Wiseman aims to milk profits further south

ROBERT Wiseman Dairies, Scotland’s largest milk supplier, will focus business growth on an assault in the English and Welsh markets by a huge investment in its distribution infrastructure and plans for further depots in England to be unveiled when its results are announced on Friday.

Profitability at the East Kilbride based firm has fallen over the past three reporting periods despite a major expansion into the English market. However, analysts believe the interim results due on Friday will show profitability has increased to around £10.5m and the firm is on track to deliver sales volumes of over 1bn litres for the full year.

The firm’s most recent results, for the half-year to March, showed that pretax profits had fallen by 15.5% to £7.57m from £8.96m, in the previous six months, which was itself a drop from the previous six months’ profit of just over £9m.

Wiseman is also set to sign another multiple retail deal over the next few weeks, with progress made in the middle markets. Scotland on Sunday in April revealed a £14m deal with Sainsbury’s to supply stores in the north of England and the Midlands.

The contract win, after a three month supply trial, represents around 10% of Sainsbury’s total fresh milk requirements and completes Wiseman’s access to the major supermarket groups. It is thought the firm is also keen to make more acquisitions if there is a fit with Wiseman’s core business. There are also plans to launch the ‘Footballing Cow’ TV ads in the English and Welsh markets for the first time before and after Christmas, to build awareness of the famous black and white brand.

Wiseman still has only an 11% share of the English and Welsh markets, but its growth is being bolstered by the decline of the doorstep market and the subsequent conversion to purchasing from multiple retailers and independent shops - Wiseman’s core market. Recent results from rival competitors noted a 17% decrease in the doorstep market.

Milk industry analysts argue the reason for the profit fall over the last year was indicative of trends throughout the industry. Competitive conditions in selling liquid milk to retailers led to companies choosing to hold on to volume at the expense of margins, which reduced margins across the industry.

Wiseman is now benefiting as these are being restored. Insiders believe the industry is being more sensible and cream prices have risen.

Chairman Alan Wiseman and finance director Billy Keane have blamed the previous falls on the £700,000 legal costs from the Office of Fair Trading investigation into competition in the Highlands milk market. The closure of the OFT inquiry last month coincided with the official opening of a new £7m distribution depot in Bristol to cope with the increased processing capacity at Wiseman’s Midlands dairy. The firm saw sales in England surpass those in Scotland for the first time last year.

However, the OFT problem refuses to go away as the bitter dispute between Leicester-based Express Dairies, the UK’s largest milk processor, and Robert Wiseman over anti-competitive behaviour continues.

Express Dairies is still looking at its legal options after the OFT closed the 22-month inquiry into allegations of price-fixing without taking any action. The investigation was part of an ongoing review into the Scottish milk market that was ordered in December, 2000, by the then Trade and Industry Secretary Stephen Byers.

The offices of four Scottish dairy companies were raided in May, 2001, including Wiseman’s in Bellshill, Robert Graham at Bridge of Allan, the Hamilton premises of First Milk, formerly Scottish Milk, and Ballantynes in Ayr, as part of the probe.

The OFT said last month it had been unable to gather sufficient evidence into the allegations of price-fixing and market sharing for the supply of fresh processed milk to retailers in Scotland.

The statement to the Stock Exchange added: "The OFT has received several approaches from within the industry alleging the existence of cartel agreements, but a thorough and extensive investigation has not provided sufficient evidence to the requisite standard to prove the allegations."

However, the admission that the "OFT takes the view therefore that although there are grounds for suspecting an infringement of the Chapter 1 of the Competition Act 199, further investigation is unlikely to lead to an infringement decision and does not warrant the commitment of further resources. The investigation may be re-opened if substantial further evidence comes to light," has left a sour taste with the four firms involved.

Neil Davidson, the Express chief executive, said the decision was wholly irrational and sent out the wrong message.

Wiseman has said it is "astonished" that Express was prepared to commit more time and money into pursuing the allegations but the fight looks set to continue.

The firm also said it "is disappointing that the investigation ever took place and lasted for such a long period, but we never allowed it to distract us from running the business."

However, the OFT episode is now firmly behind the Wiseman management team who say their aims are to continue making progress south of the Border. It will take time for them to utilise their full capacity of 500m litres from their English depot but the firm is already on target for 350m litres. It expects to reach capacity at its Droitwich site within the next three years and through increased infrastructure in England and Wales, analysts suggest the firm will benefit by being more cost efficient and profitable. The analysts say its 11% share of the English and Welsh market could easily be doubled.