Murphy takes no prisoners in crusade to reform Golden Vale

The announcement that Golden Vale's five-year foray into the Dutch cheese business is coming to an end with the closure of the Vonk cheese business in Roermond comes as no surprise, especially to anybody who is aware of Mr Jim Murphy's crusade to cut costs and eliminate loss-making businesses.

When Mr Murphy was appointed chief executive 18 months after the internecine warfare on the Golden Vale board which culminated in the sacking of Mr Jim O'Mahony, this newspaper predicted that he would carry out a root and branch review of the entire operations and move to diversify Golden Vale from its sole dependence on the quota-dependent dairy business.

Golden Vale moved into consumer foods with the acquisition of the Rye Valley prepared meals business for more than £19 million. Then came the link-up with Dupont to produce specialist flour in Golden Vale's Artigarvan plant in Co Tyrone - another move into a brand new area.

Finally, the knife has been wielded - a little bit later than many in the industry had expected. Vonk, bought in 1993 for almost £30 million, has been a veritable disaster for Golden Vale: even when the worst of the losses were eliminated it was still unable to produce anything like a decent return.

Now Mr Murphy has decided to cut the flab out of his organisation in one fell swoop, closing Vonk and transferring its cheese business to Ireland. At home, the cheese slice business (Golden Vale is the biggest producer of burger cheese slices in Europe) is being concentrated on Coleraine while the hugely successful Cheesestrings and spreads will be concentrated in Charleville, Co Cork.

The cost is substantial and the £19 million Rye Valley deal will eliminate any pre-tax profits this year. But down the line, the £4 million costs that are cut will go straight to the bottom line and it is for that reasons that earnings forecasts for 1999 have been upgraded. The reaction in the market was surprising and disturbing. Revised 1999 forecasts put Golden Vale on a forward p/e of little more than seven and that seems very much on the low side.