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(Alliance News) - DS Smith PLC on Thursday reported a steep profit decline in the first half of its financial year, though resumed dividends given the resilience of its performance in a challenging environment.
For the six months ended October 31, the FTSE 100 packaging firm's pretax profit plunged 54% to GBP97 million from GBP213 million with revenue down 9.4% at GBP2.89 billion from GBP3.19 billion a year before.
London-headquartered DS Smith said that, over the half-year period, there was an initial further reduction in paper prices as European corrugated demand fell during lockdowns and a temporary but sharp peak in old corrugated cases prices. This combined with other Covid-19 costs to hurt margins in the first quarter.
However, old corrugated cases prices mostly normalised toward the end of the second quarter and European paper prices are higher amid strong domestic demand.
"While the average corrugated box price has declined modestly compared to the prior first half period, as the impact of the decline in paper prices over the last two years has rolled through, we believe the more recent increases in European paper pricing should provide a support against further erosion as we look forward," said DS Smith.
DS resumed dividend payments, declaring an interim payout of 4.0 pence after nothing the year before.
Additionally, the company is now seeking organic growth with a newly announcement investment in constructing two greenfield sites in Europe. These have an estimated GBP100 million of combined costs and will be financed via non-core asset disposal and cash flow. Land has already been secured in Poland and Italy and the two facilities are expected to be operational in the next two years.
Chief Executive Mike Roberts said: "We are well positioned to capitalise and are announcing today the construction of two new state of the art packaging plants in the fast growth regions of Italy and Poland to supply the burgeoning [fast-moving consumer goods]/e-commerce sector."
Roberts added: "While the economic and political environment remains uncertain due to Covid-19 and Brexit, we see continued momentum for our business, underpinning confidence in continued performance in line with our expectations for the year. Strong demand has driven ongoing paper price increases, supporting future box pricing, which, together with customer wins in Europe and the US and our strong position to benefit from attractive structural trends, reinforces our confidence in the business going forward."
Shares in DS Smith were up 0.3% at 359.60p in London in morning trading.
By Anna Farley; annafarley@alliancenews.com
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