Tesco today pushed ahead with plans to create a supermarket giant in China, as Britain's biggest retailer seeks to offset a slump in profits on weaker European sales.
Tesco will combine its Chinese business with that of Hong Kong-listed retailer China Resources Enterprise (CRE) to form a joint venture, it revealed in a statement.
The British supermarket -- the world's third biggest -- announced also that its net profit slumped by a third in the group's first half, also on restructuring costs and a decline in income from the sale of property.
Tesco reported that net profits dived 33.6 per cent to 820 million pounds (USD 1.3 billion) in the first half of its financial year, or 26 weeks to August 24.
That compared with profit after tax of 1.24 billion pounds in the equivalent period a year earlier. Revenue rose 1.9 per cent to 31.91 billion pounds.
London-listed Tesco said the Chinese move was part of its international strategy to tap further into fast-growing economies.
"Tesco and CRE today announce that they have entered into definitive agreements to combine their Chinese retail operations to form the leading multi-format retailer in China," the statement said.
The pair had in August already revealed that they were in talks over the move.
CRE will have a stake of 80 per cent and Tesco 20 per cent, although this may rise to 25 per cent after five years.
"We are delighted to work with CRE to create the leading Chinese retail business," Tesco chief executive Philip Clarke said today.
"Through this deal we have a strong platform in one of the world's most exciting markets and it will move us more quickly to profitability in China."
The new venture will combine Tesco's 134 Chinese branches, as well as the firm's Chinese shopping mall business with the China Resources Vanguard business of 2,986 outlets.
CRE chief executive Hong Jie said "the partnership will be strongly placed to lead the development of retailing in China and create value for shareholders and customers".
The Chinese deal is expected to be completed in the first half of 2014.
Tesco will make a cash contribution of 185 million pounds to the venture. It will also pay 80 million pounds to CRE following completion, and another 80 million pounds on the first anniversary.
