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1st LD-Writethru: China Focus: Yum! Brands announces China spin-off details, mulls Hong Kong listing

Xinhua, December 11, 2015 Adjust font size:

Yum! Brands Inc., which owns fast food restaurant chains KFC, Pizza Hut and Taco Bell, announced a detailed plan to split its China division so it operates as its largest franchisee.

The company's China branch, which accounted for about half of Yum's total operating profit during the third quarter this year, while continuing to be based and listed in the United States, will explore IPO opportunities in Hong Kong and other Asian exchanges, the Louisville-based company said at its annual investor conference.

After the split, Yum! Brands and Yum! China will each have the potential to deliver an estimated 15 percent shareholder return, including dividends, compared with previous growth targets of at least 10 percent growth of earnings per share.

The company plans to return up to 6.2 billion U.S. dollars to shareholders before the spin-off, which Yum! said will complete by the end of next year.

Yum! Brands announced the decision to separate its China operation in October this year. It came after a KFC supply incident in China last year caused volatility in its China division, which in turn impacted the entire company.

KFC restaurants have recovered modestly. Same store sales bucked a declining trend from the third quarter last year through the first half this year and rose 3 percent in the third quarter. The restaurant has been constantly updating its menu in China and has recently teamed up with Alibaba's Alipay service to allow diners to pay using their smartphones to speed up ordering.

Pizza Hut restaurants in China, however, are experiencing sustained weakness, with same store sales falling in the past five consecutive quarters and set to post negative growth this year.

As a result, sales for the China division fell 3 percent year on year in November, with KFC and Pizza Hut posting decline of 1 and 9 percent respectively.

Yum expects China sales for the four months ending December this year to stand between 0 to 4 percent as negative growth at Pizza Hut will partly offset a modest recovery at KFC.

Still, the restaurant operator continues to dominate in China's fast food space, as it has twice as many KFC restaurants as McDonald's and five times as many Pizza Hut as Papa John's and Domino's combined. Yum is also considering testing its Taco Bell brand in China.

As part of its turnaround effort for Pizza Hut, the chain's earliest restaurant in downtown Beijing re-opened in November this year with upscale furnishings and a new menu featuring fine Italian cuisine like prosciutto and paella.

After the spin-off, Yum will continue to receive a license fee of 3 percent of system sales for KFC, Pizza Hut and Taco Bell in China.

It currently runs around 6,900 restaurants across 1,000 Chinese cities and has plans to triple that number in the future. Endi