RETAIL conglomerate China Resources Enterprise Ltd. (CRE) said the Chinese mainland’s slowing economy means it will take three to five years, longer than expected to turn around a loss-making tie-up with British supermarket firm Tesco.

    Posting an 8.7 percent drop in first-half net profit Thursday, CRE said the joint venture it formed with Tesco last May won’t now turn profitable within two to three years as originally forecast.

    CRE, which has a market value of US$7.4 billion, said last October it was joining forces with Tesco in the hope of reducing costs and tapping its international expertise, although some investors expressed concerns about losses at the China unit.

    “We have seen signs of a slowing mainland economy. It is a prudent approach to estimate a little longer for the turnaround time of three to five years, rather than two to three years,” chief financial officer Frank Lai said at an earnings briefing.

    “We are not very optimistic on the overall China retail market, but definitely not pessimistic,” Lai said.

    Government-backed CRE, which has interests ranging from beverages to supermarket chains, said net profit fell to HK$929 million (US$119.87 million) for the January-to-June period, from HK$1.02 billion in the same period a year earlier.

    Revenue rose to HK$83.51 billion from HK$71.86 billion in the year earlier period.

    The conglomerate, which posted a 30 percent drop in first-quarter profit, saw its April-June quarter net profit total HK$573 million, up from HK$506 million in the same quarter a year ago, according to Reuters’ calculations.

    CRE, which owns China’s top beer brand “Snow,” said it expected there will be a significant drop in its overall profitability as it needs time to turn around the performance of the Tesco stores in China, which are currently making losses.

    “We remain optimistic about the long-term development of the group’s retail business after forming an alliance with Tesco,” Chen said. “We believe the immense synergies of the joint venture have yet to be tapped.”

    The venture competes with the country’s hypermarket leader Sun Art Retail Group Ltd. and foreign player Walmart.

    “Leveraging Tesco’s worldwide experience, the retail business will create ample synergies upon integration and ensure the sound development of its e-commerce and global sourcing,” Chen said.

    Tesco will assist in funding of the group’s restructuring cost by injecting HK$4.33 billion in aggregate, CRE said.

    (SD-Agencies)