Dairy Farm International Holdings will spend up to US$127.5 million in a share buy-back after a return to profitability. The pan-Asian food and drugstore retailer yesterday reported last year's net profit was US$30.1 million, following a net loss of US$194.5 million in 2000. The profit was driven largely by a US$37.5-million gain on the disposal of its loss-making Franklins grocery chain in Australia. Dairy Farm, which operates the Wellcome supermarket and Mannings pharmacy chains in Hong Kong, will buy back up to 170 million shares, representing about 10 per cent of its issued share capital, through a tender offer. It is the latest in a series of share repurchase tender offers by Jardine group companies. In 2000, parent Jardine Matheson Holdings spent US$909 million buying back its shares and Hongkong Land spent more than US$580 million last year and the year before. Dairy Farm shares surged 11.81 per cent to 71 US cents in Singapore after the company said it would invite tenders in the range of 66 US cents to 75 US cents per share - a premium of 3.9 per cent to 18.1 per cent over Monday's closing price. Dairy Farm had net cash of US$90 million as of December 31. It said it would invest US$64 million in its Hong Kong retail business this year. But chairman Simon Keswick warned: '[This] will be a difficult year in Asia, with many of the most important markets in which we operate experiencing economic weakness. 'While continuing our capital spending programme, we are looking to keep costs down and manage cash tightly.' Chief executive Ronald Floto strongly opposed the introduction of a Hong Kong sales tax, one of the proposals to reduce the Government's budget deficit. 'As a Hong Kong resident, we understand the Government's need for revenue,' he said. 'As a retailer of mass consumption goods sold to Hong Kong men on the street, we absolutely oppose [a value-added tax] . . . it will hurt our customers.' Two-thirds of the US$64 million capital expenditure would go to Wellcome, part of the North Asia operation which contributed 38.93 per cent, or US$1.92 billion to total group sales. Although Wellcome Hong Kong had made progress, there was still much to be done to reach acceptable levels of profitability, the company said. Mr Floto said competition among supermarkets in Hong Kong remained tough and margins were still below what they were in 1998. 'It is not an easy market but we anticipate it will have a slow but steady improvement,' he said. This year, the group planned to open another 10 Wellcome stores, five of them superstores, he said. Wellcome's existing store tally in Hong Kong is 252. Dairy Farm said record profits had been achieved by Mannings and 7-Eleven in Hong Kong, and in its Singapore, Malaysia and Taiwan operations. HSBC Securities Asia analyst Anne Ling, who welcomed the share buy-back, said the results showed the group's business was on a recovery trend. Ms Ling said all retailers were under pressure amid weakening consumer confidence as customers were not only price sensitive but also looked for value-added products. Dairy Farm did not strike a final dividend. Earnings per share were 1.82 US cents against a loss per share of 11.75 US cents previously. Total sales were US$4.92 billion compared with US$5.73 billion a year earlier.