Greggs has sailed out of the Doldrums with a boom in profits for the first half of 2007, restoring its fortunes to the record levels enjoyed in 2005, it said this week.

But the chain, which was hit by a flat sales period in the first 18 weeks of 2006, still faces hurdles in the months ahead, MD Sir Michael Darrington warned.

He said it was encouraging that like-for-like sales had increased by 4.1% in the first five weeks of the second half of this year (2007) despite the effects of "very adverse weather".

But he said: "Comparatives will grow steadily more demanding as the second half progresses. We face significant cost increases in a number of our key ingredients, including flour, dairy products and other fats."

This would be aggravated by the "additional overheads" incurred by creating a more centralised management structure.

"We shall be seeking to recover these higher costs in a climate where consumer confidence has been dampened by rising interest rates," he said.

On top of that, Greggs would be incurring short-term commissioning and double running-costs in Scotland while it brings its new Glasgow bakery on stream.

Nevertheless, Sir Michael said 2007 would be a year of "satisfactory progress" for the company and would lay the basis for medium and long-term growth.