Australia-Dairy profits tumble.

WARRNAMBOOL Cheese and Butter has suffered a 93 per cent drop in net after-tax profit for the first half of the financial year.

Chief executive and managing director Neil Kearney said that last July the company, centred in Victoria’s south-west, had not predicted such a poor result, but it had expected profit to drop later in the year.

"At the end of the period we anticipated that the results would be impacted by trading conditions," he said.

Mr Kearney said that suppliers he had spoken with, including those at a meeting in South Australia on Monday, were not surprised by the result.

"They know you can’t have a commodity price collapse and the company not be affected."

The dairy company announced a $16.7 million underlying profit for the six months to December 31 last year while its final net profit after-tax plummeted to $1.4 million, compared to $20.1 million for the same period in 2007.

In an announcement to the Australian Stock Exchange, WCB said its "first-half performance had been impacted by difficult trading conditions due to the global financial crisis as prices for all major dairy products have declined."

"At the same time, WCB has paid suppliers a relatively high opening milk price."

Unstable dairy export trading conditions as a result of the global financial crisis contributed to WCB’s net debt increase.

For the first half period the company’s net debt increased by $24.2 million to $77.2 million, due to a $47.6 million seasonal build-up in inventory.

Mr Kearney said the debt also funded high inventory levels due to sales slowing in the world market.

However, in its ASX announcement WCB said "WCB does not currently anticipate any further inventory write-downs will be necessary at 30 June 2009."

Sales for the first half of this financial year increased by 2.5 per cent up to $252.7 million, compared to the six months ended December 31, 2007.

WCB suppliers were informed late last month that their base price would be cut by $1.30kg butterfat and $3.25kg protein from this month until the end of the season.

This represents a reduction in base milk price across the season by 12 per cent.

WCB was not the only milk company posting a downturn in earnings last week.

National Foods’ earnings last year decreased 21 per cent from $117 million at the end of 2007 to $92 million. These results were posted on the website of parent Kirin Holdings Company.

Last year, National Foods purchased Dairy Farmers for $910 million.