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Sales prices cover higher costs at DS Smith

Despite the pressures within the economy, paper and packaging business DS Smith is still managing to charge more for its cardboard boxes and packaging materials to mitigate higher input costs.

DS Smith
DS Smith's Kemsley mill in Kent

The increases in input costs are thought to be in areas such as energy supplies and its waste paper feedstock.

Prices for mixed papers – primarily from local authority sources – and used cardboard (Old KLS or OCC) arising in the domestic and commercial waste stream, have been at an increasingly high level this year.

Some paper experts suggest that the company has been leading the way in paying “good prices” to make sure it secures material to meet a strong domestic order book.

In a pre-close trading update issued today (28 April) in respect of the year ending 30 April 2022 DS Smith said that trading is “in line with management expectations”.

Momentum

It pointed to “continued momentum” during the past six months with good progress in profitability and cash generation. On costs, the company stated: “Continuing packaging price increases have more than offset ongoing input cost increases,” and it pointed to a operating profit for the year in the range of £605-£615 million.

Referencing the Ukraine and Russia situation, DS Smith said: “Our only involvement in these countries is a minority investment in a Ukrainian business, which serves customers predominantly in Ukraine with limited sales in Russia. We have no other operations or employees in Russia. Due to the invasion and ongoing impact on the business in Ukraine, we are impairing our investment with an anticipated one-off non-cash charge of approximately £30 million in FY22.”

Performance

Miles Roberts, group chief executive at DS Smith

Miles Roberts, group chief executive, said: “I am pleased with the continued momentum and performance of the business in another year disrupted by Covid-19 and macro-economic uncertainty amplified by the Russian invasion of Ukraine.

“We have seen continued good momentum across our customer base, with volumes from our FMCG [fast moving consumer goods] customers growing particularly well, underpinned by consistently high levels of service and product quality. Within Europe our Eastern and Southern regions have performed ahead of the Group average, and in the US we are seeing the benefit of the Indiana site contributing to further very strong volume growth in the region.”

Mr Roberts then turned to costs and commented: “Strong management of our supply chain and cost base, together with volume growth and increasing packaging prices to recover the increasingly higher input costs, is delivering the expected strong profit growth. It is particularly pleasing to see the performance from areas where we have significantly invested recently, with the North America and Southern Europe regions expected to be the highest margins within the Group, with Europac delivering a very strong operational and financial contribution.”

Sustainability

The group chief executive continued: “We have continued to make good progress in our sustainability goals and in January 2022 we committed to align our global operations to the sector leading 1.5°C scenario as set out in the Paris Climate Agreement and aligned with the Science Based Targets initiative as well as to net zero CO2 emissions by 2050.

We have continued to make good progress in our sustainability goals

– Miles Roberts, DS Smith

“We have continued to invest in our business, leveraging our scale, our deep customer relationships and sustainable innovative solutions to lead the transition to a more circular economy, providing a strong platform for growth. We are mindful of the volatile macro-economic environment but have to date seen little or no evidence of changes to customer behaviour and we enter the next financial year with confidence.”

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