STRONG sales and lower interest costs boosted pretax profits at Greencore, for the six months to end of March. They were up 16 per cent to £25.5 million at the sugar, milling and malting group.

Greencore continued to benefit from cost reductions and good trading conditions in the current half, said chief executive, Mr David Dilger.

Issues being tackled include a "competitiveness review" in the consumer foods business and job regrading in the sugar operation to cut the number of grades from 10 to four and increase flexibility, he said.

He said sterling weakness imposed the need to improve competitiveness in the food businesses, including Erin. But "this is not a code for restructuring or selling . . . it is to help all our consumer food businesses to become more competitive and no more than that".

On the European Union investigation of Greencore for anti competitive practices in the Irish market, executive director, Mr Ben Power, said he expected the issue to be resolved by mid summer. "No fine has been made and there is no provision for a fine," he said.

The latest results were boosted by an 18 per cent rise in the contribution from associated companies which chipped in profits of £2 million. Mr Dilger attributed most of the rise to the Kears bakery operation in Britain which is 50 per cent owned by Greencore.

Group sales rose by 9.3 per cent to £230.4 million but with slightly slower growth in operating profits up 9 per cent to £24 million the operating margin slipped to 10.4 per cent from 10.5 per cent.

Greencore's interest bill fell to £0.5 million from £1.7 million in the corresponding period last year, boosting pre tax profit. The lower interest charge reflected the conversion of loan stock and a strong cash flow over the period.

A lower tax charge led to a 16.8 per cent jump in post tax profit to £21.4 million.

With earnings per share up 11 per cent to 11.8p, shareholders are to get a 12 per cent rise in the interim dividend to 2.3p per share with an option to take payment in cash or new Greencore shares.

A breakdown of group operations shows that sugar accounted for 30 per cent of group sales but contributed just over 53 per cent of group operating profit because of the high margin nature of the business.

Sales of sugar rose by 17.5 per cent to £69.2 million but operating profits rose by only 10.7 per cent to £12.8 million with operating margins down from 19.7 to 18.5 per cent.

Mr Dilger said the difference was accounted for by the sale of lower margin C sugar, sugar sold outside the European Union.

The 1995/96 campaign yielded 220,000 tonnes of sugar, 10 per cent more than the group's EU quota, so the surplus of 20,000 had to be sold outside the EU.

Some 16,000 tonnes of the surplus were sold but the lower margin reduced the overall operating profit from sugar sales.

Profits from sugar were boosted by continuing cost reductions, Mr Dilger said. The result benefits from comparison with a very weak first half last year.

In the agri business division, sales rose by 5.8 per cent to £86.2 million while operating profits were up 7.2 per cent to £6.3 million, boosting operating margin from 7.2 per cent to 7.3 per cent.

Despite a late start to the spring season, demand for fertilisers and animal feed was strong. The latest result compares with a strong first half last year.

Mr Dilger said the direct impact of the BSE crisis on the group's agri business operation would be limited but any fall in farm incomes as a result of the crisis could result in lower demand for feed and fertilisers.

He did not expect any fall in farm incomes to be used to drive up the price Greencore pays farmers for beet. He said. "Irish farmers must be paid similar levels as European growers. That's the key. Our growers understand that."

In the "other foods" division sales rose by 6.5 per cent to £75 million and operating profits were up 7.2 per cent to £4.9 million. Margins improved from 6.5 per cent to 6.6 per cent. Erin and Swissco suffered from weak sterling and difficult British markets.

Sterling weakness "cost us a few hundred pounds mainly in the consumer foods area", he said.

Flour and malt were strong. Flour benefited from better mill utilisation and a good quality domestic wheat harvest while malt production and sale in Belgium increased.

At the end of March, Greencore had a strong balance sheet moving toward a net cash position with gearing down to 8 per cent and borrowings of £18 million.

Mr Dilger said Greencore was under no pressure to make an acquisition and returning cash to shareholders was an option if a earnings enhancing acquisition was not found.