A steep drop in profitability at the food and retail arms of China Resources Enterprise more than offset sales gains in the first nine months of the year.

The Hong Kong-listed food, beverage and retail giant revealed profits in the nine months to 30 September fell to HK$1.94bn (US$250.2m), down from HK$3.37bn in the comparable period of last year. Declining profits in food and retail dragged on the group’s result.

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Retail profits were down 67.8% due to the after-tax revaluation surplus and the disposal of the non-core assets. Excluding these items, profits dropped 3.9%.

Food profit fell by 62.7% in the nine-month period. “The division is undertaking business transition while the new businesses have yet to reach economies of scale, thus affecting the overall performance of the division,” CRE said.

The decline in profits came in spite of higher sales in the period. Total revenues rose to $112.44bn, up from HK$98.17bn last year.

The company saw all of its business units – food, retail, beer and beverage – grow sales in the year-to-date. However, food and retail gains were sluggish compared to the drinks side of the business. Food sales were up just 5.5% and retail sales grew 13.9%. Beer and beverage sales grew 15.2% and 50.2% respectively.

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CRE said its growth came under pressure in the face of “sluggish” economic conditions, weaker demand, overcapacity and “regulatory control policies”.

However, the group remained upbeat on its prospects. In retail, CRE is focusing on hypermarket opernings and the firm recently formed a joint venture with the UK’s Tesco to operate in China. Meanwhile, the firm said its food business will see improved profitability as it increases the scale of its CR Ng Fung brand and enhances operational efficiency. 

Click here to view the full release from CRE.