Foods group Golden Vale has produced solid results for the year to the end of December but has warned it faces a difficult 2001 because of higher raw material costs, labour pressures and a sharp rise in energy costs.

Group managing director Mr Jim Murphy said: "We are addressing these issues but it will be a very tough year, especially the first half." He added that these factors would reduce operating margins in the first half. "Overall for the year we expect to make some progress in 2001," he said.

Golden Vale's results in 2000 were ahead of market forecasts with pre-tax profits of €31.6 million (£24.9 million) after a net €2.7 million of exceptional items. Analysts had been expecting net pre-tax profits of around €31 million. Earnings per share totalled 17.7 cents, while the group is paying a total dividend of 4.13 cents per share, an increase of 8 per cent on the 1999 payout.

The make-up of Golden Vale's profits and turnover, however, is a turnaround from 1999 with the butter and skim milk powder moving from a small loss to an operating profit of €6.6 million as a result of improved prices. But operating profits in the consumer foods business fell €3 million to €31.4 million as a result of margin pressure in its cheese and liquid milk business. There was also some margin pressure in the Rye Valley prepared meals business.

While the recovery in the butter and powder business is a welcome development for Golden Vale, analysts warned that it made it more difficult for Golden Vale Co-op to buy the business back from the plc. Mr Murphy said yesterday that selling the business back to the farmers was one option but added: "We are a plc and we have to act responsibly, plcs don't give away profitable businesses, there has to be value for shareholders."

Negotiations between the coop and the plc on the purchase of the milk processing business have been in progress for some months without any agreement on the price of the butter and powder assets.

Mr Murphy said that the abortive bid for the British consumer foods group Prize Foods last year had cost Golden Vale €2.7 million.