SMITH Anderson, a survivor of Scotland's Victorian manufacturing boom years, which makes grab bags used by fast-food chains increased turnover by 5% in the latest financial year but saw profits fall 40% amid tough trading conditions.

The latest accounts filed by Smith Anderson Group at Companies House show it achieved turnover of £21.3 million in the year to September compared with £20.3m in the preceding year.

Pre-tax profits fell to £558,000 from £977,000 in the preceding period.

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The accounts cover a period during which manufacturing businesses faced challenges as the UK emerged from a long economic downturn. Companies had to grapple with high energy costs as well as pressure on demand.

The results suggest family-owned Smith Anderson faced cuts in margins during the year. The gross profits it achieved before overheads fell by 25% annually, to £2.4m, from £3.2m, in spite of the growth in sales.

A major customer in Norway ceased trading in December.

In January Smith Anderson announced plans to make up to 10 jobs redundant in response.

Chief executive Michael Longstaffe said at the time Smith Anderson had enjoyed a successful year but had been hit by the cruel blow of a bad debt totally outwith its control.

Smith Anderson recorded £160,000 costs associated with developments at the customer during the year to September.

It employs around 200 people currently.

Writing in the accounts, directors said they believed Smith Anderson could maintain its trading performance "despite the anticipated difficult economic conditions" after taking steps to increase efficiency.

These included relocating production from Falkland to a new site in Kirkcaldy.

Founded in 1859, Smith Anderson closed its sister paper-making operations at Leslie in Fife in 2006 with the loss of 150 jobs in the face of high energy prices and pension costs.

Smith Anderson has supplied bags to McDonald's for more than 30 years.

In 2012 it won a three-year supply contract from the fast food chain worth £35m.