Amounts set forth above are system-wide numbers, which include company and franchisee transactions, restaurants and associates. Select figures are rounded and approximate.

David Novak, Executive Chairman of the Board, Yum! Brands, Inc.

David C. Novak

Executive Chairman of the Board,
Yum! Brands, Inc.

Dear Partners,

Since our company was spun off from PepsiCo in 1997, I have had the privilege of leading our quest to become the Defining Global Company that Feeds the World. Over this time, our compound annual shareholder return has been 16% and we have been recognized among elite global companies for our leadership capability, recognition culture and ability to perform across the globe.

Growth opportunities outlined in this report abound at Yum! Brands. Although 2014 results fell short of our expectations, I’m confident our growth model is intact and we are well positioned to deliver at least 10% annual EPS growth on a sustainable basis.

On January 1, I stepped down as CEO and will serve as Executive Chairman and I’m pleased and proud that Greg Creed will be my successor.

Greg has everything it takes to be an outstanding CEO and take our company to the next level. First and foremost, he walks the talk of our culture and will continue to grow and develop it further. Next, he is a visionary business leader with a 20-year track record of success at Yum!. Over the past 9 years, Greg has transformed Taco Bell into an industry leader, elevating its esteem and establishing top-tier customer service levels. He is a breakthrough thinker, launching day parts like Fourth Meal and breakfast, and introducing major product lines such as Doritos® Locos Taco and Cantina Bell. Importantly, Greg has a passion for our global business, with deep international experiences at Unilever and at KFC and Pizza Hut in Australia and New Zealand. He is a well-rounded executive, having previously served as Yum! Brands Chief Operations Officer. There is no doubt in my mind that he is fully qualified and equipped with the knowledge, experience and positive energy we need to lead the company going forward.

In this Annual Report, Greg will share his perspectives on the business and his vision for the company.

Greg Creed, CEO Yum! Brands

Greg Creed

Chief Executive Officer,
Yum! Brands, Inc.

I am truly honored...

...and grateful for the opportunity to lead Yum! Brands. As CEO, I am privileged to lead a phenomenal business with three iconic brands, vast global infrastructure and the franchise capability necessary to facilitate growth.

In 2014 we grew full-year EPS 4% to $3.09 per share, excluding Special Items. This was well below our 2014 full-year target of at least 20%. These results were heavily skewed by the challenges handed to our biggest division as we suffered two highly publicized supplier incidents in two years in China. However, we know our brands are resilient and continue to believe this setback is temporary. After our first supplier incident, which negatively impacted 2013, we recovered and delivered strong results in the first half of 2014. Specifically, our China Division operating profit increased 116% and Yum! EPS grew 27% through our first two quarters, prior to Special Items. We were convinced 2014 would be a year of at least 20% EPS growth. The July Shanghai Husi supplier incident changed all that. However, we are fully committed to achieving at least 10% EPS growth in 2015 and I'm confident we have the people and plans in place to deliver double-digit growth going forward.


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China Division

Given our long-term positive outlook for China – and our continued belief that our current sales issues are temporary – we opened 737 new restaurants across the country in 2014. We continued our disciplined approach to development, shifting our new-unit program toward higher return investments. In 2015, we plan to open 700 more new units in China. In addition to the massive new-unit opportunity we have with KFC and Pizza Hut Casual Dining, we will continue to expand Pizza Hut Home Service as well.

I want to assure you our recovery in China is my top priority and all hands are on deck to get the business back on track as soon as possible.

We have a tremendous sales-leverage opportunity as China sales recover and we fully expect to realize this over time. I have great confidence in Sam Su, our Vice Chairman and China division CEO, and his ability to capture this enormous upside and win with even stronger brands in the world’s fastest growing economy.

KFC China

KFC is a beloved brand in China with a huge advantage not only in scale, but also in innovation, quality and people capability. As the #1 foreign brand in China, KFC has 4,800 units in 1,000 cities. This is more than twice the size of our nearest competitor. Although 2014 average unit volumes were 20% off their peak levels, restaurant level margins were a respectable 15%. These fundamentals, even in a challenging year, demonstrate we can open new units with attractive returns for our shareholders. We know we have work to do to regain consumers’ trust, and we're making progress. Once we do, the opportunities are tremendous. I have no doubt KFC will be an even stronger leading brand as we evolve our strategy for the changing Chinese consumer, making KFC more contemporary, engaged and connected.

