DAIRYGOLD chief executive Mr Denis Lucey has warned that 1997 will be a very tough year and has stated that he will be happy if profits are similar to last year's pre tax figure of £14.1 million.
"I will be happy to be in the same position next year, plus or minus a little, if the businesses we have are the same," Mr Lucey said, giving an indication that Dairygold is on the lookout for acquisitions.
With a strong balance sheet and a debt/equity ratio of less than 18 per cent, Dairygold is well placed for sizeable expansion although the chief executive would not comment on any individual deals.
On the rationalisation of the dairy industry, Mr Lucey was explicit when he stated: "Nothing is happening with anybody." For some time, Dairygold has been mooted as a merger candidate with Waterford Foods, speculation that has intensified over the past week following Waterford's shock profits warning and the negative reaction which followed.
Mr Lucey also warned that, in the current year, Dairygold faced "either a margin squeeze or profits squeeze", but would not be drawn on whether Dairygold's milk suppliers would face a further cut in the price they received for milk.
Earlier this year, Dairygold cut its milk price by 10p to just over 100p a gallon and it seems likely that suppliers will face a further cut in the weeks ahead, although the co op's willingness to accept some squeeze on margins at the expense of profits may limit the damage to farm incomes.
Sales at Dairygold fell from £635 million to £621 million, with lower sales in all three divisions dairy, heat and agri trading. Meat sales and profits were hit by the consumer reaction to the BSE crisis, although Mr Lucey said that beef consumption across Europe was almost back to pre BSE level.
Dairygold's dairy sales fell marginally to £321 million, agri trading sales were down from £141 million to £139 million while meat sales slipped from £169 million to £162 million. Overall, however, operating margins were maintained at 2.8 per cent with operating profits down marginally from £18.1 million to £17.6 million and pre tax profits dropping from £14.5 million to £14.1 million.
The group's pig meat business had a poor first half last year because of high prices paid to suppliers. But this was more than corrected in the second half, said Mr Lucey, when trading in pig meat was excellent. This good second half for pig meat had continued into the first quarter of the current year, he said.
With net debt falling £2.4 million to £36 million, Dairygold has a gearing of 17.9 per cent - comfortable by any standards. Mr Lucey said: "We have three divisions and all would benefit from expansion.
He declined to say whether the co op had any preferred sector for expansion.
Dairygold's members will receive share interest - dividends in public company terms - of £834,000, while the co op also plans to allocate £2 million worth of bonus shares to members, based on their level of trading with the co op. Last year, Dairygold paid its suppliers £287.7 million for milk, cattle and pigs a rise of over £3 million on the previous year.
Given the cut in milk prices and the 20 per cent fall in beef prices, this record level of payment to suppliers by Dairygold was unlikely to be maintained.
