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Circle K operator to expand in mainland

Scepticism greets CRA's break-even target as it unveils plans for 500 stores

Convenience Retail Asia (CRA), the operator of the Circle K chain, plans to open nearly 500 stores in south China over the next three years, making it the largest player in the region.

CRA expressed confidence yesterday that the company could break even within three years, but analysts remain sceptical.

Deutsche Bank said in a report that the expansion would push back the break-even point for the firm's China operations to 2008.

The brokerage projected losses of $30 million this year and $40 million next year for CRA, and lowered its earnings forecasts for this year by 16 per cent to $78 million due to the 'higher re-operation costs and initial losses' related to its mainland operations.

Growth Enterprise Market-listed CRA now operates 205 stores in Hong Kong and 20 outlets in the mainland.

CRA chief executive Richard Yeung Lap-bun said the company's mainland operations would open franchises to foreign participants as soon as it had secured government approval.

'Through franchising schemes, we can speed up our expansion without heavy capital commitment,' he said.

Mr Yeung said 50 per cent of the 480 new mainland outlets to be opened over the next three years would be run by franchisees.

In Hong Kong, the company will add 130 stores over the next three years, bringing its total outlets to 335.

All stores in Hong Kong are owned and operated by CRA.

He said the expansion would not dry up its liquidity as it had cash reserves of $500 million.

With an annual capital expenditure of about $100 million, the three-year plan would cost CRA $300 million, he added.

'Our financial position is very strong,' Mr Yeung said.

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