Surging costs and supermarket rivalry hit dairy giant Robert Wiseman

Published on Tuesday 17 May 2011 15:30

DAIRY group Robert Wiseman, the UK's biggest fresh milk supplier, is continuing to suffer from the double whammy of soaring costs and fierce competition between supermarket chains.

Despite winning new business and growing sales by 3.5 per cent to 917.5 million in the year to 2 April, the East Kilbride-based company saw pre-tax profits fall by 30.2 per cent to 34.4m.

At the end of the period the company was seeing its costs rising by 5m a year - mainly caused by the jump in oil prices - but they have since risen further with the resin used to produce plastic bottles up by 20 per cent since March and fuel by 13 per cent.

Executive chairman Robert Wiseman said yesterday if those levels continued for the rest of the year it would represent a 7.5m annual increase in costs.

Costs have also risen for dairy farmers leading to an increase in the price Wiseman pays for raw milk.

But strong cash flow saw net debt fell to 4.9m from 21.1m and the company said it would also maintain the full-year dividend at 18p. During the year all of the major retailers put their milk supply contracts out to tender and the company said it had grown or retained its business with key customers which include Tesco, Sainsbury's and the Co-operative Group.

It also completed its Bridgwater facility in Somerset which has given it the capacity to process and distribute over two billion litres of milk a year.

"The pressure on margins caused by higher input costs continues and is unhelpful but we are working relentlessly to improve our cost base where possible," said Wiseman.

"The board remains optimistic about the group's long term prospects.".

But analyst Charles Pick of Numis said "the newsflow remains grim with Wiseman" and said further downgrades appear probable for 2011-12.

"The saving graces are the strong balance sheet, the well invested asset base and the high yield."

But he added there "were few other immediate merits".

Darren Shirley of Shore Capital, said he maintained his 'sell' rating on the shares despite cost saving initiatives under way to offset rising cost pressures.

Peel Hunt maintained a 'hold' rating on the shares but reduced its target price, citing "significant pressure on margins from both input costs and the retailers". Shares in Wiseman closed down 11p, or 3.28 per cent, at 324p.