百勝餐飲集團 (YUM) 2010 Q4 法說會逐字稿

Good morning.

My name is Nicole, and I will be your conference operator today.

At this time I would like to welcome everyone to the Yum!

Brands fourth quarter 2010 conference call.

(Operator Instructions) Thank you.

I would now like to introduce Tim Jerzyk, Senior Vice President Investor Relations.

You may begin your conference.

Thank you, Nicole.

Good morning, everyone and thanks for joining us.

This call is being recorded and will be available for playback; we are broadcasting the conference call via our website www.yum.com.

Please be advised that if you ask a question it will be included in both our live conference and any future use of the recording.

I would also like to remind you that this conference call includes forward-looking statements.

Forward-looking statements are subject to future events and uncertainties that could cause our actual results to differ materially from these statements.

All forward-looking statements should be considered in conjunction with the cautionary statements in our earnings release and the risk factors included in our filings with the SEC.

In addition, please refer to the investors section of the Yum!

Brands website to find disclosures and reconciliations of non-GAAP financial measures that be used on today's call.

Finally, we would like you to please be aware of two upcoming Yum!

investor events.

Thursday February 17, we will host a Taco Bell investor day in Irvine, California.

On Wednesday April 20, first quarter earnings will be released.

On our call today, you will hear from David Novak, Chairman and CEO, and Rick Carucci, our CFO.

Following remarks from both, we will take your questions.

Now I'll turn the call over to David Novak.

Thank you very much Tim and good morning everyone.

I am especially pleased to announce that 2010 was one of our best years as a Company.

We reported 17% full year EPS growth, excluding special items; marking the ninth straight year that we exceeded our annual target of at least 10%.

In fact, 17% EPS growth is our best ever, and what makes this even more impressive is that it was driven by a 15% increase in operating profit, including gains across all three of our business divisions.

As I look back on the past year, I'm really proud of what we accomplished.

We opened nearly 1400 new restaurants outside the US while making steady progress building incremental dayparts in sales layers in each of our businesses.

We improved worldwide restaurant margins by 1.3 percentage points.

And I'm pleased that over the past two years, we've increased worldwide restaurant margins by 3 full percentage points.

Operating profit grew 15% prior to foreign currency translation and special items.

And importantly, we maintained our return on invested capital of 20% plus and remain an industry leader.

Our strong cash flow generation, combined with our disciplined approach with deploying capital allowed us to increase our dividend 19% to an annual rate of $1 per share.

We are particularly pleased with our China business, which reported robust profit growth of 26% for the full year, excluding the impact of foreign currency translation.

At Yum!

Restaurants International, YRI, we grew operating profits 11%, excluding the impact of foreign currency translation in spite a positive but sluggish system sales growth.

Our US business also grew operating profits, reporting a 3% increase for the year.

Before I take you through our key strategies and results for each division, let me start by thanking all of you who attended our investor and analyst day this past December in New York.

I look forward to that meeting every year because it sets the tone for the coming year.

More importantly, it gives us the opportunity to go public with our goals and commitments, as well as showcase our management talent from around the world.

In case any of you missed this meeting, you can find the presentations on our website at www.yum.com.

Now onto our strategies.

Let me start with our China business; where our strategy is to build leading brands in every significant category.

We grew profits by a whopping 26% in 2010, prior to our foreign currency translation.

I'm proud to report that in the last three years, our China business profit has more than doubled, and we expect it to become our first $1 billion profit business in the very near future.

Our recipe for success is continued profitable new unit development, and leveraging our existing assets with new dayparts and sales layers to grow same-store sales.

In 2010, we once again opened over 500 new restaurants in China, including 262 in the fourth quarter.

That is obviously an extremely impressive accomplishment.

Sam Su and his world class team are clearly delivering dynasty like performance for each of our brands.

Our KFC business has been absolutely rock solid.

We now have over 3200 KFCs in China and continue to see cash paybacks in less than three years on new restaurants.

KFC added 414 new locations in 2010 and made good progress leveraging its assets with 24-hour operations, delivery service, and continued building a solid breakfast business.

Our growth and results were driven by increased traffic.

We continue to be confident in the strength of the KFC brand in China.

Now on to Pizza Hut.

Pizza Hut casual dining in China had a breakout year generating double-digit same-store sales growth in every quarter of 2010.

We have more than 500 restaurants in over 130 cities, and we added 60 new locations in 2010.

Additionally, operating profit grew 50% and Pizza Hut Casual Dining now generates well over $100 million in operating profit.

Our strategy to revamp the menu every six months and continue to offer compelling value is truly paying dividends.

Given our dramatic sales growth, the unit economics of the Pizza Hut Casual Dining concept in China are even more scalable, setting us up for significant growth ahead.

We also continue to invest behind the development of our emerging brands.

Pizza Hut Home Service now has 120 units in 11 cities.

East Dawning, our Chinese fast food brand continues to make progress as we drive for scalable economics.

Additionally, we own 27% of Little Sheep, the leading brand in the hotpot category, which is the largest Casual Dining category in China.

In summary, any way you look at it, our China business had a stellar year.

More importantly, I couldn't be more bullish about our future growth opportunities.

We know we have established category leading brands and we have a world class management team driving the business forward.

We continue to believe we're in the early innings, and on the ground floor of growth in China.

Next, Yum!

Restaurants International, where our strategy is to drive aggressive international expansion and build strong brands everywhere.

YRI delivered 11% full-year operating profit growth, and ended the year strong with 18% growth in the fourth quarter.

Both prior to foreign currency translation.

Driven by franchisee development, we opened 884 new units in over 75 countries, including 548 in emerging markets.

YRI now has 6,350 restaurants in emerging markets across 67 countries, a level that is unmatched by any competitor.

This impressive unit growth is the most obvious sign of the health of our brands internationally.

Importantly, we made major progress creating new growth vehicles by investing in India, Russia, and Africa as well as beginning to develop Taco Bell into a totally, truly global brand.

2010 was a milestone year for India, particularly with the KFC brand.

We surpassed 100 units, had terrific sales growth, and now have very good unit economics.

This gives us the infrastructure and scale to fuel aggressive growth going forward.

In Russia, we made an acquisition that gave us full management control of the KFC Rostik's brand, giving us 150 restaurants in total.

Now I have to tell you we're very excited to have over 100 KFCs in both Russia and India.

Remember, it took us 10 years to get to 100 units in China.

In Africa, we already have a dominant market position in South Africa with over 600 KFCs.

As we shared in our New York meeting, we're now expanding throughout the continent.

