百勝餐飲集團 (YUM) 2011 Q4 法說會逐字稿

Good morning and welcome to Yum!

Brands' fourth-quarter 2011 earnings conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks there will be a question-and-answer session.

(Operator Instructions).

Thank you.

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

Thank you, Rachel.

Good morning, everyone and thanks for joining us on the call today.

The call is being recorded and will be available for playback.

We are broadcasting the conference call via our website at Yum.com.

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

We'd 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 from last night and the risk factors included in our filings with the SEC.

In addition, please refer to the Yum!

Investor Section at our website to find disclosures and reconciliations of non-GAAP financial measures that will be used on today's call.

Finally we would like you to please be aware of a few 2012 Yum!

IR events.

These are save the date mentions for you.

Wednesday, April 18, our first-quarter earnings release will be after the market close.

On September 12 and 13, hold the date, we will host an investor conference in China.

As we get more details we will definitely be communicating to you via our blast e-mail and then finally our Annual Investor Update Meeting will take place on December 6 in New York City on Thursday, December 6.

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 will turn the call over to David Novak.

Okay great, Tim, and thank you very much and good morning, everyone.

I am pleased to announce we delivered 14% earnings per share growth in 2011, marking the 10th consecutive year we exceeded our annual target of at least 10%.

Before I talk about our results, I would like to start by thanking all of you who attended our Investor and Analyst Day this past December in New York.

This meeting gives us the opportunity to go public with our goals and commitments as well as showcase our management talent from around the world.

The theme of our meeting, if you recall, was On The Ground Floor of Global Growth, China and a whole lot more.

We highlighted our 10-year track record but even more importantly the future growth prospects of our Company.

The facts are we have a portfolio of brands with leadership positions in China and other emerging markets with a long, long runway for growth.

We have an asset base of over 37,000 restaurants and we continue to make progress leveraging these assets further by building sales layers and expanding dayparts.

Additionally, our strong cash flow generation and disciplined approach to deploying capital allows us to invest in the future growth of our business, as well as return cash to shareholders through a meaningful and growing dividend and make significant share buybacks.

We have tremendous confidence in our business model and we are confident the best is yet to come.

Today I'm going to highlight how some of Yum!'s unique strengths position our Company for even more growth ahead.

First, our leadership position in China and other emerging markets.

Over half our operating profit is now generated in China and the 72 other emerging countries in which we operate throughout the world.

Yum!'s strongest businesses are located where the highest growth is expected to occur in the years ahead.

This is a very powerful combination.

We view China as the best restaurant growth opportunity of the 21st century.

Our brands further strengthened their category-leading positions with a record 656 new restaurants and extraordinary same-store sales growth of 19% this past year.

KFC now has 3,701 restaurants in over 700 cities throughout the country and continues to expand into new cities as well as increase its penetration levels in existing markets.

Pizza Hut Casual Dining now has 626 units and is successfully opening in lower tier cities.

Its strategy to offer tremendous variety, everyday value, and refreshed 25% of its menu twice per year has consistently driven sales and profit growth.

It's important to note that China new-unit returns are the best in our business with cash paybacks within three years.

The macro environment continues to work in our favor in China.

Rising incomes are making our brands even more affordable for an increasing number of people.

In fact, the consuming class is expected double over the next 10 years going from 300 million to at least 600 million people as significant urbanization continues.

With this as our tailwind, our new-unit development pace will continue at a high rate and we will continue to grow same-store sales.

Our strategy in China is to have leading brands in every significant category.

KFC is the clear leader in Western QSR, Pizza Hut is far and away the Western casual dining leader, and we are developing Pizza Hut Home Service to capture the growing on-premise market and now have 135 Home Service Pizza Huts.

We are also building East Dawning to be the premier mainstream Chinese food QSR concept.

And I am pleased to say on February 1 we acquired Little Sheep, the leading hot-pot brand in Chinese casual dining, with approximately 450 system restaurants.

This acquisition advances our strategy to have leading brands in every significant category.

We are looking forward to strengthening Little Sheep's operational model and increasing its market leadership position.

We are very excited about the long-term potential of this brand and will make the necessary investments required to ensure its success.

As I mentioned earlier, we have China and a whole lot more.

We've made incredible progress in India, opening 101 new restaurants in 2011.

10 years ago we were essentially just beginning with KFC in India and now it is our second leading country for new unit development.

In fact, we are so excited about our prospects in India and its impact on the future growth of Yum!

that we are going to break it out as a separate division for 2012 reporting.

Those of you who made it to our New York meeting got to hear from Niren Chaudhary, President of Yum!

Restaurants India.

Niren spoke about how encouraging it is to see that our new-unit progress with KFC in India is very similar to what we saw in China during its first 10 years.

Niren and his team identified key elements driving success in China, and are adapting these strategies in India to leverage our iconic brands and build concepts with broad appeal.

While we don't expect meaningful profit contributions from India this year, we are laying the foundation for this business to have a significant impact on Yum!'s profit growth in the future.

We also made stellar progress in Russia where we are rebranding KFC Rostik's restaurants to standalone KFCs and same-store sales growth in Russia is the best in our business.

We know our primary competitor makes over $300 million in Russia.

We are just getting started and we have plans to build a strong business in Russia as well as we build off of our base of the nearly 150 restaurants.

We are also driving major growth in the continent of Africa, building off of our 656 stores in South Africa.

We entered Zambia, Ghana and Kenya in 2011 and plan to enter seven new countries in 2012.

in addition to expanding our business in South Africa.

In all, we plan to have restaurants in about 20 countries by the end of this year.

With over 1 billion people throughout the continent of Africa, we know we are just getting started.

As a point of reference we have about 60 restaurants per million people in the United States.

We have fewer than two restaurants per million people in the top 10 emerging markets.

Clearly, Yum!

Brands has a long runway for growth in emerging markets.

Now one not so well known aspect about Yum!

is the solid progress we are making in both France and Germany.

Our restaurants in France have the highest average unit volumes in the world for Yum!

and KFC.

We continue to build our scale and increase television advertising.

France is also the first market where we experimented with the business rental market to drive new unit development and returns.

And we have taken this approach to Germany where we are expecting to have the necessary scale to utilize television advertising in 2013.

We have 133 KFCs in France and 76 in Germany today.

Our challenge going forward is to secure great sites as fast as our people capability allows.

So while France and Germany are certainly developed countries, they are clearly emerging businesses for Yum!

brands.

Today we make less than $50 million in France and Germany while our primary competitor makes well over $1 billion in these two countries alone.

Clearly, we are on the ground floor in continental Europe.