We’ve learned from other setbacks that we must innovate our way out, and that’s what we’re doing at KFC China. Our successful menu revamp in the first half of 2014 reinforced the fact that our customers love food innovation. We’re going to build on this success and launch two menu revamps in 2015, introducing new products across our menu – breakfast, lunch, dinner and beverages. And as always, we’ll continue to offer compelling value. In December, we also started our initial rollout of premium coffee in Shanghai KFC restaurants. The initial results are encouraging and our freshly ground coffee has contributed solidly to our breakfast and afternoon day parts.

Finally, digital customer engagement and mobile ordering innovation will be central to KFC’s sales recovery in China. We are applying our know-how across Yum! to elevate KFC’s digital offerings. I am excited by the opportunities we have to further enhance how we connect with our customers through these platforms.

Pizza Hut China

Pizza Hut Casual Dining is recovering more quickly, as it was not as severely impacted by the supplier event as KFC. With 1,300 restaurants in 350 cities, we are the number one western casual dining chain in China, with a lead around 6:1 over our nearest competitor. We offer an extensive menu across many categories and five-star service at a three-star price. This translates to extreme value for our customers and an experience they cannot get anywhere else in China. In 2015, we intend to grow same-store sales through constant innovation of our core offerings while we grow our breakfast and late night business.

Pizza Hut Home Service now has 250 restaurants in 35 cities and is the only “All Meal” replacement delivery brand in China. Forty percent of our menu consists of Chinese food. So not only are we delivering pizza, we’re also delivering a full array of Chinese menu options.

In 2015, we will invest heavily in digital and mobile innovation to further enhance the Pizza Hut Home Service customer experience and grow same-store sales.

Before I move on to our other divisions, I want to provide some details around a further write-down of our investment in Little Sheep. We recorded a non-cash Special Item net charge of $361 million in the fourth quarter of 2014. Acquired in 2012, Little Sheep has clearly fallen well below our expectations and has not yet achieved unit-level economics necessary to justify the expansion we had envisioned for this concept. We have a small, dedicated team focused on improving this business – and pending the outcome of these efforts, we will evaluate our options with Little Sheep later this year.

Despite our recent challenges, we wouldn’t trade our position in China with any other restaurant company. Our category-leading brands, combined with a rapidly expanding consuming class, lead us to believe we remain on the ground floor of growth in the world’s fastest growing economy.

As of January 1, 2014, we combined our Yum! Restaurants International and U.S. divisions into three global brand divisions: KFC, Pizza Hut and Taco Bell. China and India remain separate divisions given their strategic importance and enormous growth potential.

# # # #

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KFC Division

Globally our KFC business model is incredibly strong. I love the combination of being the emerging markets leader, being franchise led and having a line of sight to double-digit operating profit growth well into the future. KFC delivered a strong year of system sales growth led by emerging markets like Russia, Africa and Thailand and international developed markets like the UK, Continental Europe and Australia. Demonstrating its global power as an iconic brand, KFC set a new record for international development and opened nearly 670 restaurants. The new news for KFC is the U.S. business is performing much better. The KFC U.S. business grew same-store sales 6% in the 4th quarter and is poised for its best year in some time. All of this sets up the KFC division for a solid 2015.

As strong as the global business is, I know it can be even better. Our assets are underleveraged. We’re going to remedy this by expanding operating hours, leveraging digital and strengthening the core. We also expect the recent improved performance in the U.S. to continue. Micky Pant, our KFC CEO, deserves a lot of credit for breakthrough leadership of this iconic brand. And with its brand positioning of Always Original, I’m confident the best is yet to come.


KFC is a new reporting division and includes all KFC results outside of the India and China divisions.


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Pizza Hut Division

Our global Pizza Hut division capped a year of record-level international development, opening 465 new international units. We expect to improve on this number in 2015. Our focused brand structure is clearly paying dividends with Pizza Hut development. However, Pizza Hut is more than a new-unit story. In December, we launched our new menu in the U.S. driven by the Flavor of Now positioning. I absolutely believe we have the right product and brand positioning.

However, sales were softer than we expected with our initial launch. This is a long-term strategic initiative and we are excited by the fact that people who tried our new pizzas love them – repurchase intent is greater than 90%. We are working to drive more customer trial as our advertising campaign evolves to drive sales through sharper product and price offers. I know new Pizza Hut CEO David Gibbs and his team are focused on getting the advertising and pricing right to ensure that their brand-building efforts are a success. We have a long runway ahead of us and are making the decisions necessary to drive future growth in the U.S. and globally.


Pizza Hut is a new reporting division and includes all Pizza Hut results outside of the India and China divisions.


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Taco Bell Division

Taco Bell had a solid 2014, with strong system sales growth. Our breakfast launch last spring was a success and we continue to report strong margins. We had our strongest rate of new-unit development in more than a decade with 236 new restaurants. 89% of these new restaurants were opened by franchisees, demonstrating the brand’s attractive unit economics. I’m also happy to see our mobile app launch is off to a solid start – we’ve seen 2 million downloads so far.