Our franchise partners are building restaurants in Nigeria, and Ghana, as well as East Africa, and we're extremely happy with how well customers have taken to the KFC brand, and how enthused our franchisees are about the opportunity ahead.

We're also making progress developing Taco Bell.

We've entered 10 new countries in the past two years.

We're building more and more confidence Taco Bell can become a truly global brand.

YRI also made progress leveraging our existing assets and building incremental dayparts and sales layers.

We aggressively expanded our Krushers line of frozen beverages at KFC, and we're going hard expanding non-fried products throughout the world.

We continue to make progress testing breakfast.

It's going to take us time to get these dayparts and sales layers established, but this will ultimately give us the ability to drive our unit volumes higher, and ultimately our average unit economics as well.

There's no reason why we can't be a multi-daypart, multi-protein concept outside of the United States, where our only major competitor is McDonalds, who has already shown us the way.

That opportunity is ahead for us.

We're also very focused on improving our operating model at Pizza Hut.

Our biggest initiative to do this is what we call channel separation.

We want our casual dining restaurants focused on dining customers, and our delivery restaurants focused on delivery and carry out.

We think having both under one roof produces a high degree of complexity, and we intend to be more streamlined going forward.

Now in spite all of our optimism at YRI, I want to point out that YRI sales in 2010 were sluggish.

The team is addressing this with stronger beat-year-ago innovation and value.

Finally, as we shift our resources to support high-growth, high-return businesses, we elected to refranchise our Taiwan and Mexico business -- restaurants.

These transactions as well as improvements in our Company owned restaurants drove restaurant margins 80 basis points higher for the year.

In the United States, our strategy is to dramatically improve our brand positions, consistency and returns.

We grew same-store sales 1% for the year including 5% in the fourth quarter and increased restaurant margins for the year.

We also made significant progress on the refranchising front as we sold over 400 restaurants to highly capable franchisees.

Taco Bell finished the year on a high note with 4% same store sales growth in the fourth quarter.

Transactions grew each quarter of 2010 and we're encouraged by the check momentum we saw in the second half of the year to complement our transaction growth.

Like all QSRs in a tough environment sales were not as high as we would have liked and Taco Bell had to work very hard for these results.

Taco Bell remains the category leader in value and as you know we continue to provide healthy returns with high average unit volumes and strong margins.

The system also continues to contemporize itself with increased remodel activity.

We also made progress testing breakfast, a new beverage platform and home meal replacement.

Short term we expect to see a return on investment with our new dinner taco packs.

Longer term we expect breakfast to become a growth engine.

We are working on these initiatives because our goal is to leverage our asset.

Now I want to address the recent lawsuit filed against Taco Bell.

First, let me state that the claims made against Taco Bell's seasoned beef are absolutely false.

I've heard the plaintiff lawyers and press tossing around figures like 35% when the fact is Taco Bell's seasoned beef recipe calls for 88% beef.

Given these claims we felt we had to defend strongly the brand and the quality of our seasoned beef.

So we have used this opportunity to spread the word about our quality which is why our advertising read, Thank you for suing us.

Greg Creed did an excellent job setting the record straight and we're seriously reviewing our legal options against those who made false claims about our products.

Now, regardless of how strong your brand is there's no question any incident regarding the quality of your food negatively impacts your image and sales.

So clearly we are seeing a negative short-term impact.

We believe we turned the tide with our aggressive response and will wait and see the ultimate impact.

We of course, also had the headwinds of the weather across the US for all our brands to deal with in the first quarter.

Now, on to Pizza Hut.

I'm extremely proud of the Pizza Hut team for completely repositioning and restructuring the business.

Pizza Hut went from the worst to first in value ratings in the category.

This was done by launching the $10 any pizza promotion and following that up with a system wide initiative to provide everyday affordable menu prices.

Pizza Hut grew same-store sales 8% for the year and is clearly winning on providing everyday value.

Our restructuring is virtually complete as over 90% of our system restaurants are owned by franchisees.

At KFC the business hasn't changed from the update I gave during our December analyst meeting.

We have a big job ahead of us and it's going to take us time to execute our plans.

As we move into 2011 we're going to focus the majority of our comments on the three growth drivers that make our Company unique.

Our leading brands in China, YRI's dominant position in emerging markets, and Taco Bell's asset leverage and new unit opportunities.

We believe with increased sales growth Taco Bell can go from it's 5,000 units in the US to over 8,000.

All of this initiative, all these growth opportunities will drive our franchise fees and generate tremendous cash flow, shareholder payouts and shareholder value.

So let me wrap this up.

We had a great year in 2010 but we realized that 2010 is yesterday's newspaper.

We're working hard to make sure 2011 is another successful year and make it our tenth consecutive year of meeting our annual target of at least 10% earnings per share growth.

Now let me turn it over to Rick.

Thank you David and good morning everyone.

In this section of the call I'm going to comment on two areas.

First, I'm going to give some context to our 2010 results.

And then I'll give a brief outlook for 2011.

As David mentioned Yum!

had a really strong year in 2010.

What I want to do now is peel back the onion a little and share with you how some of our key actions in 2010 changed the position of our Company going forward.

The main topics I'm going to cover is how we strengthened our competitive position in China, how we re-enforced our lead in emerging markets and how the execution of our refranchising strategy has changed our financial model.

Taken together you'll see that we have made progress during the year in evolving Yum!'s position as a height growth, high return Company.

In the earnings release and in David's speech you already read and heard about the fine year we had in China in 2010.

But beyond the numbers the China team also strengthened our competitive advantage.

Especially by furthering our presence throughout that country.

At KFC we opened 414 new restaurants in China including 203 in the fourth quarter.

This compares to a 166 units opened during the year by McDonald's.

Therefore KFC opened about 250 more units.

Just as important from a competitive standpoint is where we added these units.

We entered 57 new cities and we are now in 713 different cities around China.

In fact, about half of the new units in 2010 were in tier 3 through tier 6 cities.

KFC now has more units in tier 3 cities and smaller than McDonald's has in the whole country.

As we pioneer into new KFC cities and continue to develop existing tier 3 through tier 6 cities we have been able to secure the best locations and hire great talent.

This expansion also continues to be profitable.

Please keep in mind that our combined margins in tier 3 through tier 6 cities are a couple of percentage points higher than our national average.

We are also starting to make meaningful progress in developing Pizza Hut Casual Dining in some lower tier cities.

We added 22 units in restaurant -- in tier 3 and tier 4 cities finishing the year with a 137 restaurants in those cities.

This is significant because traditionally casual dining has been reserved only for tier 1 and tier 2 cities where incomes were higher.

