China Resources Enterprise

China Resources is hit by extravaganza clampdown

Firm cites Beijing's drive against lavish spending for 60 per cent drop in first quarter profits

PUBLISHED : Friday, 17 May, 2013, 12:00am
UPDATED : Friday, 17 May, 2013, 4:06am

The campaign to curb extravagant spending by mainland officials and rising material costs took a toll on China Resources Enterprise, which saw a more than 60 per cent drop in net profit in the first three months of the year.

Shares in the beer-to-retailing conglomerate dropped 1.4 per cent to HK$25.15 yesterday after the quarterly report was published.

Profits tumbled 61 per cent to HK$512 million in the three months to March, from HK$1.33 billion a year earlier. Stripping out the effect of paper gains from property revaluation and disposals of investments last year, profits at its core business dropped 8.6 per cent year on year.

The company, which operates Pacific Coffee shops in Hong Kong and on the mainland, and Chinese Arts & Crafts stores, and has a 51 per cent stake in the mainland's largest brewer, Snow, blamed the decline in its retail sales on the government's recent promise to fight corruption.

"The calls to curb receptions, vehicles and overseas trips at public expense, along with flattening inflation, have adversely affected consumption expenditure in the short run," the company said in its result announcement.

Sales at its retail business rose 7.3 per cent year on year to HK$25.9 billion, while earnings dropped 6.25 per cent.

The loss at its beer division narrowed by 30 per cent to HK$23 million in the first quarter, the typical low season for beer sales.

Higher-than-usual temperatures in the first quarter helped to boost sales volumes of its Snow beer, the top brand on the mainland. Sales volume rose 17 per cent year on year.

However, increased marketing expenses and rising material costs have offset the higher sales of beer. The acute competition in the beer market also prompted the company to acquire its rival Kingway Brewery for 5.38 billion yuan earlier this year.

With two newly built breweries in Guangxi and Anhui, the company operates more than 80 breweries on the mainland.

The cyclical downturn in pork prices has undermined sales at its food division. The company said it will step up the construction of a breeding base for Hong Kong in southern China to alleviate the impact of the softening demand for pork. Sales at the food division fell 5.7 per cent year on year to HK$2.4 billion while profit remained the same at HK$57 million.

Thanks to the increase in sales of purified water under the brand name C'estbon, the company's beverage division posted a 56 per cent increase in sales to HK$1.45 billion and a 33 per cent increase in net profit to HK$8 million.