Aldi's pre-tax profit fell by more than a quarter last year, despite a 17% rise in turnover to £1.32bn.

Increased staff costs, a £10.7m loss through exchange rates and a £335m capital investment over the year to 31 December 2006 were the main reasons for the 28% drop in pre-tax profts from £67.2m to £48.4m, said UK MD Paul Foley.

Accounts filed at Companies House this week also showed operating profit margin dropped from 3.89% to 1.88% and operating profit fell by almost half, from £43.9m to £24.9m.

"The group has invested heavily in expansion, with a significant increase in fixed assets and leased stores," said Foley. "The result is an increase in land and building operating lease rentals of £8.3m and an increase in depreciation of £3.1m."

However, Aldi's overall financial position had improved as retained profit for 2006 was £1,023m, compared with £986m in 2005, he said. "I am confident the investment will lead to improvements in future."