Presentation Overview

Ricardo:Company ProfileMission StatementOwnership & OrganizationVania:AlliancesProducts & TechnologyMarket Trends & GrowthKey Players

Presentation Overview

Andrew:SWOT AnalysisTalib:Financial OverviewPast and PresentFinancial Ratio AnalysisProbable Outcomes and Predictable CrisesCritical Success Factors

Background & OverviewCompany Profile

Founded in 1952Operates in more than 108 countries globallyParent company YUM BrandsServes approximately 12 million customers in more than 5,200 restaurants globally

Background & OverviewMission StatementYUM BRANDS:Build their brands in China Aggressive international expansionImprove U.S. brand positionDrive long term Shareholder and franchisee value

Background & OverviewOwnership & OrganizationDavid Novak, CEO of YUM BrandsRoger Eaton CEO of KFCKFC Franchise breakdown:Restaurant General ManagerAssistant ManagersAverage of 20-35 employees per store

Background & OverviewOwnership and Organization

CompanyFranchiseeTotalBeginning of Year9564,2105,166New Builds67480AcquisitionsNoneRefranchises6060NoneClosures47107154OtherNone(12)(12)End of Year Total8554,2255,080% of Total1783100

Background & OverviewAlliancesPizza Hut & Taco BellYum Brands: Worlds largest proprietor of multi-branded fast-food locationsKFC holds 69% of Yum Brands market share

Background & OverviewCharitable Alliances

Animal WelfareWorld Hunger

Background & OverviewProducts & TechnologyKFCS Point of Difference:Secret Recipe for Fried ChickenFast-Food Competitive Technology:AutomationHeatingFood ProductionShelf-LifeIngredients

Market OverviewMarket Trends & GrowthGlobal Recession = Increase in consumption of cheaper foods73% of Americans eat fast food out of convenience33% of Americans and 30% of the Asia Pacific Market eat fast-food at least once a week

Market OverviewMarket Trends & GrowthKFCs usually clustered in urban centresSoaring food prices notably wheat, health and diet concerns have slowed growth of fast food chains since 2006 in U.S.Emerging Markets: Prefer international brands

Market OverviewKey PlayersInternational:McDonald'sDomestic:WendysBurger KingSonicJack in the Box

Strategic AnalysisStrengths: Market ShareKFC has roughly 42% of the global chicken on the bone market shareNearly 3 times as much as their nearest competitorChina 2009, 16% increase in market shareAided KFC in declining U.S. Market growth

Strategic AnalysisStrengthsDifferentiation:Trademarked items and RecipesInternational Presence:Global Diversification and ability to expand rapidly (i.e. China)

Strategic AnalysisStrengths

USA5,166

Mainland China2,497

Japan1,150

Great Britain689

Canada780

Australia572

Indonesia336

Malaysia431

Strategic AnalysisWeaknessesSystemic:Integrity of Supplier & DistributorsDecentralization of Ownership- Franchisee model (i.e. quality,service,cleaniness, etc.)Branding:Mom and Family values: Health and weight issues

Strategic AnalysisOpportunitiesStability In Commodity Pricing:Analysts indicate that chicken prices should stay stable in short termBeneficial in further maintaining costs to provide better margins

Strategic AnalysisU.S Chicken Price per lbs. (cents)

MonthValueFeb 200986.70Mar 200985.73Apr 200985.38May 200986.96Jun 200988.17Jul 200988.56Aug 200986.77Sep 200984.88Oct 200982.85Nov 200982.13Dec 200982.15Jan 201083.00

Strategic AnalysisOpportunitiesEmerging Markets:Estimated 5% growth rate in emerging economiesPerceive brands as superior to localAsia Pacific region rates high globally in fast food frequency visitsLow Labour Costs

Strategic AnalysisOpportunitiesDiversification in Mature Markets:Develop Incremental sales layers (i.e. Breakfast, new beverages, expanded protein options, etc.)Expansion of Multibranding:Single store location pairings with Pizza Hut and Taco Bell

