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Greg Creed, CEO Yum! Brands


Chief Executive Officer,
Yum! Brands, Inc.

Dear Stakeholders,

was a landmark year for Yum! Brands. Late in the year we announced our intention to spin-off our China business into an independent, publicly-traded company. Our decision to create two powerful, independent, focused growth companies is a classic example of one plus one being greater than two. Yum! China will be China’s largest independent restaurant company, with no meaningful external debt. New Yum! will be a global, diversified, franchise company with an optimized capital structure. The separation of these two distinctly different businesses will give shareholders the best of both worlds. Yum! China will be a focused China investment with strong national appeal and major growth potential and will target annual ongoing EPS growth of approximately 15%. This company will have tremendous new-unit potential in China’s growing consumer economy and inherent value from improving unit economics.



Yum! China will also have a self-sufficient business model, funding all of its capital needs, while having the potential for stock buybacks in year one. New Yum! will be an even more highly franchised company with three leading global brands, leadership in emerging markets, clear average-unit volume and new-unit growth opportunities, less volatile cash and earnings streams, and high shareholder cash returns. New Yum! will target approximately 15% annual ongoing shareholder return, defined as EPS growth plus dividend yield. In addition, we intend to return approximately $6.2 billion in capital to our shareholders prior to the completion of the spin-off. This is an incremental return of capital beyond our regularly planned dividend.

$6.2 Billion


Needless to say, 2016 will be a transformational year for Yum! as we complete this spin-off. The fundamental goal of Yum!, however, is unchanged. We are 100% dedicated to building and strengthening KFC, Pizza Hut and Taco Bell all around the world as strong brands are critical to delivering sustained growth and creating long-term shareholder value.

In 2015 EPS excluding Special Items grew to $3.18 per share, or 3%, despite a 7% decline in the first half of the year. With restaurants in over 130 countries and territories we have foreign exchange exposure from the impact of translating our foreign profits from local currencies into U.S. dollars. In 2015 we had six percentage points of foreign currency headwinds. Excluding these currency headwinds full-year EPS grew 9% despite lower than expected sales in our China division. While 2015 EPS was below our initial expectations, I was pleased with the sales momentum we generated across the majority of Yum! in the fourth quarter and look forward to building on this in 2016.

One Plus One is Greater than Two

For the full year our brand divisions collectively grew operating profit 8% in constant currency, which is in-line with our ongoing growth model target. This was led by 12% operating profit growth at Taco Bell – a remarkable result given the significant investments we made in the fourth quarter to position the brand for continued momentum and category leadership for years to come. Operating profit grew 8% in constant currency in China, with impressive cost management partially offsetting weaker than originally anticipated sales results.

In 2015 worldwide system sales grew 5% in constant currency, which included increases of 8% at Taco Bell, 7% at KFC, 2% at Pizza Hut and 2% in China. Same-store sales growth was positive across all three of our brand divisions, with Taco Bell at 5%, KFC at 3% and Pizza Hut at 1%. China’s same-store sales declined 4% in 2015 but we have plans to return both KFC China and Pizza Hut Casual Dining to positive growth in 2016.

We opened 2,365 new restaurants globally in 2015. This year we expect to open nearly 2,400 new restaurants, which means we’re opening over 6 new restaurants a day, laying the groundwork for future growth. Given the plans we have laid out for each of the divisions, we’re confident in our ability to deliver 10% operating profit growth in constant currency in 2016, which includes the benefit of a 53rd operating week for part of our brand divisions.

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In China
we opened 743 new restaurants in 2015. Our disciplined approach to development balances our continued, strong belief in China’s long-term growth potential and strong cash paybacks on new restaurants with current market realities. In 2016 we plan to open 600 more restaurants in China. This reflects the opportunities we see across our brands to enter new trade zones and expand our presence in existing ones. Our net-new unit growth in 2016 will be similar to 2015 as we expect fewer closures this year. We expect 2016 to be another year of sequential operating profit improvement with growth of 10%.

KFC China

KFC, which represents about 75% of China’s operating profit, grew same-store sales 6% in the fourth quarter, continuing the sequential improvement we saw throughout the year. While same-store sales declined 4% for the year, total system sales in constant currency were even as we added 175 net-new units, surpassing the 5,000 unit mark. KFC has more than twice the number of restaurants of our nearest Western QSR competitor and is in about five times more cities. This beloved brand reported restaurant-level margins of 16%, a full percentage point higher than 2014, despite a decline in same-store sales. These fundamentals demonstrate our progress in productivity initiatives and the tremendous operating leverage the brand should realize as sales continue to improve.

