Steve Schmitt - VP of IR & Corporate Strategy Greg Creed - CEO Pat Grismer - CFO

John Ivankoe - JPMorgan David Palmer - RBC Capital Markets John Glass - Morgan Stanley Keith Siegner - UBS Jeffrey Bernstein - Barclays Capital Joe Buckley - BofA Merrill Lynch Sara Senatore - Sanford C. Bernstein & Company David Tarantino - Robert W. Baird & Company, Inc. Karen Holthouse - Goldman Sachs Brian Bittner - Oppenheimer & Co. Peter Saleh - Telsey Advisory Group R.J. Hottovy - Morningstar

Good morning. My name is Sharon and I will be your conference operator today. At this time, I would like to welcome everyone to the Yum! Brands' Fourth Quarter 2014 Earnings and Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Mr. Steve Schmitt, Vice President of Investor Relations & Corporate Strategy, you may begin your conference.

Thank you, Sharon. Good morning everyone and thank you for joining us. On our call today are Greg Creed our CEO; and Pat Grismer, our CFO. Following remarks from Greg and Pat, we will take your questions. Before we get started, I would 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’ Web site to find disclosures and reconciliations of non-GAAP financial measures that may be used on today's call. We are broadcasting this conference call via our Web site. 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 our live conference and in any future use of the recording. Finally, we would like to make you aware of the following upcoming Yum! Investor events. Our first quarter earnings will be released on Tuesday, April 21st and our China Investor Conference will be held Wednesday, May 13th to Thursday, May 14th in Shanghai, China. And with that, I would now like to turn the call over to Greg Creed.

