BAKERY chain Greggs announced record profits yesterday but warned it would have to raise prices this year.

The Tyneside group, which has more than 1,250 outlets in the UK, predicted costs of its savouries, cakes and sandwiches would rise by up to three per cent. It attributed the rise to the end of a long-term energy supply deal and increased staff wages.

Managing director Sir Michael Darrington said: "I think everybody in the sector is going to have the same sort of pressures.

"We are talking no more than three per cent price increases, which is a penny on a pasty or five pence on a sandwich.

"The challenge to us as managers is to absorb these increases, while accelerating our shop refurbishment and opening programmes and continuing to enhance our products, service and marketing."

The company's target is to reach sales of £1bn at 1,700 shops by 2010. The group will invest more than £40m in its store network this year, including opening 45 branches. It is also building a £13m savouries plant in North Tyneside.

Sir Michael said: "I remain confident that there is significant further potential for the group, with scope for at least 2,000 shops under our existing brands in the UK and additional opportunities on the Continent."

Greggs, which has four stores in Belgium, is planning to expand away from the UK high street, into locations such as industrial estates. It has an outlet on Doxford International Business Park, in Sunderland.

Sir Michael said: "We are looking at non-standard locations - being innovative and finding different ways to get products to the customer."

Greggs reported record profits for the 13th consecutive year, rising by 15.3 per cent to £46.7m.

This was partly attributed to cooler weather in late spring and summer, which led consumers to eat more sandwiches and pastries than a year ago. Like-for-like sales since the start of January were up 5.2 per cent, broadly in line with the 5.1 per cent growth rate seen throughout last year.

It enjoyed a better-than-expected performance in the final three months of last year, compared with a general trend of weak Christmas sales reported by the retail sector.

The net addition of 32 outlets helped drive a 10.3 per cent increase in sales to £504m. The Greggs brand was also re-launched in April.