The papermaker spent massively on restructuring the company, which caused the financial breach. It is in talks with the Royal Bank of Scotland on a new deal.

It closed the Kilbagie Mill in February and its Westfield label mill in May. It plans to relocate the excellent paper machine from Westfield to one of its other plants. It also underwent a costly restructure at Caldwells Mill.

An operating profit of 338,000 on continuing operations would have been higher but for a 1.1m loss in Graphic Papers, which experienced serious production problems when its three paper machines proved unable to cope with demand.

Group sales in the on-going businesses were down 13% at 37.8m in the six months to 1 June.

Executive chairman Ken Minton said: Inveresk has emerged stronger and leaner after restructuring, with three sound speciality paper businesses. He added that the drop in sales was mainly down to the falling paper prices.

But the group expected to improve performance in the second half of the year. Expansion would be funded through surplus capacity and more competitive costing, reckoned Minton.

Story by Jez Abbott