Thank you Steve and good morning everyone. I'm pleased that you could all join on my first earnings call and I'm honored to share with you the opportunities ahead Yum! as well a review of our results. Before we get started, I want to underscore what I presented at the Investor Day in December. Our goal is to continue to build free global iconic brand that people trust and champion. I believe that's critical to delivering sustained growth and I'll share some views during my comments about 2015. But before I do, I'd like to comment on our 2014 results. As you saw in our release last evening, we grew full year EPS 4% in 2014, despite a 29% decline in the fourth quarter. These results were heavily skewed by the challenges handled in our biggest division, as we suffered two highly publicized supplier incidents in two consecutive years in China. However, we continue to believe this setback is temporary as evidenced by the bounce back we delivered in the first half of 2014 following the first supplier incident. As prudent of our convictions, we continue to invest what our belief is. We are building 700 new units in China this year because we absolutely believe that market offers strong unit economics and return on investment. Based on our expected recovery in China and the positive momentum across the rest of Yum!, we expect EPS growth of at least 10% in 2015. As outlined at our Investor Conference in New York, this will be a first half second half story with EPS growth negative in the first half of the year then turning strongly positive in the back half of the year. I'd like to reiterate that we are firmly committed to restoring our track record of at least 10% EPS growth and consistently achieving our division targets. So how are we going to do this? Well today I'd first like to update you on what's happening in China since we last met in December. I will then discuss what gives me confidence in the future for each of our business and after that Pat will walk you through the financials. First China, following the successful menu revamp in 2014, China operating profit increased 116% in the first half of the year and Yum! EPS grew 27%. We were convinced that 2014 would be a year of at least 20% EPS growth. The Shanghai Husi supplier incident changed all of that. We know KFC and Pizza Hut are beloved brands in China with a huge advantage not just in scale but also innovation, quality and people capability, despite the recovery of KFC is not occurring at the pace we expected. The good news is that our consumer perception scores have shown continued improvement. Metrics at KFC including food safety scores and reliable brand scores have improved every month since their August lows. From what we can tell, the biggest setback to this recovery is that we incurred two supplier incidents in such a short timeframe. So what are we doing to address this? We've learnt from other setback that we must innovate our layout and that's what we're doing. We have two menu revamps scheduled this year one in the first half and one in the second half. This proves successful in the first half of 2014 and we'll leverage the success this year. And of course we'll continue to offer compelling value. We've also started our initial rollout of premium coffee in Shanghai KFC stores in December. The initial results are encouraging and firstly ground copy has contributed probably to our breakfast and afternoon data. We expect this to add an incremental sales way that we can grow. By the end of February we have copy in more than a thousand of app stores and by the end of the year we anticipated we should have copy rolled out into over 2000 stores. This is a significant achievement and stepping a different way we'll have premium copy in more stores by the end of the year then Starbucks had total stores in China in 2014. I want to assure you it's my top priority and all hands are on deck to get the China business back on track as soon as possible. Prior to our investor meeting in December Joey Wat, our KFC China President spent several days in Irvine working with the Taco Bell team to learn more about Taco Bell innovation process mobile app and digital customer engagement. Jolly has taken those learning and is looking to improve KFC China in these areas. This is just one example of have we share now have and best practices from teams around the world as we address the set back with a sense of urgency. Now let's step back and look at where we are KFC China averaging volumes in 2014 where 1.35 million or 20% off at peak levels but despite these margins held at 15%. These fundamentals demonstrate we can still open stores with confidence offering attractive returns for our shareholders. We know still have work to do to regain our customers trust but once we do the opportunity are tremendous. Just recovering average unit volumes to 2012 levels to KFC will result in $1.7 billion incremental revenue and that doesn’t even include the new units we’re building. Pizza Hut Casual Dining is recovering more quickly the brand was not as severely impacted by the supplier event as KFC. Many consumer metrics are back to process where they were in the second quarter of 2014. And we introduced this to the fact of Pizza Hut has only been impacted by one supply instrument not two by no means are we out the woods but we are trending in the right direction. And we are continuing to build the brand by expanding style layers like breakfast in late night. I want to assure you that we remain committed to new unit development and plan to open 700 new units in China in 2015 which builds under 737 we open in 2014. In addition to the massive new unit opportunities have been KFC and Pizza Hut Casual Dining, we continue to expand Pizza Hut Home Service as well. We have a tremendous sales leverage opportunity in China as sales recover and we fully expect to realize this overtime. There’s a $600 million profit opportunity by simply returning our existing assets to the volumes we had in 2012. And I have great confidence in Sam Su, our Vice Chairman and China division CEO and his ability to get the China business back on track and capture this enormous upside. Now for the other two thirds of our business. First KFC, our KFC business model is incredibly strong I love the combination of being the emerging market leader being franchise led and having allotments like double digit operating growth well into the future. We expect to open 700 new international units in 2015 after a record year in 2014 of 666 new units. We're clearly entering the year with same stores sales momentum as comps grew 4% in our last quarter. We saw continued excellent system sales right in Russia of nearly 40% and double digit growth in Africa and Thailand all in constant currency. The new use to KFC is our U.S businesses performing much better. U.S same stores sales grew 6% in the fourth quarter and the division is poised with best year in sometime. All of this sets the KFC division after a strong 2015 Micky Pant our KFC CEO is there is lot of credit leading this incredible brand and with this brand positioning is always original I am confident the best is yet to come. Now to Pizza Hut, we opened a record 465 new international units in 2014 and expect to improve on this number in 2015. Our focused brand structure is clearly paying dividends with Pizza Hut development. However, Pizza Hut’s more than a new unit story as you all know Pizza Hut launch his new menu in the U.S driven by the flavor of new brand positioning in December. I would be remits if I didn’t tell you sales were softer than we expected with our initial launch and I absolutely believe our product in brand positioning arrive but we struggle to get our communications balance to build the new brand positioning while still connecting with our core-customer. However, this is a long term strategic initiative, we are excited by the fact that the people who have tried it, love it. Repurchase in temp is greater than 90%. Look this is just a first innings we are working to drive more customer trial as a rapid pricing campaign evolved to drive self through shopper product and crossing office. And impressively, we've seen operational pick up from the new menu. I know new Pizza Hut CEO David Gibbs and his team our focus on getting the advertising and crossing right to ensure that their brand building efforts pay huge dividends. We also enhanced the Pizza Hut mobile app back in late November. Before the fourth quarter over 40% of delivering in carry out orders we're by digital. Over 50% of all digital orders are occurring through the app and mobile devices and digital sales grew 40% year-over-year in the fourth quarter. Just this pass through Sunday, we saw over $10 million worth of peaks of app digital devices. Mocking the single biggest digital day in Pizza Hut's history believe me we absolutely understand importance of digital to complete acceptably in the Pizza category and are making significant investment in these area of the business. There is no doubt in my mind that the Flavor of Now is instrumental to building a more relevant consumer proposition for Pizza Hut. We've a long runway ahead of us and we are making the necessary decisions to drive future return both domestically and globally. And finally, the Taco Bell. Taco Bell continues to fire on all cylinders. The breakfast launch last spring of the success and we continue to record strong margins. Breakfast was again 6% of the day part mix in the fourth quarter and we expect to further grow the layer with additional product innovation. I believe a lot of the momentum witnessed at Taco Bell is attributable towards inside driven brand positioning, product development, advertising and social engagement with core users. We are applying this to the other two brands and across the globe. And vice-versa, all ideas don’t have to come from the U.S. or from Taco Bell. For example, we're taking a page from the success of our open-kitchen Taco Bell restaurant in Bangalore, India and I plan to open a similar restaurant in the U.S. in 2015. This sharing of ideas globally is especially important as we work to spread good ideas worldwide and across brand to make the brave decisions necessary to lead this food revolution. Our mobile app launch is also a solid start of Taco Bell. We've seen 2 million downloads so far. We expect 2015 to be another solid year as we focus on furthering our breakfast offerings, generating more innovation across all dayparts and optimizing our presence with next gen footprint. I'm thrilled to have Brian Niccol leading this brand and taking it to the next level Live Mas positioning. The opportunity that lies ahead of Taco Bell is really unmatched as we start to expand internationally and who better to take the brand global than Yum! We have the infrastructure, supply chain, franchise relationships, fixed brand, this brand's domestic success on a global scale. As I see it, we are just in the early days of taking this brand to a new level. So in conclusion, we have an incredible growth opportunity ahead of us. Without a doubt, we are disappointed about the results out of China but we are addressing issue head-on and I believe the upside from this business is tremendous. Yum! is in a unique position. We have three iconic brands and I think we have an opportunity to make each of these brands stronger. My vision as CEO is to build three global iconic brands that people trust and champion. In order to do that, we have identified each brand's true known positioning that is a clear, compelling and relevant guidepost. As you saw at our New York Analyst Meeting each of the brand leaders is using these brand positioning and underlying principles to drive results through brands that are more relevant, more engaged, more connected and ultimately more caring. I believe this will overly translate to consistent results that will reward our shareholders. And for now it gives me much please to hand over to Pat to take you to thorough details on the financials. Over to you.

