Keith Siegner - IR Greg Creed - CEO David Gibbs - President and CFO

John Ivankoe - JPMorgan Brian Bittner - Oppenheimer & Co. Sara Senatore - Bernstein Parekh Patel - Barclays Jason West - Credit Suisse

Good morning. My name is Kim and I will be your conference operator today. At this time, I would like to welcome everyone, to the Yum! Brands Fourth Quarter 2017 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks there will be a question-and-answer session. [Operator Instructions]. Thank you. Keith Siegner, Vice President of Investor Relations, Corporate Strategy and Treasurer. You may begin your call.

Thank you, Ken. Good morning, everyone, and thank you for joining us. On our call today are Greg Creed, our CEO; and David Gibbs, our President and CFO. Following remarks from Greg and David, we'll open the call to questions. Before we get started, I'd like to remind you that this conference call includes forward-looking statements. Forward-looking statements are subject to future events and uncertainties that could cause our actual results to differ materially from these statements. All forward-looking statements should be considered in conjunction with the cautionary statements in our earnings release and the risk factors included in our filings with the SEC. In addition, please refer to the Investors section of the Yum! Brands' website, www.yum.com, to find disclosures and reconciliations of non-GAAP financial measures that may be used on today's call. Please note the following regarding our basis of presentation on today's call. First, System sales results exclude the impact of foreign currency, include the impact of lapping the 53rd week unless otherwise noted. Second, Core operating profit growth figures exclude the impact of foreign currency and Special Items but include the impact of lapping the 53rd week unless otherwise noted. We are broadcasting this conference call via our website. This call is also being recorded and will be available for playback. Please be advised that if you ask a question, it will be included in both this live conference in any future news of the recorded. We'd like to need you aware of the following upcoming Yum! Investor events: First quarter 2018 earnings will be released on May 2018, with the conference call on the same day. The remainder of our 2018 key earnings dates are available on our website. David Gibbs will be presentation on March 8 at the JPMorgan Gaming Lodging and Restaurant Management Access Forum in Las Vegas Nevada. Roger Eaton, KFC CEO will be presenting on March 14 at the Bank of America 2018 Consumer & Retail Technology Conference in New York City. Lastly disclosures pertaining to our outstanding debt in our Restricted Group capital structure will be provided at the time of the fourth quarter Form 10-K filing. Now I'd like to turn the call over to Mr. Greg Creed.

