58.92 9.00% 69.67 69.25 68.82 68.36 67.97 67.55 67.12

2.66% 86. 13 80.87 76.13 71.01 67.91 64.33 61.04 10.00% 72.40 71.97 71.54 71.08 70.68 70.25 69.82

3.00% 91.29 85.41 80.14 74.50 71.09 67.18 63.61 11.00% 75.12 74.69 74.26 73.79 73.39 72.96 72.53

WACC CVROIC

66.16$ 4.00% 5.00% 6.00% 6.30% 7.00% 8.00% 9.00% 66.16$ 1 6.00 % 1 8.00 % 2 0.00% 2 2.55 % 2 4.00 % 2 6.00 % 2 8.00 %

1.00% 89.91 73.07 62.99 60.71 56.29 51.53 47.97 1.00% 60.10 60.33 60.51 60.69 60.78 60.89 60.98

1.33% 96. 32 76.25 64.81 62.28 57.42 52.27 48.48 1.33% 61.41 61.74 61.99 62.25 62.38 62.53 62.65

1.66% 104.53 80.06 66.90 64.06 58.69 53.09 49.03 1.66% 62.91 63.34 63.69 64.04 64.20 64.40 64.57

CVGrowth 2.00% 115.82 84.87 69.42 66.16 60.17 54.03 49.65 CVGrowth 2.00% 64.70 65.26 65. 71 66.16 66.38 66.63 66.86

2.33% 131.19 90.70 72.31 68.60 61.82 55.04 50.32 2.33% 66.73 67.43 68.00 68.57 68.84 69.17 69.45

2.66% 154.11 98.18 75.77 71.45 63.71 56.19 51.05 2.66% 69.12 70.00 70.70 71.41 71.75 72.16 72.51

3.00% 193.56 108.46 80.13 74.98 65.99 57.52 51.89 3.00% 72.08 73.18 74.05 74.94 75.36 75.86 76.30

TotalCompanyExpensesasa%ofSales

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YumBrandsIncKeyManagementRatios


2011E 2012E 2013E 2014E 2015E

LiquidityRatios

CurrentRatio 1.04 0.78 0.79 1.03 1.14

QuickRatio 0.72 0.38 0.30 0.52 0.66

ActivityorAssetManagementRatios

InventoryTurnoverRatio 42.27 39.80 36.08 31.76 28.73

ReceivablesTurnover 40.72 38.74 40.79 39.78 39.12

FinancialLeverageRatios

DebttoEquityRatio 2.30 1.23 0.73 0.59 0.52

DebtRatio 0.45 0.34 0.27 0.24 0.23

ProfitabilityRatios

Grossprofitmargin 26.84% 27.60% 28.88% 29.96% 29.74%

ReturnonAssets 12.74% 14.36% 17.68% 19.53% 19.38%

ReturnonEquity 64.06% 60.20% 54.66% 50.53% 45.55%

PayoutPolicyRatios

DividendYield 1.30% 1.48% 1.85% 2.23% 2.50%

DividendRatio 0.30 0.30 0.30 0.30 0.30

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