STIRLINGSHIRE-based dairy company Graham's suffered a 42.5% plunge in pre-tax profits in its last financial year in spite of a near-20% leap in turnover to £49.6 million.

Family-owned Graham's, which describes itself as "Scotland's largest independent dairy company", highlighted "ongoing competitive pricing in the dairy category" as it revealed its pre-tax profits had dropped to £604,025 in the year to March 31, 2011 from £1.05m in the prior 12 months.

Earnings in the year to March 2011 were below the pre-tax profits of £820,959 achieved by Graham's The Family Dairy in the year to March 31, 2009.

Major supermarket groups have slashed milk prices as part of their battle with rivals to draw in hard-pressed consumers, who are facing a severe squeeze on disposable incomes and many of whom are worried about employment amid fears of renewed recession and swingeing UK public spending cuts.

Graham's, a 72-year-old, third-generation family business which supplies Asda, Sainsbury, Waitrose and Tesco and won business with Wm Morrison recently, declined to comment when asked by The Herald about supermarket milk price wars.

However, pointing to competitive conditions across the retail spectrum, from major retailers to convenience stores, a spokesman for Graham's said: "It is just a much more competitive market-place across the board, as far as Graham's is concerned."

Such competitive pressures have also been highlighted in recent times by East Kilbride-based Robert Wiseman Dairies, which is listed on the stock market.

Bridge of Allan-based Graham's, which employs more than 400 people, highlighted surging costs. It cited rising fuel costs, and the company spokesman also flagged record prices for the cream which Graham's has to buy in to make spreadable butter.

Robert Graham, managing director of Graham's and grandson of the company's founder, said: "Despite challenging trading conditions, including the rising cost of fat and fuel, the past 12 months has seen the Graham's brand continue to record strong sales growth."

He cited new business with convenience store chain David Sands, the Co-op and deep-discount retailer Aldi. He also flagged new contracts, including one to supply the National Health Service in Scotland.

Mr Graham also highlighted the acquisition of, and investment in, Nairn-based dairy Claymore and the recent purchase of two Glasgow-based milk operations.

Graham's agreed to buy Claymore in autumn 2010.

Mr Graham cautioned that market conditions were likely to remain "challenging" in 2012 but expressed confidence that his dairy company would continue to develop its presence in the market-place.

He said: "Graham's has not been immune from cost pressures, including ongoing competitive pricing in the dairy category. However, sales growth suggests discerning customers continue to seek out the reassurance of buying high-quality, great-tasting dairy products – precisely what is offered by our 72-year-old family dairy."

Highlighting a £1.2m investment in a new butter plant at Bridge of Allan, and describing the launch of Graham's spreadable butter as "a first on the UK market by a Scottish dairy", Mr Graham said: "In the face of wider economic uncertainty, over the past 12 months we have also remained firmly committed to product innovation and investment."

Mr Graham noted Graham's had "absorbed the product development costs for the launch of Graham's spreadable butter".

He added: "As a family business, our passion for producing the highest quality of products continues to play a key role in our success. It is anticipated that market conditions over the next year will continue to be challenging, though Graham's The Family Dairy is confident we are well placed to further consolidate and develop our presence in the sector."