I believe a lot of the momentum witnessed at Taco Bell is attributable to its insight-driven Live Más brand positioning, product development, advertising and social engagement with core consumers. We are now applying this to KFC and Pizza Hut around the world. And vice versa – all ideas don’t have to come from the U.S. or from Taco Bell. For example, we are taking a page from the success of our open-kitchen Taco Bell restaurant in Bangalore, India and are planning to open a similar restaurant in the U.S. in 2015. This sharing of ideas globally is especially important as we work to quickly spread good ideas worldwide. With Taco Bell CEO Brian Niccol at the helm, we expect 2015 to be another robust year at Taco Bell as we focus on expanding our breakfast offering, further leveraging our digital and social engagement platforms, generating more innovation across all day parts and optimizing our presence through next-generation footprints.

Taco Bell is a new reporting division and includes all Taco Bell results outside of the India division.




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India Division

In India, system sales increased 14%* for the year and we sustained a strong pace of development, with 156 new restaurants. While we are outperforming the category in India, macroeconomic conditions weighed on our overall results. Yum! India President Niren Chaudhary is using this opportunity to strengthen our positioning with consumers as well as our business model. This will set us up for success in a country which is expected to become the largest consumer market in the world.

*India system sales growth excludes Mauritius from the prior year amounts and the impact of foreign currency translation to enhance comparability.


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On the Ground Floor of Global Growth

I could not be more confident in the huge growth opportunities ahead for Yum! Brands. We have an international franchise infrastructure of 1,000 franchisees, with 40% of our international restaurants owned by franchisees who operate more than one of our brands. We have focused equity in key countries, and are growing in emerging markets with our franchisees who are investing in the business and generating significant royalties for Yum!. Our divisions are diversified with a strong presence in developed markets, a lead in many emerging markets, and global brand control. Our 100% focused teams are now organized to deliver growth and champion our culture. We also drive know-how sharing across both geographic and brand borders. And with our massive scale, we have supply chain purchasing advantages and an ability to create big career opportunities for top talent. Going forward we will further leverage the power of Yum!.

Everything we do will be focused on building three global iconic brands people trust and champion.

I believe this is critical for delivering sustained and aggressive growth and to recover from our challenges. Our powerhouse brands must be boldly focused on the things that matter most to consumers. There are a number of points to this evolution, so let me explain.

KFC and Pizza Hut are clearly global category leaders. And with 250 restaurants outside the U.S. and strong innovation and operating capability, Taco Bell is growing its global presence. Our brands are world renowned and respected, and we will grow them consistently and sustainably when our consumers and stakeholders do two things: Trust us and Champion us. I believe they trust us when we are more open, transparent and connected, especially in a world of fast-moving social media and digital innovation. We also know consumers trust us when we put them first in all we do and show an unwavering commitment to food safety and integrity. I believe they champion us when they understand while we are not perfect, we are trying to be better each and every day on the things they care about in our food, people, community and environment.

Everyone who has worked with me knows I believe only brands with the very best insights will win. Winning means having the courage to go after big ideas that disrupt the status quo and make a distinct impact on the way our brands will grow and build relationships with consumers. To achieve this, I’m proud to share we are establishing a more clear and compelling True North positioning for each brand. For KFC, we’re Always Original. For Pizza Hut, we’re Bringing More Flavor to Life, expressed as The Flavor of Now and for Taco Bell, it’s Live Más. I couldn’t be more excited about the clarity and relevance of this distinctive positioning and the growth strategies that are setting us up to carve out an even more relevant place in the lives of our consumers. As I mentioned, I’m committed to the same high standards of performance and innovation we’ve established over the past 17 years. So going forward, I expect our brands to behave in a way that:

  • Is Innovative and Elevating
  • Offers Value while demonstrating our Values
  • Is Disruptive but Distinctive
  • Is Genuine and Transparent

These are our brand filters. They act as our compass, directing our path to building three global iconic brands people trust and champion. I believe KFC, Pizza Hut and Taco Bell are truly on the ground floor of global growth and the power of Yum! is stronger than ever. I know we have the right structure with 100% brand focused teams, digital innovation, know-how sharing, operating capability and franchise economics to deliver strong value and performance for our shareholders over the long term.


When you consider the growth opportunity we have with our brands, and the cash we return to our investors, we believe our company is set up to provide compelling total shareholder return over the long run. And we continue to drive the three things that create shareholder value in retail:

New-unit development

Our new-unit development opportunity in China and other emerging markets remains the best in retail. We plan to open 2,000+ new international restaurants in 2015, 90% of which will be opened by our franchisees.

