Robert Wiseman hit for £100m after supermarket 'war' warning

Published on Wednesday 15 September 2010 22:08

MORE than £100m was wiped off the value of dairy group Robert Wiseman yesterday after it blamed supermarket price wars and increased competition in the milk supply market for a shock profits warning.

The Scottish group forecast second-half operating profits falling by around 7m and by 16m - a reduction of more than a third - in 2011-12 if there was no improvement in trading.

One analyst suggested the trading update had "put the industry back years" after a period of rising profits and improving capital returns in the dairy sector. Shares crashed by 143.5p, or 29.6 per cent, to close at 342p, just above their year low. East Kilbride-based Wiseman admitted that the profits warning was "very disappointing" and blamed aggressive supermarket pricing and an increase in the number of small and mid-sized local rivals following the demise of co-operative Dairy Farmers of Britain.

But it said the company was "best placed" within the industry to manage the issues which it believes the market will sort out over time and it was continuing to increase sales volume.

Although Wiseman said the pressure on its margins had been cumulative and not attributable to one retailer or sector, an RBS analyst said they believed the main reason behind the profits warning was a reduction in margins with major customer Tesco.

The supermarket price wars began with Asda - supplied by Wiseman rival Arla - recently cutting the price of four pints of milk from 153p to 125p. Tesco, which is supplied by Wiseman, has responded with price cuts of their own.

Analyst said they did not see the issue as short-term.

Nicola Mallard at Investec Securities said : "This is clearly very disappointing for shareholders and management alike and for the next six months there are no obvious catalysts which could change this,"

Clive Black at Shore Capital described it as major setback for the whole industry. He said although there are other challenges facing the sector, the Asda price-cut move was a key factor.

But he also questioned whether milk suppliers themselves were partly to blame for the price-cutting by chasing marginal business.

"Whatever the circumstances... there will be abrupt change in performance, putting the sub-sector back years," he said.

"What is certain is that value has been transferred from the shareholders in the dairy companies to the consumer."

Black also said that shift in the market would affect returns on Wiseman's investment in its flagship Bridgwater dairy where it is currently increasing capacity. Shares in rival Dairy Crest were also hit by Wiseman's announcement although analysts at RBS said the risks to that company from the price-wars was significantly lower.Despite the profits warning, Wiseman said it intended to maintain the total dividend payments for the current year at 18p per share in line with last year and stressed it retained a strong balance sheet with low levels of debt.