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SCMP Reporter

Dairy Farm International Holdings, the food and drugs retailing group owned by Jardine Matheson Holdings, yesterday shocked the market when it issued a surprise profit warning and released its interim results a month early.

  The company, which owns the 7-Eleven franchise in Hong Kong, the Mannings drug stores and Wellcome supermarkets, made its results public after the Singapore stock exchange - where it has its main listing - had closed.

  Food retail analysts in London said they now expected their Asian counterparts to sharply reduce their full-year profit expectations for the group.

   Dairy Farm said trading profit plummeted 39 per cent to US$53 million and profit after tax and minority interests dropped 55 per cent to $28 million, despite a 9 per cent jump in turnover.

  'I think we'll be in for a period of some sharp rerating when Asia gets up [on Friday],' one analyst said.

  Dairy Farm chairman Simon Keswick warned that the group's earnings were expected to be lower than last year when pre-tax profits reached $178.6 million.

 'The [interim] decline was mainly due to repositioning costs in Australia, weaker performances in Taiwan and the United Kingdom, and start-up costs in Japan and China,' Mr Keswick said.

  Acting chief executive Chris Nelson said he and newly appointed finance director Edouard Ettedgui quickly realised the true numbers were much lower than analysts' expectations when they took over the running of the company.

 'The brokers' figures were sufficiently higher for us to decide to talk to the market now,' Mr Ettedgui said.

  Mr Nelson said the extensive restructuring and repositioning under way at Franklins, the group's Australian subsidiary, was its biggest challenge.

  In the first half, the company received $40 million of investment, and Mr Nelson said he did not expect profit to be at a satisfactory level until a further 18 months to two years.

   He said the development of new infrastructure was already beginning to bear fruit, as the group shifted its sales towards more perishable items.

  'Last year 16 per cent of fresh trade volume went through our stores,' Mr Nelson said.

  'Today it is 35 per cent and next year it will be 50 per cent.'   The company said it spent $300 million last year repositioning the group as a whole, and that it would continue the process.

  Hong Kong operations showed good sales growth, although 7-Eleven stores made a lower contribution while it was updating its systems and supply chains.

   Maxims restaurants reported a 10 per cent profit increase. Wellcome and Olivers shops made modest profit contributions.

  There were still poor performances from the Nestle Dairy Farm ice-cream joint venture in Hong Kong.

 In Spain, Dairy Farm's Simago saw an improved performance, with losses of up to $2.9 million, from $8.3 million last year.

   Mr Nelson said he was awaiting the results of a strategic review at Kwik Save, its 29 per cent-owned British discount food retailer, where profit fell 28 per cent.

   Last month, chief executive Graeme Seabrook unexpectedly resigned for personal reasons, leaving the group without any permanent replacement lined up. In June, Mr Keswick warned a tough retail sector and investment costs were expected to hit the group's results.



Dairy Farm stuns market