Profits have fallen by almost a quarter at manufacturer Hill & Smith despite a slight increase in sales.

Wolverhampton-based Hill & Smith (HILS) saw underlying pre-tax profits dip to £16.2 million in the six months to June 30, compared to £21.5 million in the first half of last year.

The company has been on the acquisition trail – taking over power generation firm The Paterson Group and Scandanavian business ATA – which has seen its net debts increase to £113.9 million, compared to £70.6 million at the end of 2010.

Chief executive Derek Muir said the strategy to grow through acquisition will pay dividends in the long term, however he said rising raw materials costs had taken their toll.

However, he remained cautious about the outlook for the firm – and would be focusing on the bottom line.

Mr Muir said: “We have made important strategic progress since the start of the year, further enhancing our international capabilities with two acquisitions in the US and Scandinavia, and disposing of the last of our major building and construction businesses.

“The group as a whole traded broadly in line with our expectations in the first half, with reasonable activity levels overall but with operating margins, as expected, being impacted by the highly competitive market conditions and rising material costs, particularly in the infrastructure arena.

“Whilst we enter the second half of the year with a strong order book in our utilities business, greater international diversity and with the benefit of the recent acquisitions, the board remains cautious given the difficult economic conditions and competitive pressures in certain of our markets. Against that background, we are clearly focused on managing the business and its cost base very tightly, taking proactive measures where necessary.”