Strategic AnalysisThreatsMature Market Diet and Health concerns (75% of Americans eat less fried chicken due to health concerns)Foreign Currency FluctuationsAnimal Welfare Activists (i.e. PETA)Emerging Competition in Mature Markets (i.e. Chicken Fil A)Avian Flue

Financial OverviewPast/PresentPast:Steady share price increase over past ten yearsKFC U.S. Sales per unit have grown by 2% over last 4 yearsPresent:Yum Brands achieved 6.9% growth in 2009 compared to 2008Annual Sales per restaurant in U.S. are around 1.3 million, on par with industry

Financial OverviewPast/PresentKFC U.S. Sales per Unit:

Year End thousands20082007200620052004% growthKFC US$967$994$977$954$8962%

Financial OverviewPast/PresentKFC Division Sales Growth:

In Billions200820072006200520045-year growthKFC U.S.Company Sales: $1.2Franchisee Sales: $4.0$1.2$4.0$1.4$3.9$1.4$3.8$1.4$3.6(4%)2%KFC InternationalCompanySales: $1.4FranchiseeSales: $7.6$1.3$6.7$1.1$5.7$1.1$5.2$1.0$4.79%13%KFC ChinaCompanySales: $2.5FranchiseeSales: $1.1$1.7$1.1$1.3$0.8$1.0$0.7$0.9$0.628%18%

Financial OverviewFinancial Ratio AnalysisDebt/Equity: Yum Brands: 3.28McDonalds: 0.75Industry: 2.00Gross Profit Margin:Yum Brands: 20.6%McDonalds: 44.0%Industry: 35.2%Return on Assets:Yum Brands: 15%McDonalds: 15.1%Industry: 12.5%

Financial OverviewFinancial Ratio AnalysisEarnings Per Share:Yum Brands: 2.22McDonalds: 4.11Current Ratio:Yum Brands: 0.7McDonalds: 1.1Industry: 1.0Inventory Turnover:Yum Brands: 56.4McDonalds: 117Industry: 97.8

Financial OverviewFinancial Ratio AnalysisQuick Ratio:Yum Brands: 0.4McDonalds: 1.0Industry: 1.0Asset Turnover:Yum Brands: 1.14McDonalds: 0.8Industry: 1.1

Probable Outcomes & Predictable CrisesContinue rapid expansion in emerging marketsDiversification of Menus in North AmericaImprove control processes on ethical operationsImprove operational and supply chain efficiency

Critical Success Factors1) Develop brand equity in new markets and sustain a differentiated brand in existing markets2) Develop and sustain healthy relationships with franchisees and other stake holders

Critical Success Factors3) Provide an infrastructure that is flexible enough to adapt to local markets under the umbrella brand4) Ensure the integrity of supply and distribution networks in the face of international variances, environmental crises and intensifying ethical concerns.

***Kentucky Fried Chicken (KFC) is the market leader in the fast food, chicken on the bone market. Kentucky Fried Chicken was founded in 1952 by Colonel Harland Sanders and now operates in more than 108 countries. Yum Brands, an off shoot of PepsiCo, acquired the brand concept in 1997, six years after the name was abbreviated to distance the chain from the implications of fried and ten years before the full name would be re-adopted. KFC remains headquartered in Louisville, Kentucky and serves approximately 12 million customers in more than 5,200 restaurants globally.

*Though Yum Brands only owns 17% of KFC locations in the US and 31% globally outright, their mission guides the development of the brand overall. Specifically, Yums global approach to growth and emphasis on product value is expressed in their mission to build their brands in China in every significant category; drive aggressive international expansion and build strong brands everywhere; dramatically improve US brand positions, consistency and returns; and drive industry-leading, long term shareholder and franchisee value.