Thank you Greg and good morning everyone. In my remarks today, I'll cover three areas. Our fourth quarter results and our outlook for 2015 and our ownership strategy. For the fourth quarter EPS excluding special items declined 29%. Reported EPS was negative, primarily due to a non-cash special item charge of $361 million related to further impairment of Little Sheep assets in China which I'll cover in a minute. I'll start with a broader discussion of our China business and then move into our other divisions. As we outlined at our December Investor Meeting, same store sales KFC China are recovering at a slower pace than we initially expected and declined 18% for the fourth quarter which for China division includes the last four months of the year. Same store sales at Pizza Hut Casual Dining were more in line with our original estimates and declined 9% for the fourth quarter. These sales declines weighed heavily on restaurant profitability particularly as the fourth quarter is the seasonal low point China's fiscal year yielding a restaurant margin of 7.1% for the quarter. In addition to significant sales deleverage, we were also impacted by food inflation of 3% and labor inflation of 9% which combined had a negative 3% point impact to restaurant margin. While we're not pleased with these results, we expect the combination of sales improvement, modest pricing and responsible cost management to dramatically improve our China division's profitability as the year progresses with a particularly strong second half. Given our long-term positive outlook for China and our continued belief that the current sales issues are temporary, we opened 737 new restaurants in the world's fastest growing economy. We also continued our disciplined approach to development shifting our new unit program towards high return investments. As evidence of this, Pizza Hut Casual Dining still delivering 18% restaurant margin in a year when same store sales declined 5% comprised nearly 40% of our new unit openings in 2014. Now before moving to our other divisions, I want to provide some color on the impairment charge that we took in the quarter related to Little Sheep. Due to sustained same store sales declines, significant store closures and the evolution toward a more franchise led business we determined that it was appropriate to further write-down our investment in Little Sheep and therefore recorded a non-cash special item net charge of $361 million. We are extremely disappointed with the performance of Little Sheep since we acquired the business in 2012. It has clearly fallen well short of our expectations and hasn’t yet achieved the unit level economics necessary to justify the expansion we had envisioned for this concept. We have a small dedicated team focused on improving this business and pending the outcome of these efforts will evaluate our options with Little Sheep later this year. Now moving to our global KFC division which posted its strongest quarter of the year with solid improvements in sales, margins and profit. Systems sales growth was especially strong in emerging market up 12% led by Russia, Africa and Thailand. International developed market also delivered solid systems sales growth up 5% led by the UK, Continental Europe and Australia and the U.S posted its strongest quarter of same stores sales growth in nine years of 6%. Operating profit grew an impressive 19% in the quarter before the impact of foreign currency translation this included a benefit of 3 percentage points from the favorable resolution of the pension matter in the UK. Importantly KFC stead a new record for international development in 2014 opening 666 new restaurants demonstrating the global power of this iconic brand. Our global Pizza Hut division posted flat same stores sales growth for the quarter. Although this was the lower expectations it represented another sequential improvement in quarterly sales performance since the start of the year. Despite this improving sales trends operating profits decline 11% driven by 2.7 percentage point decrease in restaurant margin coupled with strategic investments in international G&A to lay the foundation for future growth. On the positive side the quarter capped a year of record level development for the Pizza Hut brand opening 465 new international units capitalizing on the continued strong growth of the Pizza delivery category globally. And finally Taco Bell which posted their best quarter of the year with operating profit growth of 20% global same stores sales grew 6% including 7% same stores sales growth in the U.S driven by breakfast the launch of our dollar credence menu in our recent Sony big box promotion. Restaurant margin improved 0.1 percentage point to 20.6% raising full year margin to approximately 19%. Additionally, we opened 236 new stores this year our strongest weighted development in more than a decade. Almost 90% of these new restaurants were opened by franchisees further demonstrated the attractive investment returns to the Taco Bell brand generates. I know like to talk about our 2015 outlook we are full committed to delivering EPS growth of at least 10% this year. And consistent with the plans, we laid out in early December at our Investor Meeting we have a path to achieve this target without profit growth from our largest business KFC China. The pace of sales recovery in this business remains difficult to predict and we'll have much better visibility to this trajectory and the implications for KFC China's profit growth and young EPS growth as the year progresses. Along these lines, our path to at least 10% EPS growth has become tougher. The major change is foreign currency translation. We initially estimated exposure of at least 1 percentage point of EPS for the year but based on current spot rates and projections that could now be around 4 percentage points of full year EPS headwinds. To be clear this exposure is largely one of profit translation and does not impact our competitive position as it relates to how we place our products around the world. The vast majority of our input costs on a local currency where we operate so swings in foreign exchange rates have no real impact to our pricing or competitive value. With respect to China, Pizza Hut sales are about where we thought it is. But KFC continues to recover at a slower pace than we anticipated. Same stores sales for KFC did not improve in the month of December and January as we expected, as recent promotions were too narrowly focused from a consumer perspective. We've taken swift action to develop new advertising and new local store marketing programs to strengthen our overall promotions with broader appeal to our core-customers during the upcoming Chinese New Year period. We expect these actions will deliver improved results in the coming weeks. In spite of these headwinds, we remain committed to delivering at least 10% full year EPS growth for 2015 with the first half negative and the second half strongly positive just as we outlined in New York. However, based on current trends, we expect China same stores sales for the first quarter which is limited to the month of January and February will be in a negative mid-teen range. Combining these with our new expectations for foreign exchange we estimate that young EPS in the first quarter of 2015 will be about 20% lower than prior year. So with a weaker than expected start to the year why am I confident it will deliver at least 10% full year EPS growth for 2015. Here is the key reason number one, we expect China division to have a very strong second half bolstered by A the gift of time and the demonstrated resilience of our brand including the upward trend in our key consumer metrics. B two menu rebounds including new breakfast innovation and the continued roll out of premium coffee at KFC. C, two menu revamps and the expansion of our breakfast afternoon tea and late night programs at Pizza Hut Casual Dining. And D, new product and digital innovation at Pizza Hut Home Service. We are also continuing prudent new unit development of all three businesses, while making the investments necessary to contemporize our brands to keep pace with the changing China. We have enormous profit leverage in our China business, so when sales recovery as we expect they will, we are positioned to realize a significant uplift in division operating profit similar to what we achieved in the first half of 2014. In fact, as sales recover to 2012 levels, we believe there is $600 million of latent profit potential just with our current assets underground. Number two, we expect positive momentum to sustain at both KFC and Taco Bell divisions which together account for about 55% of our global operating profit supported by more breakthrough product innovation, solid franchise driven at new unit pipeline plus the rollover benefit from last year's record development and continued progress on digital. Number three; we expect Pizza Hut division sales and profits to strengthen across the year as we accelerate the pace of international development particularly in emerging markets building on last year's record level additions which benefit this year. Improve the execution of our brand re-launch in the U.S. with more targeted product news, promotional offers and marketing communications continue to improve and expand our digital platforms and leverage our best product innovation ideas from around the world. Now I'd like to quickly cover our ownership strategy and how we make decisions where to invest equity. First from a global perspective, we lead with franchise development with our franchisees opening over 1,500 restaurants around the world including the vast majority of new units opened at our KFC, Pizza Hut and Taco Bell divisions. Second, we maintain purposeful equity investments on the basis of financial and strategic criteria. On the financial side, we own equity where we generally have high growth, strong returns and strong operating capability. On a strategic side, we have equity positions that allow us to innovate our concepts, build capability and lead the growth of our system. And third, we refranchise when we believe the franchise model creates more shareholder value. In fact after a conducting a comprehensive review of our equity business, we announced in December our intent to become even more franchised as a company. Currently, we are slightly more than 90% franchise outside of China and India and we're going to take that to approximately 95% franchised over the next three years. With this, we expect operating margin for these businesses to improve from 24% in 2014 to over 30% in 2017. For China and India, we realized there are opportunities to unlock shareholder value to refranchising as well. We will be picking up the pace of refranchising and franchise development in these divisions and expect to be approximately 10% franchised in China and 85% to 90% franchised in India by 2017. We expect the profitability and capital efficiency of our businesses will improve with this refranchising and importantly these actions along with the China sales recovery will boost our return on invested capital which we expect to reach at least 22% on 2017. Finally, we pay a dividend which we've grown at a double-digit rate every year since we first paid the dividend in 2004. This equates to an annual dividend yield of about 2% which is very competitive for a company with our growth profile and we're committed to that. So let me wrap things up, while we see additional headwinds for 2015 and the recovery at KFC China is taking longer than we anticipated, we are committed to EPS growth of at least 10% and restoring our track record of double-digit EPS growth going forward. We are also committed to ensuring the ownership model, create shareholder value and we'll be increasing our franchise mix in the years ahead. And with that, I'll hand things back over to Greg.

