Robert Wiseman Dairies yesterday said record production levels helped to lift annual profits rise by six per cent.
The group, which employs around 400 people at its dairy in Droitwich, posted annual pretax profits of £26.7 million for the year to April 1 - up from £25.2 million previously.
As well as the benefiting from enhanced contracts with supermarkets Sainsbury's and Tesco, the company said year-on-year efficiency improvements of ten per cent had enabled it to overcome the impact of high oil costs.
Group finance director William Keane said production line efficiency in the group was now between 62 and 68 per cent.
"We'd eventually like to take this up to above 70 per cent." he said.
Mr Keane also singled out the Droitwich dairy for praise.
"We've spent over £55 million in the last five years on the Droitwich site and we believe it is one of the largest liquid milk dairies in the world," he said.
He also announced that Droitwich will be solely responsible for the production of Puriti - the group's new own-brand milk with an extended shelf life, due to be launched this summer.
"We continue to explore opportunities for new products in conjunction with our customers and are excited about future plans," chief executive Alan Wiseman said in a statement.
The company also announced that it had received planning permission for a new dairy in Bridgwater, Somerset.
The new dairy will open in autumn 2007 and take pressure off the company's other English dairies with an initial capacity of 200 million litres a year.
Wiseman's five existing dairies were responsible for selling 1.38 billion litres of liquid milk in the last financial year.
The figure was an increase of 14.2 per cent and came despite the loss of contracts with Morrisons and Asda in October.
Margins recovered during the second half of the financial year after it increased selling prices in January.
Total sales grew by 16.2 per cent to £568.6 million, against £489.2 million in 2004.
Broker Cazenove described the figures as a strong set of full-year results and noted that margins were slightly ahead of expectations due to the impact of milk selling price increases since January 2006.
However, the broker said it was leaving its earnings fore-casts unchanged due to the increased competitive pressures in the milk processing sector and while it gauges the impact of the current supermarket milk price wars.
It predicts a pretax profit of £26.5 million this year.