12th Oct 2006 07:00
Smith (DS) PLC12 October 2006 12 October 2006 DS SMITH PLC PRE-CLOSE TRADING UPDATE In accordance with its established practice, DS Smith Plc, the internationalpackaging manufacturer and office products wholesaler, today issues thefollowing trading update ahead of its interim results announcement for the halfyear to 31 October 2006, which will be made on 6 December 2006. Group As previously indicated, profits in the first half of 2006/07 will besignificantly lower than in the first half of 2005/06 due to both high inputcosts within Packaging and stronger competition in UK Office ProductsWholesaling. The strategic and operational actions we are taking across theGroup, combined with the better pricing environment in the paper and corrugatedpackaging market, will result in an improving trend in the second half of thefinancial year. The outlook for the full year remains unchanged from thatstated in the September AGM trading update. Paper and Corrugated Packaging Margins in both our UK and Continental European Paper and Corrugated Packagingsegments have been squeezed in the first half of the financial year by increasedinput costs. The net cost of waste paper, the principal raw material for our UKPaper operations, continued to rise due to demand from Asia and a fall in thevalue of Paper Packaging Recovery Notes, which are currently trading at below £5/tonne compared with £14/tonne a year ago. The Group's underlying energy costsin the first half of 2006/07 are expected to be approximately £8 million higheryear-on-year, principally due to higher gas prices and the expiry in October2005 of the Group's favourable fixed price UK electricity contract. There issome easing in market energy prices but the benefits of this will be largelyoffset in the short-term by the effects of lagged energy price increases in thecontracts for some of the Group's operations. The outlook for the Group'senergy costs for the full year remains broadly unchanged. Stronger demand, combined with substantial reductions in industry capacity forrecycled corrugated case material (CCM), has resulted in an improving supply anddemand balance and a firmer pricing environment in both CCM and corrugatedboxes. In August, we successfully implemented another CCM price increase and inSeptember implemented further increases in box prices in both the UK andcontinental Europe. The box price increase programme is ongoing. In August, we announced another important strategic step towards raising thereturns of the Group's Paper operations through the proposed closure of TaplowMill and the sale of the Taplow site which realised a substantial net cashbenefit. The Mill will cease production by the end of October, further reducingthe Group's reliance on commodity CCM. Plastic Packaging In Plastic Packaging, the improving trend of results in the second half of 2005/06 has continued in the first half of 2006/07. Sales volumes have increased,particularly in the beverage crate business and results have benefited from theactions taken previously to lower costs and strengthen product development. Office Products Wholesaling As previously indicated, Spicers' results in the first half of 2006/07 will besignificantly lower than in the same period last year due to strongercompetition and higher operating costs in the UK. An extensive programme isunder way in Spicers UK to improve the sales mix on the back of raised servicelevels and to lower costs. We expect to see the initial benefits of thisprogramme in the second half of the financial year. Spicers' continentalEuropean businesses continue to perform satisfactorily. Enquiries DS Smith Plc 020 7932 5000Tony Thorne, Group Chief ExecutiveGavin Morris, Group Finance DirectorPeter Aubusson, Group Communications Manager Financial Dynamics 020 7269 7121Richard Mountain/Susanne Walker A conference call for analysts and investors, hosted by Tony Thorne and GavinMorris, will take place today (12 October) at 9.00am BST. The dial-in numbersare: UK participants: 0845 634 0047International participants: +44 20 7154 2638Alternative back-up number: +353 1 436 4259 A recording of this conference call will be available by telephone from one hourafter the call has ended until 17.00 BST on 19/10/06. The dial-in numbers forthis recording are: UK callers: 020 7769 6425International callers: +44 20 7769 6425Replay security code: 753312# A recording will also be available through the Investor Relations section of ourwebsite: www.dssmith.uk.com from 14.00 BST today. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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