Despite the warning, Arjo's shares closed just 3p lower at 171p, as the market shrugged off what is only the latest in a series of disappointments from the Anglo-French company. The shares, 40 per cent of which are owned by French industrial holding company Saint Louis, stand well below the level at which they came to the market at the beginning of 1990.
Sales for the first six months actually edged higher from pounds 1.78bn to pounds 1.86bn, but analysts focused on a decline in second-quarter turnover from pounds 909.9m to pounds 894.9m as customers kept stock levels in check in anticipation of even lower prices. Forecasts for the full year tumbled from a consensus of about pounds 150m to around pounds 120m.
Profit forecasts had already been slashed from about pounds 200m in April as the extent of the downward swing in the paper cycle became evident. The reduction follows five years of gyrating profits from the company.
Having made profits of pounds 232m in 1991, profits slumped in 1992 and 1993, bouncing in 1994 to pounds 217m and then collapsing again last year to just pounds 72m. The share price, which has underperformed the market by almost a third over the past two years, has been almost as volatile as Arjo's earnings.
In the summer of 1995, pulp was trading at almost $1,000 (pounds 650) a tonne but by the spring figures had fallen as low as $400. The cycle is exacerbated in the upswing by customers expanding stocks ahead of feared price rises and in the downswing by inventories being run down to take advantage of subsequently lower prices.
"We stated at our agm that the results for the first half would be poor and that the outlook for the rest of the year was uncertain," the company said. "In view of the results for the first half, which will be announced in early September, our current expectations for the year as a whole have been reduced."
Although raw material pulp prices have fallen back sharply this year, the company warned it would have to work through its higher priced stock before benefiting from the decline.
Arjo's biggest problem is thought to be its carbon and coated paper operations in Europe, which are operating so badly that the company is more reliant on Appleton, its US operation.
Market report, page 18Reuse content