TALK of low inflation is a myth as far as raw materials are concerned,

with the paper and packaging group Bowater joining Coats Viyella in

reporting price increases of 20%. In the case of Bowater, this spring

saw its pulp prices rise by 25% with plastic resin prices up 15%.

Finance director Michael Hartnell believes that a further 10% increase

in its raw materials prices will occur within the next six months.

Increases in prices on this scale have to be passed on to customers,

such as food manufacturers, and will inevitably feed through to

consumers.

Bowater managed to handle the increase in its cost base very well in

the first half, with its operating profits in continuing businesses up

19% to #107m. At a pre-tax level profits inched up by #2m to #105m.

Margins over the period rose to 9.2% compared with 8.8% in the

corresponding period of 1993.

The packaging and print division, which accounts for about half the

business, recovered strongly from a weak second half last year, with

margins up from 7.2% to 8.6%. Competition remains intense in food

packaging, not helped by the supermarket price wars in the UK, but the

group saw demand for its cosmetic packaging recover quite strongly in

the first half.

Coated products saw its profit improve by 13% on sales up 4%, while

the building and engineering division enjoyed strong markets with growth

in sales, profits and margins. The Australian tissue business continued

to improve its performance.

The balance sheet remains healthy with gearing a ''comfortable'' 43%,

down from 48% previously. The company plans to concentrate on organic

growth, although small infill acquisitions are likely, particularly in

Europe. To capitalise on the growing consumer demand in emerging markets

such as India, Bowater has entered into several joint ventures.

During the past five years it has developed into a modern

customer-driven packaging group, holding world leading positions in all

its major markets.

Its intention to operate on an international rather than a national

basis is in tune with many of its major manufacturing customers, notably

in the US. This, together with its capacity to add value to its products

while offering them at competitive prices, should enable it to continue

to win new business and increase profits in the years ahead.

Its shares gained 19p to 492p.