FAMILY owned meat producer JW Galloway has seen its profits slump, in spite of a 2% rise in turnover.

The Bridge of Allan company, which trades under the Scotbeef and Vivers Scotlamb labels, said it had been hit by the difficulties in the UK economy and increases in the cost of raw materials.

Accounts filed at Companies House show turnover grew from almost £214 million to £218.4m in the 52 weeks to February 26 this year. UK sales fell from £168m to £163.5m but that was offset by stronger growth in European markets with turnover there rising from £45.9m to £54.9m.

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An erosion in margins saw pre-tax profits fall almost 86%, from £7.1m to £1m.

In the accounts, chairman Ian Galloway, the third generation of the family to run the business, said: "As a result of the continuing economic pressures in the UK retail market and a consequent inability to pass on significant raw material price increases operating margin fell from 3.4% to 0.5%. The group continues to invest heavily in product development with the aim of increasing its and its customers' market share.

"The export market has offered business development opportunities and the group is looking to exploit these further over the forthcoming year, despite the strengthening euro.

"The directors remain confident that the group is well placed to continue to grow and trade successfully."

Average staff numbers increased from 723 to 774 with 44 positions added in slaughter, processing and manufacturing, plus an extra seven administration roles.

Directors' emoluments fell from £1.3m to £505,000, mainly due to the highest paid director seeing their rewards decline from £816,000 to £203,000.

No dividend was paid, against £1m in the previous financial year, while net debt reduced slightly from £6.4m to £6.3m.

JW Galloway was founded in 1920 and is still owned and managed by the Galloway family.It was originally a retail butchery business and grew to more than 50 shops before focusing on slaughtering and processing cattle and lamb in the 1980s.

The Bridge of Allan site has capacity for 2500 cattle each week and 11,000 lambs.

The 120,000 sq ft facility in Queenslie, Glasgow, manufactures red meat products for UK retailers while the East Kilbride processing site specialises in lamb products. The Vivers Scotlamb operation in Dornock, Dumfries, primarily for export, has capacity for 15,000 lambs a week.

In September this year Scotbeef announced it was collaborating with Scotch Premier Meat and Mathers (Inverurie) on creating a new processing centre at the Thainstone Agricultural Centre in Inverurie.

Scotbeef supplies to retailers, restaurants and hotels. It has previously provided Scotch lamb for the Bocuse d'Ora cooking competition in Lyon, France, which is often described as the Olympics of the culinary world.