Margins on milk could still return to the 3p per litre (ppl) level of the 1990s, Robert Wiseman Dairies� chief executive claimed yesterday as the company posted stronger than expected second-half results.
Margins on milk could still return to the 3p per litre (ppl) level of the 1990s, Robert Wiseman Dairies' chief executive claimed yesterday as the company posted stronger than expected second-half results.
Sales volumes at the East Kilbride-based company rose 5.2% to 745.6 million litres and turnover increased 12.2% to £327.6m for the six months to September 29, as it continued to expand its presence south of the border.
However, the crucial figure was a rise in margins from 2.36ppl to 2.58ppl on the back of efficiencies, and the company believes it can return to the margins seen a decade ago.
Robert Wiseman said: "We can get back there. Considering we are investing £70m to £80m in a new dairy we have got to get returns."
It last hit those levels in 1999 and dropped below the 2% level two years ago.
"There is a revaluation of agricultural products generally going on. But it doesn't do us any harm," the chief executive said.
The company, which has major processing dairies in Aberdeen, East Kilbride, Glasgow, Manchester and Droitwich Spa, Worcestershire, and will soon open a plant in Bridgwater, Somerset, has swallowed a 37% increase (7ppl) in the amount it has to pay farmers for raw milk since February. But it has passed the entire increase on to customers. This helped it to a pre-tax profit of £18.2m.
Nicola Mallard, of Investec, said the main reason for the better-than-expected first-half profit figure was Wiseman's ability to expand its margin to 2.58p per litre.
"This margin recovery was achieved despite the group absorbing higher packaging costs for much of the period equivalent to 0.2ppl," she said.
One move that helped the group was a 20% reduction in the weight of the caps on the company's plastic bottles, which will save it 130 tonnes of resin a year.
Mallard added: "These numbers reflect little of the significant increase we have seen in raw milk costs which occurred in September and October. These higher raw milk prices have been successfully passed on to all customers and without any detrimental time lag.
"For 2009, we should see margins edge up again. We have previously assumed the opening of Bridgwater will result in a small uplift of 0.1ppl as it reduces milk haulage costs and also seven day working costs at the group's other dairies. We are now forecasting a 2.75ppl margin in 2009."
The company's Bridgwater dairy will start operating by Christmas, reaching its initial capacities by spring next year.
However, the company admitted yesterday that costs for the project had increased from £66m to £75m.
Gearing rose to 31.7%, compared to 11.1% a year ago.
Roughly half of its volumes come from deals with supermarkets. Branded products, including The One, a 1% fat milk which it has positioned between skimmed and semi-skimmed milk, consist of just 8% of revenues but are growing fast and the company is seeking to build these up to 10%.
Wiseman is focused on the supermarket sector with deals with J Sainsbury and Tesco accounting for around half of volumes.
It claims to account for more than half the Scottish milk market, its country-wide reach means that eight in 10 litres of Wiseman milk is now consumed in England and Wales.
Shares in the company closed at 463.75p, up 2p.