Based on the progress the Pizza Hut brand made in 2010 we are hopeful that tier 3 and tier 4 cities can provide strong ongoing growth opportunities in the years ahead.

As David mentioned, Pizza Hut casual dining has broadened itself way beyond pizza, including beef, pasta and rice dishes, along with appetizers, beverages, and desserts.

This broad appeal further insulates us from casual dining competition.

Pizza Hut Casual Dining is light years ahead of other Western casual dining concepts, in terms of units, people capability, and the ability to grow nationally.

Moving beyond China, let's look at other emerging countries.

Through 2010 we highlight our unique strength and growing presence in emerging markets.

Places like Indonesia, Vietnam, and Nigeria where we opened our first KFC restaurant in 2010.

We are so excited about emerging markets because we have the largest presence and we are growing so rapidly.

It is simply a huge opportunity.

I'm not going to rehash the information we covered in emerging markets during the New York meeting.

However, I will say that while each market is different, as a whole, we believe we improved our position in 2010.

We also reached a few key milestones.

When you take the 507 units we added in China, combined with the 548 new units in emerging markets at Yum!

Restaurants International, we built over 1,000 new emerging market restaurants during 2010.

In addition, through the fourth quarter of the year, Yum!

surpassed the 10,000 unit mark for emerging restaurants.

While we have been aggressively pursuing growth in China and other emerging markets, we also believe it's important to be disciplined at determining where to own company restaurants.

Where we don't see the potential for high-growth or high returns, we often refranchise units and hand them over to strong local operators.

Refranchising brings greater stability to our earnings, reduces capital investments, and improves returns.

During 2010, we substantially completed the ongoing refranchising of Pizza Hut in the United States.

Since we announced our US refranchising initiative at the end of 2007, we've sold over 1,600 units to franchisees.

This refranchising has been a leading contributor to the 1 point increase in margins that have occurred in the US over the past three years.

During 2010 YRI margins improved about 0.5% from the refranchising of the Taiwan business.

We expect further improvements in 2011 due to the refranchising of Mexico that was completed in the fourth quarter.

When you combine this refranchising with the growth in India and other emerging markets, we believe that the YRI portfolio improved significantly during 2010.

When you couple this significant refranchising with our heavy equity investment in China, our Company owned portfolio has shifted dramatically in the last 10 years.

In 2000, 70% of our company owned units were in the US, while only 4% were in China.

By the end of 2010, only 34% of our Company owned units were in the US, and 44% were in China.

This is a trade-off that we've been happy to make as we continue to benefit from the high-growth and high returns in China business.

This change has also increased our dependence on China.

China is now the largest contributor to profits and has the most impact to Yum!'s overall growth.

However, we are also working hard to grow in other emerging and strategic markets.

Our plan is for businesses in India, Russia, France, and Germany, where we also invest in Company capital to grow at a high rate.

We believe that these markets, combined with growth in other emerging markets and Taco Bell International, will eventually reduce our dependence on China.

However, as we look at the portfolio shift over time and look into the future, we are very pleased with how our business model has evolved.

As we continue strengthening our position in China, reinforcing our lead in emerging markets, and refranchising when appropriate, we continue to enhance future growth, provide strong returns, and increase shareholder value.

In order to sharpen our focus even further, we recently announced our intention to sell our entire Long John Silver's and A&W restaurant businesses.

Let's now look ahead to 2011.

As a reminder on our ongoing model, China, YRI, and Taco Bell in the US, account for about 85% of profits.

In that model they are expected to generate operating profit growth rates of 15%, 10%, and 6% respectively.

This results in approximately 13% EPS growth.

As we look into 2011 we see some headwinds and some tailwinds that could impact division and overall Yum!

performance.

In terms of headwinds, commodity inflation will be a challenge across all divisions.

We plan for 5% food and paper inflation in China, along with 4% in the US, and 3% in YRI.

Currently, many commodity costs remain at high levels and if there's not improvement in the coming months, there could be cost pressures above these levels.

In China, we also expect high wage inflation, with increases now expected to be in the mid teens.

There are also one-time items working against 2011 growth.

A new business tax will have a negative impact of around $25 million.

We will also overlap the benefit that we received in 2010 of our brands' participation in World Expo, which resulted in $16 million of profit.

These two one-time items have about a 5% negative impact on China's 2011 profits.

On the other side of the coin, there will be some beneficial tailwinds.

International new unit development remains a key driver of our growth.

We expect to once again add 1,400 new units outside the US in 2011.

The new units built in 2010 and 2011 should deliver about half of our EPS growth.

Since the 2010 development was backend loaded, these units will have a larger impact than usual in 2011.

We are forecasting a foreign exchange benefit, including at least a $20 million upside from the won.

We will also see lower interest expense due to favorable debt issuances over the past couple of years and as we retire the April 2011 bonds.

Finally, the Mexico refranchising should have a positive impact to operating profit of about $10 million.

Our teams around the world will work hard at managing inflation combined with a recovering global economy.

We will need to be especially smart about how to provide great value to our consumers while also covering higher costs.

Two examples of our approach have already taken place in 2011.

At the start of the year at Taco Bell, we prominently featured a $0.99 Why Pay More item.

Last year, we're featuring an $0.89 item.

Second, we took a modest price increase in China just before the Chinese New Year.

This increase will cover the majority but not all of our inflation expectations for the year.

At the same time in China, we continue to provide value offerings.

When you look at the whole picture and evaluate our headwinds and tailwinds, I'm very confident that 2011 will be our tenth straight year of delivering at least 10% earnings-per-share growth.

In addition, our strong balance sheet and powerful cash generation will allow us to return more than $1 billion to shareholders in 2011.

Between our recently increased dividend, and the $750 million of additional authorized share repurchases, we plan to put more cash in the hands of its rightful owner.

In summary, I am proud of this year's financial results and all that we accomplished in 2010.

We had record EPS growth, added shareholder value, and continued to evolve our business model.

I am equally excited about our future as we are well-positioned to deliver results in 2011 and beyond.

Back to you David.

Okay Rick, thank you very much.

It's time for us to take any questions that you have.

(Operation Instructions) David Tarantino, Robert Beard.

Hi, Good morning and congratulations on great results.

A question on the China margin outlook.

You mentioned that you took a price increase recently.

Could you quantify the level of that price increase and then talk about the outlook you have for margins relative to the pricing and traffic growth that you might be expecting for the year?

Well, just to dimensionalize the pricing, we look at the expected inflation we talked about on cost of goods sold; about 5%, and look at mid-teen labor inflation, you need about 3.5% to 4% pricing to cover all of that inflation.

