Greggs expansion remains on track as chief warns of rising wheat costs

Pre-tax profit rose 12.3 per cent to 18.6 million in the six months to 3 July, while overall revenues grew 2.9 per cent to 321m.

McMeikan said: "We have delivered a resilient first-half performance under challenging conditions with total sales growth of 2.9 per cent and marginally positive like-for-like sales growth, in line with our expectations."

But he added that tough sales conditions - triggered by an increase in "ingredient cost" after severe droughts in Russia triggered a jump in wheat prices - were set to continue into the second six months of the year.

"The pressure on the trading environment looks likely to increase in the second half and we remain focused on managing costs tightly," he said, adding that the impact would be limited because the company had bought part of its wheat requirements for the rest of the year before the Russian export ban. Around 90 per cent of Greggs' wheat is bought from the UK.

The company, which currently operates almost 200 stores north of the Border, has previously said it plans to boost the number of Scottish outlets to around 240 in the next few years. In the UK as a whole, Greggs opened 26 shops in the first half of the year, taking its total estate to 1,437 outlets.

It intends to add between 50 and 60 shops throughout the UK this year, followed by at least 70 a year from 2011 onwards.

The firm also said it expects to double its rate of shop refits to 120 over the year as a whole.

Greggs yesterday unveiled plans to enlarge its newest bakery - built near Glasgow two years ago - to cope with the larger number of Scottish stores. The company expects to create around 500 jobs in Scotland by 2015.

But McMeikan said Scotland had demonstrated a slower economic recovery in the first half of the year.

He added: "There seems to have been a constraint of spending in Scotland which is still ahead of the rest of the country.

"It certainly feels like people have tightened their belts pretty considerably."

Greggs has generally performed well during the downturn after aiming its promotional activity at consumers with less disposable income.

Its affordable products and deals have continued to sell well. In the first half of this year, the company sold more than two million of its 1.80 meal deals while 4.5 million breakfast rolls have been bought since Greggs launched the range in February.

McMeikan said the firm was on the lookout for potential acquisitions north of the Border, after rejecting a buy-out of theLarbert-based Scottish bakery chain Mathiesons this year.

Brokers at Collins Stewart said the increase in wheat prices may eat into margins if the firm does not pass on the full impact to the consumer.

Analysts said: "While Greggs has a low average selling price, a deterioration in high-street footfall is detrimental to the group."

The baker said it would pay an interim dividend of 5p, an increase of 5.8 per cent.