5th Sep 2005 07:03
Smith (DS) PLC05 September 2005 5 September 2005 DS SMITH AGM TRADING UPDATE STATEMENT DS Smith Plc, the international packaging manufacturer and office productswholesaler, is today advancing the release of the following statement that willbe made at its Annual General Meeting on 7 September 2005. In financial year 2004/05, DS Smith produced a commendable result despitefurther weakening in the paper market and sharply higher energy and polymercosts. We were pleased to report further progress in Corrugated Packaging,thanks both to higher profits in our existing business and to the substantialcontribution from our first full year of ownership of the former LinpacContainers business. The Spicers Office Products business continued to advance,helped by moving into profit in Germany. We stated at the time of our 2004/05 Preliminary Results in June that thetrading environment was difficult and that energy and other input costs were atconsiderably higher levels than in 2004/05. Energy costs have continued to riseand we now anticipate that the increase in our energy and fuel costs for 2005/06will be approximately twice the level of the minimum increase of £9 million weindicated in June. This increase is particularly affecting results in Paper andCorrugated Packaging, where approximately 90% of the Group's energy and fuelcosts are incurred. In this segment, our continuing drive for operationalimprovement is expected to mitigate part of this further increase in energycosts. In Paper and Corrugated Packaging, the lower box demand and Europeanovercapacity in corrugated case materials (CCM) continues to put pressure onselling prices and margins throughout the supply chain. In our case we have thebenefits from the integration of Linpac Containers. The restructuring of ourenlarged Corrugated Packaging operations, begun in autumn 2004, continues and weremain confident of achieving the synergy benefits in the timescale previouslyindicated. Our UK Paper business has reduced its emphasis on CCM throughgrowing sales of higher added-value plasterboard liner to an annual run-rate ofover 130,000 tonnes. A number of our competitors have recently announcedrestructuring and capacity reduction plans to address the effects of the poormarket conditions. In Plastic Packaging, polymer prices have fallen back from their peak but theyare still at higher levels than in recent years. They may start to increaseagain following the recent rise in oil prices but the outlook is uncertain. Oursales have been slow in the opening months of the year and competitive pressureshave further lowered our margins. The division's profits, which were £6.6million in the first half of 2004/05 fell to £3.3 million in the second half of2004/05, principally as a result of the higher polymer costs. For 2005/06, fullyear profits are now expected to reflect this half-yearly run-rate. Our forwardorder book is strengthening, in part as a result of developing new products andnew outlets, while the restructuring of our European liquid packaging anddispensing operations will reduce costs. In Spicers' established UK and French businesses, the gradual improvement in oursales which began in 2004/05, has continued, although as previously indicated,prices remain under pressure, particularly in electronic office supplies. Thedeveloping businesses in continental Europe continue to make progress. In July, we concluded the sale of the John Dickinson office productsmanufacturing business to Groupe Hamelin. In summary, the extraordinary rise in energy costs is proving harder to mitigatethan we anticipated in June, given the prevailing market conditions. This isdespite the considerable benefits we are realising from our enlarged CorrugatedPackaging operations. For the reasons identified above, we now anticipate thatour result for the year to 30 April 2006 will be below our expectations at thetime of the 2004/05 Preliminary Results in June. We are taking action toaddress this situation by further cost reduction and continued active managementof prices, while maintaining our commitment to generating strong free cash flow. DS Smith will publish information about the restatement of its results forfinancial year 2004/05, as prepared under International Financial ReportingStandards, on 13 October 2005. At the same time, a trading update will beprovided, as is our normal practice, prior to the close of the first half of thefinancial year. Enquiries DS Smith Plc 020 7932 5000 Tony Thorne, Group Chief Executive Gavin Morris, Group Finance Director Peter Aubusson, Group Communications Manager Financial Dynamics 020 7269 7291 Richard Mountain/Robert Gurner A conference call for analysts and investors, hosted by Tony Thorne and GavinMorris, will take place today at 8.30am BST. The dial-in numbers are: UK participants - 0845 634 0047 International participants - +44 20 7154 2638 Alternative back-up number - +353 1 436 4259 A recording of this conference call will be available for one week fromapproximately 12.30pm BST today. The dial-in numbers for the recording are: UK callers - 020 7769 6425 International callers - +44 20 7769 6425 Security code for the replay - 567361# This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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