Energy costs impact worse than expected, says DS Smith

In a trading statement released alongside yesterday's annual meeting of parent firm DS Smith, the energy price rises which have hit mill operating costs hard were described as “extraordinary.” The company operates in the packaging and office supplies sector running cardboard, plastics and other businesses.

The rise in costs, said the firm, is “proving harder to mitigate than we anticipated in June, given the prevailing market conditions. This is despite the considerable benefits we are realising from our enlarged Corrugated Packaging operations.”

Corrugated

The enlarged corrugated operations include the former BPB Recycling business which has been absorbed into the Severnside and St Regis mills over the summer.

” European overcapacity in corrugated case materials (CCM) continues to put pressure on selling prices “
– DS Smith statement
Warning that results will be hit, the company noted also that polymer prices were rising on the back of energy cost increases and this means that results for the year to April 2006 will be worse than previously forecast.

All was not gloomy in the DS Smith statement as the company considered that in the previous financial year 2004/05, it produced a “commendable result despite further weakening in the paper market and sharply higher energy and polymer costs. We were pleased to report further progress in Corrugated Packaging, thanks both to higher profits in our existing business and to the substantial contribution from our first full year of ownership of the former Linpac Containers business. The Spicers Office Products business continued to advance, helped by moving into profit in Germany.”

Paper

Giving more detail about the paper sector, which has implications for the used cardboard market in the UK, DS Smith stated that in Paper and Corrugated Packaging, “the lower box demand and European overcapacity in corrugated case materials (CCM) continues to put pressure on selling prices and margins throughout the supply chain.”
The company pointed to the ongoing restructuring of “our enlarged Corrugated Packaging operations, begun in autumn 2004 which continues.”

Plastic

In Plastic Packaging, the company said that polymer prices have fallen back from their peak but they are still at higher levels than in recent years. It predicts that they may start to increase again following the recent rise in oil prices but the outlook is uncertain.