Robert Wiseman Dairies slashes profit forecasts

A spokesman told FoodManufacture.co.uk that Wiseman had chosen to sacrifice margins in order to secure volumes.

"We are seeing intense competition across all of the markets in which we operate and we had a choice. We give up volume or we retain volume at a cost. We chose the latter as we believe we are in a strong position in the marketplace and we have low debts and a robust balance sheet."​

Meanwhile, fuel costs had risen 16% in the first half compared with the same period the previous year and plastic costs were up 24%, although this was partly offset by higher bulk cream prices.

While milk sales had grown 8.5% in the 23 weeks to September 11 and Wiseman was confident volumes for the year to April 2011 would be in line with expectations, profits would be squeezed, he said.

“As a result of recent intense competitive pressures across all sectors of the market, operating profits will be impacted by around £7m in the second half of the year to April 2, 2011 and, assuming no improvement in margins or volume gains, by approximately £16m in the year to March 31, 2012.”​

However, the firm rejected the suggestion by analysts that the profit reduction would reduce margins to “a level at which the group would question the benefits of further sizeable investment projects”.​

Aggressive promotional activity​

Investec Securities analysts speculated that Tesco had played a major role in today's annoucement, adding: “Wiseman previously reported successful conclusions to negotiations with Sainsbury’s and the Co-op Group and these have been factored into our forecasts.​

“Hence, we can only conclude that the main issue has arisen post a review conducted by Tesco. On Monday, Tesco matched Asda's promotion on milk, which reduced the price of a 4 pint poly from £1.53 to £1.25. This is the equivalent to a 12ppl reduction in the shelf price.”​

The profit warning was “very disappointing for shareholders and management alike and for the next six months there are no obvious catalysts which could change this”​, they added.

However, Wiseman could pick up new business from Asda and Morrison as contracts came up for renewal, it predicted (Wiseman does not currently supply either retailer).