THE crisis at Charleville, Co Cork based dairy group Golden Vale has been highlighted by half year results showing a 49 per cent fall in pre-tax profits to £4.1 million.

And, with the group set to take a £3 million charge in the second half in respect of the compensation paid to former chief executive Mr Jim O'Mahony and milk super levy arrears, some analysts believe that full year profits may show little improvement on the half year figure.

Mr O'Mahony is thought to have received a severance package of around £1 million after he was dismissed in June and this suggests Golden Vale expects to recoup £1 million of the outstanding £3.1 million super levy arrears from its suppliers before the end of the year.

Riada analyst Mr Joe Gill is predicting full year profits of £4 million and earnings per share after the exceptional charge of 2p compared to £16.5 million and 8.7p in 1995. The Riada analyst was reluctant to make forecasts for 1997, given the uncertainty over milk prices, world dairy prices and any rationalisation that Golden Vale may carry out in its problematic processed cheese operations.

The company itself says that it expects a "significant restoration" in its margins in 1997, which, in the butter and powder part of the business, collapsed from 4.95 per cent to 1.16 per cent in the first half of 1996.

Poor half year results were expected from Golden Vale, but few expected the results to be quite as bad as those announced yesterday. The imbalance between the price paid to the group's milk suppliers and world butter and milk powder prices was just one factor behind the poor performance. The imbalance between milk prices and world market prices was the equivalent of 9p for every gallon of milk processed by Golden Vale.

Acting managing director Mr Liam Irvine would not be drawn on the likely movement in the milk price, but sources close to the company say the current 108p a gallon is untenable and a cut in price to loop or below is likely before peak milk production resumes next spring.

Mr Irvine emphasised, however. "We have to pay a competitive price for milk it's vital to protect the milk pool."

The likely cut in the milk price is not the only bad news facing Golden Vale milk suppliers. They are also facing a £4.1 million super levy bill in respect of milk overproduction in 1995/96. This is in addition to the £3.1 million super levy arrears that Golden Vale has already paid and which the company is now seeking to recoup from its suppliers.

Golden Vale also suffered a severe downturn in its processed cheese business as a result of higher input prices and a sharp fall in export refunds. Mr Irvine said that the group was carrying out a detailed evaluation of every aspect of the processed cheese operations to see where savings could be made.

Asked whether rationalisation of its processing operations was an option, Mr Irvine said. "That isn't a conclusion yet." Analysts believe that if Golden Vale decides it has to cut production capacity, it will be the Vonk plant in the Netherlands rather than DPP in Coleraine, Co Derry or the Charleville plant that will be rationalised.

Within the milk related business, turn over was up 4.2 per cent to £132.4 million but the margin squeeze saw operating profits fall from £4.75 million to £1.54 million. In the cheese business, sales fell fractionally but the business moved from a £290,000 profit to a £250,000 loss.

One bright spot for Golden Vale has been the performance of its new Cheese strings product. Even though this cost £400,000 to launch in Ireland, it has been a marketing success and Golden Vale is now spending £1.3 million to launch the product in Britain.

The group's liquid milk business suffered mainly from reduced volumes and margins in the Welsh subsidiary. Mr Irvine would not comment but it is thought likely that Golden Vale would happily sell the Welsh liquid milk business if an acceptable offer was made.

The six months results include a profit of £333,000 on the sale of fixed assets. This is understood to include a profit on the sale of its 2 per cent stake in Radio County Sound, the Cork local commercial radio station, to a consortium which included former managing director, Mr Jim O'Mahony. This sale took place before Mr O'Mahony's dismissal from his chief executive's position at Golden Vale in June.

Golden Vale shares traded at 58p yesterday, not far off the low for the year, and the company has few friends in the markets.

Golden Vale is paying un unchanged dividend of 0.66p a share.