Severnside is contained within the paper operations of the St Regis division of David S. Smith and while chairman Anthony Hitchens also pointed to an excellent result also for St Regis, the outlook for the papermaker was less promising.
In his statement accompanying the results the chairman said: ” The paper operations of St Regis had another excellent result, helped by the buoyancy of CCM [corrugated case materials] pricing early in the year. Towards the end of the year sharply higher energy costs and the slowdown of CCM markets began to restrain profitability. The Kemsley mill had another record output for the year while Taplow had a particularly good performance among our other CCM mills. The specialist mills continued to struggle although they were on an improving trend at year-end helped by the closure of UK competitors.”
Mr Hitchens continued: “Severnside had an excellent year being able to expand collections with the assistance of funding from the sale of Packaging Recovery Notes under the UK packaging waste legislation.”
David S Smith Group trading turnover for the year ended 28 April 2001 rose by 15% to 1,399.1 million from 1,217.7 million in 1999/00. Overall, this increase was attributed to higher prices and increased demand in the packaging segment and further growth in office products wholesaling. Operating profit before exceptional items and amortisation of goodwill and other intangibles increased by 25% to 84.9 million from 67.8 million. Group operating margins improved to 6.1% from 5.6%.
Old KLS prices
A signal that prices for old KLS may be unlikely to fall further came within the results, according to one analyst. He noted the comments in the annual statement on the corrugated packaging market.
The statement said that this market “has slowed in mainland Europe to around 1% in the first calendar quarter of 2001 compared to last year; the UK market declined by 3% in the same period. The outlook is for a continuation of slow growth across Europe. This low level of growth is insufficient to absorb the new papermaking capacity that has been entering the market with the result that CCM prices have been slipping since January. Thus far, lower waste paper prices have to some extent offset the fall in CCM selling prices maintaining profitability at the paper mills at satisfactory levels. The risk remains that prices may decline beyond the level that can be compensated for by lower waste paper prices.”
The latter point was seen as indicating that the price for old KLS is unlikely to move further so the squeeze on selling prices for CCM will have to be met elsewhere.
Corrugated operations
On the corrugated operations of David S Smith Packaging in the UK, the chairman said that the 12 month period had been challenging: “a year in which they had to operate in a declining market and respond to the pressures of rising paper prices. Although paper prices have fallen since January, the previous increases had not been fully recovered in box prices. Despite these adverse external forces the division was on an improving trend throughout the year, benefiting from some sales and market development successes, operational improvements as well as the closure of the Bracknell plant.
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