SOARING DAIRY prices helped Sligo-based co-op Connacht Gold to treble operating profits to €10 million in 2007, but weaker dairy markets in 2008 mean the performance is unlikely to be sustained.

Connacht Gold chief executive Aaron Forde said profits in 2008 were likely to slip to €3 million-€4 million, on par with the 2006 earnings of €3.2 million. "The weak dollar and the surge in milk production has had a big dampening effect on dairy prices," he said. "It has been a very good 2007. 2008 is a little more challenging."

He said he remained optimistic about the long-term outlook for dairy markets. The co-op is actively seeking suitable acquisitions with price tags in the region of €50 million, he added.

Overall, turnover increased 3.5 per cent to €320 million in 2007. Revenues in the dairy ingredients division grew 2.3 per cent, but this growth rate fell below dairy price inflation due to flat volumes.

Connacht Gold's retail and food service division suffered as a result of the rising global dairy markets, as its margins were squeezed due to a time lag in passing on higher input costs to customers.

"The margin depression on that side of the business will be recovered in 2008 and that process has started," Mr Forde said.

Connacht Gold's agribusiness division, which includes a network of 29 retail stores, enjoyed the highest increase in revenues, up 8.6 per cent. The division also received the biggest share of the co-op's capital expenditure budget last year, with €3.5 million of €6 million devoted to it.

The agribusiness stores are being adapted as DIY and garden centres for a general retail market. It has upgraded five stores, with the Sligo outlet next in line.

Brian Kelly, company secretary and head of finance and services, said a similar sum would be invested in the stores in 2008.

The co-op has 14,100 farmer shareholders in Connacht and Donegal, who last year benefited from stronger milk prices after a prolonged subdued period.