Paper glut knocks Arjo Wiggins result: Profits down 24% but demand now improving

OVERCAPACITY and price cuts in the European paper industry took pre-tax profits at Arjo Wiggins Appleton down 24 per cent to pounds 122.1m in 1993. The Anglo-French pulp and paper maker said there had, however, been a sharp improvement in demand since the end of last year.

The closure of a German mill and cuts at a Spanish pulp subsidiary led to exceptional restructuring costs of pounds 13.7m. The group shed 340 jobs in Europe in 1993 and has cut its labour force by 12 per cent since 1990.

Tony Isaac, finance director, said there were no further big rationalisation plans.

Arjo Wiggins also wrote off pounds 14.1m against unrealised foreign exchange losses incurred by its 43 per cent owned Portuguese pulp business after the devaluation of the escudo.

Operating profits fell 4.5 per cent before the exceptional costs. The pulp and forestry division lost pounds 21.9m, although sales volumes rose. Cost- cutting in the second half of 1993 reduced operating losses, while pulp prices have risen 30 per cent since December.

In paper manufacturing, Appleton Papers in the US made operating profits of pounds 143.5m, up 5 per cent, but European profits fell 37 per cent to pounds 44.7m before exceptional costs. Overcapacity mostly affected the group's coated and carbonless thermal papers divisions, accounting for about half its production volume. Mr Isaac said: 'These might still show some weakness through 1994, but there is no doubt the climate is improving.'

Profits of the fine papers division, making branded business stationery, showed a 'marked increase'. Prices were held and sales growth was strong - especially in the UK and Far East.

The company held the dividend for the year at 6.5p. Analysts forecast a recovery in pre- tax profits to about pounds 180m in 1994. The shares, which have outperformed the market by nearly 50 per cent in 12 months, rose 15p to 302p.