Food group Donegal Creameries recorded a 14.5 per cent rise in pre-tax profits last year, despite suffering harsh trading conditions across a number of its businesses. Turnover fell by 2.9 per cent to €135 million, mainly as a result of lower commodity prices in its dairy division, which includes sales to other processors.

Donegal managing director Mr John Keon said yesterday the dairy market remained difficult but outlined the company's plans to seek acquisition opportunities in the liquid milk area. Mr Keon said Donegal had access to a line of borrowings that would enable it to act on suitable acquisitions if they arose. He said deals in "the northern half of the country" would be of particular interest.

He expressed support for the main findings of a recent major report on the dairy sector which concluded that companies must amalgamate or be forced out of the business by international competition. Such a development would be "in everybody's interest", Mr Keon said. Donegal was also considering how best the Irish mushroom market could be consolidated, he added.

Outside its dairy division, Donegal saw profits grow within its 14 agri-retail stores and recorded increased rental income from its land and facilities at An Grianán in Letterkenny.

The company has submitted plans for the development of Section 50 student accommodation on the land and was also considering the construction of retail units in Letterkenny. Efforts to develop the tourism potential of An Grianán - notably through the construction of a racecourse - have thus far been unsuccessful.

The company's confectionery business, Oatfield, had suffered as a result of the euro's strength against the dollar and sterling, Mr Keon said. Oatfield shed one- tenth of its 100-strong workforce earlier this year and could face further cuts later this year.

Goodbody analyst Mr Liam Igoe predicted further single-digit growth in 2003.

Shares in Donegal closed unchanged at €2.25 last night.