PA Group has said "substantial investment" in multimedia almost halved the company's profits last year.
The news provider is expected to warn shareholders at its annual general meeting today that wider uncertainty in the newspaper industry and a tightening of sports rights continue to present a challenge for the business.
The group's annual report reveals PA's total group revenue increased by six per cent in 2007, up from £90m to £95.4m. Around two thirds of this money – £60.9m – was made in the UK.
But overall PA Group operating profits in 2007 fell by 46 per cent from £2.6m to £1.4m. Once tax and one-off items are taken into account, PA Group posted a loss last year of £737,000.
"We have built another layer of content – video – to the traditional wire service of text, photos and graphics," the PA Group chief executive Paul Potts said.
"This has meant developing considerable multimedia production as well as video gathering capabilities. Inevitably the scale of this commitment is reflected in the lower operating profits."
PA Group announced a strategic review in March, which could lead to the sale of its sports news arm, PA Sport. The company said this week that the process was still ongoing.
Potts said the group was exercising "caution", faced with the growing cost of acquiring sports data rights.
"Sports governing bodies now show greater awareness of the value of these rights and are increasingly expecting minimum revenue guarantees from their data partners. We expect this trend to accelerate," he said.
"The strengthening of restrictions by governing bodies has the potential to impact on our ability to sell images in certain market areas but we are confident we can work through these issues."
Potts also warned that the "well-documented issues" facing the newspaper industry would continue to have an impact on the PA Group performance.
"There is still much to be done but the signs are encouraging that we are on track to become an information business for the 21st century," he added.
According to its annual report, the star performer in the PA Group was its weather forecasting business, MeteoGroup, where turnover increased by 21 per cent to £2.8m and profits grew by 39 per cent.
Overall digital revenues grew by 25 per cent in 2007, and Press Association Training also reported a revenue boost, bringing in more than £1m last year.
The PA Group chairman, Sir Harry Roche, has confirmed he is to stand down at the annual general meeting after 20 years at the company.
Potts' role will turned into that of executive chairman, and Charles Gregson, the PR Newswire chief executive, will be promoted to the role of senior non-executive director at PA Group.