DS Smith plans growth despite huge profit drop

The company today (25 June) reported that profit before tax had fallen from £109.1m in 2008 to £16.8m this year. Sales revenue increased 7% to £2.1bn.

The pre-tax profit figure was, however, hit by a £55.7m exceptional charge that includes more than £23m in impairment charges related to businesses in Ukraine and Turkey.

Chief executive Tony Thorne said that the company remained "committed to exiting non-core businesses and smaller businesses, which consistently underperform". The company's restructuring programme, which it announced in December, had brought an upfront cost of £27m but would lead to annual cost savings of £26m, Thorne said.

However, he added that the company's strategy in the UK was to "maintain our leadership positions in all three parts of the paper and corrugated supply chain, through both organic development and acquisition".

"We believe that a combination of scale and the interaction between our three businesses will allow us to meet our target cost of capital through the industry cycle," added Thorne.

The group's objective to be a net buyer of corrugated case material (CCM) means it will focus on the production and marketing of CCM - it has recently opened its revamped Kemsley Mill, making recycled lightweight CCM - after a £104m conversion programme.

In this morning's statement, the company said that the FMCG market has proved relatively resilient to the recession and, according to Thorne, the company has benefited in recent years from focusing on this market.

Profits in DS Smith's UK paper and corrugated packaging operations declined, reflecting lower demand and movements in CCM prices.

Severnside Recycling also experienced a dip in profits as a result of reduced availability of waste caused by the slow-down of the economy.

Similarly, the returnable transit packaging business was impacted by the decline in business across its major markets: beverage crates, automotive and construction.

DS Smith's share price increased 3.5% this morning to 63.75p, well below the year high of 141.5p.

DS SMITH FULL-YEAR RESULTS
For year ending 30 April 2009

Turnover £2,106m (2008: £1,967m)
Adjusted pre-tax profit £72.5m (£111.0m)
Pre-tax profit £16.8m (£109.1m)
Free cash inflow £59.9m (£84.8m)