Golden Vale hit by slump in butter and milk profits

A COLLAPSE in profits in the group's butter and milk business were the main factors in the sharp fall in pre-tax profits at Golden Vale from £16.5 million to £6.3 million. The results, however, were slightly better than expected although the Golden Vale share price remained marooned on 55p, not far off a three-year low.

The accounts also show that the group absorbed a £4.1 million superlevy penalty for milk overproduction last year, while the accounts also include a £500,000 payment to the former chief executive, Mr Jim O'Mahony.

This does not include Mr O'Mahony's pension entitlements. When these are included his total "golden goodbye" package is thought to be in excess of £750,000.

Mr O'Mahony was dismissed by Golden Vale after it emerged that the group faced a significant superlevy fine. His dismissal, however, caused deep divisions within both Golden Vale plc and Golden Vale Co-op and the plc board voted for his removal by a narrow 8-7 majority.

But the effect of the superlevy has been reduced by the sale of various assets including about £2 million worth of IAWS shares and other investments worth £1 million. The net exceptional charge totalled £1.6 million, compared to the expected £3 million charge indicated at the half-year.

Golden Vale's profit-and-loss account may have taken a battering in 1996, but the group stifle ended the year with a solid balance sheet with strong cash flow.Debt fell from £101.2 million to £89.9 million and gearing improved from 78 per cent to 60 per cent. Despite the collapse in profits, dividend has been maintained at 2.26p, irrespective of eamings per share excluding the exceptional item of just 1.43p.

For the first time Golden Vale has broken down its turnover and. operating profits into the various. divisions. These figures starkly illustrate the profit collapse in the butter and power division where operating profits fell from £14.6 million to £2.9 million even though sales were down only marginally to £252 million.

The imbalance between market product prices and the price paid for milk accounted entirely for this fall, said the chief executive, a Mr Jim Murphy, with margins plunging from 5.7 per cent to 1.2 "per cent. Operating profits in the cheese business fall from £1.1 million to £800,000, although sales were down marginally to £123 million. The main factor behind the fall in profits in the cheese business was the Dutch subsidiary Vonk which moved from a £500,000 profit to a £1 million loss.

Operating profits were also affected by the £2.5 million cost introducing the group's Cheesestrings product, the benefits of which will not show until the current year. Margins in the cheese business fell from a negligible 0.9 per cent to an even more negligible 0.7 per cent.

The only bright spot in the figures is the "other business", which takes in the liquid milk operations in Ireland and Wales, agri-trading, spreads, St Brendan's cream liqueur and UHT products. Together, these operations increased sales from £180 million to £186 million, while operating profits were up 50 per cent to £8.4 million.

Sales of liquid milk were up 8.5 per cent to £76 million, agri-trading sales fell £7.8 million to £45 million, spreads sales increased 5 per cent to £41 million, while St Brendan's continued to put in a solid performance, with turnover up 29 per cent to £10.3 million and operating profits up 25 per cent.