Robert Wiseman, one of the UK's largest dairy processors, said higher selling prices and added value milk helped it to rebuild operating profit margins in 2006.
Wiseman said operating profits rose by around 30 per cent for the full year ended 31 March. Turnover rose 6.5 per cent to £568m, increasing slightly faster than volumes.
The results offer encouragement to a UK dairy industry facing ongoing cost pressures. Alan Wiseman, group chairman, said his firm was "gradually rebuilding" operating margins despite the difficult cost environment.
A late selling price rise during the fourth quarter helped Wiseman to offset higher plastic, energy and fuel costs during the year, the group said.
Added value milk also boosted the firm. A £2m advert campaign for its 'The One' milk, so-called because it contains one per cent fat, sparked a 12 per cent like-for-like sales rise. Wiseman's extended shelf life milk, initially launched in the Tesco supermarket, increased sales by 30 per cent.
The firm concentrated efforts on organic milk during the second half of the year, following a leap in consumer demand.
It currently supplies 60 per cent of Tesco's organic milk and a supply deal with rival retailer Sainsbury's will begin this autumn. Wiseman also packs milk for the Rachel's organic brand.
Organic milk offers opportunities for higher margins due to its current higher selling price. Wiseman aims to make its new dairy at Bridgewater, Somerset, an organic milk hub when it opens later this year.
Bridgewater's eventual capacity will be 500m litres, including both organic and conventionally produced milk, suggesting Wiseman also anticipates more consolidation and expansion of supplies over the next few years.
The firm has already picked up extra contracts this year with the One Stop convenience store chain, and an upcoming extension to its deal with the Co-op retailer.
However, ongoing cost pressures added a note of caution to Wiseman's results statement. It said prices for HDPE resin, used in plastic packaging, had hit record highs in recent weeks.
"Whilst we are delighted with the improvement shown in the current year, we have yet to return to the levels of profitability which we enjoyed in previous years," said William Keane, group finance director.
On farmgate milk prices, an issue squarely in the public spotlight since the start of the year, Wiseman re-iterated its support for schemes to pay producers more. It was finalising a deal with Tesco to pay some farmers 22 pence per litre for their milk via direct contracts, it said.
"We anticipate that the strong commodity prices seen in recent months will
help underpin milk prices for the remainder of this year," said chief executive Robert Wiseman.