‘Tough’ conditions hit Wiseman profits

By Dan Colombini

- Last updated on GMT

Related tags Operating profit Milk

Pressure from within the big three UK dairy groups have hit profits at Wiseman
Pressure from within the big three UK dairy groups have hit profits at Wiseman
Rising input costs and pressure from competitors within the big three UK dairy groups have hit Robert Wiseman’s profits for the half year period ending October 1, according to city analysts.

Wiseman announced a fall in operating profit of 40.6% to £12.5M, compared with £21M last year.

This figure was propped up by a £1M reduction in a fine payable to the Office of Fair Trading for the price fixing of dairy products and a £200,000 gain from property profits.

After adjusting for these non-recurring items, underlying operating profit was £11.3M, 46.5% lower than the previous prior year period, the firm revealed.

Tough conditions

Darren Shirley, an analyst at Shore Capital, said: “Conditions in the UK dairy segment have been tough for some time, clearly reflected in the underlying operating loss reported last week by Dairy Crest's Dairies division. And so, unsurprisingly, the tough conditions are also manifested in low operating profit per litre from Wiseman which we estimate at 1.2p per litre. Only 15 months ago Wiseman was harbouring more than an ambition to achieve 3p per litre.

"The reason we focus on operating profit per litre is because the liquid milk segment of the UK food market has been subject to considerable margin compression​."

The source of this pressure is a mix of rising input costs and gross margin pressure from Arla Foods and Dairy Crest. This pressure was not helped by the use of milk by UK deep discounters, Shirley added.

Profit before tax at the firm was 41.6% lower, at £11.8M, compared with £20.2M in 2010. Net debt increased to £28.2M, compared with £21.5M at the same period last year and £4.9M in April 2011. This increase is largely attributable to the movement in working capital balances.

Despite the fall in pre-tax and operating profit, Wiseman posted a “modest​” increase in turnover of 1.1% to £457.7M for the period, as opposed to £452.8M the previous year.

This increase was a result of higher cream prices and the recovery of the increased milk costs in 2011, which was largely offset by the price pressure across all markets in the previous year, the firm said.

Liquid milk

Robert Wiseman, executive chairman of the firm, said: “We continue to build on our reputation as Britain's fresh milk professionals. Our network of dairies and depots allows the best quality fresh liquid milk products to be produced and delivered in the most efficient and sustainable manner possible. As well as closely managing our costs, we have invested in projects to assist the future growth of the business and the re-building of margins.​"

Meanwhile, Robert Wiseman is set to begin selling a new “purer​” type of milk next summer which, the firm said, would be beneficial for people in the UK with dairy intolerance.

Wiseman has teamed up with New Zealand firm A2 Corporation for the launch of A2 milk that is produced from specially selected cows, whose milk only contains A2 beta-casein protein.

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