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Fresh food supplier Bakkavor has cautioned over a hit of about £65 million from rising commodity and wage costs as it prepares to be taken over by rival Greencore in a £1.2 billion deal.

The London-headquartered group said the cost inflation impact would be higher than the £50 million pencilled in for the full year, driven by price hikes for “certain key commodities”, such as dairy products, and a rising wage bill.

It said it was facing about £15 million a year in extra costs from Labour’s move to hike national insurance contributions, as well as April’s increase in the minimum wage.

But it said it was making efforts to recover the impact with customers, while also keeping a lid on costs.

The group raised its full-year guidance, despite reporting that earnings fell by nearly a third in the first half, down 32% to £37.5 million in the six months to June 28.

Earnings were weighed down by £24 million of extra costs – including £11 million in transaction expenses related to its takeover by Greencore.

Interim pre-tax profits fell to £24.6 million from £41.8 million a year earlier, but lifted to £48.6 million from £43 million on an underlying basis and with the extra costs stripped out.

Supermarket sandwich maker Greencore agreed a deal in May to buy rival Bakkavor in a move that will create a food-to-go giant with about 30,500 staff and annual sales of about £4 billion.

Structured as a reverse takeover, Greencore will pay £2 a share for Bakkavor.

Shareholders of both companies gave their backing to the acquisition in early July.

But the Competition and Markets Authority (CMA) launched its probe into the tie-up earlier this week amid possible competition concerns, with a deadline of October 27 for its initial decision.

Bakkavor chief executive Mike Edwards said the group was in “great shape”.

The firm said full-year underlying operating profits would now be towards the upper end of previous guidance for between £120 million to £126 million as it carries “strong momentum” from the first half.

Mr Edwards said: “The first half of 2025 has seen another strong performance by the group as we continued to move at pace delivering on our strategy and driving further margin improvement.

“The business is in great shape, with momentum expected to continue in the second half and we now expect to deliver towards the upper end of our previously guided 2025-25 profit range.”

Greencore is a prepared food specialist, which supplies all major UK supermarkets, as well as the likes of Marks & Spencer.

It has its headquarters in Dublin, with a UK head office in Worksop, Nottinghamshire, and 16 factories across the UK, as well as 17 distribution centres.

The group supplies nearly 750 million food-to-go items each year and employs about 13,300 staff.

Bakkavor employs about 17,200 staff across 40 sites in the UK, US and China, with about 20 factories in the UK.

It makes about 3,100 different freshly prepared food products, including meals, salads, desserts, dips, sauces, sandwiches, and pizza and bread products.

Greencore shareholders will own about 56% of the combined group and Bakkavor the remaining 44% stake.

The takeover is expected to complete in early 2026 if approved by regulators and shareholders.

Bakkavor had rejected two previous approaches from Greencore.