With our leadership position in emerging markets and new-unit opportunities around the world, the Yum!

growth story is about China and unquestionably a whole lot more.

In addition to our vast new-unit development opportunities in emerging markets, we have tremendous potential with the 37,000 restaurants we currently have in our portfolio.

We have been very successful in China, leveraging our assets throughout the day with breakfast 24-hour service, delivery, and innovative beverages.

We are making progress in several other countries as well.

In Yum!

Restaurants International, we have nearly 4,000 restaurants with grilled ovens which enabled innovative no- fried products and 3,700 restaurants serving our Krushers line of frozen beverages.

These numbers will continue to expand further in 2012.

We understand it takes time to build these incremental sales layers and dayparts and we are committed to their success.

We are also reinvigorating our US business.

We had positive net unit growth at Taco Bell and Pizza Hut in 2011 and we expect this trend to continue.

As I mentioned earlier, Taco Bell just launched breakfast in 800 restaurants on -- in the West Coast with its first meal strategy.

Taco Bell built an incredible late-night business by gradually staying open longer and longer.

We are taking that same strategy and applying it to breakfast.

We will be opening for breakfast about 8 AM and gradually moving that earlier as we gain traction.

We are also reinventing the taco by launching the Doritos Locos Taco in March which is a taco made from the Nacho Cheese Doritos.

These are just a couple of examples of the exciting things you'll be seeing at Taco Bell this year.

Given the importance of Taco Bell to our US profitability, I am pleased to say Taco Bell has reversed its negative sales in the fourth quarter and Taco Bell's positive same-store sales trends continue as we speak.

We are confident Taco Bell is on its way to strong performance this year as we ready for the launch of Doritos Locos Tacos.

So once again, we are pleased the brand has regained momentum.

We will comment no further on recent sales trends.

Pizza Hut delivered a solid year in 2011 on the heels of a great 2010.

The combination of value, innovative new products and unique bundling has performed well.

We will continue to leverage these strategies going forward.

Our US business is clearly in a position to improve results.

We expect profit growth from our US businesses this year and more consistent performance going forward.

Our success in executing these strategies has driven our return on invested capital to over 22% which is among industry leaders and we continue to be disciplined with our capital allocation.

We generated over $2 billion of cash from operations in 2011.

We are fortunate to have many high return global opportunities to invest in for future growth.

We will also continue to return cash to shareholders.

2011 marked the seventh consecutive year we raised our dividend at a double-digit rate.

Our dividend now has an annual rate of $1.14 per share.

We also repurchased $733 million of our stock in 2011 and expect to repurchase about $800 million in 2012.

In conclusion, we are very proud of our track record of success.

We will continue leveraging our strengths in China and other emerging markets.

We are challenging all our businesses to look for ways to further utilize our 37,000 existing assets.

We expect better performance in the United States and we continue to generate significant cash and will remain disciplined in our approach to deploying capital.

I am encouraged by the positive momentum we have in our business.

We are well-positioned to meet our -- meet or exceed our annual target of at least 10% earnings per share growth in 2012 and beyond.

So now let me turn it over to Rick Carucci, our Chief Financial Officer.

Thank you, David, and good morning, everyone.

Today I am going to cover three topics.

First, I will discuss our fourth-quarter and 2011 full year results.

Then I will provide a brief update of our outlook for 2012.

Finally, I will talk about the actions we took in 2011 and plan to take in 2012 to reinforce our high-growth, high-return business model.

First, let's talk about the fourth quarter.

Let me remind you that our US business and a portion of Yum!

Restaurants International benefited from an extra week in the fourth quarter of 2011.

This had a material positive impact on our fourth-quarter results.

We also incurred higher spending throughout the year in franchise development incentives and higher than normal restaurant closures.

Therefore, the combined impact to the 53rd week offset by this higher spending only had a modest positive impact for the full year of 2011.

During the fourth quarter, operating profit grew 14% prior to the foreign exchange benefit.

In the US, the 53rd week had an $18 million benefit to operating profit.

Without the benefit of the 53rd week, US operating profit would have been flat versus prior year.

For Yum!

Restaurants International, the 53rd week had an $8 million benefit to operating profit.

For Yum!

overall in the fourth quarter, operating profit grew 8%, excluding the benefits of both the 53rd week and foreign currency exchange.

Sales improved in the fourth quarter through much of Yum!.

China's same-store sales increased by over 20% in the quarter when we added 327 restaurants.

At YRI, after seeing same-store sales growth of 2% in the first and second quarters, we had 3% sales growth in the third and fourth quarters.

The fourth quarter also represented the highest quarter of same-store sales results for our US business.

All three US brands have higher same-store sales in the fourth quarter than they did in the third quarter.

We are glad to end the year with the sales uptick and with some momentum to carry us into 2012.

Now let me provide a brief overview of our full-year results in 2011.

Our China business simply had an exceptional year.

Record development of 656 new units combined with 19% same-store sales growth on a business of our scale is quite an accomplishment.

While our China business has produced some stellar years, I personally believe 2011 was our finest sales year ever.

With that said, we simply cannot expect 19% same-store sales growth going forward.

Unfortunately, our business model does not rely on this [heroic] performance as new-unit development combined with more moderate same-store sales growth can still drive strong system sales growth and strong profit growth.

We ended 2011 with full year restaurant margins of 19.7%.

This was in line with our recent expectations.

During our third-quarter earnings call, we stated that we expected restaurant margins to decline in the fourth quarter due to high inflation but for full year margins to be about 20%.

We expect to make progress closing the gap between inflation and our menu pricing and to see positive year-over-year restaurant margins in the second half of 2012.

I have one final comment to put our China results in perspective.

As we look back to our 2011 year, please note that these results were on top of a very strong performance in 2010.

In fact, in US dollar terms, China earned about $600 million in 2009.

By 2011, China operating profit exceeded $900 million.

This represents a 50% increase in profit over just a two-year period.

Yum!

Restaurants International had a solid year, opening 905 new units including 101 units in India.

As David mentioned, our international team did a great job of making progress in our high-growth countries.

To help reinforce this point, please note that 622 of our new units were in emerging markets and over 90% were opened by our franchisees.

In the US, results were disappointing in 2011 with full year profits down 12%.

We had a solid year at Pizza Hut, but weak sales and profit results at Taco Bell and KFC.

As we said in New York, given our product news and cost management, we believe we are well-positioned to have sales and profit growth in the US in 2012.

Before I end my comments on 2011, let me provide some context for Yum!'s results.

In his remarks, David mentioned that our decade-long track record of EPS growth has been strong.

We are proud to be a very select group of companies that have produced such consistent growth over this timeframe.

Yum!

posted 2011 earnings per share of $2.87 before special items.

