07 yum! '05 lenders conf - pizza hut - iis windows...

April 26, 2005

Pizza HutPeter Hearl, President

2

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

Pizza Hut Is an Iconic Global Brand - Built On 47 Years of Success -

Energized leadership team excited about building on legacy

Domestic units

1958 - Carney’s open 1st Pizza Hut

1969 - “Red Roof”concept unveiled

1971 - Become world’s largest pizza restaurant

chain

1977 - Acquired by Pepsico

1980 - Pan Pizza introduced, becomes

flagship product

1986 - Launch delivery

1995 - Stuffed Crust changes way

we eat pizza

1999 - Big New Yorker boosts sales

20%

# 1

2004 - 4forAll sets all-time sales record

3

Leader of $37 Billion Domestic Pizza Category

Pizza Hut leads in market share . . . . . . and in points of distribution

16%

10%

5%

3%

65%

Pizza Hut 8,285

Domino’s 5,008

Papa John’s 2,000

Little Caesar’s** 2,800

2004 Year-end U.S. Points of Distribution*

Local/Regional

*Includes Express units**Estimated1. Source YE 2004 10K2. Per QSR 8/04 magazine as of YE 2003

A true “global brand” with nearly 13,000 points of distribution worldwide

Frozen: 1%

Source: The NPD Group, Inc.; NPD Foodworld; Crest

4

Key Facts on Pizza Hut USA

2004 5-year CAGR

Company SalesFranchise Sales

$1.6B$3.6B

- 5%+5%

145# of Franchisees100+ units 8

1160-99 units30-59 units15-29 units

<15 units

2221

84

PSA

# of Traditional UnitsCompanyFranchise

6,3061,741

$794M 3%

4,565

5

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

P1 P2 P3 P4 P5 P6 P7 P8 P9 P10 P11 P12 P13

2005 2004 2003

Sales Growth Has Been Positive 18 Periods Straight!

4-for-All

Sicilian

Dippin’ Strips

Buffalo Chicken

4-for-All

6

. . . Driving an Increase in Our Market Share

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

YE Dec ' 02 YE Dec '03 YE Dec '04

56.4%56.8% 57.0%

15.6% 15.3% 15.5%

9.7% 9.9% 9.9%

9.6% 9.7% 9.6%

5.5% 5.2% 5.1%3.1% 3.1% 2.9%

OtherRegionals

YE Dec ‘04 Pt. Chg.

Pizza Hut +0.2

Domino’s NC

Papa John’s (0.1)

Little Caesar’s (0.2)

Regionals (0.1)

Mom & Pop’s +0.2

* Source: The NPD Group, Inc.; NPD Foodworld; Crest

7

Strengths

– Global iconic brand

– Category leadership

– Clear, focused strategy

Challenges

– Category growth

– Commodity inputs

– Old asset base

We Have Clear Strengths & Challenges

8

Win Home Meal Replacement War

Full Pipeline of Product/Value News

Revitalize Our Dine-in Business

Pizza Hut Imperatives Our Strategies

Run Great Restaurants as “One System”- Build a Customer Maniacal “Sales Force”

Reposition and Differentiate the Brand- Toward “Family Pizza Eating Occasions”

Rebuild and Grow Our Asset Base- Via Asset Upgrades (and Multibranding)

Three Key Strategies to Grow Our Business

9

Operational Measures Continue to Improve

69%

46%45%

40

60

80

2002 2003 2004

% Company Units With BYA Sales

50%49%

45%

40

45

50

55

2002 2003 2004

% Perfect Champs (System)

100%98%

111%

60

70

80

90

100

110

120

2002 2003 2004

Company Team Member Turnover %

10

Families account for 70% of all HMR occasions . . .

