Robert Wiseman Dairies today said rising costs and delays in implementing price hikes will result in a major hit to profits this year.
With the Glasgow-based group also impacted by the falling value of bulk cream on commodity markets, Wiseman said it expected operating profits in the current financial year to be impacted by up to £8.5 million.
The warning from chairman Alan Wisem
an came as the company announced operating profits of £38.4 million in the year to March 31, an increase of 10.1% on a year earlier.
Wiseman, which supplies Tesco and Sainsbury's, said in March it had started to implement higher prices in order to cover "unprecedented" pressure from rising materials, diesel, wage and utility costs.
However, it warned today that the process had taken longer to conclude than envisaged and that the delay will have a £3 million impact on profits in the first quarter of this financial year.
Costs have continued to rise since negotiations with customers began, resulting in the further impact on operating profits of up to £2 million.
The remainder of the profits impact will come from bulk cream sales, where there has been a "dramatic fall" in returns since late 2007.
Wiseman said: "In normal circumstances, this would be addressed through a downward milk price adjustment - just as higher cream prices meant higher milk prices. However, given current concerns over supply, this has not been possible."
Despite the short-term margin pressures, Wiseman said it remained confident that the business was in good shape. It pointed to the company's new South West dairy at Bridgwater, which is now fully operational.
Mr Wiseman said: "We strongly believe this will provide us with the platform to continue our successful growth in the period ahead."
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