Pre-Close Trading Update
14 October 2009
DS SMITHPLCPRE-CLOSETRADING UPDATE
DS Smith Plc, the international packaging supplier and office products wholesaler, today issues the following pre-close statement for the half year ending 31 October 2009.
The first quarter'sstronger than expected performance, which we noted intheInterim Management Statement on 8 September 2009, has continued during the second quarter. Profit before tax in the first six months of 2009/10 will be substantially aheadof expectations,although lower than 2008/09 levels. This reflects a slower erosion of selling priceswithin packagingand a faster reduction inGroupoperating costs than originally envisaged.
Implementation of the Group's Action Programme to cut costs and conserve cash is contributing to this better result. The planned annual cost savings of £26m will be achieved this financial year. A sustained reduction in working capital is contributing to lower debt levels and reduced financing costs.
We remain cautious about the second half of the year,principally dueto theimpact of thepreviously advised input cost increases whichhave begun toaffect our results. We are implementing price increasesto recover thesecosts, butgiven the usual delay, full cost recovery will take us beyond the end of the financial year.The speed of recovery of the costs will be a significant factor in determining the outturn for the second half. Management is confident of achieving its expectations for the full year.
The businesshas had a stronger than expected performance in the first half for the reasons described above. Itcontinues to be affected by weaker market demand andis now incurring increasedraw material costs. In our UK Paper and Corrugated Packaging segment, returns have continued to be affected by low CCM prices. Given the lack of profitability in paper and the continuing rise in waste paper costs,we have informed our customers of CCM price increases. The Continental European Corrugated Packaging Segment, which sources paper from third partiesis expected tosee its CCM costsincrease.OurUKand Continental box prices will have to be raised to recover these additional costs. Wewill experience theusualdelay in recovery.
Performance in the Plastic Packaging Segment remains encouraging. This performance reflects the benefit from last year's restructuring actions, particularly within Liquid Packaging and Dispensing.
Office Products Wholesaling
Demand for office products acrossEuropecontinues to be significantly reduced.However,Spicers' first half revenues will demonstrate a good performance compared to the market. Gross margin will be lower than the prior year reflecting a changed sales mix and pricing pressure. Profits for ourUKbusiness remain low but the actions taken have strengthened substantially both its market position and cost base.
DS Smith will announce its results for the six months to31October2009on10 December2009.
DS Smith Plc 01628 583 400
Tony Thorne, Group Chief Executive
Steve Dryden, Group Finance Director
Liz Christie, Investor Relations
Financial Dynamics 020 7269 7121
This information is provided by RNS