China Resources Enterprise says Tesco JV to pull down Q3 profit

HONG KONG, Nov 7 (Reuters) - Retail-focused conglomerate China Resources Enterprise Ltd (HKSE: 0291.HK - news) (CRE) on Friday said it expects a "significant decrease" in third-quarter profit primarily because of the cost of forming a joint venture with Britain's Tesco PLC (Xetra: 852647 - news) .

CRE said cost of the venture, formed on May 28, will likely bring down consolidated underlying profit in its retail segment by HK$810 million ($104.5 million) in July-September, and HK$990 million in January-September.

The underlying profit estimate excludes the after-tax impact of asset revaluation and disposal, and is subject to review, CRE said in a filing to the Hong Kong Stock Exchange.

"It is expected that net loss will be recorded in the running-in period at the joint venture during which the group will incur additional time and costs for integrating the Tesco stores in China with other retail businesses of the group," Chief Financial Officer Frank Lai said in the filing.

Growth in China's retail market has stalled since the government started to discourage extravagant spending among public officials, while competition with e-commerce has also pressured earnings, CRE said in the filing.

"It is expected that a general downward trend of the group's financial performance will be recorded for the year ending 31 December 2014," Lai said. Short-to-medium-term profitability will be affected by losses associated with the joint venture, he said.

CRE, which competes with hypermarket operator Sun Art Retail Group Ltd, reported HK$920 million in third-quarter profit last year, and HK$1.94 billion in nine-month profit.

($1 = 7.7523 Hong Kong dollar) (Reporting by Donny Kwok)