Soaring energy and raw material costs have taken their toll on packaging specialist DS Smith, which saw profits drop by more than a fifth yesterday.
The London-based group - which last year acquired Birmingham-based Linpac Containers for £170 million - said the difficult trading environment and higher costs led to a "marked deterioration" in the results of a number of its businesses.
DS Smith, which employs 7,500 people in the UK, said profits before tax and exceptional items fell to £ 30.5 million in the six months to October 31 from £37.4 million previously.
Sales were up 2.7 per cent to £821.6 million.
Earnings were, however, well ahead of the £23.8 million expected by analysts.
The company, which is the UK's largest producer of cardboard boxes, had already prepared investors for the profits slump in September when it flagged up the impact of its higher fuel bill.
It has been trying to overcome tough conditions through measures such as raising prices but said that its outlook had not changed.
Chief executive Tony Thorne said: "It's not been a period for the faint hearted.
"Our markets have had low growth, price erosion and high input costs, especially of energy and polymer feedstock."
The business was hit also by lower paper and corrugated packaging prices during the first half. DS Smith recently sold its unprofitable office products manufacturing business and acquired the leading office products wholesaler in Benelux.
These moves were " significant" but failed to offset the effects of price erosion and cost increases, the group said.
DS Smith said it was ramping up a cost reduction programme implemented over the last few years in a bid to improve its performance.
Revenues rose to £ 821 . 6 million from £800.1 million during the period. The interim dividend was left unchanged at 2.6p.
At the bottom line, profits came in at £28.6 million against £37.4 million, as this year's figure included a £1.9 million loss on the sale of the office products arm.
DS Smith had previously warned that energy and fuel costs for the current financial year would rise by around £ 18 million from the £73 million charge incurred last year.
However, after the recent sharp surge in energy prices this increase was now expected to be in the region of £20 million to £23 million.
Mr Thorne said the company expected to offset the additional increase of up to £5 million by a combination of paper price hikes and cost reductions.
The firm added: "The outcome for the year will be dependent upon the degree to which the current high energy prices are sustained through the winter months."
It is proposing an unchanged interim dividend of 2.6 pence per share.
Despite a competition inquiry into the deal for Linpac containers lasting five months, DS Smith said the firm was now completely integrated into its paper and corrugated packaging division.
As well as in Birmingham the company has sites at Rugby, Windsor and Sawston near Cambridge. It also has substantial overseas operations.