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China: Beijing-backed conglomerate China Resources Enterprise Ltd. (CRE) said on September 2 its first-half net profit rose 7 percent, beating market forecasts, thanks to a turnaround in its retail operations. The firm, whose interests include beer making and textiles and which is backed by China's foreign trade ministry, is likely to see retail earnings pick up further in the second half as it taps the rising spending power of China's middle-class, analysts said.

The company said second-half revenues would be boosted by an increase in beer prices. "Following the introduction of various measures to rationalise business operations and boost profitability, there was strong core profit growth, led by our retail business in the first half of 2004," Chairman Frank Ning said in a statement.

CRE, which operates retail businesses in China and Hong Kong, said net profit totalled HK$802 million (US$102.8 million) in the first six months through June compared with HK$749.7 million a year earlier. The results came in much higher than market expectations of HK$725 million, according to the average forecasts of three analysts.

Its 2003 earnings were boosted by an exceptional gain of HK$143 million from the sale of its stake in an aviation fuel supply firm. If the one-off item was stripped out, its recurrent profit surged 32 percent, the company said.

CRE's retail operations, which include supermarkets, brand fashion distribution and department stores, swung to a profit of HK$78.75 million in the first half, compared with a loss of HK$88.82 million previously, helped by economic growth and the firm's efforts to cut costs. Losses at its fast-expanding mainland supermarket operations narrowed to HK$7 million from HK$72 million a year earlier.

Its beer operation, China Resources Breweries, the second-largest in China after Tsingtao Beer, more than doubled its net profit to HK$57.03 million from HK$25.25 million a year ago, thanks to strong sales in premium beer and profit contributions from newly acquired operations.

The brewery, a joint venture with the world's second-largest brewer, SABMiller, sells the "Snow" brand beer nationally. The firm had lifted the beer's selling price by as much as 10 percent since June to boost revenues, said Charley Song, the deputy chairman of the company. The price rise may lift revenue by HK$200 million in the second half of this year, he said.

China is the world's largest beer market by volume and is growing by roughly six percent a year.

Food processing and distribution, CRE's main profit contributor, recorded a 16 percent rise in earnings to HK$203.44 million. Shares in CRE, a member of the Hang Seng Index , ended 1.45 percent lower at HK$10.20 before the results were announced. The stock had gained nearly 18 percent so far this year through Wednesday, outperforming the index which rose 3.6 percent over the same period. (US$=HK$7.8)


06 September, 2004