Interim Management Statement
8 September 2009
DS SMITH PLC INTERIM MANAGEMENT STATEMENT
DS Smith Plc, the international packaging supplier and office products wholesaler, today publishes its Interim Management Statement in respect of the period since 1May2009.
DSSmithPlc will be holding its Annual General Meeting today at 12noon.
DS Smith Group
Overall trading in the first quarter of financial year 2009/10 has been ahead of management's expectations as described at the time of the Group's Full Year Results in June. This better performance reflects a slower erosion of selling prices and a fasterreduction in operating costs.
Implementation of the Group's Action Programme to cut costs and conserve cash is well advanced. Cost savings of £26mwillbe achieved this financial year. A sustained reduction in working capital is contributing to lower debt levels and reduced financing costs.
We have had a better than anticipated start to the year,but in looking forward we remain concerned about the level of demand across the majority of our market sectors and we are experiencing increases in input costs above our original expectations.As a result, it is too early to be certain that this better first quarter performance will be sustained for the full year.However,trading to date, together withthe Group's strategy to build leadership positions, the implementation of our Action Programme andthe strength of ourbalance sheet,underpin management's confidence in achieving its expectations for 2009/10.
The Group's strategy of growing our box converting operations and becoming a net buyer of paper is enabling the markedly lower profits in theUKpaper business to be partially mitigated by the performance of ourUKand Continental European corrugated box businesses.
The business continues to face reduced industry activity levels. In the first six months of calendar 2009, industry statistics show European demand for corrugated packaging (boxes) is down by 11% as compared to 2008.There continues to be a marked difference between market sectors; the decline in the fast moving consumer goods sector (FMCG) being substantially less than that in the industrial sector. As previously outlined, this loweroveralldemand has resulted in a very significant fall in corrugated case material (CCM) prices. The effect of this price fall on margins has been exacerbated by input costs remaining high, relative to finished product prices; a situation that is worsening as waste paper costs are nowincreasing.Box prices continue to decline albeit at a slightly slower rate than anticipated.The lower CCM prices are helping to reduce the impact ofthelower levels of demand.
In our UK Paper and Corrugated PackagingSegment, demand for our new lightweight CCM is strong and the new machine is fully utilised.Industry statistics demonstrate that despite an overall decline in box sales we have grown market share. This is primarily due to our good position in the FMCG sector.Despitereductions in the level of available waste,Severnside Recyclinghas continued to expand its activities, gaining several important new retail customers.The Segment's overall profits have been affected by lower CCM prices and higher input costs.Given the lack of profitability in paper and the continuing rise in waste paper costs we have informed ourUKcustomers of a CCM pricerise.
The Continental European Corrugated Packaging Segment has a greater exposure to the industrial market and has seen a substantial fall in volumes. The impact of this has been partially mitigated by lower CCM prices; this Segment being a large purchaser of CCM.
Performance in the Plastic Packaging Segment is encouraging.There has been an uplift in the performance in Liquid Packaging and Dispensing; the sector benefiting from last year's restructuring actions.
Office Products Wholesaling
Demand acrossEuropeis down by (10)%to(20)% depending on the country and product sector. First quartersales at Spicers compared to the prior year demonstrated a good performance compared to the market. Gross margin is down reflecting a changed sales mix and pricing pressure. Profits at our significant UK business remain low but the actions taken have strengthened substantially both its market position and cost base.
The Group plans to announce its results for the half-year to 31October2009 on
DS Smith Plc 01628 583 400
Tony Thorne, Group Chief Executive
Steve Dryden, Group Finance Director
Financial Dynamics020 7269 7140
A conference call for analysts and investors, hosted byTony ThorneandSteveDryden, will take place today, 8 September 2009 at 8.15am BST. The dial-in numbers are:
UKparticipants: 020 8817 9301 or 0845 634 0041
International participants: +44 20 8817 9301
Confirmation number: 2013519
A recording of this conference call will be available by telephone from two hours after the call hasended until 23.59pm BST on 15 September 2009. The dial-in numbers for this recording are:
UKcallers: 020 7769 6425
International callers: +44 20 7769 6425
Replay security code: 2013519#
A recording of the call will also be available through theInvestor Relationssection of our website:www.dssmith.comfrom 15.00 BST, 8 September 2009.
This information is provided by RNS