KFC Holdings (M) Bhd (KFCH) will be selling its non-core, non-related assets including Wisma KFC,as part of its efforts to streamline operations to remain focused, said managing director Johari Abdul Ghani.
The company's chilli plantation and soya bean factory would be closed down, just as its Seattles Best Coffee outlets and the Indonesian restaurant Sabang were, he said. Its money lending business also has been dissolved, for which it ended up with 834 acres of land in Mersing.
This land would be hived off eventually and the proceeds used to pay the company's bond-holders as part of its de-gearing exercise.
And after getting the controversial 22-storey Wisma KFC sited in Jalan Sultan Ismail back from Idris Hydraulic, Johari plans to sell it off as well.
We do not need a huge building. We just need a few floors for a corporate office which we could rent, so we will sell Wisma KFC, Johari said, adding that KFCH should be able to obtain more than RM100mil for the building.
He said the reorganisation and asset disposals would place KFCH in a better position, both in terms of profits and business, moving ahead. The purchase of the Ayamas poultry business would also generate synergies with KFCHs own breeder operations.
Although Johari said KFCH would be better off in terms of profits in the future, he declined to give any estimates, merely stating that it would do better than in the past. He is hoping though that KFCH would be paying higher dividends from the current 8%.
The way forward is to expand our outlets and continue to slaughter more chickens. Currently, we slaughter 2.5 million chickens a month. By this quarter, it would rise to 2.8 million and by 2005, about 4 million birds, he said.
There are also plans to open about 35 to 40 new outlets for both KFC and Pizza Hut chains each year in the next two years. There are currently 98 Pizza Hut restaurants and 320 KFC outlets in Malaysia. KFCH also manages the Singapore KFC and Pizza Hut operations.
He said the new outlets would be sited in new townships and populated areas and that the cost of setting up each outlet would be about RM600,000 to RM700,000. Funding would be via internal funds.
Last month, KFCH and Ayamas Food Corp Bhd announced a complex reorganisation to create a new holding company (Newco) for both the KFC and Pizza Hut franchises. Newco would own 29.38% stake in KFCH, which it would buy from CI Holdings Bhd for RM290mil. Newco would also own 100% of Pizza Hut, which it would acquire from KFCH for RM115mil.
As part of the reorganisation, Johari and his team will undertake a management buyout and end up with a 13%14% stake in the Newco, which would assume the listed status of Ayamas. Ayamas's poultry operations would be sold to KFCH for RM260mil.
Although Johari stressed that the plan would unlock value for shareholders, some minority shareholders are not convinced. To them the plan erodes rather than creates value. Joharis rationale is that if nothing is done the risk of losing the KFC and Pizza Hut franchises was even greater and even though minority shareholders would be holding KFCH shares, they might be holding shares in a firm without a franchise.
Here we are being pro-active and doing something to resolve the shareholder issue. It is an opportunity for us to act since CI Holdings is not able to get the consent of YUM! Brands International Inc to be a major shareholder of KFCH. The agreements are up for renewal and we have to safeguard the franchise, hence the plan, Johari emphasised.
He added that the sale of Pizza Hut by KFCH to Newco was also to segregate the two franchises (KFC and Pizza Hut) under two different companies, which was a requirement of YUM!.
Minority shareholders are also of the view that the RM115mil price for the sale of Pizza Hut by KFCH to Newco is unfair, and believe KFCH is paying too much for Ayamas.
Johari said: The value is fully justified. Pizza Hut is a brand company, it does not have an asset base, whereas Ayamas is asset-based. For this exercise, we have created a huge goodwill of RM70mil for Pizza Hut.
As for the franchise agreement (for both KFC and Pizza Hut), he said: We are in intense correspondence with YUM! and we should be able to get a (consent) letter before making a submission to the Securities Commission. We are confident of that (for they support our plan).
Asked if Newco would be eyeing other franchises within the YUM! Group, Johari said: We believe the market is not ready for Taco Bells and Long John Silver.'' (KUB Bhd holds the franchise for A&W.)
As to whether he was fronting for other parties, Johari said: Throughout my career I have not fronted for anyone. I am a professional manager and acting on my own. I and the group of us at KFCH have brought this reorganisation proposal for the benefit of shareholders.
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