In the round that we just took, we covered about three quarters of that amount.

In terms of margins for the quarter, I just want to remind people versus last year.

Last year we had record margins of over 26% that were driven by commodity deflation, which we said were not sustainable.

We only took the price increase in the middle of the quarter; as a reminder Q1 2011 only includes two months, January and February.

So we basically got only one month of that pricing benefit.

So we expect margins to go down versus prior year off of what were very high levels.

Rick, maybe just a quick follow-up.

Is that a statement on Q1 or is that your outlook for the year?

And maybe if you could talk about for the year what's needed in terms of traffic growth to hold onto margins given some of the unusual comparisons you have.

We know we're lapping very high margins in 2011, so I'm not sure -- we're not necessarily expecting margins to go up in 2011.

I think they could go down a little bit off those high 2010 levels, though we expect them to stay above 20%.

With the inflation piece -- we typically say that we need about at least 4% same-store sales growth to hit our profit targets.

This year, probably more than the inflation, David, we're also lapping those one-time items; so that adds probably a couple points -- at least a couple of points to what we need to do to deliver our normal numbers.

That's helpful.

Thank you.

Jeff Omohundro, Wells Fargo.

Another question on China.

You mentioned pricing is a mechanism to manage inflation.

I wonder if you can talk about other initiatives to improve efficiencies in the operating structure in that market that might help you further offset inflation.

And then as a follow-up, or secondary to that, how is the inflation environment impacting returns on new units?

Thanks.

In terms of -- we are always in China working on productivity initiatives, especially since we own our own distribution system; so we always have a full-court press on that.

I don't think there's any one item that I could point to that's special -- that we're doing anything special this year.

It's something we just always have a huge amount of emphasis on given the size of our business there.

Because like I said, we run the system.

In terms of new unit returns, we're still extremely pleased with new unit returns; we don't see really any impact there.

You have to look at long-term -- as I sort of said at the December meeting, I'm still personally bullish on long-term margins in China.

We already have less than three year paybacks so I don't really see that changing.

One of the things we talked about in the speech, is that we're doing very well really throughout the country in our returns through all tier cities.

And we also always put a lot of pressure on ourselves to build new sales layers on the KFC side.

We're very pleased with the progress we made on things like 24 hour delivery, breakfast -- 24 hour service, delivery, and breakfast, so we're very pleased with how those are developing.

Thanks.

Congrats on the quarter.

Michael Kelter, Goldman Sachs.

Just wanted to follow up on China.

Again, just broadly, when you think about if we're reentering an inflationary environment that could be, let's call it semipermanent; how do you think about consumers' increased purchasing power versus labor and food inflation and whether you think you might be a net beneficiary or this might hurt you overtime?

And then secondly, but related, can you talk a little bit about the labor inflation piece, because you're now compounding double-digit labor inflation year-over-year, and it looks like structurally that seems to be a part of the China P&L that's more and more challenged over time.

This quarter was the highest percentage of sales that we've seen in that line item out of you guys.

So if you could help on those parts that would be great.

Well, Mike, let me start with the second part.

Labor, we always have said that we expect labor to continue to go up in China.

So that's part of the business model.

It has been for years.

And I think will continue for the years ahead.

The China policy -- to the first part of your question, they want to increase wages to the broad population in the years ahead.

It was especially high in the second half, especially the fourth quarter 2010 because we had two labor increases.

We had labor increases twice during 2010, which is going to drive up as we sort of said earlier, in the second half of '10 and the first at least two quarters of '11.

In addition, there was no real wage increases in 2009, so they more than made up for that it looks like in 2010, and they look to do the same in 2011.

Also in the fourth quarter, we open -- you saw all those units we opened -- so we obviously had training to support those new unit openings.

So that further made the fourth quarter labor higher than usual.

As you go forward to the first part of the question, which is obviously an important question; as I sort of said in New York, Michael, I actually don't fear an ongoing inflation scenario.

I think the strongest brands are always in the best position to manage that.

You obviously have to work very smartly of how you manage value, pricing, and menu mix management.

But to me when you have strong brands and 24 hour platforms you are probably in a better place than most people to do that.

I feel comfortable operating in that environment even though it will keep us on our toes.

The only thing I would add on that is, I remember going to China for the first time in 1997, standing, watching all the customers in there, where you'd see the parents standing in line with their kids, and they buy the chicken for their kids and the family couldn't really eat.

Now when I go to China, you see the kids buying the food.

I think one of the things that's happening is as wages go up, and the economy continues to grow; the consumer base is just growing exponentially.

If someone told me we'd be in over 700 cities -- tier 4, 5, 6 cities 10 years ago, I'm not sure I would've believed it and the only reason is that people have money there and they can spend it.

I don't see that going down in the future.

I think that's going to go up.

So I think we are very well-positioned to take advantage of the opportunity -- the dynamic growth that's going on in China and we're going to have -- just like we've had in the US and other parts of the world, we're going to have the headwinds, tailwinds, all that.

But we're like any other business; we have the same components that we can manage effectively to deal with it.

Thank you very much.

Jeffrey Bernstein, Barclay Capital.

Rick, just one clarification on your prepared remarks, then a question.

On the food cost side of things, you gave good clarity in terms of the basket; I think you said up a 5, 4, and 3 for the three markets.

But then you kind of mentioned if things don't ease in the near-term, and those could prove conservative.

Just wondering in terms of that basket, how much of it is actually secured and therefore not vulnerable, I guess versus the floating where you're vulnerable to that further inflation.

I'm just trying to get some clarity by region in terms of what kind of assumption you're making for the rest of the year that perhaps is not locked.

And then particularly just on the YRI sales and margins; I know on the first half of the year you had talked about perhaps stronger sales and profit growth in the second half.

It seems like you said, it's sluggish sales in YRI.

But yet the margins are up significantly in both operating and restaurant.

I'm just wondering -- I know it's tough to aggregate 100 plus countries, but is it possible to talk about where the comp fell short of expectation, and on the flip side the drivers of the margin and the related sustainability despite the comp.

Thank you.

Let me start with the food question and then we'll go to the YRI sales, and then we'll go to YRI margins.

On the cost of sales, we basically pretty much hedged for about six to nine months depending on the market right now.

So we're fairly well locked in.

If I had to dimensionalize, I'll use our two biggest markets; China and the US.

If food costs don't come down, we figure we probably have about $40 million of further exposure; about $25 million of that in China, and $15 million in the US.

