Dairy Crest warns of cost pressures

The group, which also makes Clover spread and Country Life butter, said rising commodity costs and a poor spring for British milk production would put pressure on prices over the coming months.

Dairy Crest reported underlying pre-tax profits of 83.5m for the year to March 31, up from the 79.5m seen a year earlier thanks to cost cutting and higher sales of its key brands.

The group said it hoped further action to save cash and make efficiencies would help offset input commodity price hikes as it stressed it was well placed to "deal with the challenge".

However, there have been fears raised recently that a disappointing year for British milk yields and soaring global demand for milk powder and butter could lead to higher cheese prices.

It is thought shoppers may face a rise of up to 10 per cent in the cost of cheddar cheese.

Mark Allen, chief executive of Dairy Crest, said it was too early to talk of prices going up on the retail shelf.

He added: "That's a matter for the retailers. But if milk prices started to move up, we would look to recover those."

Today's results from Dairy Crest, which has 1,350 dairy farmer suppliers, revealed the benefits of a major marketing push in driving sales of its five top-selling brands - including Cathedral City, Country Life, Clover and Frijj milkshakes.

The group said sales of the leading brands rose 13 per cent by volume and 9% by value over the year, with plans for another year of intensive promotional activity.

But profits in the cheese and spreads divisions were hit - down 50.7 per cent and 9.2 per cent respectively - partly as a result of the increased advertising and marketing spend.

The company's promotional campaign has included the "Great British Butter" adverts featuring former Sex Pistol John Lydon, which recently helped to make Country Life the UK's fastest growing butter brand.