Thanks Pat. Before we begin the Q&A, let me just tell you why I'm passionate about this company and believe in the future of Yum! Brands. First, we have three iconic brands with incredible global infrastructure and franchise capability to facilitate growth. That's a strong competitive advantage to start with. Second, we have a China business with leading brands, supply chain, development expertise and of course people. Other companies would kill for what we have. Yes we've had some challenges over the past couple of years which have been painful for our shareholders. But that doesn’t erase the company we built over the years, while the enormous opportunity ahead of us. We're going to turn this business around and when we do, we have a tremendous sales leverage opportunity to capture and I'm confident we will. Our KFC division is an emerging market powerhouse as strong as this business I know it can get stronger. The top 10% of our restaurants are generating sales that are more than double the average KFC. Our assets are under-leveraged. We're going to remedy this by expanding operating hours, leveraging digital and strengthening the core and we expect the recent improved performance in the U.S. to continue. Pizza Hut it's a powerful brand that quite frankly has underperformed over the past few years, but we adjusted a record in new unit openings. Think about this, if we can set a record in new unit openings when the brand is not growing same-store sales, just imagine what we can do when we get sales going. We're making digital our top priority and we're going to perform much better. Taco Bell is accelerating the unit opening lunch, breakfast and mobile ordering has fantastic innovation in high teen restaurant margins and with more focus and investment behind Taco Bell international I know we're going to make a significant progress in taking Taco Bell global as an organization we're going to build stronger brand we're going to have sharper our brand positioning and inside driven marketing program. And we're going to focus on the following areas more product customization, more transparency, leading innovation and much more engagement through social media and digital. And finally we're going to continue to give back to the community and deliver on our social responsibility commitment. All of these lead my goal of having brands that people stuff and champion is going to take hurries to do the right thing and it's going to take time. But we have to scale and the resources to do it. I firmly believe we're going to build stronger brand and all of these will lead to strong returns for our shareholders in 2015 and over the long term. So now I'll hand it back to Steve will commence to Q&A.

Okay we are ready for Q&A.

[Operator Instructions] Our first question comes from the line of John Ivankoe from JPMorgan. Your line is open.

I just want to see if I caught a comment and then I'll have a question on that. It sounds like refranchising in China and India would actually be additive to profits in the near-term. Is that what I heard?

John I would say I'm not meaningfully additive.

