Food group Golden Vale reported a strong 29 per cent rise in operating profits for the six months to end June, but described trading conditions as more difficult in the current half.

Managing director Mr Jim Murphy expects to produce "a good set of results" for the year, but he pointed out the outcome for the current half will not be as strong as the second half of 1997 for a number of reasons. Commodity prices (mainly butter and skim milk) are likely to be weaker, poor summer weather will reduce milk yields and a number of product launches will involve costs but will not deliver profits in the period. In addition, a change in accounting policy for the translation of foreign currency earnings may reduce current half profits the change reduced first-half profits by £32,000.

With net borrowings down to £14.8 million from £62.7 million, gearing down to 13 per cent from 60 per cent and a strong cash flow, Golden Vale is now well placed to fund another acquisition. Last month's £19 million acquisition of Rye Valley Foods brought the group into a new market sector prepared meals in line with its strategy to become a broader-based food group. Mr Murphy said investment is planned in Rye Valley to double current annual turnover of £31 million over three to four years but he declined to specify the investment plans. The group will undertake organic investment to expand capacity and improve facilities, he said. It is also interested in suitable acquisitions in the food products and preparations areas.

Golden Vale strategy was to increase the group operating profit margin of 3.6 per cent through careful cost control, growth in turnover, value added products and improvements in efficiency, he said.

In the first half turnover rose by 6.1 per cent to £295 million. Pre-tax profits were 42 per cent ahead at £11.95 million, helped by a £1.2 million profit on the sale of fixed assets. Underlying operating profits were 29 per cent stronger at £10.7 million, boosted by stronger margins at all three operating divisions.

In the consumer products division turnover rose by 7 per cent to £153 million while operating profits jumped by 23.7 per cent to £7.3 million which pushed operating margins up to 4.77 per cent from 4.1 per cent. The division comprises cheese, spreads, retail butter, fluid milks, cream liqueurs and UHT products.

Turnover of cheese, spreads and butter was up 9 per cent, reflecting stronger demand and the benefit of translating strong sterling into Irish pounds. Demand for Cheesestrings was strong, particularly in the British market. Turnover of fluid milk was down 3 per cent due to lower sales in Wales which were partially offset by higher sales in Northern Ireland and the Republic.

Market conditions continue to be competitive for the division, Mr Murphy said, adding that the first-half performance was "very satisfactory".

In the butter and milk powders division, turnover was 7.3 per cent ahead at £117 million while the operating profits rose by 47 per cent to £2.2 million. Mr Murphy attributed the rise in the operating margin to 1.9 per cent from 1.4 per cent to a better balance between input and commodity prices and value-added contributions on powders and butter. Stressing the need to increase the margin further through value-added powders and cost reductions, he warned that commodity margins would be tighter in the current half.

In the agri-trading division turnover was 3.8 per cent lower at £25 million, reflecting lower prices. But lower production and selling costs helped operating profits which were 33 per cent higher at £1.2 million.

With earnings per share up from 3.21p to 4.68p, shareholders are to get an 11 per cent rise in their interim dividend. The shares rose 2p yesterday to close at 108p.