On a similar basis, our EPS is over 3.5 times what it was 10 years ago.

During the same decade, our ROIC has increased 4 percentage points to over 22% in 2011.

We look forward to building upon this track record as a high-growth and high-return business for many years to come.

Now let's look ahead to 2012.

At our Annual Investor and Analyst Conference in New York in December, we laid out detailed plans for our growth expectations in 2012.

So I won't repeat what we stated there.

If you did miss our Investor Conference, the presentations are still available on our website.

However there are two significant areas I do want to address today as it relates to 2012.

First, international new-unit development remains a key driver of our growth.

We expect to again add 1,500 new units outside the US in 2012, at least 600 new units in China, about 800 new units in Yum!

Restaurants International, and 100 new units in Yum!

Restaurants India.

The 2011 and 2012 units are key drivers of our EPS growth.

Second, I want to comment on China sales.

For the first quarter of 2012, given strong sales over the Chinese New Year and keeping in mind that our first quarter consists of only January and February, we expect solid double-digit same-store sales growth.

As the year progresses and the overlaps become more challenging, we do expect same-store sales to moderate.

Of course it is difficult for us to predict in what quarter this will happen.

We do expect a combination of strong same-store sales and new-unit development to produce healthy operating profit growth in 2012 in China.

Our overall outlook for Yum!

has not changed significantly from the December meeting.

We are confident that 2012 will be another year of double-digit EPS growth for Yum!

Brands.

Finally I want to spend a minute talking about our evolving and enduring business model.

As I have said before, our philosophy is really pretty simple.

We reduce Company ownership in highly penetrated or underperforming markets and we increase exposure in emerging and under penetrated markets.

By following this philosophy and due to strong execution by our Division teams, our business model has evolved over the years.

Today, over 70% of our operating profit is generated by our international businesses.

We ended 2011 with over $1.5 billion in operating profit in China and YRI.

10 years ago we made only about $350 million in these businesses combined, which represented 30% of our profits at that time.

The vast majority of this growth has been in emerging markets.

We took actions in 2011 and plan to take more actions in 2012 that are consistent with our principles that will improve our ability to further grow emerging markets.

We continue to reduce our footprint in highly penetrated markets.

In December of 2011, we completed the sale of Long John Silver's and A&W All-American Restaurants.

The larger of these concepts, Long John Silver's, has about 97% of their restaurants in the US.

Second, we continue our US refranchising program.

Our plan is to retain about 5% ownership in KFC and Pizza Hut.

We are currently at 8% ownership with Pizza Hut and plan to be at 5% ownership for KFC by the end of 2012.

We announced at our Investor Conference our plan to reduce Taco Bell US ownership from 23% to about 16% over the next two years.

Finally, we announced our decision in the third quarter of 2011 to refranchise our entire Pizza Hut UK business.

We have started the sales process and our intention is to sell this business this year.

At the same time, we are aggressively growing our presence in emerging and underpenetrated markets.

While our franchise partners feel the majority of our new-unit growth, we will also build Company units in international markets where we can achieve scale, realize high growth, and yield high returns.

We have made three acquisitions in recent times that meet this criteria.

First in 2010 we exercised our options to take full management control of Rosticks KFC in Russia.

As David mentioned, during 2011 -- our first full year of operations -- results have been impressive as Russia had one of the highest same-store sales growth rates in all of YRI.

We have made significant progress in rebranding this business as the KFC brand.

This has increased our confidence that Russia will become a big business for Yum!

Secondly, we bought out our largest KFC franchisee in South Africa in the fourth quarter of 2011.

This acquisition allows us to establish an equity base in South Africa and to fuel the high-growth potential for the rest of Africa.

And finally, just last week we completed the acquisition of Little Sheep in China.

We are very excited to bring our operating and development expertise to this business.

Our China team is executing the transition of Yum!'s ownership of this brand as we speak.

The Little Sheep business will add about 5% to our revenue base in China for 2012.

With the timing of the acquisition there will be no public filings for full year 2011 results.

The last public filing was for the first six months of 2011.

We are reviewing the full year financial information now but we can tell you for the year 2011 revenues grew by about 10% as a result of new-unit expansion.

Net income was down for the year, continuing the trend in the first six months.

Same-store sales were negative in the back half of 2011.

Besides sales deleveraging, margins were also negatively impacted by significant commodity and labor inflation.

We will share more information with you regarding the expected profit impact of this acquisition for Yum!

in 2012 at a later date.

However, when you take into account transactions and transition costs, we expect only a modest profit impact in 2012.

In conclusion, I am very confident in the strength of our business model.

We believe that the investment decisions we are making today will set us up for success now and for the long term.

We will continue to invest in underpenetrated markets with a long run rate for growth, deploy capital in our existing asset base that generates high returns, and leverage these assets with additional sales layers and dayparts to generate same-store sales growth.

In our New York meeting, I pointed out that our business is evolving and enduring.

In fact, I showed that we expect a robust EPS model in the year 2020.

We intend to do the things we need to do to grow the business each year and to continue to lay the groundwork for growth in the future.

I am confident that we have a strong business in 2012, 2020, and beyond.

Back to you, David.

Thank you very much, Rick.

What we'd like to do now is to open it up for any questions that you have about the business.

(Operator Instructions).

David Tarantino with Robert W.

Baird.

Good morning and congratulations on a good year.

My question is really about the pace of unit openings in China.

That business is showing a lot of topline momentum and great returns on capital and you exceeded to least the low end of your guidance fairly significantly in terms of unit openings for 2011.

So the question is what are your thoughts on being able to sustain that higher level of openings and potentially even move it higher as you look into 2012 and beyond?

As you mentioned, the China teams just added an amazing track record for getting unit growth and also getting this growth through tiered cities.

You know we continue to expand aggressively in tier 3 through 6 cities and especially expanding our lead in those areas.

So we feel very good about what has occurred.

As a reminder of what we said in New York was that we ended up increasing the new unit growth because of a couple of factors.

One has been the even faster infrastructure growth the China government has taken on and literally took us through, they are building these CD clusters and what that is doing is allowing new trade zones in places like train stations, bus stations, et cetera.

But it is also developing new trade zones as they are building new apartments in some of these cities as well.

So that has led that growth and the other piece that has increased our numbers in 2011 where it was really Pizza Hut development.

And Pizza Hut, a while back we struggled in Tier 3 cities.

Our second unit in Tier 3 cities we are having really good success in Tier 3 and Tier 4 cities now with Pizza Hut as we have more variety and better value in those restaurants.

So I don't expect any of that to change in the next year or so.

