The scale of the investment in Ireland on Sunday by the Daily Mail was a significant factor behind a 22 per cent drop in operating profits at the British-owned newspaper group.

Associated Newspapers, which publishes the Daily Mail, said its operating profit fell to £35.8 million (49.9 million) in the year to March. This reflected the investment in Ireland on Sunday, plus additional investment in the Evening Standard and promotions for the Mail on Sunday.

However, the company said the circulation of Ireland on Sunday had increased to 166,000 from 43,000 during 2002.

It said the increase was "backed by a strong series of promotions including a reduced cover price". The paper has now returned to its original cover price.

The company said its other Irish title, Buy & Sell, continued to make good progress.

The Irish operation behind Ireland on Sunday, Associated Newspapers (Ireland), recently reported a pre-tax loss of Eur 14 million for the year to September 2002.

The Irish company said the losses were caused by start-up costs after the paper was acquired from Scottish Radio Holdings.

Results for Associated Newspaper's parent, Daily Mail General Trust, were released yesterday. For the half-year ended March 30th, they showed pre-tax profits rising by 19 per cent to £77.4 million.

The company's chief financial officer Mr Peter Williams was downbeat about the immediate prospects for the sector.

"Looking at the basic economics we don't see why it should pick up - the underlying economy is not improving, so why should advertising?"

The company said it did not expect advertising revenues at its national newspapers to return in this financial year to where they were before the war in Iraq.

"There has been a temporary downward blip and that's really affected things," said Mr Williams.