The profit warning helped lop 36p off the company's shares, which closed at 224p.
Generally poor trading conditions in the UK book trade, which have affected even big publishers such as HarperCollins and Penguin, were to blame, Tim Hely Hutchinson said. The company also lacks a wide range of bestsellers in the early part of 1996.
He discounted suggestions that the collapse earlier this year of the Net Book Agreement, the price-fixing scheme that had underpinned retail prices in the book trade for almost a century, had led to the profits collapse.
"Profits have been stagnating for everyone," Mr Hely Hutchinson said. "Indeed, it's a good thing the NBA was abandoned, or we might have been even worse off." He added that sales were up 15 per cent in the first four months of 1996, partly on the strength of aggressive marketing.
Last year, the company had pre-tax profits of pounds 5.7m, on revenues of pounds 88.8m.
The end of the NBA has led to a market highly divided between the high- volume chains, including supermarkets such as Asda which stock a limited number of popular books, and the smaller, specialist bookshops. Smaller retailers warned that the collapse of the NBA would lead to financial ruin for the local shop.
Analysts agreed the market for books in the UK was generally soft, but said there was no sign yet of widespread problems among small retailers.
Publishers, however, have seen their margins squeezed, as they fight for market share and face much higher prices for book-quality paper. "All the UK trade are having a real tough time," Lucy Broke, media analyst at James Capel, said. "It's been a very flat market for the last few years."
Hodder Headline has expanded rapidly in recent years, mainly through acquisitions. It now accounts for at least 10 per cent of the UK book market. The company was one of the first to leave the Net Book Agreement, in a high-stakes attempt to build market share. It was also a pioneer of the "firm sale", which replaced the right of retailers to return unsold copies of books for credit.
The shares have spiked and fallen in the past, following warnings about profit levels.
The company yesterday announced the publication later this year of Mr le Carre's new book, the Tinker of Panama, which Mr Hely Hutchinson expected would help the company recover in the second half.