We'll obviously give updates later in the year as those unfold.

But that's sort of the nature of the risk that's out there.

Regarding YRI, why don't I have David talk a little bit about the sales piece of it and then I'll come back to the margin side of it.

I think that, first of all, I think we have been operating in a tough macro environment and one of the things I'm really pleased with is that we're making the investment in time and effort to really develop the future dayparts and more offerings for our customers so that we can leverage the sales assets.

I think these are going to take time for us to get that done.

We step back and take a look at what we could've done better at YRI the last year, we think we should have done a better job just with the innovating around our core base brands and having more effective beat-year-ago marketing and operating programs.

I think as we pursued the long-term, we didn't have the right balance, and what I think we really have to do going forward and the team is addressing this is we've got to have the magic of hand.

Better beat-year-ago, core brand innovation at both Pizza Hut and KFC, and continue to make progress on the sales layers.

I think we have that balance.

But I'm really glad that we really jumped in big-time on the dayparts, multiple proteins, and things like non-fried options.

I think that's going to bode well for the future.

But we need more beat-year-ago core innovation.

If you look at the sales, I think the developed economies really struggled the most.

Japan, Canada, Australia, that's where we had the softer sales.

We were hopeful that those markets will make progress in 2011.

On the margin question Jeffrey to your point, it's sort of hard to aggregate, but the two main drivers that point to -- one was the refranchising helped -- so the Taiwan refranchising probably got us a little than half of the full year margin improvement.

The second, Thailand, which is a mostly Company owned market performed extremely well during 2010.

And that drove margins.

The other countries, we had some ups and some downs that basically balanced themselves out during the course of the year.

Thanks for the clarity.

Andy Barish, Jefferies.

One quick just backward looking explanation; in the fourth quarter you were looking for China inflation on the food cost line, and it wound up coming in deflationary.

And you leveraged food cost without the benefit of the price increase you just took.

What switched up there over the course of the last few months?

There wasn't one dominant item that improved the numbers.

We did a little better than what we expected to do on the chicken line.

We expected a little bit more chicken inflation than what we received, but other than that, it was a little bit everywhere as opposed to one item.

And, Andy, just in addition to that, you're looking at the year-over-year change.

We did get pretty close to the inflation we expected, but we were also lapping higher food costs a year ago because we did have -- when you look at the year last year, and what we typically do in the quarter there was much more value orientation -- if you remember, we were still in the slow economic times, so there was a big value focus in the China business in Q4 last year; we're lapping that this year with much less value focus and that was a benefit to food cost.

Thank you.

Greg Badishkanian, Citigroup

Maybe just you have your ears to the ground in China maybe just a little bit on the competitive landscape.

Are your competitors also raising prices to offset the higher commodity costs such that the consumer is going to be -- will probably easily accept those types of price increases?

I think all competitors are going to have to do it.

You heard the wage inflation.

That wage inflation on -- it's not a huge part of your P&L but it's so sizable, and you have commodity inflation, it's there.

So we've seen increases in Chinese casual dining.

McDonalds did some pricing late in 2010.

So I think everybody to your point is going to be having to do that, Greg.

Joe Buckley, Bank of America.

Rick, going back to the last time we had high food cost inflation back in '08; your approach was to take a series of relatively small but frequent price increases.

Is that kind of the game plan going forward?

And you talked a lot about China.

I think you made reference to Taco Bell having both a traffic and a check increase in the fourth quarter.

So if you would maybe talk about pricing at Taco Bell specifically as well?

First of all Joe, to your point; I think our philosophy in general is we like to go with smaller earlier price increases than waiting until you have to take it and then having a large increase.

We think that generally the consumer handles that better.

When things are tight you obviously have to provide.

The magic of it -- you've been in the business a long time, Joe.

You have to balance providing the value and taking the pricing and how do you get that right.

So Taco Bell was more an example of what we're doing with our innovation calendar than sizable price increase.

We've taken very modest price increases at Taco Bell, sort of last year and the first part of this year.

But there, what we also look at is what we're promoting and what those items are.

What happened during the first part of 2010, we're promoting generally given the economy lower-priced items.

And in the back half of the year, with the Big Box instead of the $5 Box, and other initiatives we were promoting some higher priced items, getting the balance a little bit more normal.

So we'll continue to sort of do things like that as we get into 2011.

Okay.

A question on refranchising.

A lot of activity in the US in the fourth quarter, including about 52 KFCs.

Is that the beginning of a stronger KFC push, and then also are there other opportunities for refranchising at YRI in 2011?

In terms of YRI, we're going to continue in terms of I'd say within market refranchising; the UK being the biggest part of that.

You probably won't see any huge markets being sold on a YRI basis.

In the US, yes, we sort of said in 2011, we're going to put our focus against KFC.

We have waited for a while for various reasons, started the push really in the second part of last year and so that's going to be by far the biggest focus in 2011.

Thank you.

Mitch Speiser, Buckingham Research.

In the press release, I guess backing into the numbers a little bit it looks like emerging market comps may have been up about 3% or so in 2010.

In the fourth quarter can you comment on how the emerging markets did in summary?

In total I guess.

And separately, in the quarter the G&A line was up pretty significantly; I believe up 14% or so year-over-year.

Can you comment if there were any one-timers in there and how you see the G&A line looking in 2011 on a global basis?

Mitch, I'll give you the emerging market, developed market breakdown first, and then Rick will cover the G&A.

For the fourth quarter, emerging markets system sales growth for YRI was plus 9%, and the developed markets was plus 4% in sales.

So pretty consistent trend throughout the year.

And that's a sales number.

Are you willing to share what the same-store sales were in both of those?

We don't actually calculate that, Mitch.

It's just not the way our management -- that's not our management reporting.

So, you have to do it the same way basically that you did it.

In emerging market, unit growth is running it about 6%, and developed is running about 1% to 2%.

Okay.

So there was probably some foreign exchange in the developed number?

That's on a currency basis.

Just to help you with one thing, in the table in our release, you have India system sales in the fourth quarter growing 39% and we probably had unit growth of a little over 20%.

So the balance of that would be same-store sales growth.

Regarding your question on G&A, to your point; we had a fairly sizable increase.

It was in corporate G&A, which really isn't allocated to the divisions.

It was primarily due to bonuses, which you saw the numbers we benefited as employees, but it cost us more money on the bonus front, and there were other timing issues.

We figure, one time for the quarter, probably I would say typical on an annual basis.

Okay, thanks.

Howard Penney, Hedgeye Management.

The China operating margins are basically flat over a 10 year period despite the growth coming from the cities that have margins anywhere from 500 to 800 basis points higher.

