China Resources Enterprise (CRE) said yesterday that it will focus on the organic growth instead of mergers and acquisitions (M&A) in order to expand its network.

The firm reported a 17 percent growth in the core net profits to HK$1.02 billion in the first half.

"M&A is an effective and necessary tool to expand the business, but the company has completed this stage by now," Managing Director Mark Chen said.

Chen said the company now hopes to focus on organic growth, which could "allow us to choose store locations and product mix more freely."

The company has HK$9.54 billion cash and cash equivalent in hand, with an additional credit guarantee of HK$2 billion on June 30.

CRE aggressively acquired smaller peers throughout the mainland in the past few years, which allowed it to build a retail empire with a limited cash flow but created integration problems as well.

However, CRE will not completely give up M&A, Chen said.

The company will look for a good opportunity for M&A in the second half when other companies have financial difficulties amid the market downturn. Chen said: "If I have to balance difficulties and opportunities, I see more opportunities arise for business expansion."

Francis Kwong, deputy managing director, is confident that the gloomy economic outlook will not affect the company too much, because "our products are mainly daily necessities and they are more defensive against market uncertainties".

But an economic slowdown will make it hard for CRE to sell its non-core business.

"The company's selling of the non-core business will be put on hold and the timetable of such plans may be delayed due to difficult business environment potential buyers are faced with this year," Chen said.

CRE sold out most of its non-consumer business in the past few years to capitalize on a consumer boom on the mainland. Its latest move was to sell the petroleum arm to its parent company last year.

In the coming years, CRE is likely to put in more investment on its mainland business, Chen said. "The revenue from mainland businesses will offset the businesses in Hong Kong."

The company is also using Hong Kong and Shenzhen as bases to explore the market potential of convenience stores. Chen said, "The convenience store business is growing very fast in Asia, especially in Japan. We hope to be just as successful here."

(HK Edition 09/04/2008 page2)