19 August 1997

Agri-business not for sale, says Dalgety

By Philip Clarke

AGRICULTURE is to remain a major part of Dalgetys portfolio, following a radical shake-up announced this week.

The restructuring follows a 35% profit slump in the year to June 30, to just £66m (before exceptionals), in line with expectations after two profits warnings earlier this year.

Agriculture actually made a small operating loss for the first time ever, compared with profits of almost £23m last year. But the Pig Improvement Company – separated out for the first time – put in another strong performance with profits of £25m on sales of £215m.

Following a detailed strategic review, Dalgety has decided to sell off the food ingredients and distribution businesses (which account for almost half the £4.2bn turnover and over half the operating profit), in order to return some cash to shareholders. But it is to retain its pet food, pig genetics and agricultural supply interests.

City speculation is that agri-culture could also be ripe fordisposal, once the industry isin better shape. But executive director, Paul Kirk, is adamantthe business is not for sale.

The division has had its worst year ever, he admitted. Demand for cattle feed dropped 14% due to the BSE crisis and market share was also lost as Dalgety attempted to hold up prices in the face of record raw material costs. As such, sales volume was down 27%.

The arable supply side had also suffered in the second half due to stiff competition from cheap imported fertiliser and lower spray sales due to the unusually wet June.

The aim now was to win back market share in the animal feed side of the business by a combination of price, loyalty bonuses and quality service. To achieve that, there would have to be further rationalisation.

By the end of 1998/99, the cost structure of Dalgetys agriculture business would be 20% less than it was in 1994/95 in real terms, Mr Kirk predicted, making the company "lean and mean".

With up to 25 mill closures expected throughout the animal feed sector, the residual players would be more cost-effective – able to offer the farmer a better deal, he said. And, with over 200 mills remaining, farmers need not worry about lack of competition.