So the dynamics of the tier one cities can you sort of talk about the dynamics of margins there over that period of time?

And then I know you answered the question previously about pricing and margins and China inflation just generally thinking, are you using price or thinking about price as a way to protect margins or to limit the decline?

Let me answer the second question first Howard.

I think it depends where you are.

I think in a long period of time, we expect to be able to price with inflation.

Again we think we have a strong enough brand to be able to do that.

And the way I call pricing -- I call menu-mixed management and pricing.

Similar to what we talked about with Taco Bell earlier.

We use both of those tools over time.

In terms of fourth quarter 2010 and first part of 2011, we've told people we're overlapping very high margins for China that we didn't necessarily think were sustainable.

So we still like our ability to be 20% plus in margins, but it is a challenge overlapping in the short term some of those inflation numbers.

So we sort of said, hey, in the first half of the year, the inflation's probably going to be out ahead of the pricing we took, although we did cover a decent chunk of that as I said before, probably about three quarters of that aspect.

Regarding your first question Howard on the tiers, you're right.

Basically it's a difference in the margins.

There's always some differences between the tiers, but it's really the tier one margins that are lower than the margins for the country and that's primarily driven by real estate.

There's other costs that are higher in the tier one cities but probably the thing that's changed over that 10 year period is the leases are a lot more expensive today than they were 10 years ago.

We still get very good returns there.

We're continuing to develop there, but we're doing less in fill in development, going more for new neighborhoods than probably where we were a few years ago.

The question I was thinking about -- when you were selling off units and going through that portfolio, I think there was a positive impact to margins from selling off your underperforming stores.

I'm just kind of curious as to why you don't see that same portfolio impact if you will, when most of your bulk of your development is in stores in regions of the country where margins are significantly higher.

Well, they're not significantly higher, it's really just the tier one, or not quite as high as they were before.

They are still quite strong.

So I think the number we gave in the December meeting was about in the 19% range.

So that's not too shabby.

That's not a huge difference versus the national average.

Thank you.

Rachael Rothman, Susquehanna.

Hello, this is Jake Bartlett in for Rachael.

I had a question just on food costs and how it's going to progress throughout the year.

You mentioned in the fourth quarter you got some leverage there because you're lapping some discounting; I'm wondering how long you lapped that for.

Are we going to see similar effect in the first and second quarter here?

Just the fourth quarter.

Okay.

And also if you can comment on commentary by McDonald's on the informal eating out market slowing in China.

What's your perspective on that?

Are you seeing the same thing as an overall market?

We really haven't seen that.

Jake, there's seasonality to -- it's -- we don't have the history like we do in the US.

But when we look at our business there's definitely seasonality, and that could be what some people might be seeing.

Like November and April are the lowest points in the year from a seasonality perspective because you have things like Chinese New Year that drives up sales and volume in the first part of the year, and then you have some other significant holidays in other parts of the year like August and October.

So generally we're not seeing a slowdown in the industry; the growth rate is a little bit slower but it's not like something perceptible.

The overall market's seemingly -- when you look at the numbers, their numbers are looking good but there is some significant seasonality in China because of the holidays.

Okay.

So you don't see a slowing just maybe on the part of competitors and feeling like you're gaining significant share or any sort of market commentary.

No.

We're very happy with our business as David and Rick both said earlier in their comments.

We've got great results from our sales layers and Pizza Hut Casual Dining is doing incredibly well, which is a higher check average business.

So if you look at it, we have businesses that are across the board, higher-end casual dining, and KFC with QSR.

Both businesses are doing exceptionally well.

Great, thank you.

Keith Siegner, Credit Suisse.

This is a question for Rick.

The CapEx for the year came in fairly substantially below the original guidance of $900 million, coming in actually just under $800 million, and that's despite hitting all of your unit growth goals for the year.

So what I was wondering is now that you've refranchised Mexico, now that you've refranchised some of these other markets and you've made even more progress on some of the Company operated based in the US, the unit growth targets remain roughly the same yet the guidance for next year is still $900 million for CapEx.

Where would the increase in CapEx come from or why would you need that?

Is there a refresh cycle anywhere that needs to pick up?

In other words you've been extremely efficient with that CapEx thus far.

What would lead it to increase going forward?

Keith, just let me answer the first question just on this year's 2010 numbers.

First of all, there was a fair amount of our development, especially on the Company side that occurred in the fourth quarter.

So there was actually about $50 million of accruals relative to the CapEx, that didn't show up in the cash flow statement.

So effectively the number was about $850 million just in pure CapEx.

Then there was about $15 million in key money and land use rights for China that shows up in other investments.

So it was a little bit closer to that in terms of the dollars versus our estimate than just appeared on the cash flow statement.

In terms of structural things in CapEx, there's probably a little more as we try to add the sales layers, trying to get a little bit more remodels done and then when you try to put in capital to support those layers, so there's probably some structural spending there.

As we try to build out France and Germany, you've seen some of that already; the mix of those countries are higher cost than some of our other pieces.

I'd call both of those modest in general.

Those are probably the two structural things that are changing.

Okay thank you.

John Ivankoe, JPMorgan.

Just a quick housekeeping question on the G&A, I actually thought higher for both US and YRI despite the refranchising.

So I was hoping that you could guide us a dollar G&A number in 2011 for both of those divisions is the first point.

And secondly, both for current refranchising that was done in 2010 and planned refranchising in 2011, how much would that refranchising help Company store margins in both of those divisions at current thoughts.

We'll probably have to come to you to the math on both of those, John.

I would guess you're going to see probably in the three to -- about three-tenths of a point for Mexico.

The impact on YRI for Mexico is about three-tenths of a point, we'll have to come back with better numbers.

That would be our estimate at this point.

Presumably like things like refranchising of Pizza Hut UK would also help.

So that would be in addition to that 30 basis point.

Yes, that will be gradual as we do those.

Because it occurred in the fourth quarter we'll have a bigger impact than the UK.

Of course.

Okay.

And what about the US?

Do you know off the top of your head, I'm sorry to put you on the spot on these specific questions.

Not yet.

Okay.

We can follow that up off-line.

And if I may since I have the mic for a minute.

The thoughts of the Pizza Hut lap for example in 2011 that was the major driver of the 2010 results in the US.

Is it something that you think you can successfully lap, or is it by definition a negative comp year for the brand?

Well, I think we're very -- I know we're very confident in the Pizza Hut brand.

I think the proof is in the pudding.

