Graham's Dairies profits plummet

(Please see UPDATES at end)

I've just come across this report in the Herald about the recent dramatic fall in pre-tax profits at Graham's Dairies, down 42.5 per cent, whereas turnover rose a significant 20 per cent.

This is usually a sign of over-trading, gaining turnover at the expense of margins. Graham's supplies dairy products to supermarket chains Asda, Sainsbury, Waitrose and Tesco and recently won new business from Morrisons; all have been conducting a 'price war' to gain/retain market share in the current difficult economic climate (and of course it was announced only a couple of weeks ago that Tesco has had very poor trading conditions over Christmas, resulting in a significant fall in share value for the company with renewed profit warnings for the upcoming Easter trading period).

Graham's describes itself as the 'largest independent dairy' group in Scotland. I last wrote about the Bridge of Allan-based company in September 2010 when it was announced it was acquiring Claymore Dairies, at that time the largest employer in Nairn.

All this is unfortunately a graphic illustration of the general malaise that the country, the EU and the wider world is experiencing just now and quite probably for some time to come - as I have written here before "hold on to your hats, folks", expect things to get worse before there is even the glimmer of a prospect of them getting better (for those who remain standing).

UPDATE (Friday 27JAN2012 13.50 GMT) I had not realised that Graham's Dairies was not the only dairy company in the news. The Glasgow-based Robert Wiseman Dairies agreed a couple of weeks ago to be acquired by the German Muller in a cash deal valued at GBP 279.5 million; the company announced 16JAN2012 that more than half the shareholders have agreed; although they have not yet officially voted, it is regarded as a 'done deal'. The company produces about 30 per cent of the fresh milk consumed in the UK. For an insight into how a 'savvy' investor analysed prospects at Wiseman to his advantage click here. Like Graham's, Wiseman recently reported a major drop in profits and the further concentration in production is already worrying some farmers as Muller have apparently in recent weeks cut the price they pay for milk by 0.5p to 29.8p a litre, presumably a way of increasing their own margins (by use of their significant buying power) at the expense of producers who are faced with unavoidably increasing input costs.

2nd UPDATE (Friday 11MAY2012 10.30 CET) Graham's Dairies downgrades Nairn plant to distribution unit - I've written about this latest development here.

3rd UPDATE (Monday 26NOV2013 20.25 GMT) I posted an article entitled "Graham's to 'continue development of value added products at its Nairn facility' " on 31OCT2013 - to read this article click here.