Lees Foods, owners of Lees of Scotland and The Waverley Bakery, reported sales up 6% £10.2M in the first six months of this year.
But pre-tax profits were £505,000 compared with £564,000 in the first half of last year.
Clive Miquel, chief executive said: "We are very pleased with the results for the first half of this year especially the increase in sales to our key customers.
''Lees of Scotland has shown good growth over the period, across most product categories. The Waverley Bakery achieved new listings which would have resulted in this business being well ahead of last year, had it not been for very poor weather in May and June which adversely affected ice cream cone and wafer sales.”
Miquel blamed the fall in pre-tax profit on rising raw material costs. "The biggest challenge in the short and medium term for Lees and other manufacturers of confectionery and sweet products is the rising price of sugar, caused by the ongoing shortage of supply in Europe.
“As previously reported, there has been a natural time lag in the process to mitigate the impact of these increases. However, the steps we took to address this issue earlier in the year have been successful,” he said.
The firm’s cash reserves have doubled in the past year while it continues to maintain an investment programme in plant and equipment in order to improve efficiencies, he added.
"Looking ahead to the full year performance, despite the raw material cost increases experienced in the first six months and the potential for further cost increases, we expect pre-tax profits to be well ahead of current market forecasts.”
Miquel said the management team at Lees will continue to focus on new product development and move into new product categories, in order to maintain the growth.
Darren Shirley, analyst with Shore Capital Stockbrokers described the results as "resilient", in a period characterised by "constrained consumer activity, strongly rising raw material costs and inclement summer weather."
“The delivery was ahead of expectations, and with strong sales momentum forecast through H2 and the cost recovery achieved, we upgrade our FY2011 CPTP [current pre-tax profit] forecast by about 14% to £1.03M,” said Shirley.
Meanwhile, earlier this year the firm warned that pre-tax profits for the first six months were likely to be lower than last year due to high commodity prices.
Miquel told FoodManufacture.co.uk in May: "We’re operating in a very challenging environment and there is little we can do to combat commodity and packaging price rises and other world influences.”