11 We are the largest restaurant company in the world! 34,880 restaurants as of Dec 2009
12 We are also the largest retail developer in the world 1700+ gross builds a year in 2009!USYRICHINA
13 YRI’s asset base is vast… Over 13,000 restaurants, of which 83% are franchisedAs of Q1 2010
14 4000+ restaurants in Asia Pacific alone! LARGESTcontributor toYRI’sOperating Profit14
15 AFBU covers 14 countries ; 29 franchisees and all 5 brands April 1, 2017AFBU covers 14 countries ; 29 franchisees and all 5 brandsSouth East Asia/HK/Taiwan/KoreaPacificSales:$1.5+ billionKoreaStores:2500+Sales:$150MM+Stores:150+Countries:2Hong KongTaiwanFranchisees:13JapanSales:$1.5+ billionStores:1500+Countries:11Franchisees15Countries:1Franchisee:1(Sub-Franchisees:108)
16 Strong growth since spin-off – 1998 to 2009 AFBUUnitsAdded 2000+System Sales ($MM)Double Digit CAGROperating Profit ($MM)4 x
17 Asia Franchise (ex-Japan) KFC is the “800 lb gorilla”!April 1, 2017Asia Franchise (ex-Japan)JapanKFCPizza HutTaco BellA&WLJSKFC CompanyKFC JapanFranchisePH CompanyPH Franchise% of Sales% of Sales
21 We are about ACCELERATING THE BUILDING OF BIG BRANDS
22 How our business is organized Organization Excellence SupportFunctionsCore FunctionsBrandDevelopmentRestaurantExcellenceProductExcellenceAssetDevelopmentFranchise ExcellenceOrganization ExcellenceBuildingBrandEquityProvidingManiacalCustomerServiceDevelopingGreatProductsBuildingGreatRestaurantsFinanceExcellence
23 Our franchising model GLOBAL FRANCHISE PARTNERSHIP (GFP) WORLD-CLASSFRANCHISORWORLD-CLASSFRANCHISEESConsumer propositionBusiness systemCommercial termsCultureAlignmentSystem discipline & processReady for growthConstructive engagement
24 Roles & responsibilities Business Units & Franchisees Dallas RSCGlobalization of Best PracticesDefining Operating StandardsBusiness Units & FranchiseesCreation of Best PracticesExecution
25 The partnership works! Dominant Brands Dominant Market Share World Class AssetsWorld Class Teams
29 Franchising Principles and Review of Standard Agreement (IFA) Our Franchising ModelFranchisee gets:License to use our Trademarks for a defined termA business systemFranchisor gets:FeesGrowth of System, goodwillDynamic relationship
30 Franchisee/Franchisor Relationship Franchising Principles and Review of Standard Agreement (IFA)Franchisee/Franchisor RelationshipThere is no agency or partnershipYRI and Franchisee are independent partiesBoth parties should be sensitive to information on which the other party may seek to rely
31 Franchising Principles and Review of Standard Agreement (IFA) Franchise AgreementKey TermsRight to Use the System, System Property, and TrademarksConfidentiality protectionProtection of System Property & Goodwill of System (non-compete)Renewal CriteriaGrant of right to use the system, system property and trademarks at the outlet only. No right to contiguous space, etc. without a Development Agreement.Confidentiality Agreement - Information provided to us and vice versa is provided confidentially. Some Franchisees are publicly traded. SEC styled implications. Without one in place you should not provide any information to prospective Franchisee.General PrinciplesSite-Specific License: no territorial exclusivity or radius protectionNo Sub-Franchising
32 Franchising Principles and Review of Standard Agreement (IFA) Franchise AgreementTrademarks and System PropertyThe Franchise Agreement includes comprehensive provisions aimed at protecting our Trademarks and intellectual property rightsConfidentialityThe franchisee’s obligation of confidentiality extends from the terms of the Franchise Agreement and Manuals to all other information concerning the System or YRI’s business and affairsFailure to properly control the use of our trademarks and other intellectual property can jeopardize our ownership rights and puts the entire franchise system at risk.In order to ensure that the system remains vibrant and contemporary over the 10-year term, YRI must retain the right to change the trademarks and introduce new trademarks.Any improvements to the trademarks or the system, including new products, will become YRI’s exclusive property, regardless of whether they were initiated by a franchisee.The broad confidentiality is necessary to protect YRI’s ownership/copyright in the trademarks, intellectual property and know-how associated with the system and also to maintain our competitive edge.Where franchisees are public companies, it will be necessary to exclude from this clause information required to be disclosed to the local Stock Exchange. This exclusion should be added in Schedule C.
