Adjusted group operating profit (excluding exceptional items) in 2006/07 was £77.7million (2005/06: £60.4 million). The report also showed that the company sold its St Regis mill site at Taplow in Buckinghamshire for £29 million, making a profit of £20 million following the closure of the paper mill.
Among other highlights in the statement, are expansion of Severnside Recycling and recognition of the higher market prices for waste paper since March 2007.
Commenting on the results, Tony Thorne, group chief executive, said: “Throughout the financial year we were held back by high input costs in Packaging and lower profits in our UK Office Products Wholesaling business. We benefited from actions taken to strengthen the Group and from an easing of the recent harsh trading environment in Paper and Corrugated Packaging.”
Stronger demand
Mr Thorne added: “In this changed situation, our drive to raise selling prices so as to recover the previous substantial increases in our input costs of energy and waste paper became increasingly successful. Additionally, our good market positions allowed us to grow our sales volumes strongly in many sectors of our business.”
DS Smith reported that the most significant segmental profit improvement was achieved in UK Paper and Corrugated Packaging, “where adjusted operating profit for the full year increased by £16.0 million to £36.5 million”.
This was put down to actions to improve efficiency – including mill closures – as well as the improved pricing in both paper and corrugated packaging and strong growth in corrugated packaging.
On the investment side, DS Smith is continuing to develop its sales of of plasterboard liner, supported by an extensive capital expenditure programme to upgrade existing machines.
Severnside
On recycling, the group highlighted the role of Severnside Recycling which is said has strengthened its “capability to supply the waste paper raw material for the group's own mills and to generate other revenue from its waste collection infrastructure and expertise.”
This is seen as a reference to Severnside's growing its facilities management service where it collects waste materials on a national basis for companies such as Tesco.
Looking ahead, DS Smith said it expected that there will be further restructuring in the European paper and corrugated packaging industry and that this may present opportunities for further development through acquisitions.
“In UK Paper and Corrugated Packaging, our objectives are to improve further the returns from our substantial UK market positions and to sustain these better returns over the business cycle. The priorities for achieving this are: a continued drive to recover the current high input costs; further cost reduction; and targeting growth sectors of the market. Investment will be concentrated on: expanding Severnside Recycling; increasing the efficiency and enhancing the product mix of our paper and conventional corrugated box businesses; and developing a selected number of our specialist corrugated packaging businesses.”
Capital expenditure payments 2007/07 were £55.8 million, the most significant investment being within St Regis to support growth in plasterboard liner production in the UK, down from £62.7m in 2005/06, which included the cost of our new corrugated plant in Poland and the first phase of the St Regis plasterboard liner investment.
Waste paper prices
The DS Smith annual reported highlighted the pressure on CCM producers to increase selling prices which has been intensified by the relatively high cost of waste paper, the principal raw material for recycled CCM.
The report adds: “Waste paper is a globally traded commodity; the continuing high level of demand for it from Asia, where there has recently been substantial investment in recycled paper manufacturing, is contributing to European prices remaining firm and being subject to short-term, demand-driven spikes. Waste paper prices were relatively stable during 2006 but rose by approximately 20% in March 2007. It also commented that the price of paper PRNs fell steadily through 2006 to a current very low level, raising the net cost of waste paper used by the CCM mills.
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