Stronger product prices in the first half of the year and once-off gains on the sale of non-core operations resulted in a 14 per cent rise in pre-tax profits at the Jefferson Smurfit Group to £171 million (€217 million) for 1998.

But the results of the paper-based packaging group, which were broadly in line with market expectations, were depressed by a fall in product prices and demand in the second half of the year and restructuring and reorganisation costs associated with the merger with Stone Corporation in the US, which was completed in November.

Group president and chief operations officer, Mr Paddy Wright, said market conditions remained difficult, particularly in Europe and Latin America where weak demand held down product prices.

But there were signs of improvement in the US, he said, forecasting that this would feed through to an improvement in Europe later this year.

The share price rose 22 cents to close at €2.12 (£1.69) on perceived group optimism in the US and on the back of overnight rises in US paper sector shares.

Smurfit's basic earnings per share rose by 26 per cent to 12.4p from 9.8p. When the impact of exceptional gains is stripped out, the rise was 17 per cent to 10.2p. Shareholders will get a 3.6 per cent increase in dividends with a first interim dividend for 1999 (in lieu of final dividend for 1998) of 2.97p per share, bringing the total net dividend for the year to 4.785p per share.

Chief financial officer, Mr Gary McGann described group dividend policy as "sustained growth within the constraints of a cyclical industry".

Group operating profit before exceptional items rose by 19 per cent to £299 million (€380 million). Sales were 12 per cent ahead at £2.89 billion (€3.67 billion) with the cost of sales up 11 per cent to £2.1 billion giving a 16 per cent rise in the gross profit to £804 million (€1.02 billion).

After the deduction of net operating expenses of £611 million, up 14 per cent, the group's operating profit before its share of profits from associates was £193 million, up from £154 million. Associates chipped in £106 million, up from £97 million to bring total group operating profits to £299 million.

The group operates in three regions: Europe, the US and Latin America. A breakdown shows that Europe produced the strongest performance.

In Europe, sales were 15 per cent ahead at £2.27 billion, while profits were 25 per cent stronger at £185 million. Growth reflected higher average product prices than in 1997 and volume improvement. But market conditions deteriorated as the year progressed and weaker demand had a negative impact on prices. The Irish operations produced strong volume growth but average prices were slightly lower.

In Latin America, operating profits fell to £41 million from £44 million. Sales were 9 per cent ahead at £437 million but profits fell. Mexico was described as the "star performer" on profit growth but operations in Colombia and Venezuela suffered declining demand in depressed economies.

In the US, sales fell to £179 million from £194 million at the group's wholly-owned operations. Sales at Smurfit-Stone were 3.4 per cent higher. Operating profits, including the group share of Smurfit Stone profits, were 24 per cent higher at £73 million.

Mr Wright said the asset sales programme at Smurfit-Stone, where Smurfit has a 34 per cent stake, was on target and the group was confident that asset disposal and cost savings targets would be achieved within the proposed timeframe.

The latest results include net exceptional gains of £6 million, down from £11 million for 1997. Total gains of £158 million consisted of profits of £100 million on the sale of Condat in France, £49 million on the sale of Fernandina Mill and £9 million on the sales of other smaller businesses in France and Britain. Total gains were reduced by exceptional costs of £151.9 million made up of reorganisation and restructuring costs of £19 million, up from £15.5 million in 1997, plus £79.5 million for its share of the restructuring costs of associate Smurfit-Stone and £53.4 million for a write-down in the value of fixed assets in line with new accounting standards.

Net debt at the end of 1998 was £778 million, made up of gross borrowings of £1.59 billion less cash and investments of £811 million. At year end, the group had a net debt to equity ratio of 46 per cent with interest covered three times by earnings. Net assets per share were £1.53. Since year-end, liquid assets have been reduced to £350 million through a debt reduction programme - the moves have no impact on the overall net debt position.