Thank you, Keith good morning everyone. The fourth quarter was a solid earning to the first full year of our transformation journey. For the full year, Yum! delivered 5% system sales growth, excluding the impact of the 53rd week. This is comprised of 2% same store sales growth and 3% net new unit growth. We've reached a significant milestone in 2017 as we closed the year with over 45,000 global restaurants in our 139 countries and territories. We are excited about the long-term growth potential of Yum! brands and are on track with our strategic transformation initiatives. Today, I will talk you about two of our four growth capabilities. Distinctive relevant and easy brands and unrivaled culture and talent. Then David will follow up with this second too. While at the restaurant development and unmatched franchise operating capability, he will also discuss our 2017 results, 2018 guidance and progress towards our transformation initiatives. I'll begin with our distinctive relevant and easy brands. There is no better way to make a brand easy than having it deliver right to your door. And I'm very excited to announce a new U.S. partnership with Grubhub. As the nation's leading online and mobile food ordering company, Grubhub offers delivery in over 1300 U.S. cities. This partnership will rapidly expand KFC and Taco Bell's ability to offer the online ordering by pickup and delivery to our customers in all existing U.S. Grubhub markets with many more to come. Making it easy to access all of our brands is important and the partnership with Grubhub is a key component of making our brands distinctive, relevant and easy. Now on to the brands. Starting with KFC, where system sales grew 6% excluding the 53rd week, with 3% same store sales growth and 4% net new unit growth in the fourth quarter. Internationally, we had several standout markets and I'd like to highlight two, Russia and Brazil. In our Russia market, system sales grew 26% in the quarter with 9% same store sales growth and 18% net new unit growth. The market strong growth has been supported by their marketing focus on value and core. Unit development is also strong with 2017 being the fourth year in a row that the Russia market opened at least 1000 new stores. This success is driven by the utilization of technology-based development strategies, controlled growth through development agreements and new access formats. In Brazil, same store sales increased 21% for the quarter and 18% for the year, with significant media coverage, value offerings and an operational focus on win on types objectives the market delivered strong results. Brazil also focused on reducing costs and enhancing the supply chain distribution to ensure value products are financially feasible. Now to the US where we saw increased pressure from competitors on chicken innovation and value in the fourth quarter, with same store sales declining 1% but still finishing the year with our fourth consecutive year of same store sales and traffic growth. While disappointed in our results for the quarter, we are bullish on 2018 with marketing trends around both value and innovation. We started the year with our valued coronel [ph] and now have our first female coronel [indiscernible] showcasing innovation with our new smoking mountain barbeque flavor. This builds off the other familiar flavor that you’ve already seen such as National Hot and Georgia Gold and gives an exciting and operationally easy way to bring new flavors to existing products. Additionally, we continue remodeling our asset base with plans to remodel another 600 stores in 2018 resulting in nearly 40% of the asset base being at current image by year end. We are excited about our plan for 2018 and confident that this will be our fifth consecutive year of positive signs for sales growth. Next the Pizza Hut, in the US, same stores sales grew 2% in the fourth quarter demonstrating the strength of our Longlines systems through the transformation agreement and building momentum in the business. Pizza Hut remains committed to ensuring every customer has a hot, fast and reliable experience. The hot experience begins with 145,000 new thermal pouches which deliver your pizza 15⁰ hotter. The fast experience is enhanced through the 14,000 delivery drivers hired in 2017. The delivery times are improving and we remain committed to being the employer of choice for delivery drivers. In addition, there are now over 24,000 new car toppers on the road. But the reliable experience is enhanced with key digital features implemented during the fourth quarter through our mobile and online platforms which significantly enhance the user experience. We are encouraged by initial trends in the hot rewards royalty programs launched in August and are confident our investment in loyalty will pay off in the long run. There is another example of Pizza innovation, we recently announced a partnership with Toyota to bring Pizza Hut to your doors with the driverless vehicle, showcasing innovation and forward thinking at both companies. We are excited about the future for Pizza Hut US and confident our investment in hot, fast and reliable experience will drive positive results. Internationally, we are pleased with the 6% net new unit growth during 2017, opening nearly 500 net new restaurants in the year with strong growth in Asia including Indonesia and India. Fast casual Pizza is one of the fastest growing segments and we continue to align our delivery centric asset strategy to meet this global trend. The repeatable model for value continues to show success in several of our international markets including Korea, China and the Philippines and we continue to make great strides with our digital and technology ventures to make it easier to get a better pizza in our international markets. Finally, at Taco Bells, system sales grew 3% excluding the 53rd week with 2% same stores sales growth and 4% net new unit growth in the quarter. A key differentiator for Taco Bell is the ability to innovate and elevate. In the quarter, we showcased the abundant indulgence of our $1 value menu we launched the Blueminatti ad campaign to strategically elevate Taco Bell as a not so secret society where anyone with a buck can unlock 20 satisfying and innovative menu items. And to highlight our unique ability to drive buzz around new products, we originally launched a movie trailer Web of Fries to introduce you to our new nacho products which were added to the $1 value menu. Served with a dippable side of warm nacho cheese, the bold Mexican [indiscernible] fries are the perfect example of Taco Bell's belief, you shouldn't apologize the value, let's celebrate it. As further commitment to becoming an easy brand, Taco Bell recently announced all access and initially focused on technology design to make Taco Bell easier for our consumers to access. This includes installing self-servicing kiosks in all of our restaurants by the end of 2019. Delivery initiatives such our newly announced partnership with Grubhub, group vacation offerings and order ahead for scheduled pickup either in store or curve side. We understand the importance of technology and know there is great potential when we make it easy to order Taco Bell. Taco Bell development remains robust. 2017 was a record setting year for both domestic and international restaurant openings. Internationally we entered 5 new countries and reached a significant milestone with our 400 international Taco Bell restaurants. We continue to see great success in several markets. In Canada, same store sales growth is strong with 11% growth in 2017 making it fourth consecutive years of at least high single digit same store sales growth. Building on our domestic repeatable model, India introduced new innovation with the successful launch of the naked chicken Taco. In Brazil we opened 20 units in 15 months. And additionally, we signed development agreements in both Brazil and Spain to open more than 200 restaurants over 10 years in each country. The international growth at Taco Bell is just beginning and has great potential over the long term. Now moving on to unrivaled culture and talent. I'd like to highlight the recent talent additions we have made specifically to drive distinctive relevant and easy brands. Julie [indiscernible] joins us as Taco Bell U.S. President and is responsible for driving innovation, new store development and a frictionless customer experience through digital and technology initiatives. [indiscernible] joins us as KFC U.S. Chief Marketing Officer responsible for developing and executing innovative marketing strategies as well as the brand's digital initiatives. And additionally [indiscernible] U.S. Chief Brand Officer and is responsible for building the brand with today's consumer overseeing marketing and food innovation teams. We are able to attract these great talents and so many others because of our global iconic brands, growth agenda and world-class culture. I firmly believe our culture is a competitive advantage and we are excited to welcome these leaders to Yum! and are confident they will help drive results throughout our organization. In summary, the fourth quarter was a strong flow to the year and a hugely forward towards achieving our transformation objectives. The focus on our four key growth capabilities is the strong catalyst behind our successful results. And now it gives me great pleasure to introduce our President and Chief Financial Officer, David Gibbs.

