DS Smith looking to sell plastics division as revenue and profit jumps

By Richard Stuart-Turner, Thursday 06 December 2018

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DS Smith has revealed it is considering the sale of its plastics division alongside a positive set of half-year results.

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Roberts: "A very substantial improvement in nearly all of our metrics"

The London-headquartered packaging giant said that following the initial review of the plastics business, initiated earlier this year, “the board has concluded that it is an attractive asset with good growth prospects, and we are now exploring opportunities for a potential sale of the division”.

The division is now being treated as discontinued and was excluded under ‘continuing operations’ in the company’s results, which covered the six-month period ended 31 October 2018.

While the plastics division has continued to trade well, with revenues up 2%, the group said there has been some impact to its short-term profitability due to the impact of higher polymer prices and the normal lag in recovery through prices.

Elsewhere the group reported H1 2018 revenue, excluding plastics, of £3.07bn, representing year-on-year growth of 15%, or 16% by constant currency conditions. Pre-tax profit was up by 27% year-on-year, or by 28% under constant currency conditions, to £162m.

The group said it saw “continuing excellent performance” from Interstate Resources, which it acquired last year, and that it expects to complete its acquisition of Europac in the coming months, with preparatory integration work “substantially complete”.

DS Smith’s UK revenue was up by 4% year-on-year to £577m while adjusted operating profit for the region climbed by 7% to £59m.

The group said corrugated box volumes in the UK were strong in the period, reflecting continued success with large FMCG customers, and that the business sustained “a leading position” in e-commerce, which is being replicated in other European regions.

In a call to investors this morning (6 December), DS Smith chief executive Miles Roberts said: “We’re pleased with our half-year results. It’s a very substantial improvement in nearly all of our metrics. I think, particularly, we are pleased at how we have fully recovered all of the raw material and the increasing input costs that we have incurred over the six months, and indeed in the period leading up to that.

“Our volume is growing well ahead of the market and this is despite having fully recovered our increasing input costs. So as a result of that good growth and the full recovery, our margins have increased by 120 basis points to 9.9%, and we think we’re going to go further.”

Looking ahead, the board said the outlook remains positive as the business begins the second half “with good momentum”, and it has increased the dividend by 14% to 5.2p per share.

DS Smith’s share price fell from 326p to 308.9p in early trading and stood at 313.75p at the time of writing.

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