The Glenrothes-based group – which owns paper coating factories in Cheshire and South Korea as well as Scotland – reported a pre-tax loss of 949,000 in the year to 31 March, 2010 compared with a profit of 1.6 million the previous year.
Increases in the prices of pulp, chemicals and gas and electricity all conspired to hit the group's performance.
Currency hedging contracts the company has in place also meant it did not fully benefit from favourable exchange rates.
Despite difficult market conditions the company saw sales edge up by 3m to 156m. At the year's end the company had 18.9m in cash balances – up by 8.5m during the year – and 4m in borrowings.
The 752 staff at the company who are shareholders received a share in a 900,000 profit-related bonus pot, up from 600,000 the previous year. Dividends totalling 298,000 were also paid to shareholders, slightly down on the 306,000 in 2009.
Group chief executive Chris Parr described the trading environment as exceptionally challenging but said the firm's "relentless focus on cash management has enabled us to build an extremely robust balance sheet".
He said: "The first half of the year was characterised by reduced sales volumes though encouragingly these recovered strongly during the second half. We also took positive actions to deal with the most rapid and severe increase in pulp raw material costs our industry has witnessed in more than a generation."
Parr said the firm had made "excellent progress" on its long-term aims including expansion in Asia where sales increased by more than 20 per cent during the year.
Progress was also made to reduce energy costs through the development of a new biomass plant at its Markinch facility which will be built, owned and operated by RWE Npower when it comes into service in 2012.
Parr added he was "cautiously optimistic" that the group's trading position will improve significantly.
Parr, the highest-paid director, received 229,000, up from 214,000 the previous year.
As well as making paper, the group also coats paper for stamps – including those used by the Royal Mail and several European postal authorities – and for security papers, such as travel visas and the tax stamps placed over the top of spirit bottles.