We know we still have work to do at KFC and I’m thrilled the China team is applying global best practices, fresh thinking and new insights to revitalize the brand and achieve traction with consumers. Early test results of proven, global, sales-driving tactics are encouraging and the implementation of these programs should drive transactions and benefit the division later this year. One example is box meals, which have proven successful globally and which we expect to be similarly well received in China. I can assure you we are taking the right steps to grow this business – and the momentum we are seeing makes me confident we will.


Pizza Hut Casual Dining, which represents about 25% of China’s operating profit, is the Western Casual Dining category leader with nearly 1,600 restaurants in over 400 cities. This is a lead of around 6:1 over our nearest Western Casual Dining competitor. In 2015 system sales in constant currency grew 10% as we added 259 net-new units, but same-store sales declined 5%. The macroeconomic environment and volatile stock market impacted the casual dining segment and we know we must generate more exciting news and value to counter this headwind. We’ll be more focused on value going forward with workday lunch specials and value pizzas – as well as other initiatives to drive traffic. We have our work cut out for us here, but the China team has a number of strategies and concepts in test that we expect to improve results. We know there’s substantial runway for new units and same-store sales growth for China’s leading Western Casual Dining brand.





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is a franchise-led, emerging-market powerhouse. With nearly 15,000 restaurants in 120 countries and territories, the brand generated $16 billion in annual system sales and has grown operating profit over the last three years at a 9% compound annual growth rate in constant currency. I’m thrilled to see KFC’s “Always Original” positioning gaining momentum and being adopted globally, which I believe will lend further strength to the brand.

Franchisees opened 85% of our 705 new international restaurants in 2015. Total system sales grew 11% in emerging markets for the year, with particular strength in Russia and Central and Eastern Europe. In fact, Russia has generated system-sales growth of at least 40% in each of the last four years. We have tremendous potential in emerging markets, where we have a significant lead over the competition. I’m also encouraged by our recent performance in developed markets, such as Australia, the U.S., and Japan. International developed markets’ system sales grew 6% in 2015 and U.S. system sales grew 2%. These results reinforce my confidence in the brand’s ability to drive sales going forward. We have an unbelievable ability to generate meaningful growth in mature markets, where we have a long established presence. We are taking our global brand identity and unifying that with local cultural insights to expand and grow our business all around the world. We are 100% focused on our real, authentic and freshly prepared food and merging that with value and innovation to drive results. On the international front we’ve enjoyed success with lunch and dinner box meals. In the U.S. we recently introduced Nashville Hot Chicken. This is a spicy version of our crispy chicken, inspired by one of Nashville’s most famous dishes. We’re excited about the possibility of this innovative product finding its way into the system outside of the U.S.

The new-unit pipeline at KFC remains impressive. In KFC’s top 12 emerging markets, excluding China, we only have one restaurant per million people today. With an aggregate population of 3 billion people in these markets, think of the potential. Across the world we have plans in place to grow sales and to build on the division’s consistent operating profit growth performance. This year we expect at least 675 new international restaurant openings and to grow operating profit 11%, which includes a one percentage point benefit from the 53rd operating week. I am confident KFC will continue to excel and reward shareholders in the years to come.


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At Pizza Hut
U.S., which generates about 60% of the division’s operating profit, we are starting to turn the corner with our focused emphasis on “making it easier to get a better pizza.” This runs the gamut from improved operations and insight-driven food innovation to digital enhancements and consistent value. While we recognize there is a lot more work to do, we’re now generating positive momentum with same-store sales growth.

Equally significant, we reached an important agreement with our U.S. franchisees. Starting in January, we and our franchisees began an overhaul of Pizza Hut’s assets, replacing ovens and upgrading in-store technology. From a marketing calendar perspective, we are focused on a balanced approach. You may have seen the launch of our $5 Flavor Menu, the most compelling value menu in the pizza business. In conjunction with our ongoing $6.99 Any Pairs deal it provides our customers with great value on an ongoing basis. Simultaneously, we are offering premium-priced innovation, such as our recent launch of the Stuffed Garlic Knots Pizza, to protect and improve unit-level economics.

Our international business at Pizza Hut is led by strength in emerging markets but offset by weakness in some developed markets. We believe we can apply best practices from the U.S. business to drive growth in these developed markets going forward. In 2016 we expect to open at least 525 new international restaurants. We also expect to grow operating profit 7% in constant currency, which includes a two percentage point benefit from the 53rd operating week.


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Taco Bell
delivered a fantastic 2015, surpassing $9 billion in system sales, and we expect a solid year in 2016 as well. Taco Bell is on the cutting edge of QSR and is the industry gold standard for social engagement, product development, brand positioning and advertising. The brand’s Live Más positioning is an example of how strong brand identity can drive success across the spectrum. We have several new, exciting products launching this year, including the Quesalupa, which we introduced during Super Bowl 50. Our innovation focus extends beyond just food. We are encouraged by early results of our delivery program and are developing expansion plans for additional cities. The addition of our loyalty program in November builds on our mobile app and will increase brand affinity as it rewards social behavior. Furthermore, we are focused on our core value messaging to drive transactions. We continue to build our breakfast day-part where sales are growing at twice the rate of the business as a whole. In fact, we grew breakfast transactions 6% in the fourth quarter.



