AVONMORE Foods has overcome a setback in its meat division to notch up a good set of half-year results, with pre-tax profits up just over II per cent to £13.1 million.

Strong performances in both the dairy and agri-trading divisions, as well as a sharp drop in the group's interest charge, more than compensated for a sharp fall in operating profits in the meat division from £3.46 million to £2.28 million.

Operating profits in the dairy division rose from £8.6 million to £9.5 million, while agri-trading operating profits rose from £6 million to £6.4 million. A fall in the interest charge from £6.4 million to £5.1 million allowed pre-tax profits to rise from £11.8 million to £13.1 million.

Overall, however, the slump in the meat business - mainly due to high prices for pigs and the impact of the BSE crisis - meant that operating margins for the overall Avonmore business fell from 3 per cent to 2.8 per cent.

The company secretary, Mr Brendan Graham, said, however, that the slump in meat operating margins - they were little more than 1 per cent in the first half - should be reversed in the second half, with meat operating margins returning to "more normal levels".

In the first half of 1995, operating margins in the meat business were 1.7 per cent, while in all of 1995 margins in the meat business were 2.6 per cent.

Mr Graham said the artificially high prices for pigs paid in the first half of 1996 would be lower in the second half. A reduction in processing capacity as a result of the closure of the McCarrens plant in Cavan and reduced slaughtering activity has strengthened the position of the remaining processors such as Avonmore.

The beef business - which accounts for 6 per cent of turnover - was affected by the BSE crisis but this was compensated to some degree by consumers switching to the lamb and pig products produced by Avonmore.

Turnover and operating margins improved in the dairy division, with the Irish milk operations performing well, while the pizza cheese business continued to benefit from the huge growth in the pizza industry. Avonmore also improved its position in the British liquid milk industry and increased its sales to the multiples.

Mr Graham said lower milk prices at the July bidding for Milk Marque supplies and the decision of the Office of Fair Trade to oversee Milk Marque's operations should lead to a more stable pricing structure in Britain where Avonmore has an estimated 8 per cent market share.

In the US, Avonmore is currently investing $20 million (£12.5 million) in its Idaho cheese operations with the aim of boosting annual production of cheese to 80,000 tons.

Avonmore has been consistently linked with liquid milk acquisitions in Britain where the group needs greater scale for its operation. Mr Graham said, however, that any acquisition would have to represent value for shareholders.

The market was generally pleased with the first-half results from Avonmore in a difficult period for the food industry and current full-year profit forecasts of around £35 million seem achievable. Shareholders are to receive an interim dividend of 1.9p per share.