Robert Wiseman stung over cautious hedging

Robert Wiseman Dairies has had its fingers burned because of its overly cautious approach to commodity hedging.The dairy processor operates over...

Robert Wiseman Dairies has had its fingers burned because of its overly cautious approach to commodity hedging.

The dairy processor operates over 1,400 commercial vehicles and diesel is a huge cost within its operations. In order to mitigate this risk, for the last half of 2008, the Group bought 60% of its diesel in advance. The manufacturer, therefore, has not felt the benefits of plummeting diesel prices over the period.

Robert Wiseman said in its interim results in November last year: “Fuel costs rose dramatically during the first three months of the period [of 2008], but have been easing in recent weeks. We have hedged a proportion of our diesel costs for the second six months [of 2008] to prevent a recurrence of the sharp rise experienced during the first six month period.”

Pump prices, however, fell from a peak of 133.25 pence per litre of diesel in mid-July, to a low of 119.7 pence per litre in December, according to the AA, a service provider to motorists.

In addition to fluctuations in diesel costs, the shortfall in cream prices could potentially impact profit by up to £7M in the second half-year, as a result of falling global dairy commodity prices. Cream income fell some 18.6% in the quarter to December 2008 compared to the quarter to September 2008 as measured by DairyCo.

But Robert Wiseman said that it had benefited from additional business with the Co-operative Retail Group in South East England since early October 2008. From March 2, it said it would supply an additional 172 of its stores. For the second half-year to date, volume growth was 6.3% compared with 2.6% in the first half-year.

“We remain confident that, with our new Bridgwater dairy now operating to its planned initial capacity and construction of our new depot at Amesbury expected to commence in early April 2009, we are in good shape going forward,” Robert Wiseman said in an interim management statement released last week.