Thank you, Greg and good morning everyone. Today I will discuss our 2017 results. 2018 guidance, progress towards our transformation initiatives and two of our forward growth capabilities, bold restaurant development and unmatched franchise operating capability. First our 2017 results. I am especially pleased to report, we met or exceeded each component of our guidance. We delivered full year core operating profit growth of 7% despite headwinds from refranchising dilution, lapping a 53rd week and incremental media spend associated with Pizza Hut transformation agreement. Same store sales growth of 2% and net new unit growth of 3% delivered system sales growth of 5% excluding the 53rd week all within guidance. Before I talk about 2018, I do want to discuss our effective tax rate excluding special items for the fourth quarter and full year. Both rates were lower than anticipated due to the timing of planned repatriation of earnings and the impact of tax reform. The majority of our expected repatriation was backend loaded for the year largely reflecting the timing of international refranchising transactions. Given that most of our foreign industries have November 30th year end for US tax purposes, any earnings repatriated subsequent to this date will require to be tagged as part of the one-time toll charge included in US tax reform. Our ex-special rates for the fourth quarter and full year were lower than anticipated because they did not include tax on those earnings repatriated after November 30th. Instead that tax was included in the toll charge that is part of our onetime special items charged for US tax reform of $434 million that we recorded in the fourth quarter. Now looking at 2018, we do not expect any change to the underlying base operating profit growth of high single digits. However, there are several items which will affect our core operating profit growth in 2018. First, and similar to 2017 we expect operating profit dilution as a result of the timing difference between refranchising restaurants and the associated G&A savings which is consistent with our transformation plans. This is expected to negatively impact operating profit by approximately six to seven percentage points. Second is the revenue recognition accounting change which is required to be implemented beginning January 1st 2018. It's important to note that this does not reflect any change in our business model, the strength of our brands or our cash flows. It is solely a gap required change adjusting the timing of recognition of upfront fees received from franchisees and incentive payments made to franchisees. The most significant driver of the change is requiring upfront fees received from franchisees to be amortized over the life of the franchise agreement. Previously upfront fees will recognize in full win received. As a result, and because this is a prospective application, we expect approximately two to three percentage points of negative impact to our operating profit. All in we are forecasting 2018 core operating profits to be about flat. Again, I want to reiterate we continue to expect underlying base operating profit growth to be strong and up high single digits. However, 2018 will be affected by these onetime items I discussed. Next, we expect same store sales growth of 2 to 3% and net new unit growth of 3 to 4% for the system sales growth of 5 to 6% in constant currency. This builds upon our systems sales growth of 4% during 2016, 5% in 2017 and is a step towards achieving our long-term bold goal of 7%. We anticipate CapEx will be between 200 and $250 million. Note this is a step down from our 2017 CapEx of 318 million and is tracking towards our run rate CapEx of 100 million beginning in 2019. All details of our 2018 guidance can be found on the investor section of our website. Finally, as a result of tax reform we anticipate an ongoing effective tax rate of approximately 20% to 22% compared to our historical rate of mid to upper 20s. While we are able to take advantage of the lower US tax rate, our benefit is somewhat muted by the cap on interest deductibility. The move to a territorial tax system is a positive for us given the high percentage of our taxable income that is earned outside the U.S. but this is largely offset by the impacts of a new tax on global intangible low tax income. Please note that we expect our 2018 tax rate to be slightly below the anticipated range I just provided. This is due to delayed applicability of the new tax on global intangible low tax income as well as a higher amount of interest deductibility in 2018 primarily given refranchising gains which will drive higher U.S. pretax earnings. Turning now to our transformation initiatives designed to make Yum! brands more focused, more franchise and more efficient to deliver more growth to our shareholders. First, the focus on our four key growth capabilities has helped us accelerate net new unit