DS Smith upbeat on trading with unchanged expectations
Thursday, October 31, 2019
DS Smith has reported strong performance in the first half of its current financial year, with expectations for overall financial performance for the period remaining unchanged.
In a pre-close trading update related to the six-month period ended 31 October 2019, the London-headquartered packaging giant said business trends “have remained consistent” with its previous update, released last month.
The group said it anticipates good margin progression in the period, consistent with its upgraded target of 10% to 12% return on sales.
It said this reflects strong pricing discipline and cost improvements together with modest box volume growth, as ongoing macro-economic uncertainty continues to impact volumes in some markets, particularly those economies with significant export-led market exposure, such as Germany.
New business wins in Europe and the US, together with the group’s FMCG and e-commerce customer focus, give it confidence in progressive volume growth during H2, and the company’s greenfield packaging plant in Indiana will start production by the end of the calendar year.
The group said this will “significantly enhance” its packaging customer offering and result in a more balanced paper position in the US, as well as supporting improved profitability by reducing its sales to the export market, which is currently experiencing lower pricing.
The company added progress with the integration of Europac “has been excellent” and reiterated that it expects completion of the disposal of its Plastics division, with anticipated net proceeds of around £400m, around the end of this calendar year.
Group chief executive Miles Roberts said: “I am pleased with the performance of the group in the first half, demonstrating the resilience of the business.
“We remain excited by the medium-term underlying drivers of demand for our sustainable corrugated packaging and our leading offerings for FMCG and e-commerce customers give us confidence of volume and market share growth going forward.
“While we expect ongoing economic uncertainty to continue to drive input cost volatility, our focus on pricing and margin, together with cash generation and the opportunities for further cost and asset efficiency improvements, supports our expectation of further good progress in the year.”
DS Smith’s share price dropped by 1.6% in early trading, to 351.4p, but had recovered to 358.2p at the time of writing.