Growth puts strain on Dairy Farm

Dairy Farm, the retailing arm of the Jardine Matheson trading empire, warned yesterday that the cost of expanding its worldwide chain of supermarkets and convenience stores would lead to a fall in profits this year.

Simon Keswick, chairman of the company that owns a 29 per cent stake in Kwik Save, the British food discounter, said: "Dairy Farm's results are being affected by the challenges of a highly competitive industry and by the cost of expanding into new markets. Trading profit for 1995 is, therefore, likely to be lower than in the previous year."

The announcement will reawaken speculation that Dairy Farm might be considering a sale of its stake in Kwik Save, which it acquired in 1987 with the promise that it would neither increase nor reduce its holding for seven years.

The two companies have a close relationship. Kwik Save's chief executive, Graeme Bowler, was formerly with Dairy Farm. Mr Keswick is chairman of both companies.

The performance of Dairy Farm follows questions from Northern Electric during its bid defence earlier this year about the financial strength of Trafalgar House, which through its main shareholder, HongKong Land, is also part of the Jardine Matheson group of companies.

Dairy Farm's statement came as it announced lower operating profits in 1994. Despite a jump in turnover from US$4.98bn to $5.59bn, profits slipped from $162.3m to $159.2m.

Thanks to a property sale in Hong Kong, and unchanged contributions from associates, profits before tax increased from $252.3m to $294m and the dividend was raised 6 per cent to 6 cents.

In Hong Kong, the Wellcome chain of supermarkets shrugged off rises in rents and wages. The 7-Eleven convenience stores also performed well but a slowdown in restaurant trade in the colony hit Maxim's.

Woolworths in New Zealand struggled to stave off the effects of a price war, although the company maintained market share. Simago in Spain remained loss-making, affected by the weak economy there.

Despite the pressure on margins and profits, Dairy Farm continued to invest in its retail chains, spending more than $200m during the year. Joint ventures were set up in Malaysia and Japan to develop supermarket chains.

Dairy Farm's subsidiaries opened 140 stores during the year, taking its total to 1,350 and increasing the sales area by 7 per cent.

Including associates such as Kwik Save, the group runs 2,500 shops.

The shares were unchanged at 80.5p.