Arjo's problem is that it has been faced with a slump in demand as customers used up stocks while they waited for the soaring price of paper to fall. The first half was decent enough but demand then deteriorated as de-stocking continued.
Yesterday's full-year figures bore the battle scars. Pre-exceptional profits fell by just 10 per cent to pounds 207m. But half of that was wiped out by charges of pounds 120m relating to last November's restructuring of the European operations.
The difficulties have continued in the early months of this year. Sales volumes are still weak and prices are coming under increased pressure. Though the worst of the de-stocking appears to be over in Europe, the slowing of some economies such as France, Germany and North America is likely to delay an upturn.
On the bright side, the pulp price is finally beginning to fall which will help Arjo's margins. Pulp prices reached more than $1000 per tonne last autumn and the price has been falling steadily to $600. It is not clear how much further it has to fall but at the bottom of the last cycle pulp prices went as low as $400.
The good news for Arjo is that though it has been ravaged by the cycle it looks reasonably well placed for an upturn. It has a good geographic spread and has been expanding into the "added value" coated-paper market via the acquisition of the Newton Falls mill in the US last year. This will balance the group's interest in the mature but still cash generative carbonless paper market.
With analysts forecasting profits of around pounds 185m this year the shares are on a forward rating of 14. They have, however, already enjoyed a significant bounce since the end of last year when they fell to 160p. Up 8p to 210p yesterday they are high enough.