Milk Link saw operating profits rise by around 25 per cent to £31.9m and margins up four per cent in the full year ended 30 April, despite soaring input costs.
The results were largely achieved via strong growth in fresh dairy ingredients and in premium cheese, where Stilton sales were up 15 per cent on average and low fat cheese 30 per cent.
The growth shows how Milk Link has tapped in to added value dairy trends, something dairy firms across Europe have become increasingly conscious of in the wake of commodity price and support cuts in the EU.
Milk Link said a greater focus on added value had also lifted its average turnover per litre of milk to 33 pence per litre (ppl), compared to 32.3 the year before. "Turnover per litre increased as a result of the strength of Milk Link's processing business," the firm said.
Recent developments may, however, cause concern in the producer community.
Milk Link cut the milk price it paid to farmers in July because of falling returns. The firm blamed EU Common Agricultural Policy Reform and a rise in transport costs.
The cut, which totalled 0.65ppl, meant Milk Link paid farmers less than any other dairy firms or co-operatives in the UK in July, according to figures from the Milk Development Council.
Farmgate price cuts have increasingly angered producers.
"It is an age-old problem we seem to have in the UK, that everybody seems to be trying to undercut everybody else," said a source at Britain's National Farmers' Union (NFU). The Milk Development Council said in a report last year that competition for retail supply contracts between dairy processors had helped to pin down farmgate milk prices.
The NFU has said the low prices paid to British milk producers are unsustainable, and could well lead to an industry exodus over the next few years. Britain has the lowest farmgate milk prices in Western Europe, although EU prices generally have fallen over the last year.
If Milk Link's success in added value products continues, that may help it to increase earnings across the dairy sector going forward.
Group chief executive Barry Nicholls said he and other directors recognised the pressures facing producers. "We are absolutely focused on our core objective of increasing the overall return to members and providing a secure market for their milk."