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Falling grocery margins and a revamp of its food retail stores have led to a slump in quarterly profits at Finnish conglomerate Kesko.

The company, which has interests in food, DIY and interior design, saw underlying operating profit for the three months to the end of March slump 37% to EUR36.6m (US$58.3m).

Kesko said the expansion of its K-Food and K-citymarkets stores had weighed on earnings. Revenue from the business rose 6.1% to EUR937m, helping drive a 6.9% increase in group turnover to EUR2.3bn.

Kesko said revenue from its food business was expected to rise over the full year but said ongoing expansion would mean profits from the division would dip in 2008.