Macphie, the Scottish foods ingredient group, saw its operating profit fall by almost a third because of an increase in raw material and distribution costs - despite an increase in turnover.

The company has revealed that its operating profit for the year to March 2011 was £1.4m, down from £2m the year, which was short of the board’s expectations.

The company was heavily impacted by soaring costs - including sugar up by 40% in a year and butter prices doubling since 2007 - explained the company. However, despite these massive increases Macphie saw its turnover improve by 6.9% from £41.8m in 2010 to £44.7m for the year to March 2011.

Alastair Macphie, chief executive of the group, said: “Despite difficult market conditions, we are seeing an encouraging sales trend, we have a resilient balance sheet and very low borrowings.

“Our sales growth is being undermined by the continued downward pressure on margins. We are caught between the pincers of raw material price increases being imposed on us by suppliers and the time delay or resistance in passing these onto the retailers and foodservice customers. Therein lies the challenge.”

He added that the results had also been compounded by investing in an upgrade to Macphie’s UHT plant, plus an additional cost to replenish its supply chain.

Macphie added: “The eating out of home market continues to grow, which marries with our strategic direction. We do not anticipate 2012 to be in anyway easy, but as demonstrated over the last few years, we will continue to strengthen our market position through new product innovation and improving our communication to customers.”

During the year Macphie made its first foray into direct retailing with the launch of its DeviliShh brand of desserts. The company has secured national listings with 223 Waitrose stores and won a string of industry awards including the Marketing Society, The Grocer, Grampian Food Forum and two Great Taste Gold awards.