So we still have a guidance of at least 600 units and I think it is safe to say we will hit that 600 unit.

Regarding further out, it has always been hard to predict when the next layer of the unit growth has occurred.

It took -- we were stuck on only 500 for about a four-year period before we got to the 600.

I've still said historically that I expect the absolute number to grow over time while the percentage continued to decline and that is still my personal best guess at this point in time.

I agree with everything that Rick just said and just let me give you just a little bit more color on why we are very bullish about the development opportunities in China.

I think the biggest tailwind as I mentioned earlier is just growing consumer class.

Going from 300 million to 600 million people in the next 10 years or at least that.

But then I think our whole formula for success in China has been cheered on great local management teams with phenomenal operating capability.

And we have always had one rule.

We ever want to expand any further than or faster than our people capability.

Because we have got these brands that are so good, we just want to keep polishing the diamond.

Now having said that, when you look at our operating capability, the best we have in the world, 90% of our restaurant managers in China have at least a college education.

When I talked to Mark Chu, the President of China, he will tell you that in every one of our KFCs we have two assistants ready to open up new stores when we are ready.

So, we have the people capability and we know there are lots of people there that need jobs, want jobs, and we are creating all kinds of jobs there.

So we have a tremendous environment that is set up for operating capability.

In fact, our operating capability is so good there, we really see ourselves as the training ground for retail development and retail managers in China.

We have what we call the Whampoa Academy, where we are really developing talent to not only grow our business, but we think will help other retailers as that country emerges by providing talent which is fine.

We basically tell somebody when they come out of school in four years they can run a restaurant at KFC or if they want to go start their own business, they will be ready or they can go work for another retailer.

Or they can become a franchisee.

But we are like the Procter & Gamble's, the king of marketing talent in the United States.

We see ourselves as the leader in operating talent in China.

The second big thing on people capability is just our development operations.

Our development team, we have 700 people in our development team.

We have the best retail management base in China.

This is a huge competitive advantage as we go forward.

And what I always say is that when you go into any of these new cities, we are going to have the flagship location and/or locations before our primary competitor even gets there.

So we are going to -- so we have a huge competitive advantage there.

So I think underpinning everything that we are doing in China is the operating capability we have.

And I think it really is true, the formula of success in this business, you have the people capability right, you got that right, then you satisfy more customers and you make more money.

We are basically delivering that in spades.

The only other thing I would say is what we are talking about now in terms of our development engine is KFC leader in QSR, Pizza Hut leader in Casual Dining.

We are obviously developing Pizza At Home Service, we are obviously developing East Dawning for Chinese Quick Service opportunities as we go forward and we just bought Little Sheep.

Because we want to have the leading brands in every significant category.

So our goal, obviously, is to keep this development engine primed and pumped and take advantage of the significant opportunity we have to provide great brands in China, create lots of jobs in China, and make our business even bigger.

Great.

Thank you.

David Palmer with UBS.

Congrats on the year.

A few, just a quick question here.

Could you describe or maybe give some numbers around how much of that Company margin decline in the quarter in China was due to the higher new opens that were year over year in that quarter?

My suspicion is that there is some sort of pre-opening purchasing cost in there.

And then, secondly, reimaging for Taco Bell in the US.

Can you give us an update there?

And re-franchising for KFC in the US.

Thanks.

Regarding the margins in China, by far the biggest impact that we had which we expected coming into it, was food inflation and labor inflation.

There is an impact to your point on new openings as they went up versus prior year.

We always had a lot of new openings in the fourth quarter.

We think the impact of that is a bit over a point.

Regarding KFC refranchising, I feel very good with the progress we have made.

As I mentioned in early 2011 we had spent some time working on a fairly large transaction that after we sort of turned our attention to smaller deals, we think we've made a lot of progress.

So feel good with how we ended the year.

Believe we are very well poised to therefore deliver on what we set of finishing the KFC, refranchising in 2012.

And I think the final numbers which is in our release for the refranchising of KFC was [150] units in the fourth quarter.

And reimaging for Taco Bell, where are you on that and what is the plan there?

Taco Bell, we think that the units are in pretty good shape.

So we like the way we look in the US.

We are continuing to upgrade our system.

We think about 50% of our system is where it should be today.

So we have work to do.

But it is sort of normal pacing and sequencing.

I think one thing that always helps is we believe we are well positioned to have a strong 2012.

So whenever franchisees are doing better, they are usually in a better position to invest in continuing to upgrade their assets.

Thank you.

Michael Kelter with Goldman Sachs.

I wanted to ask about a couple of things on China.

First of all, with the new development step up can you maybe talk about quantitatively what you're seeing with the latest batch versus prior year's?

And then, secondly, on labor inflation over there, do you feel like at this point you need to take any proactive steps to address it since as you said you think comps are probably going to moderate?

And I am not quite sure what happens to profitability if labor inflation stays at this rate but you don't comp at the rate that you are currently comping.

And then lastly in China, if I got it right I think you said Little Sheep same-store sales are currently negative.

I am curious to hear why you think that is and what kind of a turnaround might be required for that brand.

Thanks.

Remind me of the first question.

Labor was the second question.

What was the first question?

What you are seeing in the latest batch of Chinese openings versus prior years?

Still early on the China in terms of we have seen nothing different really in terms of our performance for China and new units.

We haven't seen the fourth-quarter ones yet.

But the stuff that we had throughout 2011 were very similar to what we have had before.

Very high hit rates, very high return on invested capital and the trend that has continued a bit is stronger performance in Tier Two through Six cities than in Tier One cities.

So again we are being more cautious in our Tier One cities which we have been doing throughout 2011.

But we feel very good about the performance of the new units.

The labor side to me is a bit gravity.

We expect labor rates to continue to go up.

As we have sort of said before, that is a dual-edged sword where we obviously do the things we can do to make to have productivity in our restaurants.

But my belief is that if labor inflation occurs at a high rate we will have to price to offset it as will everybody else.

So I think that is how that will play out.

Little Sheep, we really are just starting to understand the business.

So we have teams that are going there now.

The deal just closed at February 1.

So the team is going through transition right now.

We're welcoming the people who are part of Little Sheep into the Yum!

family.

We think they have high enthusiasm, high talent.

So we are pleased to be working with them.

But we really don't have a lot of insight into the performance last year.

I pretty much shared what we know.

And we are still trying to really learn more about the details of that business.

Thank you very much.

Keith Siegner with Credit Suisse.

So as the refranchising program in the US continues along this path and you become closer and closer to being kind of this super highly franchised very stable business, one thing I think has been interesting is how your franchising license expense in the domestic business has actually moved substantially higher, not just in dollar terms but also as a percent of franchise in license revenue.

