Dalgety shares in dog house after profits warning

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The Independent Online
Dalgety, the pet food business that owns the Felix and Winalot brands, issued a profits warning yesterday caused by production problems in its pet foods operation, the on-going impact of the BSE crisis and the strength of sterling.

It is to cut the dividend by a third while the head of the group's pet food division is to leave with immediate effect. Dalgety shares fell sharply from 310.5p to 269p as the company said full-year profits would now "fall short of the first half". City analysts cut their current year profit forecasts from over pounds 100m to pounds 80m.

They said the problems did not necessarily mean Dalgety's pounds 440m deal to buy the Quaker pet food business two year ago was a mistake. Julian Hardwick at ABN Amro Hoare Govett said: "They clearly paid way too much for it but that was clearat the outset. What they have to do is manage it effectively."

Dalgety's chairman, Sir Denys Henderson, said: "The continued underperformance of our pet foods business has led us to conclude that tough action is required to ensure that we are on track to meet our financial targets, albeit late."

As a result of management changes and cost reduction programmes, Dalgety will make a pounds 36m exceptional charge in its current year accounts.

This includes a pounds 27m charge in the pet foods division where technical problems affected production capacity in two plants. Nigel Garrow has resigned as chief executive of the division and from the Dalgety board. He was paid pounds 179,000 last year and was employed on a two-year contract. He is expected to receive full compensation of close to pounds 400,000.

Hugh Donaldson has been appointed in his place. He has been working with the group as a consultant since March when he joined Dalgety after spells with Zeneca and ICI.

In the agribusiness division, the prolonged impact of BSE has led to a substantial fall in demand for cattle feed with sales 25-30 per cent lower. The market is expected to remain depressed and pounds 6m has been provided for further plant closures and cost reductions. Dalgety hopes to achieve pounds 2m of annual cost savings as a result.

The dividend will be "rebased" to "not less than" 6p a share against 9p last year.

Dalgety expanded into the pet foods market with the Quaker deal. Though the company has been expanding market share, it is a difficult market, dominated by Mars whose Pedigree Petfoods controls brands such as Whiskas.

Dalgety sold its consumer foods businesses such as Golden Wonder Crisps and Homepride sauces to pay for the deal.