High raw material costs impacting margins
The Coatbridge-based confectioner - maker of Snowball and Macaroon bars - said the high price of raw materials was continuing to have an impact on margins.
Profits fell despite a six per cent rise in sales to s10.2 million for the first half to to June 30.
However higher production costs meant pre-tax profits dropped to s422,000 compared to s562,000 a year ago.
Net cash has more than doubled in the same period and now stands at s1.1 million.
The company said the rising cost of sugar would be one of the groups "biggest challenges" going forward.
Lees Foods, comprising Lees of Scotland and Waverley bakery, which makes wafers and cones, reported good growth across most of its products in the first half.
However Waverley Bakery sales were affected by poor ice-cream sales over the cold and wet summer months.
Chief executive, Clive Miquel, said:"Pre-tax profit is down on the same period last year, predominantly as a result of raw material costs.
"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 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.
"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.
"The management team at Lees will continue to focus on new product development and our stated objective of moving into new product categories, in order to maintain the growth we have achieved over recent years."
Analysts at Shore Capital forecast Lees will bring in pre-tax profits of s1.03 million for the year to December 2011.