Rising costs and squeezed margins blamed for profit fall
ROBERT Wiseman Dairies saw full-year profits fall 30 per cent as rising commodity prices and supermarket competition affected trading.
The East Kilbride-based dairy operator, which produces more than 30 per cent of the milk consumed in the UK each day, posted pre-tax profits of £34 million compared to £49 million a year earlier.
This was despite Wiseman's reaching a record production milestone of more than a billion plastic cartons of milk for the 12 months to April 2, 2011.
Last September the business was forced to issue a profit warning after Asda dropped the price of a four-pint carton of milk to £1.25, which prompted rival Tesco to cut its price from £1.53 to £1.25.
The group warned profits would be down by £7 million for the 2010 year, rising to a £16 million shortfall in 2011.
Wiseman said today market conditions were challenging last year, but said the the drop in profits "was in line with expectations".
Wiseman's volumes to Tesco increased by 10 per cent last year and it also secured a new contract to supply 100 per cent of the Co-operative Group's own label milk commences from August 2011 as well as a three-year extension to its Sainsbury's contract from October 2010.
These contract wins came after retailers put their milk supply contracts out to tender, which served to push down margins still further.
The group said its annual cost base last year had also risen by £5 million, largely from the rising price of oil.
Robert Wiseman, group executive chairman, said: "In the last year, all of the major retailers put their milk supply contracts out to tender and the convenience and wholesale sectors of the market have seen heightened levels of competition to supply.
"Although our margins have been impacted as a consequence, we are pleased with the outcome of the tenders in volume terms, as we have either grown or retained our business with all our key customers."
Wiseman said profits for the year fell 24 per cent despite a 3.5 per cent rise in turnover from £886.2 million a year ago to £917.5 million.
In a trading update posted in March, Wiseman said it had held discussions with its customers to recover increased milk and oil-related costs, rising the price of a litre of milk by 2 pence to 26.72 pence a litre.
Wiseman said in an earlier trading statement every $10 increase in oil price was costing the group s8million on an annualised basis.
The group was forced to close two of its depots based at Cupar and Okehampton in its efforts to reduce costs with the loss of 140 jobs.
Wiseman said it has now increased capacity at its Bridgewater plant in south-west England by 500 million litres a year, and now has the capacity to supply to every UK postcode, though it is now competing with the Danish firm Arla, which recently opened a billion litre a year dairy near Aylesbury in south-east England.