Okay, but at least not dilutive. And then when we talk about cash flow and returns in some of these other things, it would clearly be accretive. So I guess there are two schools of thought with re-franchising, one of which, you know, you sell stores at a relatively low margin because you can, we talked about, have these sales not be dilutive to profit or maybe even modestly accretive to profit and let the franchisees turn around the system from a fairly low base. And there's another school of thought that you re-franchise stores once the brand has regained strength and is showing increases in same-store sales and margins and what have you, so you can put new stores in the hands of franchisees with some momentum behind them. So do you subscribe to either one of those schools of thought? Or how should we be thinking about re-franchising, broadly, especially when we think about the existing base of margins, for example, of Pizza Hut globally or especially China on a system wide basis?

John generally speaking we love the franchise model we think it’s a powerful way to create shareholder value and we've demonstrated that overtime. Our equity positions have been quite purposeful as we've talked about. But we've always guided our ownership with believe that we earned the right to own and this were we're not continuing to earn the right own and what we believe those units will create more shareholder value in the hands of franchisees capable franchisees who been continue to build the brand and develop alongside us as equity operators that’s the direction we're headed. So our strategy hasn’t changed at all guided by the underwrite to own if anything I would say building on what we presented in New York. Our goal is to be even more discipline in that regard.

So just to understand, you have no problem re-franchising stores at a relatively low price at a relatively low margin, if that's what you think is right for the long term of the business?

When we structure our refranchising deal we structure prices that we believe are there based on the current operating performance of those unit. And what we believe is there potential in the years ahead fair prices.

The next question comes from the line of David Palmer RBC Capital Markets. Your line is open.

You mentioned consumer perception scores are improving in China. Have those scores continued to improve even in recent weeks and months, or are those stalling out lately? And versus the competition, are you seeing a divergence in perceptions? Because it does appear that perhaps competitors are recovering more quickly. And what is that telling you about the business? And then lastly, is there anything in terms of your comparisons in the first quarter, perhaps marketing, media waits and other, that we should know about? Thank you.

David let me just say that the good news is that there has been sequential improvement in the metrics. Obviously we get KFC on a monthly basis that we're seen a month to month improvement in KFC obviously on Pizza Hut to get on quarterly basis. But the good news is that whether its food safety or trusts worthy on a liable brand all of those metrics are improving on a month to month basis. So that’s the good news. The second part of your question was.

About how does that compare to the competition and perhaps what does that tell you about how you handle it and perhaps how the consumers view you competitively on those trust scores. And then lastly, in terms of the comparisons on your marketing and media wait, is there anything to note there in terms of how we view this first quarter?

I think the good news is that the consumer metrics are in line with our key competitors in China. I mean they were planning in that the same direction at the same time. So I think in that sense there is no really disconnect between the including and metrics are now key competitors metrics. I think as you know a key competitor had greater sales originally then we had I put that down to the performance of the promotions that we were running in both December and obviously as we started running to the New Year. I think what's really important is that I think we're sequentially getting better and I think we've learned that, as Pat actually referred to in his commentary, we try to make the --no we've try to be useful in contemporary and maybe we got a little bit tune out and walked away from our course, but I'm excited about in the discussions I've been having with Sam and Joey, they were already course corrected. The advertising for the Chinese New Year promotion. We've also added some local store marketing for what will be the Chinese new promotion so what I'm really about is that course correcting very quickly when the promotions aren’t working. We realized where we can get better and we're making those changes immediately. Next question please Sharon.

Thank you. Our next question comes from the line of John Glass, Morgan Stanley. Your line is open.

If I could just ask one other question on China sales recovery, and then I have one on margin, is there anything to read into the fact that the Pizza Hut business is stronger than KFC, other than that supplier issue? In other words, does it say something about how the consumer is changing there? How do you know that's not the underlying or one of the underlying issues? Maybe can you speak to is it maybe is there an asset base issue at KFC that needs to be addressed as well as some of the promotions?

John I think as we look at everything from the consumer metrics everything else, we do believe that as we know KFC had two incidents consecutively, Pizza Hut had one. Pizza Hut's recovering in line with other people recovering in the marketplace. And we really do believe it's down to the fact that unfortunately KFC had two things. Now let's not forget KFC is the number one brand in China and obviously the growth that we've had from Pizza Hut over the years and continue to have as Pat talked about, so I remain incredibly confident in both KFC and Pizza Hut in China. And I'm just totally-totally confident that we're going to turn the thing around.

And John to the second part of your question around the role of the asset plays in all of this, as we outlined in New York, we see asset image being a critical component of our overall strategy to contemporize the brand. Last year we remodeled a bit over -- a bit more than 300 units, we'll do more than twice that number this year, as we look to move more aggressively to contemporize our assets recognizing that a fair portion of the stake was built just in the last five years so overall it's a fairly contemporary stake but for some of our older assets we will be moving more aggressively over the next year with a different remodel package in order to make a better progress there. Thanks John. Next question please Sharon.

Thank you. Next question comes from the line of Keith Siegner, UBS. Your line is open.

Just to follow on the China theme a little bit longer, at the modeling session at the analyst event there was a 2015 guidance for what was hopefully 16%-plus on restaurant-level margins in China for the year. Given the updated thoughts on the top line, does that margin still hold or can we have an update to that margin outlook, please? Thanks.

Yes margin we still expect for the full year -- for the division to be at least 16%.

Restaurant level margins, right?

Yes, that is correct.

And if I could just sneak in a second one, is there any way you could give us some color? Are there pockets of weakness, pockets of strength? Is it tier 1 and tier 2, driven either above or below the average? Is it tier 4 through 6? Any kind of color you can give us to any potential pockets of weakness or strength in that same-store sales recovery would be helpful.

Yes Keith in the most recent quarter, we did see Tier 1 stores outperform -- the balance of the market, but really nothing to report other than that and our best assessment of that is that Tier 1 consumers seem to be maybe a little less phased by the supplier publicity this time around we're continuing to monitor this and at present we have nothing else really meaningful to share on that. Next question please Sharon.

