ROBERT Wiseman Dairies today reported record first-half milk volumes as new supply contracts with supermarket giants Sainsbury's and Tesco "more then offset" the loss of a deal with Asda.
However, pre-tax profits at the Scottish milk supplier fell by nearly 22 per cent as higher costs took their toll.
Chairman Alan Wiseman raised concerns over rising plastic, energy and oil related costs "at a time when margins are under pressure"
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He said: "The outlook for the year as a whole will be influenced by oil, energy and plastic costs during the second half and the extent to which we can make recovery of these increased costs.
"Our target is to rebuild margins in the period ahead, but higher costs clearly make this more difficult.
"The business is in good shape and we remain confident about our long-term prospects," he added.
Profit before tax for the six months to October 1 came in at £12.1 million, roughly in line with City hopes, compared to £15.5m in last year's first half.
Wiseman recorded a 13.2 per cent rise in volumes of liquid milk to a record 687 million litres.
At the same time, group turnover increased by 14.7 per cent to £281.3m and the board proposed an interim dividend of 2.4 pence, up from 2.2p last time.
In a shake-up of the milk sector over the past year, major grocery chains have rationalised their supply chain in an effort to cut costs. As a result, many dairy farmers have complained bitterly about the amount they receive for their produce.
With its main supermarket customers locked in a fierce battle for market share, Wiseman has been struggling to maintain profit margins in the face of energy-related cost increases.
However, the group confirmed today it saw no "significant changes" in major supermarket contracts in the short term.
Wiseman's two big rivals, Dairy Crest and Arla, have already warned on profits this year.
Last month, it emerged that Scottish rival Graham's Dairies had grown its turnover 17.5 per cent after buying Scottish Milk Dairies - just days after Wiseman had its takeover of the operation blocked by the Competition Commission.
