Golden Vale has reported a strong set of results for 1998, with pre-tax profits before exceptional items up more than 32 per cent to €27.1 million (£21.3 million), boosted by strong growth in its consumer foods and processed cheese operations.
Golden Vale is expanding the processed cheese operations and is investing £8 million sterling in a its cheese slices operation in Coleraine, Co Derry, which will cement the group's position as the biggest processed cheese supplier in the UK and one of the biggest in Europe.
But the strong performance in processed cheese and spreads and the consumer foods business is in stark contrast to that of the butter and milk powder operations where operating profits halved to just €2.6 million (£2 million) with operating margins slumping to a negligible 1 per cent of sales.
Chief executive, Mr Jim Murphy said: "Clearly, margins of 1 or 2 per cent are inadequate for any company to invest for the future. The business will have to be driven by added value not volumes," he said. He added that Golden Vale had taken one step towards improving margins by cutting the milk price paid to farmers by 5p a gallon to £1 a gallon while the main Charleville, Co Cork butter and powder plant would in future operate for only eight months of the year.
Consumer foods put in a strong performance with operating profits up 32 per cent to €25.8 million (£20.3 million) with margins improving from 5.1 per cent to 6.2 per cent. The 1998 results included a five and a half month contribution from the £20 million Rye Valley prepared meals subsidiary. Rye Valley contributed sales of €27.4 million (£21.6 million) and operating profits of €1.8 million (£1.4 million) compared to sales of €38.7 million (£30.4 million) and operating profits of €2.7 million (£2.1 million) in the whole of 1997.
Sales volumes in consumer dairy and prepared meals were very strong, said Mr Murphy, adding that the priority would be to expand in these sectors. Already Rye Valley has expanded from the Irish and British market - where it supplies three of the major British multiples with own label frozen meals - and is aiming to develop the French market.
Rye Valley has already supplied frozen meals to the Promodes supermarket chain in France and further expansion is planned. Mr Murphy declined to comment on reports that Golden Vale was planning to invest another £20 million in Rye Valley to double its output, but analysts said that such a move was logical given the expressed intention of expanding this part of the business.
As was signalled in December when the group announced the closure of its Roermond cheese plant in the Netherlands, the 1998 accounts include an exceptional charge of €24.1 million (£19 million) to cover the rationalisation. This has meant pre-tax profits were €2.5 million (£2.1 million) when the exceptional charge is included. This also translated into a loss per share of 1.14 cents on 1997 although the dividend for the year has been increased by 11.4 per cent to 3.53 cents per share.
Golden Vale's balance sheet remains strong with last year's interest bill covered 7.2 times by operating profits and a gearing of 41.3 per cent, marginally higher than the previous year.
Analysts said Golden Vale's strong cash-flow and its relatively low gearing were strong plus points as "they will need to spend money on acquisitions to develop the consumer foods and cheese/ spreads business", as one analyst described it.
The results were marginally higher than expectations and the market pushed Golden Vale shares ahead four cents to €1.06 (83p).