growth and drive sustained positive same store sales growth. This focus is a big reason why we had increased confidence in achieving our long term bold goal of 7% system sales growth. Second, on our journey to becoming more franchised, we sold 896 equity units during the fourth quarter for pretax proceeds of over $1 billion, ending the year at 97% franchise. We remain confident in our ability to reach at least 98% franchise by the end of 2018 and exceed $2 billion in after tax proceeds from our refranchising efforts. Third, as a more efficient company, we ended the year with G&A excluding special items representing 2% of system sales, on our way to our goal of 1.7%. And as previously mentioned, we continue to expect run-rate CapEx beginning in 2019 of $100 million. Each of these initiatives are designed to deliver more growth to our shareholders. During 2017, we've repurchased 26.6 million shares for $1.9 billion at an average price of $72. Additionally, we paid $460 million in dividends for a total capital return of $2.3 billion in 2017. Further we were pleased to announce a 20% increase to our quarterly dividend for 2018 increasing from $0.30 a share to $0.36 a share. We value returning capital to our shareholders and we remain committed to returning between $6.5 billion and $7 billion from 2017 to 2019 through both share repurchases and dividends. After evaluating the impacts of tax reform, revenue recognition and our strategic partnership with Grubhub, we continue to expect that we will deliver at least $3.75 in EPS in 2019. Now, before moving on to our growth drivers, I want to provide you with some details of the investments with Grubhub. Yum! is acquiring $200 million in primary common stock, an investment expected to provide Grubhub with additional liquidity to in part accelerate expansion of its industry leading U.S. delivery network, drive more orders to Yum! restaurants and further enhance the ordering the fulfillment experience for diners, restaurants and drivers. We are excited for this unique partnership which includes having a seat on the Grubhub board of directors and aligns with Yum! long term strategies to make our three brands easier for customers to access. Next to our growth drivers. We've talked about our four key growth capabilities, fueling our decisions and results and Greg talked to you about two of them. Now I want to provide you with an update on the remaining two. Bold restaurant development and unmatched franchise operating capability. First, bold restaurant development, during 2017 we opened over 2600 growth units. If you think about it, this means across the globe we open over seven YUM brands restaurants every single day with one new restaurant approximately every three hours. On a net unit basis during 2017, we opened over 1400 restaurants. This is more than 200 additional net new units than last year and nearly 2600 total net new units over the last two years combined. We are very proud of the teams and franchisees that make this happen and commit to continuing this growth. Next, to unmatched franchise operating capability. At KFC US, the team utilizes a voice of the customer program to measure operational results and better understand guest needs and feedback. The metrics are standardized among participating competitors and since launch in 2014 KFC US has moved from near the bottom to above average on key metrics including overall satisfaction, taste, perception of speed, friendliness and value. With each of these metrics improving at least 10 percentage points. With the significant improvement can be attributed to the integrated back of house pack lines from the 2015 acceleration agreement with franchisees focus on value with the $5 fill up, $10 chicken share and $20 fill up and technology improvements to aid operations in labor deployment. Regarding our - metrics at Taco Bell, both customer satisfaction and speed scores improved during our highest growing day part after 5 PM with customer satisfaction scores achieving a record high and up two percentage points over prior year. Pizza Hut international continues to leverage technology to deliver superior customer experience and is testing GPS tracking of delivery drivers to enhance the customer experience. In markets with GPS tracking, customer satisfaction scores are over 10 percentage points higher. We understand the importance of an exceptional experience at our restaurants and are pleased with these operational improvements. To summarize, 2017 was the first full year of our transformation journey and we are pleased with the progress made towards our goal while also achieving each components of our guidance for the year. We remain confident in our future and look forward to updating you throughout 2018 as we become a more focused, more franchised and more efficient company delivering more growth to our shareholders. Now the team and I are happy to take your questions.

