Retail operator Dairy Farm International Holdings warns it expects to suffer a US$50-million loss in the first half on the back of a poor performance by Franklins, its Australian supermarket operations. In an update issued yesterday, the company said the group's condition had been heavily impacted by Franklins' performance and Hong Kong's supermarket price war. 'Despite the progress made in Franklins to improve operational disciplines and retail execution, and to reduce the cost base, results are being affected by sales which are currently running below last year,' it said. Chief executive Ronald Floto said Dairy Farm - the Jardines Group's 53 per cent-owned food retailing arm - had initiatives in place to reduce expenses and improve sales. However, these were taking time to lift profit. 'It is turning out to be worse in the first half than we expected,' he said, indicating he was unable to predict when the Australian supermarket operations could expect a turnaround. The group - whose Hong Kong interests include Wellcome supermarkets and 7-Eleven convenience stores - had the option of selling Franklins, but it was not one he was considering. The supermarket price war in Hong Kong is continuing to squeeze margins and they are still significantly below last year. In February, Dairy Farm announced a net profit, excluding non-recurring items, of US$64 million for the year to December 31. It was down from US$147 million in the previous period. Mr Floto said that, under the circumstances, the board would review its dividend policy prior to the announcement of interim results scheduled for August 2. The group said that, despite a recovering SAR economy, consumer spending confidence had still not increased. Dairy Farm also operates Mannings drug-stores and Maxim's fast-food outlets in Hong Kong, Woolworths in New Zealand, and Wellcome in Taiwan. The Singapore-listed counter fell 2 US cents yesterday to close at 61 US cents.