Given the brand’s strong economics and broad franchisee appeal, we continue to accelerate new-unit openings both domestically and internationally. We had a record number of U.S. openings in 2015 and expect to build upon this in 2016. I’m particularly excited that we’re starting to get some traction expanding this great brand internationally. We know this process will take time, but we’re making real progress here. In 2016 we expect to open at least 300 global new restaurants and to grow operating profit in constant currency 9%, which includes a three percentage point benefit from the 53rd operating week. Our growth plans both domestically and internationally will lay the groundwork for higher operating profit growth in the years to come.

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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. Making responsible decisions as we build brands people trust and champion is core to us being a good corporate citizen. This includes leading the world’s largest private sector hunger relief effort, where we set the bar high every year in support of World Hunger Relief and raised more than $35 million in cash and food donations in 2015. Since 2007, our efforts have raised $640 million in cash and food donations resulting in 2.6 billion meals going to people in need. Together we are making a meaningful difference in peoples’ lives.

I am equally pleased that all of our divisions have meaningful community engagement efforts that positively impact the local communities where they live and work. 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.

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With all this progress you can see why I am very excited about what’s happening at our company. We are undertaking the biggest strategic move in the history of Yum! with the planned spin-off of our China business. We’re confident this will create two powerful, optimally-structured, independent companies with unique investment profiles. And, I want to assure you that while the spin-off transaction is critically important we’re not going to let it distract us from running the business in China or anywhere else.

All three of our brands have significant opportunities for growth as they progress along the journey to brand excellence. We expect to achieve 10% growth in operating profit in constant currency this year, which includes the benefit of the 53rd operating week, and are setting up two separate companies that will lead the restaurant industry going forward. Yum! is in a unique position. We have three iconic brands and are making them even stronger. As you’ve heard me say before, my goal as CEO is to build three global, iconic brands that people trust and champion. We are well on our way to achieving this, led by our brand positionings, courageous leadership and committed team members and franchisees. Needless to say, there is a lot to be excited about at Yum! and I could not be more pleased to lead this company into its next phase.

Finally, I want to take the opportunity to thank several senior executives who are retiring from Yum!, each of whom made significant contributions to the company for many years. First and foremost, David Novak, who will step down as Executive Chairman in May, completing his retirement plan. As co-founder, Executive Chairman and former CEO, David’s contributions to this company are far too many to put into words. He has created a world-class company, renowned recognition culture and high-performance orientation that will stand the test of time. As a result, our shareholders were well-rewarded during his tenure. David served as a caring and inspirational coach and mentor to many, including me. I thank him for his visionary leadership and for entrusting our company to the next generation of leaders. I’d also like to thank Sam Su, who retired in August from Yum! China as Chairman and CEO, and as Vice Chairman of Yum! Brands. Sam is a true pioneer who led the tremendous growth of our China business, creating one of the finest restaurant companies in the world. Lastly, I’d like to recognize Massimo Ferragamo, who also will be stepping off the Board. He joined the company at its inception and has been an invaluable Director since that time. We owe each of them a debt of gratitude and wish them continued success and happiness. And of course, I thank our Board of Directors, employees and franchisees around the globe, whose contributions are truly inspiring and who are helping Yum! Feed The World.


Greg Creed Signature


Chief Executive Officer,
Yum! Brands, Inc.



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Download Financials

Worldwide System Units

Year-end 2015 2014 2013 2012 2011
Company 8,927 8,664 8,097 7,544 7,403
Unconsolidated Affiliates 796 757 716 660 587
Franchisees 30,930 30,032 29,305 28,565 26,887
Licensees 2,039 2,093 2,115 2,168 2,169
Total 42,692 41,546 40,233 38,937 37,046

Year-end 2015 2014 2013 2012 2011
KFC Division 14,577 14,197 13,904 13,612 13,450
Pizza Hut Division 13,728 13,602 13,333 13,060 12,725
Taco Bell Division 6,400 6,199 6,048 5,977 5,942


KFC 5,003 4,828 4,563 4,260 3,701
Pizza Hut 1,903 1,572 1,264 987 764
Little Sheep 255 291 389 451 --
East Dawning 15 24 27 28 28
Total China 7,176 6,715 6,243 5,726 4,493


KFC 372 395 341 260 186
Pizza Hut 432 431 359 299 247
Taco Bell 7 7 5 3 3
Total India 811 833 705 562 436
Total 42,692 41,546 40,233 38,937 37,046


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