DS Smith delivers solid performance in Packaging but cautions on Paper - UPDATE

DS Smith, the recycled packaging company, said trading in the three months ended January 31st was in line with expectations, driven by a solid performance in its Packaging businesses.

However, the company says it continues to remain cautious about its Paper division following a continued 'poor' performance.

The group also said the timing of the completion of its disposal programme will reduce EBITA by around £2.0m in the current year and by around £5.0m in 2013/14.

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Miles Roberts, the Group Chief Executive, said: "Our business model remains resilient, with DS Smith well placed to create further substantial value for our investors.

"We are pleased with the continuing progress on the integration of SCA Packaging and the faster delivery of synergy benefits although we remain cautious about the outlook for Europe and expect the difficult market conditions to persist.

"We continue to focus on strengthening the business and our commercial proposition across a significantly enlarged geographic footprint and to look at how best to work with and serve our customers."

Volume growth in the Packaging business has been in line with its GDP + 1.0% medium term financial target, while its profit outlook for the Paper business remains 'cautious', with anticipated rising input costs and new capacity coming on stream later in the year in the European paper sector.

It also said the integration of SCA Packaging has continued to proceed well, and the company is on track to deliver the €100m of annual cost savings and €130m of cash savings earlier than previously expected.

The group continues to expect substantial year-on-year earnings per share growth and above cost of capital returns, saying it views the remainder of the year with confidence.

"Looking ahead to the new financial year, we expect the SCA Packaging acquisition to deliver returns ahead of the original investment case but we remain cautious on the outlook for our Paper business, with the recently announced paper price increases only partially offsetting the higher input prices and the expected impact of additional capacity in the European paper market," it said.

"This reaffirms our strategic decision to be short in paper and we continue to evaluate our options to reduce our exposure to this more volatile business, with a view to further improving the group's overall return on capital."

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