33 Franchising Principles and Review of Standard Agreement (IFA) Franchise AgreementPrincipal OperatorThe franchisee is required to appoint a Principal Operator to be primarily responsible for the management of the business and for dealing with YRIGuaranteeThe Franchise Agreement requires a guarantee to be obtained from appropriate partiesFor single unit and smaller franchisees, the Principal Operator should be one of the guarantors. Under the guarantee document, this person should also covenant to direct, supervise and manage the operation of the outlet and to devote his or her whole business time and efforts to the franchise business.The need to obtain personal or corporate guarantees will vary from country to country and deal to deal, as will the legal form of any guarantee.Personal guarantees will be mandatory in the case of small, single-unit operators and the guarantee document should include personal undertakings to comply with all provisions of the Franchise Agreement.Where the franchisee has a complex corporate structure, the guarantee document is also a means of ensuring the non-compete and transfer provisions of the Franchise Agreement bind all associated/parent companies in the corporate group.
34 Franchise Policies Manual Franchising Principles and Review of Standard Agreement (IFA)Franchise Policies ManualContains operational detailsMay be amended by YRI any time by notice to franchisees in response to operational changesFormalizes franchisee notification/receipt systems for annual updatesIs incorporated into and forms part of the Franchise AgreementManualNotwithstanding the 10-year franchise term, the detailed operational requirements of our franchise systems will necessarily change and evolve daily/weekly, etc. The franchise relationship must be structured to give YRI the maximum flexibility to adapt to those changes.While franchisees may express concern about our ability to change the operational requirements in the Manuals, this is standard to all franchise relationships and unless we keep our system relevant to the consumer, it will lose its value, for franchisees as well as for us.We have committed that the implementation period required by us for any change to Standards will reflect the nature of the change. Franchisees should take comfort that this prevents us from imposing unreasonable implementation time frames on the franchisees.The Manuals contain the essential know-how which, along with the brands, are the franchisor’s most valuable asset, and we must be able to require the franchisee to return all copies of the Manuals to us at any time, including upon termination.In order for YRI to retain copyright in all Manuals and thereby prevent wholesale copying by competitors, we must restrict use and copying of the Manuals by our franchisees.For multi-unit franchisees, we provide the franchisee with one copy of all Manuals and allow the franchisee to make a single copy for each store, provided that the franchisee allocates a serial number for each copy and keeps central records of the location of each copy.
35 Franchising Principles and Review of Standard Agreement (IFA) Non-CompeteDuring the Term, YRI must approve any franchisee involvement in any competitive food concept or business anywhere in the worldApproval may be withheld for concepts/ businesses in which chicken, pizza/pasta, Mexican, or beef/chicken burger products represent a certain % of the product mixFranchisees operating competitive brands have a conflict of interest: the competitiveness of the food industry means we cannot afford to allow our franchisees’ competitive systems advance access to our marketing/product initiatives, etc.Franchisees with additional resources should be encouraged to invest in YRI’s 3 diversified restaurant concepts.The preferred approach with franchisees who have pre-existing competitive businesses is to agree to a timetable of divestment of the competitive business as a precondition to any further expansion or renewal of their YRI franchises.
36 Development Agreement Franchising Principles and Review of Standard Agreement (IFA)Development AgreementGeneral PrinciplesApplies where franchisee is granted the right to develop stores in a specified Development AreaFranchisees are not given territorial exclusivity. A first right of refusal is a form of territorial protectionDevelopment rights subject to compliance with global Expansion Criteria
39 How we engage - Top 6 Franchisees ranked by System Sales CountryBrandFranchiseeOwnershipJapanKFC/ PHKFC JapanPublic Listed(majority : Mitsubishi)Malaysia/ Singapore/ CambodiaQSR Brands/ KFC Holdings(majority : Kulim)IndonesiaKFCPT Fastfood Indonesia(family controlled)HK/ Taiwan/ VietnamPHJardinesPhilippinesHigh-Flyer FoodPrivateHong KongBirdland (HK)Private Equity(Navis)
40 AFBU Partner Engagement Model TYPEPROCESS / METHODSDETAILSSTRATEGICHWWT2 Action Planning MeetingsPartners CouncilFranchise ConventionOne APM with each partner per year. Strategic / troubled markets have morePartner’s council held once a yearFranchise Convention once every other yearBUILDING KNOWHOWYum CollegesConferences & WorkshopsBest practice visitsChamps Challenge / Champions ClubIn 2010:2 Yum colleges held1 workshop held4 conferences held7 Best practice visits arranged2 events heldDRIVING RESULTS(ONGOING BUSINESS SUPPORT)Organization structured functionally & by brand to provide markets ongoing supportMarketing, Operations – by brandDevelopment, Finance, SCM, QA, R&D, HR - Shared
41 Our current franchising needs? Franchising Principles and Review of Standard Agreement (IFA)Our current franchising needs?Interested?Contact Henry Saliba:
42 More than a restaurant company…… …….a global leader in Franchising