A substantial recovery in profits has been reported by United Dairy Farmers, parent company of Dale Farm. Results for the year ending March 2016 show group operating profit of £9m, up from £3.5m in the previous year. The improved profitability and a reduction in working capital of £10.4m, largely due to the fall in dairy market returns, helped to generate a strong cashflow and this reduced the year-end group debt from £82.5m to £66.6m.

Debt reduction this year and the capping last year of the group’s liabilities to the NILGOSC pension scheme has put the business on a stronger base for the future.

Commenting on the results, United’s chief executive David Dobbin pointed out that the milk price paid to members during the 12-month period had been at the top of the league. He said that this had resulted from the Dale Farm strategy to grow in added-value consumer and nutritional products and expressed confidence that this strategy will continue to deliver competitive prices for milk.

Turnover in Dale Farm consumer product sales increased by 2.8% to £220m, helping to offset a 17.5% fall in ingredient sales turnover to £65.5m and a 31.8% fall in commodity sales to £26.7m. Overall group turnover fell by 12.2% to £370m, reflecting lower market prices for milk and dairy products with Dale Farm turnover decreasing by 5.1% to £304m.

The operating margin of 2.4% on the reduced turnover of £370m exceeds the previous record year to March 2014, when the group operating profit was £7.39m (1.7%) on turnover of £443m.

Profit before tax in that year was £6.1m. Profit before tax in the year to March 2016 was £6.82m. That compares with £1.28m in the year ending March 2015 when the profit dipped and was further reduced by an exceptional £1.9m charge that took United out of any future exposure to the NILGOSC pension scheme that had previously dogged the co-operative.

Dobbin said that the volume growth at Dale Farm had mainly been in consumer cheese and butter products and whey protein products. He said that Dale Farm’s operations in Britain, which are solely in consumer products, all made a positive contribution to profits.

There is growth especially in cottage cheese and some of the desserts. United Feeds also performed satisfactorily. All of this helped to offset losses on milk powder business.

Dale Farm processed around 6% more milk than in the previous year and is handling around 85% of United members’ milk. Most of the balance is sold to Glanbia Cheese, which incidentally has reported operating profits of £8.1m in 2015 compared with £9.9m in 2014, generating an operating margin of 4.3%. Sales turnover was down 22.9% at £186.3m, all of which was driven by the reduction in dairy prices.

The falling level of debt should be good news for co-op members and for David Dobbin’s successor at the United Dairy Farmers/Dale Farm Group, Nick Whelan, who is due to take up his position on 1 August with Dobbin officially retiring at the end of that month.

Asked about milk price prospects, Dobbin said that with the tightening supplies across the UK and the weakened exchange rate of sterling, he would expect price improvements by early autumn as dairy businesses move beyond sales for which currency had been fixed for three or more months ahead. However, he suspects that sterling may recover much of the recent slippage as there are signs of stability returning in government following initial fears about Brexit.

Dobbin said that Dale Farm is well placed whatever might be the outcome of Brexit negotiations, with the majority of its output now in consumer products being sold into the UK market with Red Tractor status and a strong pipeline of new innovative products, such as its protein milk and WPC 80 nutritional products.

Also on a positive note, the growth in European milk production is slowing. However, with substantial milk powder stocks in public and private storage, it is too early to call a market recovery.