China Resources Enterprise Ltd. reported a loss in the third quarter as it incurred costs from merging its store network with Tesco Plc’s chain in China and the country’s austerity measures hurt retail sales.
It posted a net loss of HK$71 million ($9.2 million) in the three months ended September, compared with a profit of HK$920 million a year earlier, according to the maker of China’s best-selling beer with SABMiller Plc. Sales rose 17 per cent to HK$47.6 billion.
The state-backed company, which is combining its hypermarket operations with those of Tesco, had said the tie-up is expected to break even in three to five years. China’s anti-extravagance drive, which has slowed luxury good sales and deterred high rollers from gambling in Macau, has also hit sales of more pricey times such as liquor and high-end cigarettes for China Resources.
“In the short to medium term, the group’s overall profitability may come under significant pressure as it takes time to turn around the recurring loss-making Tesco stores in China and integrate them with its other supermarket businesses,” Chairman Chen Lang said in today’s statement, adding the retail division will continue to face challenges in the fourth quarter.
China Resources’ Hong Kong-listed shares rose 1.4 per cent to HK$17.12 as of the mid-day break, before the results were announced today. The benchmark Hang Seng Index was little changed.
Retail Suffers
The company’s retail unit, which contributed more than 60 per cent of group sales, reported a loss of HK$702 million, compared with a HK$84 million profit a year earlier. The subsidiary operates supermarkets, hypermarkets and convenience stores.
China Resources tied with Sun Art Retail Group Ltd. as the country’s largest hypermarket retailer by market share last year, according to market researcher Euromonitor International.
In October 2013, Tesco said it would pay HK$4.33 billion to gain 20 per cent of a venture with China Resources which in August said it may cut jobs, close 10 per cent of overall retail shops and slow expansion during integration with Tesco. As part of the deal, the UK company’s 134 outlets and shopping mall businesses will be added to China Resources, with the chain being renamed CR Vanguard gradually over the next two to three years.
Stiffer competition from online retailers which diverted some customers from physical stores, also hurt sales, it said.
Profit at the beer division, which makes Snow Beer with SABMiller Plc, dropped 17 per cent to HK$625 million. Snow is China’s best-selling beer and was the most popular global brew by market share last year, according to Bloomberg Intelligence. The beer unit formed about 23 per cent of group sales.
China Resources’ food division reported a loss of HK$19 million?compared with a profit of $30 million a year earlier. Its beverage unit, which has a joint venture with Kirin Holdings Co. and sells bottled milk teas, posted a 5.6 per cent drop in profit to HK$85 million.
Bloomberg News, edited by ESM
