Arjo Wiggins suffers pulp friction

Investment Column

Profits at nearly all large paper companies have crumpled this year as customers destocked in anticipation of lower prices, which duly arrived, shredding margins in the process. Invariably the main culprit cited is pulp, the basic raw material for paper-makers, where prices have halved to $500 a tonne in just six months.

As one the world's biggest net buyers of pulp, such a development ought to have benefited Arjo Wiggins Appleton, but life is never that simple at the troubled Anglo-French paper group. When pulp prices are rising - as they did throughout last year - Arjo finds it hard to pass on the higher costs fast enough. When they collapse - as they did in the first half of 1996 - demand for its products follows.

Cob Stenham, Arjo's chairman, describes the last 12 months as the worst since the group floated six years ago. European manufacturing, which takes in carbonless, thermal, coated, fine and speciality papers, lost pounds 6.2m in the first half. But yesterday's 76 per cent setback in group profits, flagged in a string of recent profit warnings, cannot be solely blamed on market conditions.

Arjo is horribly exposed to the mature carbonless paper market, which has been clobbered by the rise of the laser printer and the growth in electronic systems, while thermal fax paper, another leading Arjo grade, is threatened by the shift to plain-paper copying. Small wonder that these two activities in Europe, which reported a "substantial" if unquantified loss in the period, are bearing the brunt of a pounds 121m strategic review involving several mill closures and a 7 per cent headcount reduction.

It is too early to tell whether the cost-cutting, instituted by the previous chief executive Alain Soulas, is too little too late. In the meantime, Arjo can thank its lucky stars that Appleton, its US operation, continues to outperform the rest of the group, even if the half-time profit contribution from North America fell to pounds 39.5 from pounds 61.6m. Arjo's new chief executive, Phillippe Beylier, is keen to integrate Appleton further into the group, a long-overdue move given the increasingly global nature of paper markets.

Arjo has also expanded into less cyclical paper merchanting, but it suffered a big strategic blow last year when it was outbid for coated paper producer SD Warren. Profits of about pounds 130m this year would put the shares, down 5p at 181.5p, yesterday, on a forward p/e ratio of almost 20.

Although Arjo says the extended period of destocking is over and order books are better, it admits the economic outlook, especially in Europe, remains unexciting. The same can be said for the shares, unless the French food group Saint Louis puts its 40 per cent stake into play.

Life and Style
Social media users in Mexico who commented on cartel violence have been killed in the past
techTweets not showing up or loading this morning, users say
News
newsMcKamey Manor says 'there is no escape until the tour is completed'
Sport
Torquay United mascot Gilbert the Gull
football
News
i100
PROMOTED VIDEO
Voices
Hunted: A stag lies dead on Jura, where David Cameron holidays and has himself stalked deer
voicesThe Scotland I know is becoming a playground for the rich
News
i100
News
people
Arts and Entertainment
Architect Frank Gehry is regarded by many as the most important architect of the modern era
arts + entsGehry has declared that 98 per cent of modern architecture is "s**t"
Sport
Luis Suarez and Lionel Messi during Barcelona training in August
footballPete Jenson co-ghost wrote Suarez’s autobiography and reveals how desperate he's been to return
Money
Welcome to tinsel town: retailers such as Selfridges will be Santa's little helpers this Christmas, working hard to persuade shoppers to stock up on gifts
news
Arts and Entertainment
Soul singer Sam Smith cleared up at the Mobo awards this week
newsSam Smith’s Mobo triumph is just the latest example of a trend
News
Laurence Easeman and Russell Brand
people
News
ebooksAn unforgettable anthology of contemporary reportage
Sport
Fans of Dulwich Hamlet FC at their ground Champion Hill
footballFans are rejecting the £2,000 season tickets, officious stewarding, and airline-stadium sponsorship
News
Shami Chakrabarti
people
Arts and Entertainment
Benedict Cumberbatch has refused to deny his involvement in the upcoming new Star Wars film
filmBenedict Cumberbatch reignites Star Wars 7 rumours
Sport
football
News
news
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Compensation and Benefits Manager - Brentwood - Circa £60,000

£60000 per annum: Ashdown Group: Compensation and Benefits Manager - Compensat...

Data Analyst/Planning and Performance – Surrey – Up to £35k

£30000 - £35000 Per Annum plus excellent benefits: Clearwater People Solutions...

IT Systems Business Analyst - Watford - £28k + bonus + benefits

£24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...

Markit EDM (CADIS) Developer

£50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...

Day In a Page

Wilko Johnson, now the bad news: musician splits with manager after police investigate assault claims

Wilko Johnson, now the bad news

Former Dr Feelgood splits with manager after police investigate assault claims
Mark Udall: The Democrat Senator with a fight on his hands ahead of the US midterm elections

Mark Udall: The Democrat Senator with a fight on his hands

The Senator for Colorado is for gay rights, for abortion rights – and in the Republicans’ sights as they threaten to take control of the Senate next month
New discoveries show more contact between far-flung prehistoric humans than had been thought

New discoveries show more contact between far-flung prehistoric humans than had been thought

Evidence found of contact between Easter Islanders and South America
Cerys Matthews reveals how her uncle taped 150 interviews for a biography of Dylan Thomas

Cerys Matthews on Dylan Thomas

The singer reveals how her uncle taped 150 interviews for a biography of the famous Welsh poet
DIY is not fun and we've finally realised this as a nation

Homebase closures: 'DIY is not fun'

Homebase has announced the closure of one in four of its stores. Nick Harding, who never did know his awl from his elbow, is glad to see the back of DIY
The Battle of the Five Armies: Air New Zealand releases new Hobbit-inspired in-flight video

Air New Zealand's wizard in-flight video

The airline has released a new Hobbit-inspired clip dubbed "The most epic safety video ever made"
Pumpkin spice is the flavour of the month - but can you stomach the sweetness?

Pumpkin spice is the flavour of the month

The combination of cinnamon, clove, nutmeg (and no actual pumpkin), now flavours everything from lattes to cream cheese in the US
11 best sonic skincare brushes

11 best sonic skincare brushes

Forget the flannel - take skincare to the next level by using your favourite cleanser with a sonic facial brush
Paul Scholes column: I'm not worried about Manchester United's defence - Chelsea test can be the making of Phil Jones and Marcos Rojo

Paul Scholes column

I'm not worried about Manchester United's defence - Chelsea test can be the making of Jones and Rojo
Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

While other sports are stalked by corruption, we are an easy target for the critics
Jamie Roberts exclusive interview: 'I'm a man of my word – I'll stay in Paris'

Jamie Roberts: 'I'm a man of my word – I'll stay in Paris'

Wales centre says he’s not coming home but is looking to establish himself at Racing Métro
How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?

A crime that reveals London's dark heart

How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?
Meet 'Porridge' and 'Vampire': Chinese state TV is offering advice for citizens picking a Western moniker

Lost in translation: Western monikers

Chinese state TV is offering advice for citizens picking a Western moniker. Simon Usborne, who met a 'Porridge' and a 'Vampire' while in China, can see the problem
Handy hacks that make life easier: New book reveals how to rid your inbox of spam, protect your passwords and amplify your iPhone

Handy hacks that make life easier

New book reveals how to rid your email inbox of spam, protect your passwords and amplify your iPhone with a loo-roll
KidZania lets children try their hands at being a firefighter, doctor or factory worker for the day

KidZania: It's a small world

The new 'educational entertainment experience' in London's Shepherd's Bush will allow children to try out the jobs that are usually undertaken by adults, including firefighter, doctor or factory worker