Competition hotting up as dairy giant Wiseman unveils profit dip

SCOTTISH dairy group Robert Wiseman yesterday warned intense competition in the milk market was continuing as it posted a fall in first-half profits.

• Robert Wiseman - described by one analyst as 'the most efficient processor in the UK' - is facing an increasingly competitive market across the retail sector

The company had issued a profit warning in September over pressure on milk prices both in supermarkets and in independent shops, with the bulk of the impact falling in the second half of the year and in 2011-12 if there was no improvement in trading.

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Although the East Kilbride company - which processes and delivers more than 30 per cent of the fresh milk consumed in Britain every day - said margins continued to come under "considerable pressure", it revealed it had achieved an 8 per cent rise in volumes.

Its focus was now on improving margins by utilising the increased capacity available from the completion of its flagship Bridgwater dairy in Somerset by reducing costs but the company stressed there were no plans to cut jobs.

"We are growing volumes and to meet that demand we need the staff," said a spokesman. For the six months ending 2 October, pre-tax profits were 20.2 million, down from 21m last year. Revenues increased by 7 per cent to 452.8m.

The company said that it was in a strong financial position to weather the current pricing pressure and that its intention to pay a full-year dividend of 18p a share - a yield of more than 5 per cent at current prices - signalled long-term confidence in the business. The interim dividend was unchanged at 5.75p.

Executive chairman Robert Wiseman said: "The group remains confident in its ability to prosper in the long term. It has the best facilities in the industry, a strong balance sheet with low debt levels, positive cashflow and an excellent customer base."

Net debt stood at 21.5m at the period end, down from 26.7m a year ago.

While much of the focus on the industry's troubles have centred on a supermarket price war which was sparked off by Asda and followed by Wiseman's customer Tesco, the company has also been hit by competition in the convenience store sector due to an increase in the number of small and mid-sized rivals following the demise of co-operative Dairy Farmers of Britain.

While analysts said the results were broadly as expected, they didn't predict a significant short-term improvement in the outlook for the firm.

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Charles Hall of KBC Peel Hunt said: "Wiseman will remain focused on re-building margins. However, as the company is already the most efficient processor in the UK we think it will be relatively harder for the company to deliver major incremental cost savings."

Clive Black from Shore Capital, which has a hold rating on the shares, argued that the investment case for Wiseman had changed.Stressing that it remained very much a robust company with manageable debt, he argued that margins are now lower and anticipated cash generation has fallen.

Shares in Wiseman closed up 4.1p at 331.8p.