David S Smith gains as paper prices rise: British producer's figures better than forecast

SOARING waste paper prices across Europe have put an end to subsidised competition from German producers of recycled paper, which has cost David S Smith about pounds 10m annually for the past three years.

Peter Williams, chief executive, claimed yesterday that the German DSD, which organises the collection and sale of waste paper with the backing of German taxpayers, had orchestrated a rise in waste paper prices to stem mounting losses on the operation.

Mr Williams was speaking as David S Smith reported a 56 per cent rise in pre-tax profits to pounds 42.2m - much better than expected. The dividend is 7.5 per cent up at 10.75p, with a final of 8p.

Although due entirely to the first-time inclusion of Spicers, the office stationery product group that Smith acquired last summer, the results also gained from a faster- than-expected rise in paper prices in the first half of this year.

'We are at a pivotal point in the paper-making industry, and markets are changing rapidly. I think the paper industry has entered a cyclical upswing that could last several years,' Mr Williams said.

Smith shares jumped by 22p to 550p, as analysts upgraded forecasts for the next two years. Tim Rothwell, at Barclays de Zoete Wedd Research - who had already sharply increased his projections for the company in May - is forecasting pounds 70m pre-tax in the current year rising to pounds 95m in 1995/6.

Mr Williams has long campaigned against the subsidies of the German waste recycling system, which he said in effect provided rival producers of recyclable paper with 'negative' prices for their key raw material.

As a result, imports from the Continent had jumped by 60 per cent last year to take 15 per cent of the UK market, compared with a traditional share of 5 per cent. But after their recent sharp rise, Continental waste prices were now higher than the pounds 40 to pounds 50 a tonne paid in the UK.

'The rise in prices across Europe has removed the distortions in waste paper markets and levelled the playing field. It will make a huge difference to our own St Regis company, the UK's largest maker of recycled paper.'

He said that longer-term solutions to the European waste problem would be needed. He expected the European Commission to take action to prevent a repetition of the distortions caused by the German recycling system.

Spicers, acquired a year ago for pounds 91m, contributed operating profits of pounds 15.8m for nine months. Its troubled French operation, expected to lose up to pounds 3m, performed above expectations to lose less than pounds 500,000 and is now heading for break-even.

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