And I think in 2011 there was clearly some incentive as you talked about maybe for Pizza Hut Delco.

How should we think about that franchising license expense, either in dollars or percent going forward, as you finish this transition with KFC and get closer with Taco Bell?

Like where is that franchising license expense end up when that program is done?

Yes, I think it will be fairly close to what it is today with the exception of, as we pointed out, the incentive this year -- sorry, 2011 -- on the Pizza Hut Delco.

Again what we were doing there is providing incentive for lower-cost Pizza Hut delivery units especially geared towards smaller towns.

And it is a less expensive unit and that is actually -- has the desired effect.

A lot of franchisees have built them.

We ended up with net positive units in Pizza Hut for the first time in quite a while in 2011.

We see that number increasing as we go to 2012.

But the way that the incentive work we actually started with a 2011, 2000 -- sorry 2010 and 2011 incentive.

But a lot of the spending ended up in 2011.

So that amount of money, I would say it is probably about $4 million higher than what it normally should be.

If you adjust for that, my guess is the percentages will be pretty constant going forward.

And at this point there is no plan or talk of an incentive to encourage remodels or reimaging across the franchised system.

Is that right?

We have some -- we have various programs in place but nothing major new at this point.

Okay.

Thank you.

Joe Buckley with Bank of America Merrill Lynch.

Thank you.

Two questions as well.

Can you talk about just dynamics of pricing check and margins in China?

It looks like the check was up 1%.

Pricing year over year by the end of the quarter looked like it was, I think, up 7% based on what we tracked.

Just kind of curious how that played out and how it looks in 2012?

And then just a question on Taco Bell.

Just wanted to get a clarification.

David, I think you said Taco Bell was positive in the fourth quarter.

The release had it down to and I think you said it was positive here in the early part of 2012.

So maybe if you could just bring us up-to-date on that and maybe also address this salmonella issue, and if that has had any effect on sales.

I'll let David go first with Taco Bell?

Well, first of all, our sales at Taco Bell turned positive late in the fourth quarter and they continue to be positive even in the most recent days, and so as I mentioned the event that you just talked about had no impact on our sales or transactions and the event I want to point out took place last year.

And if you would like any more information about that just go to our website at tacobell.com.

Bottom line is that when we look at Taco Bell we are extremely pleased that Taco Bell sales turned positive late in the fourth quarter.

Positive now, and we are readying for our Taco -- Nacho Cheese Tacos launch which we think is the biggest innovation in Mexican quick service restaurant industry in I don't know how long.

But I mean this is like we really took advantage of the fact that we have a great partnership with PepsiCo.

Went to Frito-Lay, have the opportunity to launch Doritos Taco Shells which, totally proprietary, no one else in the industry will be doing it, very excited about that launch which is coming up.

We also have launched breakfast, I think, in a very smart way that we can make money.

We just open it up in 800 restaurants on the West Coast starting at 8 o'clock, takes care of a lot of the labor issues and we think that we will ultimately end up expanding that across the country, and having breakfast earlier just like we expanded our late night.

The other thing that we are very excited about which we now have in test is a line of higher quality category breakthrough value with celebrity chef Lorena Garcia where we have new ingredients, new pico sauce, new meat, bowls.

We think we are bringing Taco Bell value to a different line of products that are more premium where we are really just reestablishing the category value, which we think is terrific.

So there's lots of really good things going on at Taco Bell.

The franchisees are extremely excited about it and we are very bullish that we are going to be able to have an outstanding year or at least a solid year this year.

You pick your adjective, but it is going to be a lot better than last year.

So we are enthusiastic and longer-term, as I have always said, we think Taco Bell is a huge opportunity for Yum!

Brands.

We are underpenetrated.

We think if we can get a couple hundred thousand dollars more of sales volume we can go from a little over 5,000 restaurants to 8,000 restaurants in the United States because we are the national competitor.

So we really have a very dominant position and as we also look at Taco Bell as the global opportunity.

An opportunity to begin to expand that around the world as well.

So we are very bullish on Taco Bell and upward and onward.

Joe, regarding your first question about China dynamics on pricing and margins, you pretty much have the pricing right.

We had -- if you go back in 2011 we had 3% pricing roughly in the first quarter.

We had 2% pricing at the end of September and we had 2% pricing in early November.

So if you look at the impact in the fourth quarter, we basically had three months if you look at the September it is right at the end of the month so again remind folks that the fourth quarter is a four-month quarter for China -- September, October, November, and December.

So we had three months of the first price increase and so did -- of 2% and we took another price increase early November also about 2%.

And we got about two months of that.

So we had a little -- about five months of price increase over a four-month period.

So, the net impact of that was a little over 2 points of effective pricing that showed up in the fourth quarter this year.

Flip side of that we had very high food inflation, labor inflation, we had -- as we said -- highlighted on the quarter three call we ended up with 11% food inflation, about 18% labor inflation.

So the impact on margins of that was about a negative 7% and the overall impact we had on pricing was a positive 5%.

That 2% I talked about in the fourth quarter plus the benefit of 3% in the first quarter.

So that is really what the big factors were in the margin decline.

As you look forward to what we expect in the first quarter, just a couple of things to keep in mind.

One is that some of that pricing rolls off because we took the 3% pricing during the first quarter last year.

We still expect high food commodity in the first quarter of next year, although our indications are that commodity inflation will get better as the year develops in China and we will have a little bit of higher benefit from the pricing we just took in the fourth quarter.

Rick, when do you lap the value initiatives like when should that mix in fact become a little less significant in China?

I would say by the second quarter.

We started, you know, we have different value pieces.

Just to put that in perspective, what we call our value mix and again we have it in all of the dayparts.

It's breakfast, lunch, and afternoon tea are the three areas where we sort of have some value combination.

If you add that up, Joe, it's about 10% to 15% of our mix that are in those value -- layer that we have which is about what we wanted but a lot of that came in the first quarter but some of it came in more aggressively in the second quarter.

So again that is the reason why first-quarter I don't expect heroic margin results, but I think margins will get better as we get to the second quarter and beyond and what we said before is we expect margins to be better on a year-over-year basis by the second half of 2012.

Got it.

Thank you.

[John Black] with Morgan Stanley.

First just to follow-up on that question and your comments on China this quarter.

Have you actually begun to lap the value initiatives from last --?

I think you started with breakfast then went to lunch.

Have you actually seen the year-on-year laps and are you still confident in getting the traffic lift or is the first quarter sort of half you didn't get the laps and so it was positive and as you lap it you are seeing more moderate traffic growth?

You will see more in the second quarter.

