The figures, for the year end to 27 March 2004 were affected by currency fluctuations, the impact of SARS and rising raw material costs.

Group pre-tax profits slumped 58% to 785,000 on turnover up 3% to 55.6m.

Group finance director John Denman said progress had been made with the change of sales agent in the US, and the company was hopeful that it would grow its existing North American sales of 4.8m by around 2m over the next year.

The business in China was affected by SARS, but Denman said sales into south-east Asia were expected to improve.

At least four Paper Mill retail shops opened in the year, which led to an increase in the paper division's turnover in the second half. Two further shops have opened since April, with more planned during the year.

New business had also been won on the luxury packaging front in Europe, in what Denman described as "a difficult market".

Due to the spread of its activities across paper, converting and technical fibre, Denman said the business was better placed than some of its competitors to withstand current market pressures.

Operating profits for its converting division were 394,000, a fall of 28% on the previous year.

The paper division's operating profit fell by 62% to 415,000. Sales were 40.1m, a 1% increase.

Story by Andy Scott