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29 August 2004
Scotland on Sunday

ROBERT Wiseman is being tipped to pick up yet more lucrative milk contracts from both Somerfield and Morrison as its strike-back in the supermarket supply chain gathers pace.

In a stark reversal of fortune, Wiseman won substantial chunks of new business from both Tesco and Sainsbury last week, pinching volume from both bitter rival Arla and its other main competitor Dairy Crest.

By winning the two deals Wiseman will now be supplying 100 million litres of milk a year more than it was when its GBP 70m a year contract with Asda was transferred to Arla in May.

Although analysts are concerned that the East Kilbride-based dairy empire could be savaging its margins to claw back the new business, it is being strongly tipped to benefit further from the two major deals still being renegotiated.

Ingid Boon at house broker Investec said: 'We think it could be some time before we hear about the Morrison deal but we are positive about Wiseman's prospects. It is difficult to say anything with certainty about how things will end up because so much is changing in the industry, but we are hopeful Wiseman will pick up more business.'

She added: 'There's no doubt that since the Asda/Arla deal was done in May, prices have become more competitive. But we are confident that margins will be restored in the longer term.'

Ian McInally at Bell Lawrie White said: 'Wiseman is in a very strong position to pick up further contract wins from Somerfield or Morrisons. They've already made up the business lost from Asda. Although it may have come at a discounted price, this will be definitely be profitable over the longer term.'

He added: 'There is a reorganisation going on in the industry. Once that's settled down we don't expect much to change. But Wiseman should do very well from it.'

Despite the contract wins, Investec's Boon does not expect Wiseman's full year profits to beat her previous expectations of around GBP 26m. Rising oil prices have pushed distribution costs higher and had a knock-on effect on plastic prices which are expected to combine to reduce profits by several million pounds. But the new contract wins are an important strategic development for the group.

The combined Safeway/Morrison group sells 485 million litres of milk a year, which is currently split more or less equally between Wiseman, Dairy Crest and Arla.

Somerfield's biggest supplier is Arla, which has a contract to supply 155 million litres a year, with Wiseman supplying the additional 90 million.

Neither Safeway/Morrison nor Somerfield is expected to follow Asda's lead and switch all its contract to one dedicated supplier. But the enlarged Morrison group is expected to adopt the Tesco model and cut back to just two suppliers - one of which is likely to be Wiseman.

Somerfield, like other supermarket groups, is believed to be unhappy about Arla's deal with Asda due to fears that its supplies will now be lower priority.


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