Robert Wiseman Dairies has been able to juggle suppliers, pricing and higher input costs in the first half of this year, while increasing margins, according to a trading statement released today.
The UK-based company's experience in a tumultuous market is typical of the extreme cost and supply pressures dairy companies are facing worldwide.
"Despite competition remaining intense, margins in the first half year have
continued their slow recovery and we anticipate they will be broadly in line
with the second half of last financial year," group finance director Billy Keane said in a trading update.
The company's sales volumes and turnover for the six months to 29 September
2007 are to date in line with a previous forecast, he reported.
However the cost of plastic remains a concern for the company. The Platts Resin index has recently increased to about £900 per tonne, which is a new record high.
"We have been successful in recovering this increased cost in our selling prices over the last few months, but we continue to monitor Platts for any further increases," Keane reported at an analysts meeting.
During the first half of this year dairy companies have had "unprecedented" rises in commodity prices exerting an upward pressure on milk prices across the world, he reported.
"We responded to these pressures by ensuring all our milk suppliers received significant milk price increases," he stated.
During the year to date, the company raised its milk price to 25.7 pence per litre from 18.7 pence per litre in February.
The 37.4 per cent price rise paid to producers was successfully recovered from the vast majority of the company's customers, he reported.
The company also implemented Tesco's strategy of a dedicated segregated milk supply group that is being paid a premium price. Tesco moved their dedicated milk price on 9 September to 27.5ppl.
Members of the Wiseman's Sainsbury Dairy Development Group will receive 27.2ppl from 1 October, resulting in the majority of Wiseman producers receiving in excess of 27ppl for their milk.
The rises were put in place due to record spot market prices, resulting in some of the company's contracted producers resigning from their contracts and selling their milk to another buyer.
The result of the rises was that a number of producers rescinded their resignations from the group and the company does not anticipate any problems in replacing the lost volume of milk. The company reported signing a "significant number" of new producers to its supply base.
The company also reported that construction of a new South West dairy at Bridgwater is still on schedule. Limited production is scheduled to begin prior to Christmas, with full initial capacity of 250 million litres coming on stream by spring 2008.
Wiseman is one of a number of dairy processors and supermarkets accused this month of price fixing by the UK's Office of Fair Trading (OFT).
Major supermarkets and dairy processors allegedly cheated consumers out of £270m (€389m) by colluding to increase prices for dairy products, the OFT claimed last week.
Wiseman said its management and lawyers are currently examining the OFT's case that the company was party to an alleged infringement of Chapter 1 of the 1988 Competition Act relating to liquid milk.
The company was first approached for information relating to the investigation in June 2004.
"Given the time that has elapsed and amount of material involved, it will take some time to respond to the alleged infringement," the company stated.
In a provisional decision, the competition regulator alleged supermarkets Asda, Morrisons, Safeway, Sainsbury, and Tesco, as well as dairy processors Arla, Dairy Crest, Lactalis McLellan, the Cheese Company and Wiseman, collaborated to fix the retail price of milk, butter and cheese.