Profits are up at Milk Link, but the dairy co-op is still relying heavily on members’ contributions to boost its financial performance, according to its latest results.

Although turnover at the milk processor and broker dropped almost 12% to £575m during the year ending 1 April, 2006, underlying earnings were up £6.3m to £32m and pre-tax profits rose £1.3m to £7.6m, a jump of 20%.

But these profits included £13.6m generated by the 1p/litre levy that the co-op’s 2000 or so members pay on the milk they supply. Taking this away would leave a loss on trading activities of £6m.

Finance director Nairn Glen defended the decision to include the contribution in profitability and said the business had turned in a strong performance over the year.

“We had a long debate about this, but felt it was the right way show it.

Our business activities include our relationship with our members.”

Mr Glen said turnover had fallen because the volume of milk supplied to the co-op had fallen as membership had declined.

Scaling back high-volume but low-margin raw milk-broking activities in favour of added-value processing had also contributed, he added.

This was reflected by a boost in the co-op’s turnover per litre, which increased slightly from 32.3p/litre to 33p/litre, said Mr Glen.

This reinforced Milk Link’s decision to get involved in processing, he claimed.

“In 2001 when the business was purely a milk broker this figure was only 20p/litre.”

Pre-tax profits at the Milk Link’s subsidiary Cheese Company rose by £9.1m to £5.6m despite a 5% fall in turnover after the loss of the Asda Smartprice contract to Dairy Crest.

But sales of premium cheese rose, with Stilton up 15% and extra mature Cheddar growing by 50%.

Convenience cheese retail sales improved by 46%.

During the year, third party debt had been cut by £27.6m and a refinancing deal with Lloyds TSB had enabled members’ capital contributions to be halved to 0.5p/litre from 1 April this year, said chief executive Barry Nicholls.

This showed Milk Link was making good progress on its journey to becoming a fully vertically integrated dairy processor, he said.