The record spike in butter prices last year squeezed profit margins at Dairy Crest, the UK dairy processor based in the southeast of England.

Announcing preliminary results for its financial year to the end of March 2018, Dairy Crest said operating profits for the year increased just over 5% to £71.4m (€81m), despite profit margins tightening from 16.4% in 2016 to 15.7% last year.

Profits from the group’s cheese and ingredients business increased 17% to £50m (€57m), as profit margins increased from 16.8% to 18.1%. In contrast, Dairy Crest said profits from its butter, spreads and oils business fell 15% last year to just under £22m (€25m) with profit margins falling from 17% in 2016 to 12.5% last year as butter input costs soared.

Overall, the group reported a 10% increase in sales to just under £457m (€518m), reflecting the improvement in dairy product prices in 2017. Dairy Crest owns the Cathedral City brand, which is the largest cheddar brand in the UK, accounting for 55% of all branded cheddar sales. Cathedral City saw 3% growth in volume, while the value of sales increased 6% last year.

Country Life, which is Dairy Crest’s key butter brand, saw sales volumes plunge 20% last year. Dairy Crest attributed this decline to its decision not to promote the brand.

The group said the average retail price of butter was 20% higher on the shelf last year, which pushed more consumers to purchase cheaper butter spreads.