China Resources Enterprise

Profit fall fails to hold back CRE

Mainland retailer says it will keep opening up to 400 stores every year amid mounting expenses

PUBLISHED : Friday, 22 March, 2013, 12:00am
UPDATED : Friday, 22 March, 2013, 4:19am

Food and beverage retailer China Resources Enterprise (CRE) said it would continue its robust expansion, even after being hit by the expenses incurred in opening new stores and ballooning advertising costs last year.

The retailer, which runs 4,400 supermarkets and breweries on the mainland, said net profit jumped 31 per cent last year from the year before. But underlying net profit, earnings excluding re-evaluation of the group's properties, fell 19 per cent to HK$1.53 billion due to slowing consumption on the mainland and escalating advertising costs.

Chief financial officer Frank Lai Ni-hium said CRE would continue opening 300 to 400 new stores every year and that the firm was looking for new acquisition targets following the purchase of Kingsway Beer. That deal is set to be completed in July.

"Our target is to open 300 to 400 stores every year. That plan will not be changed easily, regardless of the operating environment," Lai said.

"We aim to gradually expand our market share and we won't stop looking for good merger and acquisition opportunities. This year, our focus will be meat and fresh fruits."

Ng Fung Hong, a company under the group that has a monopoly in fresh beef and pork supplies in Hong Kong, sparked public concern last year when it raised beef prices six times.

Lai said local prices could rise further in light of price increases by the firm's mainland suppliers, but stressed CRE only made a "reasonable" gross profit margin of 15 per cent from the business.

The pace of its same-store growth slowed to 2.6 per cent in the first quarter from 4.1 per cent last year, but Lai said the company was optimistic about the mainland market this year.

The acquisition of Guangzhou-based Kingsway was expected to help boost CRE's share in the mainland's beer market by one percentage point to 23 per cent, Lai said, adding the acquisition could complement the group's Snow beer brand by creating an economy of scale in production and purchases of raw materials.

Sales of Japanese-owned Kirin, which has a joint venture on non-alcoholic beverages with CRE, suffered last year amid a territorial dispute between Japan and China that triggered a boycott of Japanese goods.