DS Smith warns of higher energy, polymer costs

- Last updated on GMT

Related tags: Ds smith, Marketing, Paperboard, Corrugated fiberboard

Lower sales and higher costs are cutting into profits at DS Smith's
paper and plastic packaging businesses, but acquisitions in its
corrugated packaging division helped lift overall results.

DS Smith is in the business of paper, packaging and office products. The company's strategy has been to reduce its reliance on the paper business and expand packaging and office wholesaling products in the UK and continental Europe. A fall off of plastic packaging and poor sales in packaging used for transporting industrial products has setback parts of that strategy. Both sectors were considered growth areas, along with liquid packaging and dispensing, by the company's board of directors. The company reported profits before tax and other items rose 17 per cent to £76.1m (€112m) for the financial year ended 30 April. Operating profit rose 11 per cent to £83.9, of which £21m was due to Linpac Containers/ In March 2004 DS Smith added Linpac to the company's existing business for £170m in cash, giving it 25 per cent of the UK's corrugated packaging market. Linpac supplies the beverages, foodstuffs, cosmetics and pet food markets. After adjusting for interest payments of £13m, tax, adjustments for goodwill amortisation and exceptional items, the group's profits fell to £38.9m from £43.6m. The group had a turnover of £1,624.9m (€2,397m), compared to £1,488.5m (€2,194m) the previous year. The paper and corrugated packaging division now accounts for 55 per cent of the company's sales and 62 per cent of adjusted operating profit. "The group's financial performance reflects the benefits of the drive over the last three years to raise the profit contribution of our non-paper activities," the company stated. "This has largely compensated for both the sharp cyclical fall in paper profits and accounting for the cost of the pension scheme." The company reported sales of plastic packaging fell by six per cent. Although the segment raising prices for its products, higher energy and polymer costs brought adjusted operating profit down by 29 per cent. The segment accounts for 12 per cent of the group's sales, the UK-based group reports in a preliminary financial report for the year. Meanwhile sales of industrial returnable transit packaging (RTP) were lower due to a slowdown in new crate contracts. Some customers also choose to deferring orders owing to the sharp rise in polymer prices. Sales in the liquid packaging and dispensing business were affected by lower demand from the US carbonated soft drinks sector. The company says it is concentrating efforts on developing packaging for dairy products and fruit juice. Spicers, the company's office products wholesaling business, accounted for 31 per cent of total sales and 26 per cent of adjusted operating profit. In September 2004 DS Smith spent £9.4m in acquiring BPB's recycling unit, along with five collection depots in England and Scotland. St Regis Paper, a DS Smith subsidiary, turns the recycled paper into the materials used for manufacturing corrugated board. The material is sold to DS Smith's corrugated packaging manufacturing operations and to third parties on the open market. The group has corrugated packaging factories in the UK and 12 factories in continental Europe, including in France and Turkey. The company says it also wants to develop markets in eastern Europe and Italy, which are growing. The company is also the leading producer of recycled paper board in the UK and the top supplier in the world of bag-in-box packaging, according to the company.

Related topics: Processing & Packaging

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