Dairygold has reported an almost 40 per cent increase in operating profits despite a fall in turnover caused by its exit from various loss-making activities.

The co-op, which is involved in activities as diverse as milk processing and hardware, posted an operating profit of €15.6 million, up from €11.2 million in the previous year, an increase of 39 per cent.

Losses arising on the sale or termination of businesses, plus re-structuring costs, resulted in a pretax loss of €27.7 million, compared to €39 million in 2003. Turnover was down from €964 million to €876 million.

However, chief executive Jerry Henchy said that 2004 was all about stemming losses and restoring the fortunes of the business. He said that further rationlisations could not be ruled out, but were likely to be "minor".

During the year, activities with losses of €5.2 million were eliminated and exceptional costs of €42.2 million, relating to redundancy and reorganisation were incurred. The main businesses exited were pig slaughtering and meat processing.

Net debt at year end was reduced by €19.3 million from €126.3 million to €107 million. Net cashflow from operating activities amounted to €26.6 million, up from €6.5 million in 2003.

Mr Henchy said that Dairygold was now split into four divisions: milk processing, agri trading, hardware retailing (known as 4Home) and consumer foods.

"Each division has very different challenges and opportunities for the future," he said.

He added that the hardware business in particular could double in size in the years ahead.

He warned that the consumer foods division was facing significant challenges and said that own-label products were exerting downward pressure on everyone's costs and prices. He said Dairygold had to be able to compete in that environment.

Mr Henchy said that significant rationalisation had taken place in 2004: three spread plants consolidated into one; two cheese packing plants were combined into one facility, while four distribution warehouses were combined into one.

Mr Henchy said milk processing continued to be a mainstay of the business, although returns from this division had been hit by a severe reduction in EU supports. He said the agri-food business had a good year, mainly because weather was poor and farmers were using more feed and more fertilizer.

Mr Henchy said he believed that the hardware division could grow strongly and the co-op's land bank would help to provide a steady stream of sites for the business. However, he said, Dairygold was also interested in talking to existing retailers who might want to convert their business into a new hardware enterprise. He said he did not believe that the 4Home stores would be directly competing with large multiples such as Homebase.

Mr Henchy said the co-op, which has 8,000 members, now had a grey market for trading in shares, which are currently worth €1.90, and was proving popular.