[Operator Instructions]. Your first question comes from David Palmer, your line is open.

Hi thanks this is Eric on for Dave Palmer. Just wanted to touch on development for a second. I think you mentioned 3 or 4%-unit growth is your expectation this year which is an increase from I think 3% in 2017. Do you feel like you have the building blocks in place to accelerate development across your three brands? Maybe if you could touch on any commitments that you’re excited about and then as a follow up to that, how much is the development commitments from refranchising contribute to unit growth this quarter? And how much you expect it to contribute in 2018? Thanks.

Yes, well obviously we’re excited about the progress we’re making on development as I mentioned the 2600 growth new units is really a record for the last decade or so and in the quarter itself we opened up a net of 732 units compared to the 661 we opened last quarter of 2016. So that’s a quarterly increase of 71 units. So, you can see we're making progress on the full year numbers, the quarterly numbers. There is momentum behind development. As far as how the refranchising plays into this, we've talked repeatedly about the fact that we're getting development commitments in the refranchising deals, but up until this last quarter, we hadn’t done the majority of our franchising with close to 900 units being refranchised in the fourth quarter. Those all came along with the lot of significant development commitment. So, we're starting to see the benefits of the development commitments creeping in to the numbers that we're reporting, but I still think there is a lot more to come from those development commitments. And because we're typically made over a multiyear period, so we think this sets us up with momentum on the development front for several years to come.

Your next question comes from the line of John Ivankoe from JPMorgan. Your line is open.

Hi thank you very much. I have a couple of questions I think to relatively small on the Grubhub partnership if I may. And I'll just coming do only one Q3 if you can address small one. Firstly, what percentage of KFC or Taco Bell would currently have Grubhub delivery coverage, in another word how much of the systems could be covered as Grub stands today. Secondly, do you have a plan to point of sale implementation with the Grubhub platform and the point of sales at KFC and Taco Bell? And then the third point are these starts on the board that certainly very interesting for a lot of different reasons to be on Grubhub. Do you think that there might be a longer-term opportunity to either outsource or perhaps augment your current inhouse delivery to more of an outsourced model with Grub? So, if you don't mind just those three points on the Grubhub partnership.

Let me take the first couple. As you know, in the U.S. we've got a couple of discounts with KFC. So right now, I think by the end of the year, we'll have -- Grubhub will cover probably about 80% of all of the restaurants that could deliver. From a KFC perspective, we're not delivering at the moment, we're just in a couple of test markets with KFC delivery. So, we have a lot of work obviously as we believe those test, expand those test, and start delivering. I think we've said in the past that we've got close to 1500 Taco Bells already delivering, but this will expand obviously the capability for Taco Bell. So, what we're excited about is both KFC and Taco Bell is really as an opportunity to expand the presence that we've got in the number of stores that we can obviously bring closer to our customer. On the POS system, obviously we're aligning the [indiscernible] systems, that work is obviously underway. It will be critical as a part of making it seems for our customer whether they order of our apps website or the Grubhub apps and website all that work is ongoing. And I think on the last question was just, already joined the board and what the possibilities are for the Pizza Hut brand as a result of that. And I think that's one where the ongoing conversations about how both Grubhub and Pizza Hub can leverage as a partnership if there are ways to do so. But right now, this is mostly about the Taco Bell KFC relationship with Grubhub. And I would also point out that this isn't just about delivery, it's about the ability to order online to Grubhub and pickup products at our restaurants. And Grubhub and Taco Bell and KFC are working diligently to integrate the POS as you mentioned to make the ordering process very quick to get the orders into the restaurants and to the consumers. And we have certain coverage ratios and targets in our agreements that when we hit them, we’ll really unleash the power of the partnership.

And is there a timeline for that technological marriage if you will, I think it's just been more difficult for a lot of brands over the past couple of years. I mean do you have, feel like you have an edge on that?

Yeah, certainly that’s a big part of this agreement is having an integrated POS system and yes there all sorts of internal timelines and schedules to get all of this work done. And I think we’ll reveal details as we go on the journey with Grubhub but for today this is all about the announcement and the intention of having this be a really unique partnership with the Board CET investment and what we think is a great partner for us on the technology front.

Your next question comes from the line of Brian Bittner from Oppenheimer & Co. Your line is open.

Thanks, good morning. I have two questions in like John I’m just going to ask both of them at the same time and then listen to your answers. First, you know you talked about refranchising dilution being in 6 to 7% headwind to operating profits in ’18 and these falls of headwind from ’17 and you would said at the beginning of this process that refranchising net of G&A reductions will be neutral in totality. So, is this still your thinking and does that mean that 2019 naturally is a year where all this dilution reverses to accretion? That’s just the first question. The second question is just simple one, on the comp guidance for 2018 how does Taco Bell fit into that comp guidance for overall Yum! just given we see it as difficult comparisons and its operating in a pretty intense US environment. Thanks guys.

