China Resources Enterprise (00291.HK) has announced a well-anticipated loss following its profit warnings earlier. But what has caused some surprise in the market is that the company has increased the final dividend after a 15 percent cut in interim payout.
One can only assume that the move was aimed at maintaining the company image.
The conglomerate reported an underlying consolidated loss of HK$794 million for 2014, compared with earnings of HK$1.64 billion in 2013. After slashing the interim dividend to 11 HK cents from 13 cents earlier, it has now raised the final dividend by 14 percent to 16 cents.
Thus, the full-year dividend has been kept unchanged at 27 HK cents, resulting in total dividend payout of HK$653 million.
The dividend policy has no major impact on its net borrowings of HK$8.1 billion and gearing ratio of 11.6 percent.
CR Enterprise has reversed its winning streak after it formed a joint venture with Tesco PLC. Tesco’s heavy loss has significantly affected the performance of the retail segment.
The retail business unit posted a 15 percent rise in turnover to HK$109.5 billion. But the segment reported a massive loss of HK$1.36 billion for 2014, compared with profit of HK$734 million in 2013.
The joint venture with Tesco made a provision HK$800 million, with CR shouldering HK$640 million, while other retail business posted total profit of HK$187 million.
Currently, the retail division mainly consists of CR Vanguard supermarkets, Chinese Arts & Crafts stores, CRCare stores, VIVO health and beauty stores and Pacific Coffee shops.
As of the end of 2014, the company had over 4,800 outlets in China, of which approximately 85 percent were self-operated and the rest were franchised.
The retail division recorded a 2.6 percent year-on-year fall in same-store numbers. Last year, the retail operation in northern and southern China successfully completed the integration of Tesco’s management system. It made HK$800 million of provisions for the closure of certain less efficient stores and stores with poor prospects.
However, the company may continue to see further loss as it has another 3 to 5 years to fully integrate the business.
CR Enterprise is now focusing on e-commerce business which will officially be launched in the second quarter of this year. Initial losses in the new business might be contained thanks to the group’s massive sales network and storage facilities. That said, the new foray will still add to the bottom line pressure.
Tesco has been required to make an injection of HK$4.33 billion, of which HK$3.33 billion has already been reflected in the balance sheet.
The beer division reported a 19 percent drop in profit to HK$761 million, on 4.5 percent rise in turnover to HK$34.4 billion. Sales growth has been affected by economic slowdown and cooler-than-usual summer conditions.
By the end of last year, the division operated more than 95 breweries in China with an aggregate annual production capacity of over 20 million kiloliters.
Among other businesses, the food unit also slipped into the red since the third quarter of last year.
Beverage is the only business segment that posted growth last year, with turnover jumping 35 percent to HK$9.89 billion and profit up 123 percent at HK$237 million.
Given the weak overall report, CR Enterprise shares are likely to remain subdued in the near term.
This article appeared in the Hong Kong Economic Journal on March 27.
Translation by Julie Zhu
[Chinese version 中文版]
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