A collapse in first-half profits, a profits warning for the full year and a 40 per cent cut in the half-year dividend have combined to drive Glanbia shares to an all-time low.

The shares at yesterday's close of 55 cents, down eight cents on the day, are now little more than a tenth of the €4.53 high reached in the immediate wake of Avonmore-Waterford merger that created Glanbia three years ago. The shares fell as low as 50 cents yesterday before staging a modest recovery.

Overall, operating profits fell 29.5 per cent to €24.5 million, pre-tax profits - before exceptionals - were down over 50 per cent to €11.5 million while shareholders must suffer a 40 per cent cut in half-year dividend to 1.78 cents per share.

But while difficulties in world dairy markets and its former liquid milk operations in the UK were the main problems for Glanbia in 1999, the problems this year have shifted to the group's consumer foods and food service operations in the UK, which moved from operating profits of €13.3 million in first half 1999 to losses of €1.2 million. The move into losses more than balanced out an improved performance in the group's food ingredients and agri-trading activities.

Group managing director Mr Ned Sullivan, warning that results for the full-year will be below current market expectations, said that two business units - food service and consumer pork products in the UK - suffered a serious shortfall. The food service business, which supplies chilled food products, suffered from a major consolidation in the industry at both customer and competitor levels.

Mr Sullivan said that food service customers in the UK are increasingly demanding a single supplier of chilled, frozen and ambient food products. He declined to comment on where Glanbia's chilled food service business fits in with these changed customer demands, apart from saying that the group is exploring various options.

But informed sources said that the likelihood is that Glanbia either will form a joint venture with a British frozen or ambient food distributor to provide a full service or else exit the business altogether through a trade sale to a British distributor which requires a chilled foods arm.

The other main problem area for Glanbia was the pork business in the UK which suffered from a 40 per cent processing overcapacity and a severe shortfall in pig supplies, with the weekly British pig kill falling from 330,000 to 220,000 animals. This shortfall in pigs occurred at the very time that British multiples were demanding that only British quality assured pigs (BQAP) pigs were used by suppliers.

Since then, the multiples have relaxed their BQAP requirement, and Glanbia has been able to obtain cheaper pigs from Ireland and Denmark. But Mr Sullivan emphasised that the British pork processing industry has a major structural problem in the form of overcapacity. "The business has been better in the summer but not enough to recover the first half losses," he said.

He insisted, however, that Glanbia has no plans to follow its exit from the British liquid milk business with a withdrawal from the pork business. "It's not for sale," he said, adding that Glanbia is looking at various options to improve the performance. Industry sources believe, however, that the overcapacity in the UK industry is so severe that Glanbia may be forced to consider a sale at some stage in the future.

And while Glanbia has to cope with its latest problems in the UK, the group remains heavily weighed down by debt. Even though debt at the end of the year will be down to an estimated £265 million (€334 million), the fall in shareholders' funds because of disposals will mean that gearing will rise from 115 per cent to around 123 per cent, with interest covered just three times.

Meanwhile, ratings agency Moodys has warned that while it has confirmed its debt rating for Glanbia, the outlook for the group's ratings is negative. "Glanbia faces significant competitive challenges in several key markets. A failure to restore profitability and financial measures over the intermediate term could lead to a downgrade," Moodys said last night.