Same-store sales growth

We have over 41,000 underleveraged assets with significant capacity to grow. We’re growing our brands with a powerful combination of new sales layers, expanded day parts, menu innovation, digital platform development and strong value.

High returns

Our return on invested capital has consistently been among the best in the retail industry. We generate nearly $2 billion in annual franchise fees and concentrate our investments in high-growth, high-return businesses. We’ve announced plans to take our franchise mix outside of China and India from 91% to about 95% over the next three years through the combination of selective refranchising and franchise development. These actions, along with our expected China sales recovery, should boost our return on invested capital further.

Finally, we have a strong track record of returning significant amounts of cash to our shareholders in the form of dividends and share buybacks. Over the last 5 years, we’ve repurchased 61 million shares, representing a 13% reduction in outstanding shares. We also have a meaningful and growing dividend. In 2014, we increased our dividend 11%, marking the 10th consecutive year we’ve increased our dividend at a double-digit rate, one of only 12 companies in the S&P 500 to do so.

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Last but not least, I want you to know I am proud of the way our three iconic brands come together to show we’re a company with a Huge Heart – opening doors, growing people and truly caring about the world. Leading the world’s largest private sector hunger relief effort, we set the bar high every year in support of World Hunger Relief. We surpassed our own bold goal this year, raising $40 million in cash and food donations for the United Nations World Food Programme and hunger relief agencies. Since 2007, our efforts have raised $600 million in cash and food donations resulting in 2.4 billion meals going to people in need. Hunger is the world’s most solvable problem and together we are making a meaningful difference in peoples' lives.

I am equally as pleased that KFC, Pizza Hut and Taco Bell have meaningful community engagement efforts that positively impact the local communities where they live and work. Considering our collective impact, Yum! Brands, Inc. was named among the 100 Best Corporate Citizens by Corporate Responsibility Magazine. We were the only restaurant company that made the list. And trust me, we are going to get better and more courageous every day at delivering the high quality, high integrity contributions our consumers most care about in our food, people, communities and environment. I invite you to view our progress in our online Corporate Social Responsibility report.

Thank you to all of our team members, restaurant general managers, franchisees, community partners and restaurant support leaders who make this company so unique in its passion for feeding the world. I also want to thank our Board of Directors, with special gratitude to David Grissom, who has retired from our Board after a number of years of dedicated service. At the same time, I want to welcome Elane Stock to the Board.

After reading this Annual Report, I hope you clearly see the strength of our business and the growth opportunities before us to build three global iconic brands people trust and champion.


Greg Creed Signature

Greg Creed
Chief Executive Officer, Yum! Brands, Inc.


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2014 Financial Highlights

Download Financials (In millions, except for per share amounts)
Year-end 2014 2013 % B/(W) change
Company sales $11,324 $11,184 1
Franchise and license fees and income 1,955 1,900 3
Total revenues $13,279 $13,084 1
Operating Profit $1,557 $1,798 (13)
Net Income - Yum! Brands, Inc. $1,051 $1,091 (4)
Diluted Earnings Per Common Share before Special Items (a) $3.09 $2.97 4
Special Items Earnings Per Common Share (a) (0.77) (0.61) NM
Reported Diluted Earnings Per Common Share $2.32 $2.36 (2)
Cash Flows Provided by Operating Activities $2,049 $2,139 (4)
(a) See our 2014 Form 10-K for further discussion of Special Items.

Worldwide System Units

Year-end 2014 2013 2012 2011 2010
Company 8,664 8,097 7,544 7,403 7,238
Unconsolidated Affiliates 757 716 660 587 525
Franchisees 30,032 29,305 28,565 26,887 26,178
Licensees 2,093 2,115 2,168 2,169 2,186
Total 41,546 40,233 38,937 37,046 36,127

Year-end 2014 2013 2012 2011 2010 4-Year
KFC Division 14,197 13,904 13,612 13,450 13,418 1%
Pizza Hut Division 13,602 13,333 13,060 12,725 12,583 2%
Taco Bell Division 6,199 6,048 5,977 5,942 5,894 1%


KFC 4,828 4,563 4,260 3,701 3,244 10%
Pizza Hut 1,572 1,264 987 764 642 25%
Little Sheep 291 389 451 -- -- NA
East Dawning 24 27 28 28 20 5%
Total China 6,715 6,243 5,726 4,493 3,906 15%


KFC 395 341 260 186 128 33%
Pizza Hut 431 359 299 247 196 22%
Taco Bell 7 5 3 3 2 37%
Total India 833 705 562 436 326 26%
Total 41,546 40,233 38,937 37,046 36,127 4%


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