25th Jun 2015 11:22
LONDON (Alliance News) - FTSE 250-listed packaging and recycling company DS Smith PLC on Thursday said its pretax profit rose in its financial year to the end of April as the company improved its margins sufficiently to offset a fall in revenue resulting from the weakness of the euro, while the group also said it has spent EUR190 million to acquire a new corrugated packaging business in Spain.
Pretax profit for the company was up to GBP200 million in the year compared to GBP167 million a year earlier. Revenue was down to GBP3.82 billion from GBP4.04 billion, but this was offset by a lower cost of sales which improved its operating margin in the year. Revenue for the company was pushed lower by the weakness of the euro against sterling over the period, with revenue at constant currencies rising by 1%.
But DS Smith said its return on sales in the year improved by 120 basis points to 8.8% and said its return on average capital employed improved by 160 basis points to 14.6%, both at the top end of its medium-term guidance. It had flagged improving margin performance in its trading update in May, saying its return on sales and capital had been boosted by further business integration, an increase the volume of value-added products offered to its customers and operational efficiencies across the business.
The company will pay a final dividend of 7.7 pence, bringing its total dividend for the year to 11.4p, up from 10p per share a year earlier.
"This has been another good year for DS Smith. In a fast changing retail and consumer environment, packaging is more relevant than ever. The progress in the business with customers is evidenced by accelerating volume growth, together with increased margins and returns, from our unique and enhanced offering," said Miles Roberts, DS Smith's chief executive.
The company added that the new financial year has started well, with good volume momentum seen in the first few months. "The progress we continue to make with global customers, together with the opportunities we see for growth as we expand our international reach and offering, gives us confidence to increase our medium-term margin target by 100 basis points, and, notwithstanding the continued challenging market environment, we remain excited about the prospects for the business," Roberts added.
DS Smith said its organic box volume growth in the year was 3.1%, boosted by an acceleration in the second half of the financial year as it won market share and as it performed particularly well in Central Europe and Italy. The group also completed four acquisitions over the year, including Andopack in Spain and Duropack in south eastern Europe, which helped to boost its underlying revenue.
The company also said it has struck a deal to acquire the corrugated packaging business of Spain's Grupo Lantero for EUR190 million, further boosting its position in the Spanish market and giving it a market share of around 10%. It said it will pay from existing cash resources and said it expects the acquisition to deliver a return on invested capital above its cost of capital in the second year of ownership.
The business being acquired operates seven sites across Spain, DS Smith said, and it expects the deal to complete in the third quarter of 2015.
Revenue for the group fell in the majority of its regional operations over the year, primarily due to the weakness of the euro but also due to a competitive UK market, where revenue fell 3%, in part due to lower external recycling sales. Operating profit in the UK, however, rose by 27% as the group's margin improved by 210 basis points to 9% thanks to improvements made in its packaging and paper operations.
Western Europe revenue was down by 7% and flat in constant currencies, with like-for-like growth broadly tracking the regional market, with an outperformance in France and sluggish trading in Benelux. The group said it is pleased with the initial contribution of Andopack, the Spanish corrugated board provider it bought for GBP35 million in November, saying it has outperformed the market.
In the DACH and Northern Europe region, revenue fell 10% and dropped by 2% in constant currencies, primarily due to DS Smith's sale of its Scandinavian foams business towards the start of the financial year. That offset solid volume growth in the region and stable revenue.
The only regional rise in revenue came in Central Europe and Italy, where revenue increased 1% and was up by 11% in constant currencies, as its businesses outperformed the market. DS Smith said its operations in the area delivered above-average market growth and won significant market share. It also was boosted by a small contribution from its recently-acquired recycling business in Italy.
In the group's Plastics business, revenue was down 6% and fell by 2% in constant currencies, due to the disposal of two small non-core businesses. Operating profit in the division grew, however, as margins improved thanks to investments made in the business in the previous financial year flowing through.
DS Smith said double-digit growth for its US beverage dispensing tap arm in the US was partially offset by the start-up of new European facilities in its flexible packaging segment, though demand for flexible packaging is continuing to grow through new products, the addition of new markets, and better service provision in Europe.
The company also said its rigid transit packaging business had a very strong year, with revenue up 8% year-on-year on the back of better demand and operating profit rising by just over a quarter as margins were improved by plant improvements and favourable raw materials pricing.
"Positive containerboard, and corrugated, pricing momentum should result in further earnings upgrades as the year progresses, and in this environment of organic and debt-funded acquisition-led growth, the stock should perform better," said Davy analyst Barry Dixon.
Davy has an Underperform stance on DS Smith and does not have a price target for the stock.
Investec, meanwhile, says the company is growing ahead of the market and winning share. "2016 has started in line with management?s expectations, and we leave our forecasts unchanged ahead of completion of the Grupo Lantero acquisition," said analyst Thomas Rands.
Investec has a Buy rating on DS Smith and hiked its target price to 430 pence from 410p. The stock is quoted up 2.6% at 385.60p midday Thursday.
By Sam Unsted; [email protected]; @SamUAtAlliance
Copyright 2015 Alliance News Limited. All Rights Reserved.
Related Shares:
Smith (DS)