Shares fell 4.5p on the news to 169p as full-profit forecasts by analysts were downgraded.

The company issued a pre-close trading update ahead of publication of its half year results to 31 October 2003, due to be announced on 10 December.

Group chief executive Tony Thorne said the paper operations were being impacted by the current downswing in the paper cycle, with margins continuing to be squeezed by falling paper prices.

In addition the fluctuating cost of recovered paper and lower demand for Packaging Recovery Notes (PRNs), which had followed the Governments decision not to increase the recycling targets for 2003 had also taken their toll.

Despite this, Thorne said good production volumes had been achieved, with its sales mix including a higher number of exports.

In light of the performance of other segments of the business, he said results for the full year were expected to be broadly in line with the companys expectations.

Although prices were weakening in corrugated, Thorne said the companys operations continue to make good progress due to improvements in operating efficiencies and improved product segment targeting.

Intense production competition from imported product had also impacted on its John Dickinson business profits, but Thorne said the division continued to benefit from its cost reduction programme initiated in 2002.