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Bloomsbury Publishing has reported a drop in first-half profits, with higher tax and investment costs in the run up to the release of the final Harry Potter novel weighing on the company's performance.

In a statement today the company revealed that its pre-tax profits in the six months to June 30th slumped by 8.5 per cent to £3.86 million, down from £4.22 million for the corresponding period of 2006.

However the publishing firm stressed that its profits before investment increased by 7.6 per cent, to £3.25 million over the period.

Revenue for the first six months of the year also increased by 36.5 per cent to £51.4 million, up from £37.7 million on the previous year, with Bloomsbury attributing the rise to a number of bestselling titles and the release of Harry Potter and the Deathly Hallows into the export markets.

But Bloomsbury's first-half results do not cover the high level of sales of the seventh and final novel in JK Rowling's magical series, which was not released until July.

Nonetheless they do include promotion costs related to the publication of the book, with marketing and distribution costs 27.5 per cent higher at £8.68 million over the first half -primarily as a result of the release of the Potter novel into the export markets.

Bloomsbury's gross margin was also down at 42.4 per cent, dropping from 49.7 per cent for the first half of 2006. The fall was partially attributed to a combination of royalty costs on the book and a high level of returns experienced in the UK, US and Germany for other titles.

Looking ahead, the company said that it had strong publishing lists for the second half and into 2008 and was well positioned for further growth.

Bloomsbury chairman Nigel Newton said that the publishing firm had also completed four major reference rights deals, which would provide important revenue streams in the future.

Commenting on the company's first-half performance he said: "This is a good set of results which puts us back on track following last year's profit warning."