We lapped some in the first quarter as we eventually did some but you have to be careful because Chinese New Year is such a big event in China it is hard to get a real lead on that.

So we will probably know more when we get into the second quarter.

Okay.

And on the US margin, one specific question and one broad question.

Specifically you have got some nice occupancy leverage and I don't think you got that in prior quarters and I know comps got a little better but it wasn't a massive inflection so I don't know if that is a function of refranchising or some other element.

That's the specific.

And more broadly, Rick, as you hit your goals in say 13 of the refranchising of the brand, what would that do to impact US margins?

In other words you had reported a 12.3 I think in 2011 if you were to refresh all of those stores today how much better do you think margins would be?

Unfortunately I think I would have to get back to you on both of those questions.

The refranchising impact we have is going to be somewhat significant.

Not as significant as some other previous years, but we will benefit in particular from the refranchising we did in 2011 on KFC.

The Taco Bell will benefit less from because their margins aren't that far away from our overall margin level.

So I would think it would be about at least 0.5 point but we would have to get back to you with more specific numbers on that.

And on the lower occupancy that would definitely -- part of that would definitely be some of the benefit of refranchising.

So those would generally be lower margin stores, lower volume stores.

So occupancy would be higher as a percentage.

Jeffrey Bernstein with Barclays Capital.

Just two questions.

First a follow-up on the earlier questions on China and related to pricing.

Thank you for the the sequential trend in terms of how much pricing you took last year.

Just wondering as you look further out into 2012 I think you told us at the Analyst Day you needed like 4+ points to protect the margin which I think you said you hoped to sustain that 20% in 2012.

Just wondering if you can update us on as you lap that I guess it was 3% from the first quarter of 2011.

Is the current plan to take more pricing and therefore still be running in that 5% level?

Is 6% food cost inflation still the best guess?

I am just trying to gauge the confidence of the importance of the 20% plus margin in 2012 and that sequential trend.

And then I had a follow-up on the US business.

Yes.

Right now, obviously what we do with pricing will depend on what happens with inflation and I would say right now we are not changing our view of commodity inflation in China.

We probably have a little higher degree of confidence that will moderate.

I mean we have it moderating in our forecast.

I think our confidence in that has come up a little bit as we see what is happening in the marketplace there.

So given that what we should have said is we expected to take obviously some pricing in 2012.

Our best guess is sometime in the second quarter but that will depend on how things play out a little bit.

We have nothing planned specifically at this time but that is our best guess and the level of it will depend on if we see anything different on the commodity side.

And that with the goal being to get back up to roughly or to sustain that 20% level is kind of the longer-term target for 2012?

Yes and again I probably -- the way the mass works is we think it will be right around 20% for 2012 but I think the bigger importance from my standpoint is to make sure by the second half of 2012 we are at normal levels of margins and I think that to us is also the 20% on an annual basis.

So yes, I feel pretty good about our ability to do that by the back half of the year and right about now we are not changing what we should have said in New York where we should have said our best guess for the full year 2012 margin is about 20%.

And then just on the US side, the G&A savings from refranchising, can you just -- if you were to kind of extract that, how much that is and when you would expect that through the year?

I mean how would you -- I know you are talking about return to profit growth in 2012 in the US, but I'm just wondering about the sequential build on that.

So how much is the savings and how would you expect that to float through the year in terms of the US profit growth?

Yes, there's sort of three big things happening in the US in 2012 on the G&A perspective, so it may be hard to be watching from the sidelines.

One is we have actually made some changes as we restructured our business it will generate G&A savings.

That number is about $30 million.

There's like three $30 million numbers to keep in mind.

That will benefit us in 2012.

So we will get benefit from that roughly that amount.

Another $30 million unfortunately going the wrong way is our pension costs are expected to arise.

Most of that, that will happen at the Yum!

and US levels.

Most of that is at the US levels.

So as we lowered our discount rate for the year that is having a $30 million negative impact to our pension expense, which will hit G&A, mostly G&A.

Some of it hits margin but most of it is G&A.

And then the third about $30 million per year is the actual -- the first $30 million of restructuring really occurs at all levels of the organization.

As you actually refranchise units you'll also get G&A savings from having fewer area coaches and those types of things.

That will also develop during the course of the year.

That last piece to keep in mind the is offset by lower revenues and profits that you get from a refranchised restaurant versus a Company-owned restaurant.

So we sort of said that last $30 million will be neutral.

It will -- so when you add that up we probably expect G&A roughly to come down $30 million and for that to be offset by lower profits of Company-owned stores.

So when you throw it in all it should be negative -- sorry, flat to profitability but about $30 million favorable for G&A.

Does that make sense?

I think, just to clarify, it is $30 million positive from the first point.

$30 million negative from the pension which I would think would roughly offset each other.

And then the third one is the savings from a few area but it sounded like that was going to be net neutral.

So it sounds like the G&A in total would really not change in either direction.

The last piece of it will be neutral for profitability but favorable for G&A.

Thank you.

Jason West with Deutsche Bank.

Thanks.

One quick one and then a longer-term question on YRI.

But on China did you make any adjustments to the value program in the fourth quarter that sort of caused some of the improvement in the mix trends there?

And then secondly on YRI, I guess going back to the same question on unit growth in China, are you getting to a point where you feel comfortable raising the gross unit openings at YRI or do you feel like you are going to be at this level we are -- we've been in the last few years for a while?

Thanks.

Yes.

On the YRI piece of it we are pretty pleased with what we have.

We've covered a lot of that I think at the Analyst Meeting in the sense of we are building, getting close to critical mass in certain countries -- France, Germany, Russia, a little early for Africa yet -- where we think we could start to accelerate development but we are not ready to make that call for 2012.

So I do think that there is a good chance over time that number goes up in total, but right now we are just calling it similar to where we were.

The other thing on YRI unit growth, it was 4% net for the year which is definitely in the high if you look at trends for YRI that was on the good side of the trends so we feel very good about that as well.

On the value question is part of the November price increase that we talked about included lowering cost of sales in some of our value initiatives in China and that was pretty much in all the areas, in breakfast, workday lunch and afternoon tea.

So we tweaked our value offerings everywhere there.

They were I would say minor adjustments, but included in that 2% number I gave you.

Thanks.

Mitch Speiser with Buckingham Research.

Regarding China, when we think about the 20% margin on a longer-term basis, the food and paper line is about 35% of Company sales.

In the US it is about 30%.

Now commodities are rising, but do you think that there are structural improvements in sourcing and distribution and perhaps other areas that could take that food and beverage number, that present down overtime to where the US level is?

I think that was probably true a while ago.

