Milk buyer and processor Dairy Crest has posted a 19% increase in profitability on lower revenues for its latest six months trading, the first full period since the company divested its liquid milk division to Muller.

The business made a pre-tax profit of £15.6 million on revenues of £190m in the six months ended September 30th 2016, compared to £13.1m and £203m in the previous first half. These figures have been adjusted to reflect continuing operations. Net debt at the end of the period was £262.3m (£242.3m).

“After two years of very pronounced deflation, most dairy markets, both in the UK and worldwide, have seen a return to inflation in recent months as milk supply has fallen,” it notes. “We have announced farmgate milk price increases of 4.3 pence per litre (20%) since the summer.” With the sale of the dairies business, the company says its strategy is now to produce high quality branded cheeses, dairy spreads and oils, as well as added-value functional ingredients.  It has opened an Innovation Centre at Harper Adams University to demonstrate the focus on innovation in Dairy Crest’s brands and ingredients.

The business has invested in a functional ingredients facility at its Davidstow creamery in Cornwall.  The company has been manufacturing demineralised whey and galacto-oligosaccharides (“GOS”) since May this year, with both products aimed at the infant formula milk market through a marketing deal with Fonterra. It is taking some time to achieve the demineralised whey quality standards required for the premium formula market, but the company is confident that 80% of output will meet specification by the end of the year.

Dairy Crest is also intending to develop GOS as an animal feed ingredient, and is trialling its use in poultry diets at a commercial scale with a £2m R&D programme this year. Trials show the product enhances gut bacteria leading to better growth rates and resistance to bacterial infections such as campylobacter. The company has registered Nutrabiotic as the brand name for its GOS in animal feed and, with interest from potential commercial partners, expects to agree a product development partnership in the near future.

 “We are pleased to have delivered a strong set of interim results in our first full trading period since the sale of Dairies,” notes Dairy Crest chief executive Mark Allen. “Our four key brands are continuing to perform well in a challenging marketplace, with strong volume growth for Clover, Country Life and Frylight and a successful launch of new branding and packaging for Cathedral City.

“We are also seeing the benefits of Dairy Crest’s transformation into a leaner and more focused organisation, with strong profit growth and significantly improved cash generation during the first half. Our expectations for the full year remain unchanged.”