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Big British dairy gets bigger

Robert Wiseman Dairies will supply a quarter of the UK’s organic milk by the end of this month after announcing new contracts which increase its share of organics five-fold.

Robert Wiseman confirmed it had won new organic contracts from Tesco and Horizon Organic Diary. Later this month it will supply 60 per cent of Tesco’s organic milk, the same proportion of all liquid milk it currently supplies to the supermarket giant.

Previously only holding 5% of the organic market, these new deals increase its portion to more than 24%, roughly the same as its portion of the total UK liquid milk market.

Organic milk will represent around 3% of their total revenue, but the market grew by around 40% in the last 12 months. The chief executive, Robert Wiseman, predicted it would become a significant chunk of consumer demand within a decade: “Where will it get to? I think it will level out over a number of years, but I would like to think it will get up to something approaching double figures [of the total liquid milk market].”

For the next year the supply of organic milk will mainly be handled at the company’s dairy unit in Manchester. However, its sixth factory, the £46 million Bridgwater unit to be completed late in 2007 will be designed to be an organic “centre of excellence”.

Situated in an area with high clover growth which improves organic yields, the factory is closer to the majority of customers demanding organic milk in the south of England.

The “transformational” organic deals were announced as the company revealed a pre-tax profit of £17.1m in the six months to 30 September, a 40% increase on the first half of last year.

Turnover increased 3.8% to £291.9m as volumes rose by 3% to more than 700 million litres. The development was particularly strong south of the border, with more than 75% of the company’s milk throughput now coming from England and Wales.

Wiseman said the company would seek to further improve its profitability through more efficiency, and the development of new products and higher cost products such as organics. The company warned that plastics and energy costs “remain a concern”. While plastic costs were expected to fall with the price of oil, the company was locked into high energy costs for the next 12 months.

The East Kilbride-based company delivered interim results ahead of analysts’ forecasts which sent its shares up almost 3% to a new all-time high of 462.25p.

The increases prompted an interim dividend of 3p per share to be paid in February, 25% more than last year. Charles Hall Securities maintained its hold rating, but upgraded its full-year profit estimate from £28m to £32m.

Several other analysts upgraded their estimations and target prices. Analyst Susan Gordon said the group had been commendably nimble, selling surplus land earmarked for possible development in Durham, to focus its energies on the south of England. However, she said, despite high regard for the company, she believed the stock price “reflects its immediate prospects”.

She added: “As an industry the prospects are always uncertain. It’s not high margins, and it’s difficult to see large growth in profitability.”

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