*Certainly, the organization and ownership of Yum brands, and in turn KFC, influence the corporate principles by which they are guided. David Novak has been the Chairman of the Board at Yum since 2001, the CEO of Yum Brands since 2000 and the President since 1997. Novak reports to a board of executives and shareholders. He also devotes personal support to the United Nations World Food Programme and Dare-to-Care Food Bank hunger relief. Roger Eaton became the CEO of KFC in early 2008. He has been with Yum brands for 12 years in various high level executive positions. He is a veteran in the fast food industry and had held various positions in New Zealand (General Manager) and South Pacific (Regional Operations Director). While in the South Pacific, he achieved 27 consecutive quarters of profitable same store sales growth and consistent above target new restaurant builds. As a franchise, many KFC restaurants are independently owned and, according to the companys best practice, run by a restaurant general manager (RGM), with one or more assistant managers and an average of 20-35 employees. Independent and Yum-owned locations are directed by a code of conduct issued by Yums board of directors. This code of conduct includes a proprietary system dubbed CHAMPS (Cleanliness, Hospitality, Accuracy, Maintenance, Product Quality and Speed of Service) which is designed to systemize KFC operations across the brands and under the guidance of senior operators and regional coaches who work to ensure that operations are maintained in a standardized way and according to key customer value points. The below chart summarizes the ownership activity for KFC in 2009, illustrating the imbalance of ownership in greater detail

**As a Yum Brand, KFC is inherently affiliated with the Pizza Hut and Taco Bell concepts. To be sure, Yum is the world largest proprietor of multi-branded fast-food locations of which the trio of brands is most often a part. Of these three brands, data from 2002 shows that KFC held 69% of their collective market share.

*In addition to these retail alliances, KFC has also undertaken charitable alliances including animal welfare programs and aid to world hunger initiatives globally*As a brand/concept, KFCs point of differentiation has historically been the Colonels secret recipe for fried chicken. Held under lock, the recipe is the lynchpin of KFCs offerings internationally and is complemented by menu items such as coleslaw, mashed potatoes, biscuits and a variety of regionalized offerings catering to the tastes of the local markets. In addition to the specific menu items, KFC competes with other fast food chains on the basis of technology in automation, heating, food-production, shelf-life extension and ingredients such as oils. To this extent, KFC has introduced specialty ovens for grilled chicken and in 2006 announced a trans-fat free oil tested tirelessly to ensure the same great taste as the original.

*The global recession has contributed to an increase patronage for cheaper food options, such as fast-food. In addition, contemporary preferences for convenient food options have driven sales in fast food variably throughout the world with 73% of Americans stating that they eat fast foods out of convenience. Indeed, at least 33% of American consumers and 30% of consumers in the Asia Pacific region report eating take-away at least once a week. In Canada, one-quarter of consumers reports having eaten fast-food in the last day with a preference for chicken nuggets, fried chicken and French fries.

*KFCs in Canada are clustered in urban centres including Toronto, Montreal and Ottawa. Soaring food prices (notably wheat), health and diet concerns have slowed the growth of fast food chains since 2006 in North America. Emerging markets, however, are more likely to prefer international brands because of the perception of origin and thus present new and viable opportunities for growth in the fast food, quick service market that have offset the costs of the slowdown in domestic markets for major players like Yum. *In addition to Yum Brands (KFC, Pizza Hut, Taco Bell and A&W), key players in the Quick Service Restaurant Market include McDonalds, internationally, and Burger King, Wendys, Sonic and Jack in the Box, domestically.

*KFCs primary strength is its existing market share. The brand enjoys a 42% share of the chicken on the bone market globally which is nearly 3 times as much as their nearest competitor. The restaurant business in the US in 2009 comprised of 945, 000 restaurants. Yums restaurants accounted for 2% of those restaurants and KFC accounts for approximately one quarter of those. While the growth of same store locations in the US declined by 12% in 2009 in mature markets, like the US and Canada, it increased by 4% overall internationally and 16% in China.

*KFCs technological strengths include trademarked items and trade secrets including the colonels famous recipe, kept under lock and key, and zero-trans fat oil that, after years of testing, the company claims retains its great taste. KFCs global diversification and ability to expand rapidly through its standardized model represents a significant strength in the market. Internationally, KFCs parent company has opened more than four retail locations a day. KFC benefits most specifically in the Chinese market where the Yum brands first-mover advantage provided them early access to a market where the texture, taste and culture held appeal. According to fourth quarter earnings, KFCs in China averaged $1.4 million USD per unit with margins per restaurant over 20%. A vast distribution centre in China in particular assists in opening new locations quickly and maintaining food quality.

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