Weak paper and packaging prices meant a 25 per cent drop in pre-tax profits to £150 million at the Jefferson Smurfit Group for 1997.

But the underlying pre-tax profit for the year was lower at £139 million because the £150 million figure includes an exceptional gain of £11 million.

Finance director Mr Ray Curran said while the group was not happy about the drop in profits, the results should represent the trough of the cyclical downturn in the industry. The latest outcome compares with profits of £85 million (before exceptionals) for the 1994 financial year - the trough of the previous downturn.

Earnings per share before exceptionals were 8.7p, or 9.8p after exceptionals, down from 12.6p. Despite the fall in profits, shareholders are to get a final dividend of 2.97p per share up from 2.7p, bringing the total dividend for 1997 to 4.62p, an increase of 10 per cent.

The group, which is evaluating a partnership arrangement for its US associate Jefferson Smurfit Corporation and an acquisition opportunity in Brazil, has undertaken to consider returning capital to shareholders "in the absence of value adding investments".

Smurfit described 1997 as a difficult year for the group and for the industry. While demand for paper, containerboard and boxes increased, oversupply resulted in price reductions which depressed profits. There were some price rises in the second half, but they came too late to recover lost ground.

Despite an increase in volumes sold, turnover slipped to £2,571 million from £2,594 million, reflecting the lower prices. Though the cost of sales was lower at £1,880 million from £1,885 million, gross profit slipped to £691 million from £709 million.

Net operating expenses rose to £537 million from £515 million. After restructuring costs of £16 million, operating profits fell to £138 million from £194 million. Associates - including JSC in the US - chipped in £97 million, down from £126 million, to bring operating profits to £235 million for 1997, compared with £320 for 1996. The sale of its US plastics business added £27 million to profits - this gain less the £16 million restructuring costs provided the £11 million exceptional gain.

A geographic breakdown shows that profits in the Ireland and UK division fell 33 per cent to £25 million. This division accounted for 22 per cent of sales and 10 per cent of profits.

Group president and chief operating office Mr Paddy Wright explained that the UK markets was "a major problem". Because of the strength of sterling, cheap imports were being sucked into the market, he said. The group is examining its structure in the UK and taking steps to cut costs.

Division sales were 1 per cent ahead at £571 million. The group does not disclose separate profit figures for the Irish and UK operations. Demand in the Irish market rose by 4 per cent but profits fell because the higher cost of raw materials imported from the UK could not be recouped from customers in competitive markets, Mr Wright explained.

Continental Europe was the only one of the four divisions to show an increase in profits. Good volume growth was recorded in all markets, prices were strong in the main areas and the strong US dollar helped the competitive position of local producer. Sales were down 5 per cent to £1,404 million while profits were 5 per cent ahead at £122 million. This division generated 55 of group sales and 49 per cent of profits.

In Latin America, sales were up 12 per cent at £401 million but profits dropped 6 per cent to £44 million. Mexico was the star performer, Mr Wright said. Argentina "performed to expectations" while Colombia and Venezuela suffered in difficult economic conditions. This division provided 16 per cent of sales and 18 per cent of profits. In the US, good demand was offset by weak prices so while sales by the group's owned operations were 5 per cent higher at £194 million, profits halved to £59 million.

After a year of little acquisition activity, Smurfit had a low year end debt to equity ratio of 33 per cent and comfortable interest cover of 3.3 times.