Coworkers5%

Family55%

Friends13%

Alone12%

Both15%

Source: MarketPulse (Annual 2002)

We Have Repositioned, Differentiated the Brand Toward Families

Moms decide dinner 85% of time

11

10

15

20

25

30

35

Source: MarketPulse Brand Imagery Ratings

10

15

20

25

30

35

“Best For SharingWith Family”

“Best For SharingWith Family”

10

15

20

25

30

35‘03 ‘04

10

15

20

25

30

35

“Kids Favorite”“Kids Favorite”

‘03 ‘04

10

15

20

25

30

35

“Bringing PeopleTogether”

“Bringing PeopleTogether”

10

15

20

25

30

35‘03 ‘0

4

“Enjoy When Getting Together”“Enjoy When

Getting Together”

10

15

20

25

30

35

40

45

10

15

20

25

30

35

40

45‘04‘03

Our Brand Positioning Is Paying Off

12

Examples:Stuffed Crust GoldCinnaparts

Examples:Dippin’ Strips Full HousePepperoni Trio

. . . And Our Product Pipeline Has Never Been More Full

Examples:Buffalo Chicken4forALLBagged Salad

2004: 10 Tests / 13 Markets7 New Products + 3 Special Tests**

2003: 8 Tests / 12 Markets 6 New Products + 2 Positioning Tests*

2002: 3 Tests / 3 Markets3 New Products

13 Tests Planned for 2005!

13

We Have Two Key Challenges on the Asset Front

Challenge #1: Upgrade Our Dine-In Assets

14

We Have Two Key Challenges On the Asset Front

Challenge #2: Build More Delivery Assets

15

. . . To Facilitate Rebuilding and Growing Our Assets!

. . . And Two New, Exciting Concept Layers

Life To Date

Points of Distribution48 327

As of P13 ’04 As of P13 ’04

16

“Italian Bistro” Is Service, Product, Atmosphere

• DIGM Service

• Sautéed Pastas, Bistro Pizzas– And Toasted Sandwiches

• Entrée Salads, Wine, And Appetizers

• New Interior And Exterior Designs

… The Pizza Hut “Casual Dining” Way!

17

WingStreet™ Is The Largest Dedicated Wing Brand in the U.S.A.*

* Based on number of locations

18

. . . With More Growth and Development Planned for the Future

New Menu Items

More Restaurants – 300+

More Marketing(including TV support)

19

In Summary . . .

• Pizza Hut is the recognized industry leader

•We have a clear brand strategy to drive future growth

•We have exciting, proven new concept layers

• The Pizza Hut system will spend about $1.5B “Rebuilding the Brand”

April 26, 2005

Pizza HutHarmit Singh

Chief Financial Officer

21

0

10

20

30

40

50

60

70

<5 5-9 10-49 50-99 >100

Average Franchisee has 31 stores

Average Franchisee Tenure

72% of Stores Owned by Franchisees

Company-owned1,740

Franchisee-owned4560

16 years

Our Franchisees Have Experience and Scale

22

Upgrade Dine-In Assets Build More Delivery Assets

88% of qualified assets require “major asset action”:

• Rebuild/Relocate• Remodel

Remainder require re-image

Major asset actions to be completed by 1/1/13

Pizza Hut to notify territory franchisees of unserviced delivery areas

Franchisees required to develop within 5 years

Franchisees Have Committed to “Rebuild the Brand”in Two Ways

23

Franchisees Are Living Up to Their End

Note: “Surplus” Major Asset Actions will count toward reimage requirement

TBD TBD

Year Required Completed Required Completed2

12/31/04 35% 24% 5% 30%3

12/31/05 50% 15%4

12/31/06 65% 25%5

12/31/07 80% 35%6

12/31/08 100% 45%7

12/31/09 55%8

12/31/10 70%9

12/31/11 85%10

12/31/12 100%

Major Asset ActionsReimage

24

*Assumes 1/3 replacements/rebuilds at $1MM, 2/3 remodels at $.4MM** Net of forecasted closures

0

500

1,000

1,500

2,000

2,500

3,000

Scheduled asset actions

Major asset action

Re-image

Re-image lite

Cost per

Total cost

$25M

$100M

$600M*

$11MM

$76MM

$956MM

~$1,000MM

FZ Assets

New units ~$500MM

Asset upgrades

Total investment ~$1,500MM

PH’s Franchisees Will Spend Over $1.5B in the Next 9 Years

25

Reduce Investment

Improve “Hit

Rates”Drive Sales + = Higher Returns+

We Are Continually Striving to ImproveReturns on Asset Actions

Improve Access to

Capital+

26

Franchise Actions Desired Result

Maintain 12–18 month rolling tested marketing calendar

Convert/build FZ Italian Bistros •120 in 2005, more going forward

Convert/build WingStreet units • 25 in 2005, more going forward

+3% SSS growth annually

$2,500+ incremental weekly sales

Focusing on Variety of Initiatives to Drive Sales

$1,500+ incremental weekly sales

27

RBD “Lite”

