Diversification by creamery into confectionery

Donegal Creameries has expanded into the confectionery business with the acquisition of a majority stake on the Letterkenny company, William McKinney & Sons. Donegal has paid £783,750 for a 76 per cent stake in McKinney, which manufactures toffees and boiled assets under the brand names Colleen, Oatfield and Emerald.

McKinney reported an after-tax loss of £447,500 in the year to December 1997, but according to Donegal chief executive, Mr John Keon, the confectionery company has turned the corner after a difficult period. "It is our belief that there is scope for increased productivity in all areas," he said.

McKinney, which is 92 per cent-owned by the McKinney family, has sales of £5 million, of which about £2 million is export sales. Mr Keon said that Donegal's due diligence had shown that, despite McKinney's size, there is scope for expansion in the domestic market. "With strong financial controls, there is scope to drive the business forward," he added.

Donegal has paid an initial £237,500 for its 76 per cent stake, with further annual payments of £190,000, £142,500, £95,000 and £118,750. In addition, Donegal is making an interest-free loan of £250,000 to McKinney to finance further capital expenditure.

This is Donegal's first diversification out of its core agriculture-based business, which involves dairy processing, animal feed and potato production. The group, which was floated on the stock market 15 months ago, also owns the 3,000 acre An Grianan farm near Lifford whose milk quota is leased to local farmers.