Mills go part time at paper group

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ARJO WIGGINS APPLETON, the beleaguered Anglo-French paper group, is poised to close its European paper mills for two weeks a month because of falling sales and rising pulp prices.

The partial shutdown is likely to herald mill closures and redundancies, as capacity is cut substantially to combat the effects of massive destocking by customers in response to slowing economic growth.

"We have downtime of one week per month in European paper making," revealed Alain Soulas, Arjo's chief executive. "We are now considering increasing it to two weeks."

The news comes just days after Arjo announced plans to make a provision of at least pounds 100m this year to cover the cost of restructuring its European manufacturing operations. Arjo also warned that this year's profits would be materially below the 1994 result, because de-stocking was continuing longer than expected. Mr Soulas now expects the process to continue into the new year.

Margins are being squeezed on two fronts. As one of the world's biggest net buyers of pulp, the main raw material, Arjo has suffered from rising prices, which recently topped pounds 1,000 a tonne. And analysts say Arjo has seen selling prices for its core finished product - coated wood-free paper - fall by up to 10 per cent since July.

Arjo is also heavily exposed to the declining carbonless paper market in Europe and the US, where the Appleton Papers subsidiary employs 4,000 of the group's 18,000 employees.

Mr Soulas rejected criticism from some investors that the cost-cutting measures had come too late in the paper cycle. "We are preparing for the next downturn when it comes. Our mills were running at 100 per cent capacity in 1994 and early in 1995. It was no time to cut back."

Arjo has expanded into less cyclical activities but suffered a big strategic blow last year when it was outbid for coated paper producer SD Warren.

Last week's profits warning prompted analysts to slash their 1995 profit forecasts from about pounds 250m to around pounds 185m, and sent the shares into free- fall. They closed on Friday at 192.5p, down nearly 10 per cent on the week and below the price they were floated at five years ago when the former Wiggins Teape Appleton group demerged from the BAT conglomerate.