So one of the things that occurred until I would say the last couple of years is we were able really to not take any pricing and really get a lot of efficiencies on our cost of goods just through buying for thousands of units versus buying for hundreds of units.

It's realistically -- I think there is some upside but not going forward but not as big as it has been historically and the higher food costs in China, I think, were done intentionally, that we want to make sure that we provide a lot of value.

We can afford to do that because our labor costs were lower.

So we have always had good value in China.

You know, obviously, if labor costs creep up we will have to figure out how to deal with that and some of that may be by reducing our food costs.

But obviously look at all parts of the P&L and pricing to manage that.

Thanks.

And separately on Pizza Hut, a great quarter off of a pretty tough comparison.

Could you give us a sense, do you think it was more Company-specific initiatives, is the category reaccelerating?

Any thoughts on the Pizza Hut [comps] or further thoughts would be great.

Thanks.

Are you talking about US?

Yes, in the US.

I'm sorry.

I think Pizza Hut is just building on its foundation of value that was established with the launch of our $10 Any program and we continue to bring the $10 message forward, plus we had the combination of the low-end of a $10 large pizza anyway you want it combined with the $20 box meal that we came up with which was an innovation in terms of bundling.

So I think as we look at Pizza Hut this year, we think we have got -- we are going to have -- you will see the combination of more value and the constancy of that value and the creativity around how we bring our value message to the marketplace.

Plus you'll see continued innovation.

You will see the typical innovation that we are pretty famous for in the category in terms of pizzas.

We also continue to drive our pasta business on Tuesdays and our wings business on Wednesday, leveraging the assets throughout the day.

So I think the great thing about Pizza Hut right now is we feel like we have a very solid foundation from to build on.

You know, in years past, we were so dependent on just the marketing whizbang pizza of the year.

And I think with our everyday value proposition being what it is now, we have a much more stable proposition to build on as we go forward.

The other thing that we are very excited about is that we are working very hard on the operating side.

We think there's significant opportunity to improve sales just through getting our pizzas to our customers faster, driving more productivity inside the store in terms of speed.

So we think we have a lot of initiatives that will give us confidence that Pizza Hut is going to keep moving forward.

I think the big chains are doing better now overall because they -- we have all improved our value proposition and certainly we have led the way with that a few times.

[Yang Hwang] with Sanford Bernstein.

This is Yang in for Sarah Senatore.

My question is can you talk about the food and labor installation cadence through 2012 in the US in YRI and what is the likelihood and timing of pricing in those regions?

Yes, it is really hard to generalize on YRI, but in general I would say the same thing that we sort of see in China is similar in the US.

We would probably expect more commodity inflation the first half of the year and less commodity inflation in the last half of the year.

Labor, I don't think there's any significant difference in expectations on timing during the course of 2012.

Okay, and how about the pricing expectations?

Again I think similar to China in a way that we will probably take some modest pricing early in the year and then reassess depending on what commodities do later in the year.

Okay.

That is for both the US and YRI?

Yes.

Andy Barish with Jefferies.

Morning.

Sorry if I missed it earlier.

Just on the overall, your best guess on the overall US inflation number for the year?

And then are there any cost impact of the Taco Bell upgrades that David was referring to?

First of all, the upgrades have been pretty much consistent through the past probably three years.

So no, in terms of the Company site P&L there wouldn't really be anything incremental to that.

So on the commodity side our numbers we had outlined previously were about 6% -- .

It is 6% for China.

Right, and about 2% for the US and 5% for YRI.

Thank you.

Those numbers are basically the same as we -- for everyone.

Those are the same numbers that we laid out for everyone in the New York meeting.

So we haven't changed any of our expectations.

Larry Miller with RBC.

I had two questions.

One on Taco Bell breakfast.

What kind of mix are you expecting can you give us that in either percentage terms or dollar terms?

And then secondly on Little Sheep.

I understand it is a new business but you probably have seen the economics.

Can you talk about the economics?

And then can you give us a sense of how the China team is prepared to handle not only fast growth but managing five brands.

Is that too much or are they very prepared for this?

Thanks.

On the Little Sheep I really 00 I will remind a couple of things that I said.

Don't have a lot more to say because again we are busy both transitioning people in and, quite frankly, figuring out exactly what we're going to do in several of these areas of the business.

So really as we mentioned we know that 2011 didn't end on a strong point but we really haven't done the diagnostics of what we're going to do to address that.

But again we feel very good about the category and the brand.

I remind people although hot pots are not well known here, it's a $5 billion category in China.

They are the leaders in that category and we believe that the expertise that we bring plus the experience and the brand that they have will be a good long-term partnership.

I think in terms of China is, obviously, people capability is what drives us in China and we obviously believe we have the management depth and capability to bring on that brand or we wouldn't have acquired it.

That's fair and then on Taco Bell, on the breakfast.

What are you guys expecting or what should we think about?

Yes.

You know we -- we really -- we just started so we feel good about what has happened so far but we haven't seen hard data on it.

Now the biggest thing to me is our -- to meet the leading indicator is going to be do franchisees who don't have it want it, based on how the franchisees who do have it?

And I think it is too early to make that call.

But that is obviously something you want to keep in touch with during the course of a year and a reminder of one of the reasons we went with this strategy is it is a lot more affordable for us and our franchisees from a labor standpoint.

So to me unless -- what we want to make sure of is that the we are able to coming close to cover our costs by opening that hour or two earlier.

And we think we have a very good chance to do which is why so many people signed up for it.

Okay.

Thanks.

Bryan Elliott with Raymond James.

Good morning.

I would like to go back to the China inflation labor in particular, and just get a little more color on maybe thinking about the tiers of the employee base.

Are we seeing, for example, higher inflation at the entry level or at the college educated manager level or can you just peel that back a little bit?

I would say it is pretty high across the board.

Labor inflation in China has been going on really double-digit for a long period of time but really ramped up about two years ago, especially the second half of 2010 and throughout 2011.

So that's when we went instead of seeing low double digits we were seeing high teens, even at 20% in the third quarter for us for labor inflation in 2011.

And it is pretty much across the board because the inflation, a lot of it is driven by increases in minimum wage and the minimum wage increases have been in the midteens recently or the high teens.

And so that is going to drive not just the lower group but pretty much everybody above them as well.

And as we should have said before I -- it is a dual sword for us because as people have more money on the positive side they spend more and are able to afford our restaurants but it gives us the cost to deal with.

Our sense is that we may have more better labor inflation in 2012 and 2011.

We sort of outlined that in our Investor Meeting.

I think so far, expectation -- what we have seen is consistent with that expectation.

You have seen fewer markets increase their minimum wage at this -- versus at this point last year.

So we're hoping to get back to midteen labor inflation in 2012.