Thank you. Our next question comes from the line of Jeffrey Bernstein from Barclays. Your line is open.

Two questions -- just one on the China side. You mentioned, Greg, that you've had two supplier issues in two years and that's what you attribute the slower recovery. I was just wondering, first, if you could talk a little bit about the potential of the damage that might have caused to the consumer and what gives you confidence that there isn't necessarily a third? What are you doing in terms of improving the supply chain, since the frequency of that has picked up and might have caused damage to the consumer perception of the brand? And the second question was just on Taco Bell. I'm just wondering if you can give us an update on the value versus premium side of things. It seems like we are hearing less about the higher end, maybe more on the lower end. I'm just wondering how you view that higher end opportunity, especially with fast casual doing so well.

Yes well first of all as I said the all the consumer metrics were improving both on KFC and Pizza Hut and obviously there are no indicator what's going to happen and there are also no indicator of consumer confidence, so the good news is that those are improving all moving in the right direction and that's what obviously I think really underpins the confidence I have that when we combine that with promotions that at our core user with better marketing and better value we're going to see the quicker turnaround of the performance in China. So those are the things that give me the most confidence is the consumer, the consumer metrics is moving in the right direction. On the Taco Bell story, I think Taco Bell had a great quarter as we all know when it was a combination of really everything. We had $5 box promotion with Sony. We had the launch of the value menu and I think that plus I think advertising in that really is resonating with the core user, it's driven out great consumer insights and human truth, so I really believe that Taco Bell is firing on all cylinders whether it's a $5 or whether it's just an engagement with the customer so very confident in the future of Taco Bell.

But any efforts to prevent a third type incident? Is there any changes in terms of the supply chain?

Obviously as you can imagine we've put a lot of things in place we’ve now got which will blow our program we've obviously stepped up obviously the I guess the order thing is going on without supply I mean I think the one thing I can't promise is when they've happening if because if people are going to law and sheet do the wrong the thing. But you've got close like a TV which will blow our programs and expensive ordering going on I think we're doing all the right things you aspect to the later.

Our next question comes from the line of Joe Buckley Bank of America. Your line is open.

Also on China, could you just talk a little bit more about the December-January promotions? You described them as being too narrow, and just kind of what that means. And put perspective -- the planned menu revamps, how extensive will they be compared to the late March 2014 brand relaunch at KFC China?

Sure I think the first promotion, there is no doubt the team is right being trying to make the brand more youthful and contemporary. That’s a really good thing that we're doing. But I think in the promotion everywhere this was around the Canadian brand here it so we obviously made it just too narrow and so we didn’t really appeal to about core customer and I think was great and we're youthful and contemporary, the expression which was its Korean brand was actually just much too narrow. And I think the good news the teams learn a lesson but the great thing about when you have these things happen and as I said having spoken to same and Joe I've already course to be advertising for the CRB part of the Chinese New Year has already being shinned with also added extra resources to local store marketing. So I'm really confident that if it didn’t work there intent was right the execution wasn’t and we've learn it and we've already change the execution going forward. So that seems like all really good. The two main re-events obviously the big one will actually have in the first half the second one is not as quite as big as the first one. But I think we have a lot of confidence in menu re-events we know that work for us in the past the first half of last year they've worked and I have the lot of confidence that with the innovation in the product and improvement they're going to make that will see profound effect from this menu re-event.

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

One follow-up on China and then I have a question about Pizza Hut, if I may. Just on the China outlook it seems to me that January maybe got actually worse than December, based on what you are guiding to. And frequently as we are getting updates, it does feel like every time we get an update it's slower than expected or worse than expected. Can you just talk a little bit about is there a point at which you will entertain the idea that maybe you don't get back to peak volumes or you don't get back to peak margins, and maybe you think about the ownership structure a little bit differently? Just if we are sitting here in seven -- six, seven months from now and it doesn't look like you are getting the big bounce back in the second half, does that change your thoughts? And then my question on Pizza Hut is really, Greg, you did a great job with Taco Bell, I think really changed perception there. Can you just compare that to what's going on with Pizza Hut and what -- if the problems or the issues facing the brand are similar to what you saw, and how you think about that business?

I'll let Pat handle the first one and I'll take the Pizza there so.

Sarah on January sales in China I think the comps can be receiving right. So I was like to look at the underlying transactions and so we look at underlying transaction volumes on a weekly to season wise basis. And January was about in line with December so we've necessarily see the business deteriorate but didn’t improved to the extent that we were expecting and so that’s why I said we entered the year plus momentum that we had anticipated when we're all together in New York. As to what the pace looks like going forward as we've said the pace of recovery is slower than we expected best reason why was have the two incidence in two consecutive years. But there is no denying the fact that the business is recovering. We step back and we look at we're things were at the end of July were things were had in August and were things are today and there heck of lot better. We would have like to seen and we had anticipated the stronger recovery. But it’s going to take longer but what we need it to give some time and we have strong believe in a programs of the team is lining which is sharpening as we've talked about to sustain the upper momentum. So that I would say by the time we lap the OSI incident in late July we expect comps to turn positive that is a longer recovery period than we've seen before. But we do see that recovery continuing and we know with that is substantial profit leverage. So we do expect that would be improving sales in the back half of the year will have improving margins and substantial improvement in overall profitability. Very similar to what we saw in the first half of 2014 so we don’t have to go back to far in history to find good hard evidence of the resilience of our brands and our ability to bring the profit back in that business. As it relates to long term ownership again we take a long term view of our business we're in China for the long term and the last two years of volatility while yet painful don’t erase more than a decade of substantial value creation China remains the biggest retail development opportunity in the world and we are the leaders in that market. So our view on the market to long term do we look opportunities to refine our ownership model, yes as we've indicated we've pivoting to quietly higher franchise ownership where it makes sense, where we can sensibly do that, given the nascency of franchising in China today. But we have strong belief in the power of our brands and the strength of our teams and our leading position in that market and we believe that that recovery is going to progress across this year.