This is the first time we've really gone into the year with a value rating that is the highest in the category and we think that gives us a base to build on and we continue to be the leader in innovation.

So, we take the value plus the innovation plus the progress we make on improving operations plus the fact that we've got our pasta established to Tuesday night and our wings established for Wednesday night.

We're leveraging the asset through the week.

We think we can have a solid year.

Okay.

Thank you.

Jason West, Deutsche Bank.

Just kind of following up on that a little bit.

You guys have announced some portfolio changes this year in the US and you said for the rest of the year you're going to kind of focus on the three core profit drivers in your commentary.

Just wanted to get your overall thoughts on the Pizza Hut, KFC, US businesses.

Your thoughts around keeping those businesses long-term or are you kind of just waiting to get the profits up a bit there before you start talking about them all little more readily on these types of calls?

We're always -- first of all, we're a global Company with global brands and we plan on having global brands for as long as I can even imagine our Company.

In fact, our vision is to be the defining global Company of the pizza world and you're not going to do that with brands that are piecemealed out.

We see ourselves as a global branded Company.

We're making some choices here in terms of how we want to really focus on what makes our Company different.

I think what makes our Company different is nobody has a business like we have in China.

Not only with Pizza Hut, not only with KFC, but now with Pizza Hut Casual Dining and we've got East Dawning, and Pizza Hut Home Service coming along.

So we've got an unprecedented position in China that we want to keep talking about.

The other thing that makes us different is YRI and in particular the growth that we have that's coming in the emerging markets.

And then the third thing that makes us different is we have Taco Bell, which is the second most profitable brand in the United States that we think we can take from 5,000 to 8,000 units, and it's already 60% of our profits in the United States, and we think that's going to grow proportionately.

Everything counts in this Company.

Everybody bonused on their piece of Yum!

I can assure you that the Pizza Hut US guys and the KFC US guys are focused on growing sales and profits the right way and we're going to have lots of discipline around that.

But the thing that really makes our Company different are China, emerging markets, and Taco Bell plus the enormous cash flow we generate.

This year we're looking at at least $2 billion.

You just saw that we had an authorization to buy $750 million worth of stock; we've steadily increased our dividend in the past, so we pay $1 dividend, and that kind of free cash flow is pretty powerful.

So those are the things we want to talk about.

And I think that's what our shareholders are most interested in.

What are the biggest parts of our business?

And what's the growth part of our business going to keep us on the trajectory that we've been on.

Great, thank you.

Nicole, before you go to the next question -- just to follow up to one of the prior questions on the impact of benefiting of refranchising on the US margin.

The current run rate is about 0.5 a point, 50 basis points.

So that's probably the best estimate we can give you for the US going into 2011.

And then going beyond that, it will depend on the pace of KFC refranchising.

John Glass, Morgan Stanley.

A clarification and a question.

The clarification just on the YRI comps.

I think you reported flat comps for the year.

Kind of backing into the numbers you provided you saw 9% growth in emerging markets, with 6% unit growth so maybe there's embedded 3% comps there.

And in the developed market, you had 2% sales with 1% unit growth, so that's also positive.

So what wasn't positive in the world that dragged it to flat?

Is there one or two regions where comps were significantly negative, or countries that did that?

Well, first John, you've got to keep in mind that that's -- we didn't identify what portfolio impact might be in those numbers.

So just by doing the simple math, you can't necessarily get to what comps might be.

But having said that, there are several of our larger developed countries that had slightly negative comps; like Japan for the full year was minus 1, Canada was minus 2, and Australia was minus 2.

And then Pizza Hut Casual Dining in China.

It wasn't too long ago -- maybe it was a year or so ago -- we talked about slowing developments in the major markets because the returns weren't as strong, if I remember that correctly.

Now you're comping up double digits.

So is it a result of -- what is happening?

Is it the result of maybe slowing development in those markets where you've seen now a surge in comps or is there something happening in the Chinese consumer where the upper end is doing a lot better than the mid-tier consumer in China.

What is driving those very, very strong results?

Yes, well I think first of all we've done a really good job with the brands.

So the brands not only has it increased its variety, it's improved its value at the same time.

So we have more value priced pizzas on the menu which sort of expands its reach.

The other is that the wealth continues to come in China, so people in tier three and tier four cities to your point, we were cautious; that's where we were cautious.

We were having trouble not with our first unit in tier three cities, but with our second unit in tier three cities.

So one, the market helped us because the people got wealthier.

The second is we are doing more development in newer cities that are new to Pizza Hut in tier three and tier four.

So that's sort of the adjustment we made, but the brand strength has helped us a lot.

And obviously the economy improving -- continuing to grow is helping us as well.

I'm really glad you asked that question.

Because I think it says a lot about how we manage capital and how we manage growth.

In China, the direction that we've given to Sam Su and his team is that you've got two phenomenal brands in KFC and Pizza Hut.

They're diamonds; you just have to keep polishing that diamond to make it grow and what we never want to do is get our growth out ahead of our capability and our ability to generate great returns for our shareholders.

So a couple years ago, we did see some issues that we needed to address.

The team went to work and came up with a dramatic way to drive same-store sales, and improve the unit economics and now we are expanding more aggressively.

So that's how we're going to run our business in China.

When you've got great brands that are emerging in a powerhouse country, the main thing you've got to do is make sure that they stay diamonds and keep polishing them and polishing them and we're going to -- we watch our capital like you can't believe.

And people have always said are we growing too fast?

The answer is, no.

And we're all over the fact that we're getting great returns.

The minute we seem to look like we're not, I'm sure we'll come back and we'll tell you what the issues are.

But right now, it's full speed ahead on both KFC and Pizza Hut.

Thank you.

Sara Senatore, Sanford Bernstein.

I have two quick questions actually.

One is, obviously a lot of strength in emerging Asia and now Africa; just wanted to ask about a continent that we don't usually talk about, which is Latin America.

It looked like -- so you refranchised Mexico -- it looked like the system wide sales were actually fairly good I thought in Latin America, but I'm trying to think about -- is there something about that part of the world that maybe is less attractive as a market for KFC or Pizza Hut for whatever reason?

So that's question one, and then the follow-up question was just in thinking about Taco Bell growth in the US.

Do you still need to add AUVs or have you gotten to a place where you feel like your volumes are sufficient and you have a model that sets you up to grow to add those 3,000 stores?

In terms of Latin America, I don't think there's anything wrong with Latin America.

Our history there hasn't always been the greatest, but Latin America as a whole is there -- if you look at our system sales growth for the year was plus 8%.

The issue there is we don't have any really power countries outside of Mexico where we have a lot of units.

