Macaroon maker Lees produces a tasty turnover despite rising costs

RISING commodity prices are eating into Lees Foods' profits as higher coconut, cocoa and sugar costs continue to put the iconic macaroon maker under pressure.

But chief executive Clive Miquel yesterday said that record sales at the Coatbridge-based company's Lees of Scotland subsidiary - which makes meringues, snowballs and teacakes - had helped the group to post a 6 per cent rise in first-half turnover to 10.2 million.

Analysts at house broker Shore Capital said there had been "a particularly strong contribution from meringues", consistent with Lees' push in recent years into new markets including the Middle East and supply deals with up-market grocery chains Waitrose and Booths.

In a short pre-close update ahead of September's interim results, Miquel warned that profits would be lower than at the half-way stage last year due to the rising input costs.

Yet the Aim-quoted firm, which also owns wafer maker Waverley Bakery, said it was "confident" of hitting analysts' expectations for the full-year after taking steps to mitigate the higher commodities prices.

Darren Shirley, an analyst at Shore Capital, said that Lees was mitigating the cost pressures "through a combination of price increases and costs saving initiatives".

He said that lower first-half profits had been "baked" into his forecasts and he held his full-year earnings prediction at 900,000, compared with 1m last year. Shore Capital expects profits to rise again to just over 1m in 2012.

Shirley added: "In a UK food retail market we recently described as 'unprecedented' - where we believe six of the seven months in the year have experienced negative volumes - the fact we are confident in retaining full-year forecasts is a credit to the Lees' management team."

But Shirley warned that, after a "positive start to the year", sales at Waverley Bakery were "broadly flat" following "inclement UK weather through much of May and June".

Waverley Bakery was founded in Edinburgh in 1903 and taken over by Lees in 2003, after which production shifted to a new factory in Glasgow's east end.

Lees, which employs about 200 staff, traces its roots back to 1931. It was bought by Raymond Miquel, the father of its current chief executive, in 1993 and joined the Alternative Investment Market in June 2005.