The independent Scottish paper manufacturer closed the year with net positive funds of £11.5m.

However, it said weak demand, further raw material cost increases and rising energy costs resulting from the Japanese disaster and unrest in the Middle East would continue to impact the company in the short term.

Group chief executive Chris Parr said the business remains cautiously optimistic, despite the continuing difficult economic environment.

He said: "As expected, market conditions were exceptionally challenging over the past year, but despite this we have returned to profit and maintained an impressively strong balance sheet.

"At the same time we have further developed our long-term strategic aims including the expansion of our global footprint within Asia, building our Trucard brand and, together with our partner RWE npower renewables, progressed the construction of our new Biomass CHP Plant."

Parr added that Tullis Russell had increased its sales volumes despite very difficult global markets, and had taken positive actions to deal with "the most relentless rise in pulp raw material costs that our industry has witnessed in more than a generation".

Parr said: "We remain confident that our strategic focus, strengthened pricing disciplines and established group-wide efficiency improvement programme will prove an effective response to these pressures."

In November last year, RWE npower renewables officially took over the site of Tullis Russell's £200m biomass plant.

Construction of the combined heat and power plant is now well underway, and once finished it will provide the Fife-based mill with steam and electricity.

Tullis Russell was unavailable to comment at this time.