AS the Waterford Foods, board met to consider the Avonmore bid, the company released 1996 results showing a drop of nearly 21 per cent in pre-tax profits to £19.8 million.
Waterford management, was not available to answer questions about the results, which were due for release next Monday. The announcement follows a profits warning last month and profits in 1995 of £25 million.
The 1996 outcome shows a 20.6 per cent drop in pre-tax profits despite a 32.6 per cent rise in turnover to £1.044 billion and an increase in net debt to £215 million from £197 million. Operating margins dropped to 4.1 per cent from 5.1 per cent, cash flow fell by 2.4 per cent to £44.2 million while interest cover was down from 3.6 times earnings to 2.4 times.
Given the modest cash flow generation at the company, its debt level is demanding, according to ABN Amro/Riada analyst, Mr Joe Gill.
Waterford's shock profits warning last month led to a demand from the Stock Exchange that the company explain why the warning was issued just weeks ahead of the announcement of 1996 results and three months into 1997.
Market sources said the profits warning followed disagreements between the company and its auditors KPMG on the presentation of the figures. This was rejected by chief executive, Mr Matt Walsh.
The deterioration in performance put Waterford in breach of its, borrowing covenants with its banks. In yesterday's statement, Waterford said its banking facilities have been successfully reviewed.
In the results statement issued at 5 p.m., Mr Walsh said that "a combination of high relative milk prices and market developments created unprecedented pressures and challenges for the group". The results were "clearly unsatisfactory" he said. The "rebalancing of milk costs and market returns and other initiatives such as product development and cost control across the group will improve performance in 1997", he added.
"Weak international dairy markets, high milk prices in Ireland and Great Britain, BSE in the UK and intensified competitive pressures for a number of businesses, all combined to adversely impact margins," the company said. It added that "a number of issues in the last quarter of the year also affected the results for the year".
The rise in turnover reflected the inclusion for a full year of The Cheese Company in Britain, acquired in 1995.
Group operating profit rose 6 per cent to £42.4 million but, reflecting the rise in turnover, operating margins fell. The 20.6 per cent drop in pre-tax profits reflected the impact of lower margins and the rise in net interest costs to £17.6 million from £11.2 million due to the acquisition of The Cheese Company, according to Waterford.
In the Irish liquid milk market, profitability was hit by the delay in the closure of the Premier plant in Finglas - production has now been transferred to Rathfarnham.
In the British liquid milk market, profitability improved at Waterford Dairies but commodity market returns for cream fell, hitting margin recovery.
Profitability at The Cheese Company improved but the fruit juice business had a difficult year and the company lost an important Sainsbury contract.
In the dairy products area, weak international dairy market returns, high relative milk prices and a strong Irish currency were blamed for margin pressure in the Irish operation.
In the US, profitability at Wisconsin and Utah improved. In agri-trading, turnover and profits improved.
Waterford's £370 million plus acquisition spend since 1989 had failed to drive earnings forward, Mr Gill said. He forecast 1997 pre-tax profits of £25 million, conditional on further cuts in milk prices paid to farmers and no further Green pound devaluations.
