PROFITS AT Donegal Creameries slumped in the first half of the year, despite a 13.5 per cent increase in revenue, as the company’s dairy division remained under pressure.

Interim results published yesterday show that pretax profits dropped to € 805,000, compared to profits of just over € 4 million in the first six months of 2010. Revenues grew by 13.5 per cent to € 68.7 million over the same period compared to € 60.5 million a year earlier, although operating profit was almost 39 per cent lower at € 857,000.

The underperformance of the dairy division, which accounts for 46 per cent of the company’s revenue, was a major contributing factor behind the overall fall in profitability. While revenue at the division was up 12.2 per cent, reflecting both higher prices and increased volumes from new customers, it recorded an operating loss of € 970,000 for the period, compared to an operating profit of € 350,000 in the first half of 2010 as the company struggled to recover cost increases in a highly competitive retail market.

In a separate statement issued to the Irish Stock Exchange, the company said it would not be commenting on reports it is to sell its dairy business to Sligo co-operative Connacht Gold.

“As with any other company, Donegal Creameries continuously assesses the strategic direction and options available to it and its businesses” the statement said.

“This includes, as previously stated, its consideration of and support for the Icos-led discussions on a sustainable future for the dairy industry in Ireland.”

Donegal Creameries has previously indicated its support for greater consolidation in the dairy industry, a policy endorsed by the Icos (Irish Co-operative Organisation Society). The company already supplies milk directly to co-ops including Connacht Gold, as well as using the milk it buys from farmers for its own liquid milk and yoghurt products.

While Donegal Creameries’ agri-inputs and seed potato business saw a strong improvement in profits in the first half, the company’s share in the profits of Monaghan Mushrooms, in which it has a 35 per cent investment, dropped by about € 1 million to €1.3 million, although the company said it expects this fall in profits to be temporary. It also expects the dairy division to return to “more normal levels of profitability” in 2012.

The company maintained its dividend at seven cent.

Donegal Creameries’ share price dropped more than 5.5 per cent, in the wake of the results, finishing the day at € 3.40.

Noting that volatility is to be expected in the agri-industry, Davy Stockbroker said the company’s seed business and agri-inputs business remain in a good position, though full-year numbers will need to be adjusted. NCB Stockbrokers reduced its 2011 earnings per share (eps) forecast to 51 cent, down from 76 cent, and its 2012 eps to 68 cent from 87, though it said it expects significant improvement in the second half of 2011 and into 2012.