13
Tricon Global Restaurants Tricon Global Restaurants (Symbol: YUM) (Symbol: YUM)
Tricon Global Restaurants Tricon Global Restaurants (Symbol: YUM)(Symbol: YUM)
Business DescriptionBusiness Description
� 1997 Spin-off of PepsiCo forms Tricon
– KFC
– Pizza Hut
– Taco Bell– Taco Bell
– Tricon International
� Quick Service Restaurants with almost 30,000 units in 104
countries
– Dine in Vs. Carry Out
� 367 units housing more than one concept “2n1s”
Tricon’s CompetitorsTricon’s Competitors
� AFC Enterprises
– 2,900 Church’s Chicken, Popeye Chicken and Biscuits, Cajun Kitchen, and Cajun Café
– Seattle Coffee and other coffee subsidiaries
– Cinnabon
� McDonald’s
� Domino’s Pizza
- 6,600 stores - #2 pizza chain behind Pizza Hut
PerformancePerformance
Selected RatiosSelected Ratios
1999 1998 1997
Revenues 7822 8479 9690
% Franchising and Licensing 9.24% 7.39% 5.96%
Gross Profit Margin 15.85% 12.12% 2.49%
Net Income 627 445 -111
•EV/EBITDA: 2.44; Industry: approx. 5.00
•Vastly undervalued relative to industry multiples (P/E,
Price/Sales, Price/Cash Flow, etc…)
2000 Quarterly Results2000 Quarterly Results
Q3 2000 Q2 2000 Q1 2000
Revenues 1658 1656 1597
% Franchising and Licensing 11.34% 10.63% 10.77%
*Gross Profit Margin 7.96% 13.29% 15.15%*Gross Profit Margin 7.96% 13.29% 15.15%
*Net Income 59 106 120
Total Debt Ratio 1.104283 1.117838 1.120769
*Low because of $92 million in “unusual items” and a
major reduction in “facility actions net gain”.
Earnings Per ShareEarnings Per Share
Earnings Per Share
4
4.5
2
2.5
3
3.5
1998 1999 2000E 2001E
Year
EPS
A Conservative DCF ApproachA Conservative DCF Approach
Discounted Excess 4765.82
Total Corporate 10487.2
• Revenue Growth rate of only 3%
•Constant Net Operating Profit Margin of 14%
•Weighted Average Cost of Capital of 8% (Discount Rate)
Discounted Excess
Return Period FCFF4765.82
Total Corporate
Value10487.2
Discounted
Corporate Residual
Value
4832.33 Less Debt -2583
Excess Marketable
Securities889
Less Preferred
Stock0
Total Corporate
Value10487.2
Less Other Senior
Claims-1479
Total Value to
Common Equity6425.15
Intrinsic Stock
Value $ 43.93
Take a look<Take a look<
60
70
•Quicken.com Evaluator grows earnings at 3% per year
•…and discounts at 8% to get “intrinsic value”
0
10
20
30
40
50
Current Price DCF Approach Quicken Evaluator
Stock Price ($)
StrategyStrategy
� Consistent Same Store Sales Growth with a Portfolio of 3 Leading Brands
- Superior Competitive Advantage� New KFC Strategy
New Taco Bell Strategy� New Taco Bell Strategy
� International Growth
– Emphasis on 10 countries
– ¼ total operating profit for 1999 came from international business
– Projected to increase 15 to 20% per annum
– 700 new overseas restaurants in 1999 and another 700 in 2000
-tremendous potential
Strategy and BrandingStrategy and Branding
� Multi-Branding and New Unit Expansion
- 3 brands under one roof
- KFC/Taco Bell Express…Taco Bell/Pizza Hut Express…
KFC/Pizza Hut Express…3in1KFC/Pizza Hut Express…3in1
- in 2000, construction of 1,300 multibrand properties
Financial StrategyFinancial Strategy
� Margin Improvement
- “run each restaurant like it’s our only one”
� Improved Cash Flow for ReinvestmentImproved Cash Flow for Reinvestment
- in 1999, over 1,400 restaurants were sold to franchisees
- reduction of ownership from 28% to 23%
- cash from refranchising strategy generated over $1.5 billion in
cash flow
- pay down debt from spin-off
- reinvest
- expansion
Questions?Questions?
