Yum! Brands unveils Yum! China strategy

Yum! Brands says the planned spinoff of its Yum! China operation into two separate independently-traded companies will boost returns and increased asset value for shareholders of both.

The company, which is making a presentation to shareholders tonight, believes that where one united company would have targeted 10 per cent earnings per share growth, each of the two separated companies would achieve a 15 per cent growth rate independently (based on EPS growth and dividend yield).

“We believe this transaction is a classic example of ‘one plus one equaling more than two’ as it will enable each company to realise its full potential and achieve greater value on a standalone basis,” said Greg Creed, Yum! Brands CEO.

“We continue to make solid progress on our planned separation into two independent, publicly-traded companies… each with compelling growth strategies, distinct investment characteristics, and optimised capital structures,” he said.

Yum! China will have exclusive rights to the KFC, Pizza Hut and Taco Bell systems and brands in China -and the opportunity to add new brands.

The new company plans to franchise 96 per cent of its outlets by the end of 2017, with operating margins and capital expenditures consistent with a reduced ownership business model. That approach will enable it to nearly treble the store network from the current 6900 stores to 20,000.

Yum! Brands will receive a three per cent licence fee from system sales in China, with no per-store set up fee for the new franchises.

Creed says as part of the business separation, the company will return up to US$6.2 billion of capital to its shareholders between the separation announcement date of October 20, 2015 and the actual business separation, which is expected to be completed by the end of 2016.

Concluded Creed: “This is an exciting time for our company, and I’m confident the completion of this separation transaction will result in two unique and attractive investment opportunities for all our shareholders.”

Meanwhile, Yum! Brands’ China Division November same-store sales declined an estimated three per cent year on year, including a one per cent decline at KFC and a nine per cent decline at Pizza Hut. The company is reiterating its guidance for fourth-quarter China Division same-store sales growth of up to four per cent, with positive same-store sales growth at KFC and negative same-store sales at Pizza Hut.

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