Inveresk is considering further rationalisation, which could include closing one of its mills, after issuing its second profits warning this year.


Its annual pre-tax losses are expected to total 7m in the year to 2 December. Shares fell 32% to 9.5p after the announcement.


Finance director Gerard Cassells said: "This means we will lose about 800,000 more than we predicted six months ago."


Cassells added that before the Budget he had talked with Chancellor Gordon Brown, who was aware of the difficulties
facing the industry.


Managing director Stefan Kay said price increases for pulp in dollars, the weakening of the pound against the dollar and the falling euro were "making life hell on wheels" for the firm.


"What we are witnessing is a very serious illness in the fine paper industry. The next actions start to be drastic," said Kay, who would not rule out closing a mill if the situation got
any worse.


Kay indicated that Inveresk was operating two price increases behind in the fine paper market, and was unable to pass on increases to customers.


Inveresk's core markets are in Germany, France, Benelux and Scandinavia and operate in euros or sterling. A price increase imposed by Inveresk in Germany was wiped out two weeks later by the decline in value of the euro.


"We are stuck between a rock and a hard place, and it's difficult to see what we can do next. All we need is a 10% change in the value of the euro and we are right back in the game," said Kay.


Story by Andy Scott