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Burberry to take over Chinese franchisee’s retail operations

Luxury goods retailer Burberry Group PLC (LON:BRBY) said it has entered into an agreement to acquire certain retail assets from its Hong Kong-based master franchisee, Kwok Hang Holdings Ltd, for £70 million in cash.
This transaction is in line with Burberry's strategy of unifying the brand around the world, while at the same time increasing its exposure to retail and to high growth luxury markets.

The transaction is expected to be broadly earnings neutral in the current year and to add up to £20 million to group operating profit in the financial year 2011/12.

The value of the gross assets to be acquired is approximately £30 million, subject to completion adjustments.  As part of these arrangements, an existing franchisee will hold a 15 percent economic interest in the business.

Burberry expects to acquire the assets and inventory of 50 stores, located in 30 cities in China, including nine stores in Beijing and four in Shanghai, with approximately two-thirds in the global store design.  Retail sales in these stores were approximately £75 million in the year to December 2009, generating operating profit of approximately £14 million for the franchisees based on their historical business model.

Burberry chief executive Angela Ahrendts commented: “The acquisition of Burberry's store operations in mainland China will allow us to further leverage our proven brand and business strategies in this high growth luxury region.  With a solid foundation of 50 stores across 30 cities, operational expertise and strong brand momentum, this is an optimal time for Burberry to integrate this business.” 

In addition to the 50 stores to be acquired in mainland China, Burberry currently directly operates 13 stores in Hong Kong, one in Macau and 19 in Taiwan.