DS Smith to focus on recycled packaging business
The UK-based company made the comments in a strategic review published last week alongside its financial results for the half year ending 31 October.
Back in June, management announced its intention to review its business strategy with the aim of creating a “growing business that is more focused, producing higher margins and returns with less cyclicality.”
Publishing the conclusions of that review, DS Smith said it plans to focus on building its FMCG packaging business and expanding its recycling activities.
Miles Roberts, group CEO said: “We have indentified attractive opportunities within the UK and France and also see very significant potential in the faster growing FMCG markets in Central and Eastern Europe. Corrugated packaging has growth prospects ahead of GDP and outperforms other materials on ease of recycling.”
DS Smith already indicated that this is the direction that it wanted to go when it bought French corrugated packaging specialist Otar for €247m (₤207m) earlier in the year.
Differentiation
Explaining how it believes DS Smith can differentiate itself from the competition in the corrugated packaging arena, the company pointed to its “cradle-to-cradle” service. As well as offering recycled packaging to manufacturers like Nestle and Procter & Gamble, in the UK the company manages the recycling of many of the largest retailers.
Moving forward, the company intends to roll out this model to other European countries. It said: “The recycling proposition is an important point of differentiation as consumer goods companies and retailers seek to fulfill their environmental commitments.”
Meanwhile, to fund expansion of the recycled packaging side of the business, DS Smith plans to reduce its exposure to paper manufacturing and streamline the group. In concrete terms, a target has been set to reduce paper production from c. 1 million tonnes by c. 250,000 tonnes per year over the next three years.
As for the office products wholesaling business, DS Smith remained non-committal. It said the business offered no synergies with the packaging business and had the lowest margins in the group. But it did not indicate any plans to sell the business, adding that the management team is being strengthened to improve performance.
H1 results
Along with the strategic review, DS Smith published its results for H1 2010, revealing a significant recovery on the equivalent period last year. Excluding the impact of the Otar acquisition, sales were up 10.5 per cent to ₤1,174.2m and operating profit rose 10.8 per cent to ₤60.5m
Looking at the outlook for the rest of the year, DS Smith said it expected to achieve results in line with expectations, despite higher input costs.
Roberts said: “Notwithstanding continued increases in input costs, trading in the second half to date is progressing well. We look forward to the remainder of the year with confidence, delivering in line with our expectations.”