Okay on the refranchising question, obviously there is a lot of different factors in how refranchising plays out in or P&L. For example, we’ve gotten ahead of ourselves in terms of selling Pizza Hut which are tend to be lower volume stores and have less dilution and therefore we’ve got a lot more G&A in Pizza Hut as a proportion of their targeted cost. So now we have higher volume stores to sell Taco Bell and KFC to finish off the refranchising process in 2018 and I think the comment that will this flip to being -- is this still a net new neutral exercise between the G&A and refranchising absolutely. We’ve done all the math on that and they all balance out, but we’ve probably got a little bit more benefits from the organic G&A cuts up until this point. Now there was 900 stores we sold in the fourth quarter, we’ll obviously have an impact on our operating profit in 2018. So, taking all those factors into account, yes, it's still a net neutral math exercise between the refranchising dilution and the G&A savings and as you said 2019 will start to see more benefits of it versus the headwinds that’s presenting for us in 2018. On the comp guidance, as you know we have provided the global comp guidance but we’re not going to break out it by brand but just wanted Taco Bell sales to be there.

Yes, I would just say that I think Taco Bell has been competitive in the competitive market and as we saw with the Blueminatti $1which we just started the year with and as you’ve all seen we have launched nacho fries at a $1. So obviously it’s a competitive marketplace but what I like about the Taco Bell team is they are obviously quick to response to changes in the marketplace and I feel good about what we’ve got on our calendar for 2018.

I just want to go back and clarify one earlier comment, there was a question about coverage with Grubhub, obviously there is two ways Grubhub will be covering our restaurants. One will be through click and collect in the pickup process and we expect that we can get very good coverage on that very quickly once we turn all the systems on. And then there is a different measure for delivery coverage. We have specific measures by brand. We'll share more of that overtime, but I think the 80% is more -- that Greg quoted was more of a general number. But I think we'll give you more specifics on that as we get into the relationships with Grubhub.

Your next question comes from the line of Sara Senatore from Bernstein. Your line is open.

Yeah, hi. Thank you. So just a couple of questions please. First is on the tax benefits and all the moving pieces there. You've retained the total amount of expected return to shareholders. And I was just trying to understand if there is any extent to which you're reinvesting some of that tax or benefit or it was sort of contemplated in the initial guidance? And then I do have a question also just about the Grubhub partnership. We hear from other companies that franchises need to see a certain level of incrementality for these partnerships to work. Is that something that you've worked through from your perspective? It's just interesting for me to see company like Yum! has so much experience with inhouse delivery from Pizza Hut partner in sort of an outsourcing way. So just trying to understand the economics for you in the franchises.

Thanks, Sara. On the tax savings, and the returning to shareholders. As you know, we're in the process of transforming Yum! into a free cash flow machine. So, we don't have any needs on cash that we haven’t been able to meet with our own cash generated. So consistent with the transformation the plan is to return the incremental cash from tax reform to shareholders. On the Grubhub deal, and the franchise economics, we did a thorough process in terms of understanding the economic to franchises, understanding the different options for us. And it was a really important part of this process for us to make sure that we ensured our franchises have good economics. We leveraged our scale and our marketing cloud and what we can bring to our partners. And we think we have a deal, we're not going to go into the commercial terms, and we think we have the deal set up that our franchises will absolutely embrace and it will drive incremental profitability and sales for them.

Yeah, I think in the test markets, we I think have got a couple of test markets going in the moment. Indianapolis, Louisville, [indiscernible] and to an extent I think to Orlando. But I was talking to the restaurant general manager in the test and the good news is that they do believe they are seeing incremental occasions and they do believe they're seeing much higher check. So, I think what delivery promises in these very early test markets, the guys and girls are actually running this on a daily basis are seeing that benefit, we're encouraged by that and we're encouraged by expanding those tests.

Your next question comes from the line of [indiscernible] from Stifel. Your line is open.

Thank you, good morning. I just have a couple of questions. So, first Greg, are you concerned that Grubb having a stronger competitive position with your investment allows more non-Yum! chains to start using delivery which would add delivery competitors for Pizza Hut?

