Paws for thought on Dalgety

When Dalgety paid pounds 300m for Quaker's European pet food interests in February, few quibbled with the logic of the deal. The theory was it was better to be a big player in a few markets such as pet food, agribusiness and food ingredients than slog it out in the food market with brands such as Golden Wonder and Homepride.

The question was whether good old Dull-getty could do enough with the business to justify the fancy price tag. Yesterday's results - the first to include the Quaker deal - show the jury is still out. Though pre-tax profits increased by 6 per cent to pounds 127m, excluding reorganisation costs of pounds 33m, there are signs that the real benefits will take a while to come through.

The main disappointment was the underlying performance of the core pet food business, which saw profits fall by pounds 4m during the year. This was largely due to weak performance in the UK dog food market, where owners turned up their noses at Dalgety's traditional tins of dog food in favour of rivals' complete meals. The result was a 5 per cent fall in canned dog food sales. Market share in UK cat food sales also dipped after a delay in promotions for the Arthur's brand, though it is hoped new advertising will reverse the trend.

On the positive side, the company has identified further scope for cost- cutting both in manufacturing plants and at head office. These should yield more than the pounds 40m a year promised at the time of the deal and should come through after two years rather than three. The Felix cat food brand acquired with Quaker is still the fastest-growing in Europe, with the Spanish and Italian markets particularly fertile.

The Pot Noodles and Homepride sauce businesses have been sold, leaving only Golden Wonder snacks. The company says it is in talks that should lead to a deal within weeks rather than months. Elsewhere, food ingredients saw profits rise by 18 per cent to pounds 33.5m with agribusiness up 23 per cent to pounds 42m. After a strong run in the past six months, Dalgety's shares look set to tread water in the short term until the benefits of the Quaker deal start to come though next year. BZW is forecasting pre-tax profits of pounds 147m in the current year. With the shares down 15p to 457p yesterday that puts them on a forward rating of nearly 14. High enough.