Milk price war prompts Robert Wiseman profit alert

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The Independent Online

Robert Wiseman Dairies issued a profits warning yesterday, blaming "intense competitive pressures" for the £7m earnings shortfall the company is expecting in the second half of the year.

The supermarket milk supplier's admission sent its shares plummeting by 35 per cent at the worst point of the morning, although the stock recovered slightly in afternoon trading to close down by 29 per cent at 342p.

Although Robert Wiseman's overall sales in the first half of the financial year grew by 8.5 per cent, and volumes for the full year to April are expected to be in line with expectations, the squeeze on margins is expected to bring operating profits in around £7m lower than expected in the second half. Assuming no improvement in either margins or volumes, profits would drop by £16m in the full year to March 2012, the company said.

"The reduction in anticipated profit is very disappointing," the company said yesterday. "But we believe we are best placed within the dairy industry to manage the impact of a highly competitive trading environment."

Robert Wiseman – which supplies about a third of Britain's daily fresh milk demand – said the competitive pressure was across all sectors of the market. But analysts questioned the impact of the most recent price wars between Tesco and Asda.

The profits warning comes just months after the dairy group reported record full-year pre-tax profits in May, up 60 per cent to £49m, boosted by rising cream prices and a £2m reduction in a price-fixing fine imposed by the Office of Fair Trading.

Along with the margin squeeze, Robert Wiseman has also seen its financial performance hit by this year's higher oil prices, which have kept plastic prices high even as fuel costs have eased slightly. The company is looking at efficiency improvements and cost-cutting across its operations.

Infrastructure expansion is proceeding as planned at the Bridgwater dairy, one of seven across the country. The final phase of the Bridgwater scheme will boost capacity to 500 million litres a year from November.

Rival supplier Dairy Crest was forced to issue a statement acknowledging the fierce competition in the milk market yesterday after its shares tumbled 14.5 per cent on Robert Wiseman's warning. "However, our broad customer and product base and clear improvements in our cost base, quality and service make us confident that we can deliver profits this year in line with our expectations and provide a sound base going forward," Dairy Crest said. Its shares closed down 3.9 per cent at 361.3p.