I think that certainly the investment that we’re making at Grub Hub we believe allows them to expand their coverage and obviously expanding their coverage gives more access as David has pointed out to both pick-up and delivery which obviously benefits us. We spend a lot of time obviously on this partnership and I think you know as we said you know we love the management team, we love their business model. We see this as an opportunity for both companies and we’re excited about you know the opportunity for us to use Grub Hub to get our brands easier access to our customers.

And obviously our brands are benefitting Pizza Hut included are benefitting from the consumers embracing delivery, we’re seeing the Pizza Hut delivery business climb as a percentage of the Pizza Hut business. So, we’re excited about delivering for our Taco Bell and KFC brands and very confident in the model that we have with Pizza Hut with today being one that can benefit from this change in consumer's taste.

Okay. Thank you and then David how many -- I may have missed this, but how many development commitments came with the stores that were refranchised during the fourth quarter?

That’s not a number that we’re going to start to get into reveal other than to say it varies by deal, some deals where we have lot of development opportunities, obviously we attach a lot more commitments to it, other deals where they’re in mature market and fully penetrated you can imagine we put less in. And our experience with the development commitments is that you don’t get a 100% follow through on every single one of them. So, I don’t want to start releasing numbers and then having to revise them constantly. But it’s a sizeable amount, these isn’t just a few commitments, these are very significant commitments to building stores typically over the next three to five years.

Your next question comes from the line if Geoffrey Bernstein from Barclays. Your line is open.

Hi, this is Parekh Patel on for Jeff. Thanks for taking the question. A lot of questions have been asked about, corporate tax reforms but if I could just shift to the standpoint of the consumer, wondering if you guys had done any research or analysis in the past in instances where consumers saw a significant increase to disposable income, be it from past tax rate benefits or maybe the lower gas prices we saw a couple of years ago or maybe, just any color you might have would be helpful? Thanks.

Yes, we haven’t done any specific research around the tax reform but I think as you said in the past with lower gas prices the people have more disposable income in their pockets. They tend to spend it, so I think anything that ends up with people having more money in their pockets is a good thing.

Your last question comes from the line of Jason West from Credit Suisse. Your line is open.

Okay, sorry. Yeah, just going back to the guidance, it sounds like excluding the revenue rec changes that are 2 to 3% increase in EBIT embedded which is a little lower than the guide for ’17. Just want to clarify I mean is that primarily because like you said that the brands that are being refranchised or is there anything else kind of changing in your view in terms of the ’18 growth rate in the business.

Well I’ll walk you through the guidance again on operating profit. The refranchising headwinds are about six to seven points, revenue recognition is hitting us for 2 to 3 points, so that together those things are 8 to 10 points of headwinds. We actually get a little bit of a benefit from lapping the Pizza Hut and KFC transformation agreements year-over-year '17 to '18. So, you can see how that 8 to 10 effectively ends up being high-single digits with what we've been very consistent on for the transformed Yum1 growth model.

Okay. So that refranchising headwind would have been a little less maybe in '17 than 6 to 7 is that fair?

Exactly, that's fair. Exactly.

Okay. and then the last thing.

Just to clarify, we outlined the headwinds from refranchising dilution in our 2017 guidance. And we've talked about that as in terms of percentage points, and that was 1 to 2 points of headwinds. So that should give you the walk. 1 to 2 in '17 versus the 6 to 7 in '18.

Okay that make sense. And then just for our knowledge, can you explain again the tax issue with the intangibles that you mentioned and how that sort of holds back you're the downside I guess on your tax rate. And is that a cash issue or is that really a non-cash type item?

It is a cash issue. And obviously it's a part of the tax cut that's fairly complex. And some people have talked about a little bit. but essentially, it's designed for income that you have offshore that is not coming from tangible assets, it's coming from intangible assets. And it's an offset to the benefits we get from the territorial tax system. We're obviously digging into all of this trying to better understand and as I mentioned it will have delayed applicability to us because a lot of our international entity tax years. so, we'll have more to share on that as we go forward.

Alright. Thank you very much everyone for joining us, and with that I'll turn it back over to Greg.

Yeah thanks Dave. So, thank you all for joining us on the call today, I appreciate it. I think in summary, I'd say that Q4 was a solid finish of the strong year. We've made great progress on our transformation. I think the keys of the underlying growth remains strong in the business. We're obviously very excited about our strategic partnership with Grubhub. And that's all to ensure that we are distinct, relevant and easy. Thanks for joining us everybody.

This concludes today's conference call. You may now disconnect.