DS Smith grows profits while increasing debts

Packaging firm DS Smith has expressed confidence for the full year, with interims profits boosted by its acquisition of SCA Packaging on June 30th, although net debt levels have risen.

For the six months ended October 31st revenues were up 61.6% at £1.6bn (H1 2012: £1bn) with pre-tax profits of £58m (£42.8m).

On prospects for the full year, Chief Executive Miles Roberts said: "We remain confident in the outlook for DS Smith for the remainder of this financial year despite the uncertain macro-economic and market environment.

"Whilst we face headwinds in Europe and in the paper cycle, we expect these to be offset by continued growth in both our corrugated and plastic packaging businesses together with the delivery of synergy benefits which are ahead of our original plans from the on-going integration of SCA Packaging."

He admitted that it faced significant challenges during this period, particularly in paper where both pricing and volumes have long been under pressure as a results of weak demand and continuing over-capacity in the European paper sector.

However, he said that "underlying margins in both the corrugated and plastic packaging businesses have shown good increases, reflecting an improving business mix together with lower input costs".

He added that, "some of the weaker trading conditions were offset with synergy benefits arising from the integration SCA Packaging, with £10.5m of cost synergies and £47.9m of cash synergies being delivered in the first half".

Net debt at October 31st was £857.2m (April 30th 2012: net cash £321.7m). The change from net cash to net debt during the period reflects the acquisition of SCA Packaging for £1.28bn (net of cash and external debt).

However the company said it remains on track to achieve its net debt/EBITDA (earnings before interest, tax, depreciation and amortisation) target of less than or equal to two times by April 2013.

Net interest expense increased to £17.1m (H1 2012: £13m) due to an increase in finance costs, driven predominantly by the cost of additional debt to fund the SCA Packaging acquisition, partially offset by the funding benefit of lower working capital and a lower (non-cash) employment benefit charge of £2.3m (H1 2012: £2.5m).

The company is to pay an interim dividend of 2.5p a share (H1 2012: 1.9p), which it said demonstrated its commitment to a progressive dividend.

CM