JEFFERSON Smurfit's associate company in Austria, Nettingsdorfer, has reported a sharp fall in profits but is expecting a 10-15 per cent improvement in profits in the current year mainly due to higher paper prices.

Nettingsdorfer chief executive Mr Heinz Kessler said "1997 will not become a spectacular year but I can imagine a rise in pre tax profits by 10 to 15 per cent. We do expect an upturn in prices by about 10 per cent in the first half of the year."

Smurfit has a 27 per cent stake in Nettingsdorfer and it has been speculated that the Austrian company may become the Irish group's vehicle for expansion into eastern Europe.

Last year, Nettingsdorfer's pre tax profits fell from 368 million" schillings (£193 million) to 187 million schillings (£19 million).

Sales fell from 4.3 billion schillings to 3.6 billion schillings.

In the medium term, the Austrian company plans to produce 400,000 tonnes of paper a year, Mr Kessler said. Last year, the group's paper output rose to 353,000 tonnes but disappointing paper prices resulted in a fall in sales from £121 million to £100 million. Profits in the paper division plunged from £13.7 million to £4.7 million.

Mr Kessler said that, Nettingsdorfer and Smurfit are planning to merge their Italian interests but that little progress on the proposed merger had been made.