China Resources May Sell Stake in Esprit Venture

Sept. 3 (Bloomberg) -- China Resources Enterprise Ltd., the local partner of SABMiller Plc, may sell its stake in the venture it has with clothier Esprit Holdings Ltd. as it seeks to focus on retail, food and beverage businesses.

"As long as it's a non-core business, we will consider selling it off,"Chief Financial Officer Frank Lai told reporters in Hong Kong today, declining to identify the "interested parties"the company is in talks with.

China Resources has interests in food processing and distribution, retailing, textiles and ports, and its venture with SABMiller makes Snow, China's best-selling beer by volume. Even as beverage earnings more than doubled in the first half, net income fell 22 percent to HK$1.16 billion ($150 million), the company said in a filing to the city's stock exchange today.

“Beer is the only operation that's showing the best potential for growth, Fiona Wong, research analyst manager at Wing Fung Securities Ltd., said in a phone interview. ”China Resources has many operations that aren??t inter-related and there??s no synergies in cost management.

China Resources rose 5.3 percent to HK$18.60 in Hong Kong today, the biggest increase in a month. The stock has risen 38 percent this year, in line with the 37 percent gain in the benchmark Hang Seng Index.

Textiles "Hit Hard"

The company's textile business has been "hit hard" by the global recession, Lai said at a briefing today in Hong Kong.

Profit from its fashion business fell 30.5 percent to HK$57 million as sales rose 6 percent to HK$1.34 billion, China Resources said. It owns 51 percent of its venture with Esprit, which has more than 1,100 self-operated and franchised stores in mainland China.

"Our priority is profitability and we want to grow our core businesses -- retail, beverage and food -- where we are already market leaders,"China Resources Managing Director Chen Lang said today. Esprit spokeswoman Bonnie Ng declined to comment.

Snow beer's sales volume grew 24 percent to 3.578 million kiloliters and the beverage division's profit gained 134 percent to HK$341 million, China Resources said. The Hong Kong-based company owns 51 percent of China Resources Snow Breweries Ltd.

Profit at China Resources  retail division fell 28 percent to HK$276 million, according to the statement. Food processing and distribution business profit fell 12 percent, it said.

Same-Store Sales

Same-store supermarket sales fell 2 percent in the first half, Chen said. China Resources is aiming for"positive"comparable-store sales growth in the second half, he added. Same-store sales strip out the effects of newly opened outlets.

Total sales rose 10 percent to HK$35 billion. Earnings per share fell to 48 Hong Kong cents from 62 cents.

The company will pay an interim dividend of 14 Hong Kong cents, compared with 15 cents a year earlier.

China Resources will keep looking for acquisitions to expand its beverage and supermarket businesses, Chen said. It had studied competitors including Times Ltd., a Shanghai-based hypermarket and supermarket operator, he said.

Times said Aug. 25 it's conducting a strategic review and has invited proposals that may lead to a general offer. "We considered Times previously but not recently"Chen said.

China Resources will accelerate the pace of opening new supermarket-division outlets in the second half, and may set up smaller convenience stores, Chen said. It plans to open as many as 130 stores in the second half, bringing total new outlets this year to 200, he added.

The company has no plans to sell shares in the mainland Chinese stock market, Chen said.

"Our beer and supermarket business are showing good growth because the economic policies in the mainland support local consumption," Lai said."We're benefiting from the policies"

bloomberg