Delco “Lite”

Cost reduction

$96,000(vs. delco)

Status:

$165,000(vs. RBD)

• 1 company unit in test

• 4 more planned in 2005

• 2 in test with franchisees

• 5 more plannedfor 2005

Testing RBD-Lite and Delco-Lite to Lower Investment Cost

28

Several Initiatives in Place to Improve “Hit Rates”

•Gathered investment data on ~120/180 asset actions in 2004

•Calculating returns on period basis

•Researching, sharing learnings on period basis beginning P4, 2005

Sharing Best PracticesImproving Site Selection

•“Market planning” 21 FZ territories

•Buxton tool offered to all FZees

Measuring returns

29

Franchisees Are Supported by a Deep Team of Dedicated Resources

Kendrickstrativestant

Jim SillFBC

Denny HasiakFBC

Bob GibsonFBC

Tom ClementsFBC

Dave BewleyFBC

Ed JacobFBC

Ward WhitworthHead Coach

West Franchise

Marla McKibben

Jodi Rosen

Tanya Williams

Customer Support Team

Restaurant Readiness

9 - FDDs

Tom McCord

FDDs

Jessica Bowles

Julie Schultz

Legal

Katrina McGuigan

Wayne Walker

Marketing

Matt Moss

Janet Omar

Bob Nygren

Carlos Maldonado

Finance

Leo ValdezSr. Franchise HRL/Trng. Ldr.

Diana StylesFranchise HRL/Trng. Ldr.

Tracey WeaverFranchise HRL/Trng. Ldr.

Jan LitzburgFranchise HRL/Trng. Ldr.

Anita Vander Veer

HR / Training

Doug Scott

Frank Lamont

Rick Collinwood

Emil Hoffarth

CHAMPS

Kathleen KendrickAdministrative

Assistant

Jim TothFBC

Bob BrayFBC

Tom PliemanFBC

Mark JaworskiFBC

Jim SchreifelsFBC

Judy CarsonFBC

Omar JanjuaHead Coach

East Franchise

Franchisee

30

CFO(HarmitSingh)

Director, Franchise Finance(Matt Moss 972-338-8305)

Capability building Best practice sharing Info management

Finance College

Pacesetter

“1-on-1” financial reviews

Margin playbook

Asset action returns

WingStreet, Italian Bistro results

Sales data

Store, ownership data

Lender relationships

Ad-hoc analysis

Franchise Finance Team Is Committed to Helping Our Franchisees Grow

31

In Summary . . .

Our franchisees have experience, success and scale

They are committed to investing in the brand

Pizza Hut is committed to maximizing the return of those investments

April 26, 2005

2JR Pizza EnterprisesPizza Hut Franchisee

Rodney Lee, CFOLouisville, Kentucky

33

2JR Pizza Enterprises, LLC

Jeff Reetz, franchisee

25 locations purchased from PHI in February 2000

Louisville Metro and Southern Indiana locations

High sales volume, delivery driven - Eleven $1 million + restaurants

Operate very much like corporate stores in all aspects due to our backgrounds

5 remodels done to date, 2 more planned for 2005

34

Opened Three WingStreet Locations Since 2004

Bashford Manor RBDOkolona RBDGlenmary Delco

$1,300/wk incremental wing sales

$1,200/wk incremental wing sales

$1,600/wk incremental wing sales

September 2004 November 2004 March 2005

35

Overall Impact Has Been Positive

Consistent incremental sales layer at about $1,500 per week

Margin impacts modest

Food cost up about 1 pp overall

Labor is at our normal variable flow rate

Investment is between $45 million and $75 million

Soon to add nonbreaded wing products, which will help keep our nonbreaded customer

Plans for 2 more locations 2005 or early 2006 during remodels

36

Lenders Can Help if They Understand the Opportunity

Funding of remodels and the WingStreet sales layer currently limited to internal funds

Existing senior lenders may have healthier borrowers if they can fund a portion of the WingStreet implementation

Possible benefit to those in your portfolio today who need salesbreakthroughs

Solid IRR and quantifiable improvements

Sales layer

Royalty reductions in connection with remodeling