So on the Pizza Hut story it's -- the flavor of now I love I think it's a positioning that is so right with what's happening in the entire food market, so I think that to start with. There's no doubt we want to make Pizza Hut more useful, now let's not talk Taco Bell it's a little bit more useful and the good news that's come out of the re-launch so far is that things like [rev] users as I think the 24 gone from like 6% of our business to 24% of our business. So we know that this whole new flavor is now positioning us resonate with them. Unfortunately, we weren’t talking to our current abundant users and as we can tell we're now back on that with Rex Ryan and Tony Romo, so I think we're doing the right thing which is the flavor of them has really resonated with the younger customer audience where we've been really going after which is great. At the same time we got to make sure we don’t lose our abundant customer, we want to make sure that that we've offered a great sort of pepperonis at a great price and what I'm excited about is we got 90% repeat on those who try the new products so getting more type of those new products will also be critical so I'm very happy with I think where we're going to take this brand and the positioning would anchor us around. Sharon next question please.

The next question comes from the line of David Tarantino from Robert W. Baird. Your line is open.

I'm going to give this question on China one more shot. My question is, how do you conclude that the recent trend was more related to those promotions you mentioned and not some structural issue with the brand that's happened post these two events? And said differently, how do you get confident that this recent trend in the sales volumes isn't more of just a new reality from which you have to grow from?

I would say our best indication David is the consumer metrics that we're seeing brand I trust food and safety we've seen as Greg mentioned steady improvement month and month and no scores. As we discussed the recent promotions underperformed from the sales perspective, but consumer metrics continues to show improvement, so in our view it's a matter of getting the promotions right and we're taking strict action to show those up in the next several weeks here ahead of the first of our two menu revamps this year. So we have not seen anything at this stage which would give us a reason to believe that what we have here is a new normal. We think that this situation is temporary and again we faced a similar set of circumstances a year ago and we have the dramatic recovery in our China business just in the first half of 2014 so there's recent evidence that our brands are resilient. They'll bounce back. It's harder this time around because we've had the two incidents in two years, so that's why the recovery is taking longer. But as we've said recovery is progressing not at the pace that we'd like but its progressing and we continue to believe strongly that we'll have a strong second half.

I mean David let me just I hadn’t run Taco Bell for a long time. I've had my share of incidents. So I know what these are like. They're not linear. They never recover on a linear basis, but we do know that great iconic brands always recover. And we know what to do, we have to do innovation, we have to get our core customer back engaged and we had a very frank assessment of the promotion in January and December and we didn’t get it right. And -- but the most important thing is, we're making changes going forward and that to me is really important so having been in the same situation that Sam and the team are. I've been in this situation. I have absolute confidence that iconic brands come back and they come back stronger than they were even some times before they went into it. I think Taco Bell is living proof of why I have absolute confidence we'll do that in China. Next question please Sharon.

The next question comes from the line of Karen Holthouse, Goldman Sachs. Your line is open.

So sorry to ask the same question in another way, but one of the things I think we've been seeing in general consumer reports about China is that health and wellness is becoming a bigger concern and a bigger focus for the average consumer there. Have you done anything in terms of your positioning in perceptions of health and wellness and/or just your sense of whether that is becoming a bigger focus of the Chinese consumer? And maybe potentially that's an overhang on the brand beyond [new] brand scores and whatnot that sounds like, say, everything should be getting better.

I think that what you talked about we're seeing on a global scale right it's we're not just seeing it in China, we're not just seeing in the United States, we're seeing it everywhere. Clearly what you would call health and wellness those -- the importance of that is clearly growing. So I think that in a sense just like at Taco Bell we offer Fresco and at Pizza Hut we offer Skinny Pie and at KFC we offer grilled, and in China we offer congee, and vegetables and food and milk and all that sort of things, so it's -- I don’t think China is ahead of anyone else, I don’t think China is behind anyone else. I think that at the end of the day, we've got choice with our customers to make, but at the same time we got to make sure that the promotions that we run are relevant and appeal to our core audience and we just simply got to do a better job of that in China.

But if you look at some of the products you just mentioned, how big are they actually as a percent of sales versus the core menu that's more fried chicken and fries? And then I have to imagine if you were to look at the overall market, kind of young's share of what you would consider traditional, not necessarily healthy fast food is a lot higher than your share of more traditional congee, vegetable soup, that sort of thing?

Accounted to mean why look at these things mix around 2% doesn’t matter what Taco Bell it doesn’t matter what it is these things started to have huge mixes. But the key is for us to give the customer a choice and I think that’s what we do doesn’t matter on what brand and what country what we got a valuable for our customer is choice. But the mix is we'll probably stepping around 3% I think that there are much bigger things of play I mean making sure that we've got great food a great value making sure that our brands are relevant making sure that this share worthy. I mean all these sort of things I was important there is not one thing is driving it is and a specific thing all these on a global scale and we're reacting to them on the global basis.

Our next question comes from the line of Brian Bittner, Oppenheimer Company. Your line is open.

