Margins drop at Wiseman after competition hits prices

The Glasgow-based group reported a 3.5 per cent drop in pre-tax profits to 20.2m for the six months to October 2 as higher sales were offset by moves to slash prices to compete with rivals, as well as increased costs. But Wiseman, which warned over full-year profits in September, said it would step up its fight in the milk price wars, pledging to hold sales firm in the face of competition.

The supermarket supplier, which processes and delivers more than 30 per cent of the fresh milk consumed in Britain every day, said margins had been hit by "considerable pressure" in the half-year.

It said: "A number of our major contracts have been renegotiated and intense competition in the middle ground sector has reduced selling prices.

"While sales volumes have been maintained, margins across all sectors have been eroded.

"This intense competition has not abated, but we remain committed to maintaining our existing volumes."

Rival Dairy Crest also confirmed difficult conditions in the milk sector last week when it posted a 24 per cent drop in profits across its dairies arm and said it was concentrating on major retail contracts to combat a declining and competitive middle-ground milk market, which covers sales to smaller retailers, independents, coffee shops and foodservice companies.

In September, Dairy Crest was one of two processors with whom Bradford-based supermarket chain Morrisons renewed its fresh milk contract until February 2015. The other one was Arla.

Wiseman said in September that current milk woes were expected to see operating profits impacted by around 7m in the second half of its financial year to the start of April and a further hit of 16m in the 2011/12 financial year if there was no improvement in margins or volume gains.

Sales volumes in the half-year rose eight per cent.

It is focusing on cutting costs but is also ploughing on with expansion plans to drive sales higher.

Managing director of Billy Keane said the group was well placed to weather the current difficulties, with the "best dairy and distribution network in the industry".

It recently increased the capacity of its Bridgwater dairy to 500m litres a year.