Business

Yum Brands to spin off China business into separate unit

  • 21 October 2015
  • From the section Business
KFC billboard Image copyright AFP
Image caption China is a difficult but crucial market for Yum

Yum Brands, the company behind KFC, Taco Bell and Pizza Hut, says it will spin off its China division into a separate publicly traded company.

The business in China delivers more than half of overall profit, but has suffered hurdles, including food safety worries.

This month, the US firm cut its profit outlook, citing a slower-than-expected comeback in China.

The move means any setbacks in China will have less impact on the US stock.

Yum had come under mounting pressure from investors to split the units.

The announcement came just days after the firm had named activist investor Keith Meister to its board.

Mr Meister is the founder and managing partner of hedge fund Corvex Management which has a stake in Yum and had suggested the plans to split off the China unit.

The firm said the spin-off will be complete by 2016.

Image copyright AFP
Image caption Yum hopes to rekindle its customers' appetite

China woes

Yum Brands has suffered repeated setback in its China business. The firm blamed a stronger US currency against the yuan for its poor results. But it is also still recovering from a food scandal last year.

Revenue at the KFC restaurants in China suffered in July last year after a television report linked the brand to supplier Shanghai Husi Food, which was accused of selling meat that was out of date.

Since then, the firm has been trying to win back customers. In the latest quarter, Yum Brands reported that sales in China rose just 2%.

But the company is also suffering from the slowing overall economic growth in the country, as well as growing competition from local food companies.

Maintaining ambitions

Yet the company on Tuesday said it believes the China unit could grow from its current 6,900 restaurants to more than 20,000 restaurants in the future.

The China business, which will be headquartered in Shanghai, had brought in $6.9bn (£4.8bn) in revenue last year.

At its 1987 debut near Beijing's Tiananmen Square, Yum's KFC was a novelty with a menu that included porridge and other local favourites.

The company said that the remaining Yum Brands business outside of China will concentrate on becoming more of a franchisor, with the goal of having at least 95% of its restaurants owned and operated by franchisees by the end of 2017.

Yum China will be Yum Brands' biggest franchisee and will operate under a franchise agreement.

Yum Brands currently has more than 41,000 restaurants worldwide.

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