How about turnover trends?

Has there been anything changing on that?

No as David mentioned in his speech one of the things that's really I would say for -- for me a pleasant surprise is that we have been able to increase our number of college graduates both team -- college students and team level and as David mentioned over 90% of our restaurant general managers are college graduates.

Five years ago that number was in I think about the 60% range.

So we have been able to increase our quality at the same time we are adding restaurants.

And I think part of that, I think, is unique to Yum.

I think people know that they are joining a company that has been very successful and they have seen a track record of people who started at team members or restaurant general managers growing to senior management positions within our Company.

So I think we probably have a better shot at that than some of the other players.

Great.

Thanks.

Really quick on the US.

Any wage or turnover inflation of note yet?

No.

Okay.

Thanks.

Last question, please, Rachel.

John Ivankoe with JPMorgan.

Maybe a little bit differently than have been some of the questions on China.

You know, as we look at the capital needs of the business whether it is debt to EBITDA, debt to free cash flow.

Was just hoping you could kind of comment on what you think the future direction of the balance sheet is and whether it did make sense to take advantage of some very low interest rates even with your stock price where it is now.

So that is, I guess, the first point.

other words, above and beyond what you are generating in normal free cash flow buyback.

And then secondly if I may you know there's, I mean, action speaks louder than words and the Company has kind of generally made more developed markets and I would say develop I mean not for Yum!

but developed in general franchise markets over time.

And yet the Company is investing capital in markets like France and Germany that are very developed and formal leading out markets and are competitive in some cases especially against McDonald's.

And I guess the point of that question is and related to the capital needs question is, are you currently seeding markets with Company dollars with helping finance franchisees?

In other words is that more of a kind of a hey, let's get the market started and then over time make it a capital like market?

Or do you think that those markets become [being stay] we have become -- become increasingly or stay high capital needs markets in the future.

Regarding the first part of the question, one of the great things we have had in China is we still are we have been positive cash flow for at least five years there even though we continue to ramp up development there.

In terms of capital as a percentage of revenues or cash flows, I think expect that to go up slightly and the reason for that is that as we build all of these units we have to remodel them at that point.

So I expect our new unit capital obviously moves with our growth.

So in certain areas that will come down because we have said that we expect new units as a percentage of the base to go down over time.

But we expect remodels to go up because five years -- right now if you go back five years we are remodeling stuff that was five years old.

So that was like 450 units at that point.

Five years from now, we are going to be remodeling 656 units.

So when you net those two out I would expect a slight increase in the percentages.

In terms of what we will do with our cash, we gave you a set of our best guess, at this point still about $800 million of share buyback.

We feel very good with what we have done the last couple of years on the debt side.

Otherwise, we would be probably more aggressive to your point now but we already sort of borrowed at very low rates the last two years and feel very good about those rates.

And at this point we are probably looking at keeping our debt as a percentage of EBITDA constant.

So as we can grow that, we will increase debt.

But like you say, we always keep looking at that because the rates are very strong but no change is expected there.

On France and Germany we will have fewer Company-owned restaurants going forward.

What -- for those of you who weren't in New York, Ivan Schofield talked about we have -- he doesn't really want to get to over 100 Company-owned units in France.

So we will probably stick fairly close, a little higher than the number we have today.

However it is still going to be a pretty high investment model because we have elected in France to go with what we call a business rental model which is, our understanding, pretty similar to what McDonald's has in France and Germany where we hold the lease and we charge the franchisees a percentage of sales.

It varies depending on the level of sales.

So that will still be a capital-intensive market for us but less than Company-owned stores.

And that is something that you would expect three to five years for example.

I mean, I understand that there is a need to seed franchisees and seed markets and get to the critical mass that you need for awareness advertising, what have you, but that is at least the intention for the foreseeable future?

Yes, at this point that is our intention.

We have liked what we have seen so far with the business rental model in those countries.

We think it facilitates growth and we are comfortable sharing in the upside and downside of that market with the people, with our franchisees.

Great.

Thank you.

All right, thank you very much for the questions and let me briefly wrap this up.

I would like to do it by just talking about one of the initiatives we are very excited about this year that we are really driving hard on.

And it starts with the fact that for the past 15 years I have been teaching a leadership program called Taking People With You and more than 4,000 people in the Yum!

system including franchisees have participated in this program and as I talked about in New York, I recently wrote a book based on this program.

Basically Taking People With You includes everything I have learned about how to build the line teams to get results and it gleans the best know-how in the world from top change experts, coaches, and CEOs I've interviewed, met with and other leading companies.

And what we have done is and we're doing now is we are making 2012 the year of Taking People With You for operational excellence across Yum!

Brands around the world.

Basically, we have taken the learnings in the book and we created training guides that will be made available in 11 different languages to restaurant general managers all around the world.

And they will be developing plans with their coaches on how to take people with them in their restaurant to get the single biggest thing that is going to drive performance, operational excellence in their restaurant.

And we are very excited about this because we think it is going to prove to be a real catalyst for us to drive what we call customer mania and improve operational effectiveness.

And this is part of a major effort that we embarked upon a couple of years ago internally, which is to build world-class operations.

We have been focusing very hard on putting more and more effort and diligence and process and discipline around operating standards and processes and making sure that they are executed, because we firmly believe that while we have pockets of excellence and operations around the world, particularly in markets like China and India and even in the United States, Taco Bell is top-tier in terms of speed and accuracy.

We think we can do better.

So we are very, very focused on Taking People With You and using this as a way to drive even more performance in our stores and become more operationally excellent.

So very excited about that area.

This is the year of Taking People With You to drive operational excellence all around the world.

By the way all the proceeds of the book Taking People With You go to the United Nations World Food Program which we've made our global corporate social responsibility effort and we build awareness of that, the issue of starving children all around the world, leveraging our system.

So it's -- all of this is geared towards us continuing to make progress as we build the defining global company that feeds the world.

We want to have a culture that is world famous for recognition, everyone counts.

Make our brands vibrant everywhere we do business with operational excellence the foundation which we made our single biggest priority and we'll continue to do in the next five years and then we want to be a company with a huge heart which is all geared around providing great jobs for people and also making a difference in the world with the World Food Program.

So very excited about this year.

Very bullish about the opportunity we have to continue our track record of generating at least 10% earnings per share growth.

We always try to do the best we can and we are very focused on really having an outstanding year and delivering returns for our shareholders.

So thank you very much for being on this call and we look forward to talking to you out in the marketplace and in the next quarter.

Thank you.

Thank you, ladies and gentlemen, for your participation in Yum!

Brands' fourth-quarter 2011 earnings conference call.

You may now disconnect.