You talk about unlocking shareholder value in China by leveraging the recovery into significant earnings growth and maybe taking a more disciplined franchising approach there. And that's definitely going to serve your shareholders well. But at the same time, the business outside of China -- it's very franchised, very highly franchised. The business is very under-levered and performing very, very well. Taco Bell, KFC -- just great results. And your peers are getting really strong appreciation in the public markets for similar type business models that you guys arguably are not. I'm just wondering if there's anything you can do to capitalize on that dynamic to unlock shareholder value, not necessarily from a business operations standpoint. But maybe is there an appetite to maybe take on more leverage? Or anything that you can talk about, your way of thinking there would be helpful.

Well let me start and then I will handover to Pat. We will always have the often structure to drive shareholder value let me be really clear. Right now obviously we believe turning China around is the key and obviously we believe China is a long term play for us I think that’s very clear.

And certainly as it relates to ownership level outside the U.S and how that relates to our capital structure. I think I won't understand based on what we outlined in New York that we are pivoting to a more highly franchise model going forward and we expect those franchise percentages to edge up over the next three years. With respect to capital structure we look at things the enterprise level. So we don’t segment our balance sheet by division and we look at our capital structure the enterprise level based on the adjusted leverage ratios that rating agencies look at and how that relates to our cost of capital. As I outlined in New York having taking the advices three large independent Bank who have check our analysis to make sure we're thinking about just right way we believe that our current leverage ratio which is a lowest run of investment great credit. We optimize our weighted average cost of capital. If we were to take on additional debt to an extent that we take us into junk bond territory as we do the number we see what I would characterize as a modest amount accretion and frankly given the trade off in terms of reduced flexibility and our ability to optimize that weighted average cost of capital across economic cycle. We don’t think that’s a good result it's not in the best interest of our shareholder in our judgment. But we do look at it as I know you'd expect we do look at couple a time in year we put a lot of rigor behind it because we are very concerned about making sure that our capital structure is the right one for our shareholders in long term. The one that supports our ability to return cash to our shareholders the way that we have consistently through a combination of a growing dividend and substantial share buyback were also having the cash necessary to continue to invest aggressively behind growth opportunities.

I would add just some we've got a great track record of driving shareholders value and we obviously believe that model will deliver outstanding returns going forward.

The next question comes from the line of Jeff Farmer, Wells Fargo. Your line is open.

Just following up on several recent questions, specifically a lot of those about the recent products and promotion stuff that's going on at KFC in China -- so I'm just curious. Are you guys able to test a lot of that new product and promotion strategies before you implement them? And if not, I'm curious what gives you confidence that you are making appropriate strategy shifts as we get deeper into 2015?

We have a very rigorous discipline process in China and we can't hit everything I don’t teach and go out test rock bands and rock bands and those like things they get a little bit more difficult to test. But I think the repositioning of tower products or the new product in the more traditional sides we can definitely test and in fact I would say that China has probably has one of the most rigorous testing methods and in fact a lot of this is adopted those methods outside of China among the other brand. So I am confident that over right testing is going we can test some but sometimes you just can't test every possible promotion.

The next question comes from line of Peter Saleh Telsey Advisor Group. Your line is open.

I just wanted to come back to the China menu revamp. If I recall correctly, last year there was more of a check benefit from the revamp of the menu. And there wasn't a traffic increase, but more of the comp came from increases in the average check. When you think about the revamp this year, at least the first one, are you targeting more of a traffic or maybe more of a check increase similar to last year?

Peter, we expect with all our innovation to build transaction momentum. Now with the construct of the menu revamp with some more premium products, we also expect to check benefit. This will improve profitability, but our goal, our goal over the long run is to rebuilt the traffic that we've lost and so we do expect that with this menu revamp there's going to be sufficient innovation and continued focus on value to sustain the traffic momentum necessary to recover the business and realize that that full upside profit potential. Next question please Sharon and this is our last question.

Our last question comes from the line of R.J. Hottovy from Morningstar. Your line is open. R.J. Hottovy: Just one more quick question on China -- I appreciate the comments about the consumer perception scores improving and your blueprint for sales recovery in the region. I wanted to get a sense on your take. Have you seen any change in demand among potential franchisees in the market following the recent supplier issues? I know you are building towards a 10% franchise goal by fiscal 2017. I just wanted to get any color on any potential changes among franchisees you are targeting.

Yes no changes R.J. We regained the number brand even with the issues that we've experienced. And our pipeline of franchisees comes from our restaurant general managers and area managers, so we continue to develop strong capability there and among our table of RGMs, general managers, our entrepreneurs who are -- who remain quite eager to take on the opportunity to own and operate our KFC restaurants predominantly in our Tier 1 cities, so that continues to be the strategy. We've not seen any slackening of demand in that regard.

Yes so thank you everybody. First of all thanks for being on the call. I just like to thank I think by saying I was personally delighted to see Taco Bell had a great fourth quarter. And I think a lot of the things that we've done at Taco Bell whether it's a very clear trend or whether it's really very insight driven, whether it's we've got really amazing innovation, advertising that connects and a social mobile digital that really engages with our customers, I think that's what has really helped Taco Bell had a great fourth quarter and a great year. So it probably should come as no surprise to anybody those are maybe the things that are going to be driving as I -- in I go further I visit countries and I'm talking to the brands that don’t be surprised to see me focusing on the exactly those same things because I know they’ve worked at Taco Bell. I absolutely believe we can do them in KFC and Pizza Hut in every country around the world. So with that I really appreciate you all being on the call and I look forward to seeing you soon. Thanks very much everybody.

Thank you very much. Ladies and gentlemen this concludes today's conference call. You may now disconnect.