Wiseman increases production to cope with surge in milk demand

Published on Thursday 9 July 2009 21:21

ROBERT Wiseman Dairies has put two of its plants on seven-day working after picking up supplies from 70 farmers following the collapse of Dairy Farmers of Britain.

After years of under investment, DFOB, a Cheshire-based co-operative, was placed in administration at the start of June. The contracts and customers were quickly carved up among rivals, with East Kilbride-based Wiseman taking on supplies from dozens of farmers around Staffordshire and Cheshire.

The expansion in milk supplies meant Wiseman's factories at Manchester and Droitwich Spa will operate every day until the group completes an expansion of its Bridgwater factory in Somerset, giving little time for maintenance.

Expected to be completed around the start of 2010, the Bridgwater expansion will increase the plant's capacity by 50 per cent to 375 million litres a year, at a cost of 7.5 million.

The Scottish firm is also building a 9.7m depot in Wiltshire, which it expects to be up and running by Christmas.

Finance director Billy Keane said yesterday that running Manchester and Droitwich Spa seven days a week put the assets under more pressure than maintenance staff preferred.

"From a financial point of view it's asset sweating, but from a production point of view you would rather have availability for maintenance or a little slack in the system," he said.

In April, Wiseman announced that Co-operative Group, the retail chain, had awarded a contract of more than 100 million litres a year at the expense of DFOB.

Yesterday it announced that two Spar wholesalers, Cappers and Blackmore, had also contracted Wiseman to supply them in England and Wales.

The increased supplies helped boost Wiseman's production in the three months to 30 June, which was 8.5 per cent ahead of the same time last year, despite losing a chunk of business from Tesco in May.

Further contract wins are unlikely in the next few months because of a shortage of capacity, Keane said. "Capacity is quite tight for us at the moment, so until that new Bridgwater capacity comes on stream … then I think it will be quiet, certainly for the next six months."

While the immediate impact of the DFOB collapse has passed, Keane said it was too early to predict whether the demise of a rival would lead to higher margins across the industry.

Commentators had warned that a struggling rival could put pressure on margins across the sector, as DFOB fought to continue. However, the longer-term prospects for margins are likely to improve once the company ceased to trade. Keane said: "That's what the industry would expect over the next few months, but it's far too early to make a judgment as to whether that's happened."

Speaking at yesterday's annual general meeting, chairman Alan Wiseman said the group's performance through a time of "major changes in the industry" had remained in line with expectations, while debt levels were slightly below forecasts. Analysts said the results showed an early benefit from the demise of one of Wiseman's rivals, prompting Royal Bank of Scotland to increase its pre-tax profit forecast for the dairy firm by 1.5m to 39.4m.

Shares in Wiseman closed down 5.75p at 382p.