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Yum to return US$6.2b to shareholders before China separation

[LOS ANGELES] Yum Brands Inc said it planned to return up to $6.2 billion to shareholders before completing the separation of its China business, which is expected by the end of 2016.

The KFC and Pizza Hut owner, which has been hit by food scandals and marketing missteps in China, said same-restaurant sales in the country fell about 3 per cent in November.

Same-store sales fell 1 per cent at KFC outlets and 9 per cent at Pizza Hut restaurants.

The company said it was targeting earnings per share growth of about 15 per cent annually for Yum China from 2017.

Yum Brands said it would receive a license fee of 3 per cent of system sales for KFC, Pizza Hut and Taco Bell in China, with no initial fees for new units opened in China.

The fee is at the lower end of the 3-3.5 per cent range analysts had expected.

The lower China royalty - compared with the global royalty rate of 4-6 per cent - gives operators in the country some breathing room, analysts said.

The company said it expects 96 per cent of its restaurants to be franchised by the end of 2017, up from 79 per cent at the end of 2014. "This implied rate of 4 per cent company-owned stores should put the company more in line with some of the approaches we have seen taken by some other publicly traded companies that we find favourable," Nomura Securities analyst Mark Kalinowski wrote in a note.

Most US-based fast food chains, including McDonald's Corp and Wendy's Co, are franchising out more restaurants to cut costs.

Yum Brands said it would discuss further details of the planned separation of its China business at its investor conference in Plano, Texas later on Thursday.

The 6,900-restaurant China division accounted for 54 per cent of Yum's overall operating profit in the third quarter.

Yum China's sales at established restaurants have fallen in four of the last five quarters.

Yum Brands said overall earnings per share, excluding special items, would be flat or grow by a low single-digit percentage in the just-concluded fiscal year, as forecast.