Donegal Creameries delayed the release of its 2004 annual results yesterday due to financial irregularities at its associate company, Monaghan Mushrooms.
The problem at Monaghan Mushrooms, which is 23 per cent owned by Donegal Creameries, relates to the misstating of financial accounts at another Irish company, Carbury Mushrooms.
The two mushroom companies merged last year to create the largest player in the European mushroom industry.
The merged firm, which is called Monaghan Mushrooms, manufactures about 5,000 tonnes of mushroom substrate and sells 40,000 tonnes of mushrooms annually to customers in the UK and Ireland.
In a statement issued after the market had closed, Donegal Creameries said that the results of Monaghan Mushrooms, which is required to permit the food group to collate its own results, have been delayed over issues relating to Carbury Mushrooms' 2003 financial accounts
Following its merger with Carbury Mushrooms, Monaghan Mushrooms discovered that the firm had not accounted for events that would have resulted in a €2.6 million negative effect on its results.
The events relate to the write-off of a bad debt in Britain and an impairment charge taken due to the rationalisation of compost production at one of its sites in Britain. Trade creditors and accruals have been understated, said the statement.
If the events had been included in Carbury Mushroom's financial statement, then Donegal Creameries' results for the year ended 2003 would have been reduced by €1.365 million.
This reflects the fact that, prior to the merger of the two mushroom companies, Donegal Creameries owned a 52.5 per cent stake in Carbury Mushrooms.
Following the mushroom merger last year, this shareholding was reduced to 23 per cent.
Other big shareholders in Monaghan Mushrooms include: Connacht Gold, which owns a 17 per cent stake; Ronnie Wilson, founder of Monaghan Mushrooms; and Enterprise Ireland.
Donegal Creameries now intends to make a prior-year adjustment to its 2003 financial results when it issues its 2004 results and its annual return.
The board of Donegal Creameries said last night in a statement that they were confident that the 2004 results would be in line with expectations when they are released.
It expects to release a preliminary statement of the results before the end of May.
Lexie Tinney, chairman of Donegal Creameries, said the firm's directors sincerely regretted the delay in issuing the 2004 results and the emergence of an adjustment to its 2003 results.
"These issues are symptomatic of the wider issues that we experienced with our mushroom business in recent years and we can assure shareholders that, following the merger with Monaghan, the mushroom business is on a sounder footing and issues like these are not going to recur."