Our history there has not been as strong in some of the bigger countries there; I'll talk about Brazil in a second.

On Mexico, we have a good business in Mexico.

We just didn't see that we were -- first of all, the franchisee we sold them to, as we've said before is a lights out franchisee.

He'll do a great job with the brands.

And we just weren't seeing the returns and the dynamic growth that we were hoping to see there.

I think part of that has just been Mexico has not quite grown at the level that we hoped it would.

A country that has grown at that level has been Brazil, and unfortunately for us, our history there has been KFC -- we failed twice before we went in the third time.

We actually feel good about how the brand is developing there.

We have a new partner that we added a couple years ago who we think is a strong partner.

But we're still building the brand there; not ready to expand the brand there aggressively.

Having said that, in some of the other smaller countries in Latin America -- we have some great brands.

We have very strong brands in Central America.

We have good brands in the Caribbean.

And obviously we look at the rest of South America as opportunities for us.

I'd say we have some good countries there like Columbia -- I'd say is growing at a pretty rapid rate, but we don't have power in some other countries that other people have.

And I want to use this opportunity to reinforce again our use of capital.

When we put the capital into a country, we are looking for great returns from the existing assets that we have.

And also we want to have a significant development opportunity.

So we thought we had opportunities on both that front and Mexico and I know we now have one of our best franchisees in the world, who is excited about Mexico and thinks he can take it to the next level and I'm confident that he will.

We want to talk about Latin America more.

We've just got bigger things right now that highlight the difference in our Company.

Taco Bell, we believe that we already are getting net new unit growth at Taco Bell with high margins and relatively high average unit volumes in our US system.

What we really need at Taco Bell is incremental sales layer.

That's why we're working hard to develop breakfast, we're working hard to develop our beverage line with a real skew towards appealing to our target audience, and that's why we're working on ways that we can get into higher ticket dinner, home meal replacement items.

So you give us another $100,000 to $200,000 worth of sales I think our ability to grow Taco Bell will be demonstrated.

And that's what we're focused on.

So very excited about Taco Bell in the future.

We think we will ultimately have a lot more units.

Thanks.

Larry Miller, RBC.

I was wondering if you can go back to the comment about pricing in China.

Can you talk about the competitive set and how they're pricing branded QSR and local QSR and how that might compare with what you're doing?

I was trying to run some math Rick, and I don't know if I got this right but is a 1% comp in China worth about 2 to 3 points of EPS to you?

Is that correct?

And then I have one question to follow up on.

Well there's so much that goes into the whole China piece.

I think that would be on the high side actually, but we'll come back to that.

We don't have great data on what other people are doing, obviously we keep an eye on them.

So we think the price increase that we took is very similar in scope to what McDonald's took.

So, we have that -- in terms of great data on the other folks, I don't have anything that I could really point my finger to.

We're very confident that other people are going to have to do what we've done if they haven't done it already.

So on this one we were actually probably -- because we are going off such strong numbers last year we probably were not early.

So we think we're sort of in the middle of the pack or maybe even on the late end of this price increase.

Okay.

That's helpful.

And then, just on the share count.

This is the first time I think, as far as I can go back in the model that we have, that it actually rose.

Can you remind me why you weren't more aggressive on share buybacks?

You clearly had the cash flow to do it, and then as you think about the use of cash flow -- because you talked about $1 billion that you're going to return to shareholders.

Where does share buybacks versus the other potential uses of cash flows returning to shareholders stack up?

Thanks.

Again, in hindsight I wish we were more aggressive in 2000 and that is probably the short answer to your question.

We are at the same time we were reducing our debt, and so we think that was important in this environment but to your point, we're now ready to roll going forward.

So we continue -- the way we always look at the share repurchases is it's sort of the balancing item.

We generate a lot of cash, we have the dividend, we clearly obviously -- the first thing on the list is putting the capital in where we think is appropriate.

And then sort of what's left over is available for share repurchase.

We think we will be aggressive there in about the $800 million level or so for 2011.

Thanks guys.

Great year, congratulations.

Mitch Speiser, Buckingham Research.

When we think about the emerging markets, which is becoming a bigger part of your story even excluding China.

Can you give us a sense, and I know most of your emerging markets exposure is franchise -- you mentioned overall food cost inflation in YRI at up 3%.

If we were to isolate emerging markets can you tell us what the franchisees maybe collectively are thinking in terms of what the food inflation is in these key emerging markets which is probably I'd say, generally Asia, Eastern Europe and their ability to take pricing and just a general sense of the food cost inflation outlook and emerging markets given a lot of the headlines that we're hearing that are showing up hyper inflation.

Thanks.

I think that we're probably in a very different stage of developing in most of our emerging markets.

I think it depends on which ones you're talking to.

A lot of the places we talked about at the December meeting is we're really just establishing the brand.

So it's more a factor does your business model work?

And we think we've quite a bit of room in our business model in most of these places.

So it's a matter of do you have your unit economics right, is your brand well positioned?

How's the brand being accepted?

So for example, we talk about Africa.

Those are much more factors than a year-to-year inflation number.

And obviously the economy has to absorb that inflation.

So in the long-term, in their place it's more a function of is inflation on commodities going to get out of whack with economic growth.

I don't see any reason why that would happen in the long-term in those markets.

In some of our more developed emerging markets -- places like Indonesia, Philippines, Malaysia, we have a lot of units.

Clearly, those places people have the same equation that we talked about in China and the US.

How do you manage inflation in that environment?

Usually what happens, which is a bit of a lag, if inflation goes very high in a particular country you can't price it all tomorrow, and usually do well.

You usually have to get a chunk of it first.

But that's on a country by country basis.

So we think our franchisees are pretty smart, they are obviously pretty good at protecting their bottom line and growing the brand at the same time.

Let me wrap things up.

Thanks again for being on the call.

As we continue to execute against our global growth opportunities, I think you can tell that our business model is increasingly evolving into high-growth, high-return businesses.

For 2011 we believe that all of our businesses are better prepared to drive sales; importantly, keep in mind that about half of our EPS growth will be driven by the new units that we built last year and units to be opened this year.

We continue to expect EPS growth of at least 10% for 2011, which will mark the tenth consecutive year we meet our annual target of at least 10% growth and we're confident we will continue to build the value of our Company in 2011 and beyond.

From a personal standpoint, I've never been more excited about leading this Company in the coming years.

We are on the ground floor of growth, and we've got the people and all the resources it takes to make it a reality.

So thank you very much for participating on the call.

Thank you for participating in today's conference call.

You may now disconnect.