China Resources Enterprise sinks into losses
Revamp costs and anti-graft campaign push supermarket operator into red in third quarter
Supermarket operator China Resources Enterprise (CRE) sank into a HK$71 million loss for the third quarter, compared with a profit of HK$920 million for the same period last year.
Profit for the first nine months amounted to HK$858 million, down 55.7 per cent year on year.
The state-backed retail conglomerate, which runs supermarkets on the mainland under the CR Vanguard brand, agreed to help run British supermarket operator Tesco's ailing mainland business in an agreement completed in May.
The management said earlier in the year that it was expecting a significant drop in profit due to costs in revamping Tesco, including a HK$4.3 billion capital injection.
Shares of the company rose 1.78 per cent to HK$17.18 yesterday.
Retail operations fell 935.7 per cent to register a loss of HK$702 million in the third quarter, compared with a gain of HK$84 million a year earlier. Excluding Tesco stores, the retail division experienced a fall in same-store sales growth of 2 percentage points amid sluggish economic expansion and the government's anti-corruption campaign that crimped sales of high-end goods.
The company's food operations dipped into the red, too, recording a HK$19 million loss from a HK$30 million profit the same period last year.
Profit from the beer division, which sells Snow, declined 16.6 per cent to HK$625 million, which the company attributed to rainy weather and cooler temperatures in the third quarter, usually a peak sales season. Profit from other beverages, including bottled water brand C'estbon, dropped 5.6 per cent to HK$85 million.
"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 business," CRE said in the statement.
"The group reiterates its confidence in its retail business development in the long run, upon its partnership with Tesco, for which there are more untapped synergies."
At the time of the joint-venture announcement, the company had said it aimed to make Tesco profitable in three years.
Rival hypermarket operator Sun Art Retail Group reported a 7.4 per cent increase in net profit to 2.3 billion yuan (HK$2.9 billion) for the nine months to September.
"Management commented that sales of mooncakes and high-end liquor fell 28 per cent and 17 per cent year on year, respectively, during the Mid-Autumn Festival. In its opinion, the Chinese government's anti-corruption movement seems to have had the worst impact this year," a BNP Paribas report said.
