China Resources Enterprise Ltd recorded a net loss of HK$71 million for three months ended September. The loss was attributed to the company's incurred costs from a joint venture with UK grocer Tesco PLC. Asian News

Retail conglomerate China Resources Enterprise Ltd (CRE) reported a net loss in the third quarter of this year as the financial impact arising from the formation of its joint venture with Tesco PLC.

The State-backed retailer recorded a net loss of about HK$71 million ($9.2 million) in the third quarter, compared with a profit of HK$920 million for the same period last year. The profit for the first nine months of 2014 reached HK$858 million, representing a 55.7-percent decrease year-on-year.

CRE merged Tesco's 134 stores and shopping malls on the mainland into its group of Vanguard supermarkets and convenience stores, which operate in Hong Kong and on the mainland, in May this year.

"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," the company said in a statement.

CRE's sales rose by 17 percent to HK$47.6 billion in the three months ended September. "CRE's sales are rising, but profits are decreasing. That means its costs are still high. Also, the mainland retail market is affected by the government's anti-extravagance policy. So, CRE's profit will not be good in the fourth quarter," said Kenny Tang, head of research at Redford Securities Ltd.

"The profit will only be improved when CRE ends its consolidation with Tesco. We may not see its effect until the second half of next year," he added.

CRE said a few months ago that Tesco's mainland outlets would reach fiscal balance in three to five years, longer than the previous forecast of two to three years.

"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," the CRE statement said.

China Resources rose 1.8 percent to HK$17.18 at the close of trading in Hong Kong, its highest level in a week. The company issued a profit warning on its third-quarter results last week.

The company's retail business, which contributed more than 60 percent of group sales, reported a loss of HK$702 million in the third quarter, compared with a HK$84-million profit a year earlier.

Profit at the beer division, which produced China's best-selling beer, Snow, dropped 17 percent to HK$625 million. The beer unit formed about 23 percent of group sales.

The food division also reported a loss of HK$19 million, compared with a profit of HK$30 million a year earlier. Its beverage unit recorded a 5.6-percent drop in profit to HK$85 million.

felix@chinadailyhk.com

(HK Edition 11/15/2014 page6)