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DS Smith packs higher profits, but hit by low US paper prices

Growth was partly offset by lower paper prices and volumes in US

DS Smith plc -

DS Smith plc (LON:SMDS) has packed 31% higher profits in the last six months, but said that low paper prices in US had suppressed growth.

Revenues rose 4% to £3.2bn in the half year to 31 October, as the FTSE 100 packaging company said growth was partially offset by lower volumes and sales prices within the paper and recycling businesses, due to falling demand from Asia.

This also helped push profit before tax up by 31% to £213mln, owing partly to better margins and market share from its €1.67bn acquisition of Europac last year to increase its presence in Europe.

The dip in paper prices particularly hit profitability in North America, which lowered its export prices, but the cardboard maker said its newly opened corrugated packaging site in Indiana will over time “significantly reduce” the impact of paper on profits.

Miles Roberts, chief executive, said: “Assuming current macro-economic conditions prevail, we anticipate an acceleration of volume growth in the second half of the year which, together with the resilience of our business model, supports our expectation of further growth in the year."

The rise of online retailers has helped the boxes company boost its margins and market share, as it meanwhile disposes of the less profitable plastic division, with the sale to Olympus Partners for US$585mln to be completed around the end of the calendar year.

It also announced a 4% increase in the half-year dividend to 5.4p per share.

Shares fell 5% to 360.9p in early trading on Thursday.

“It may have been neatly packaged up in an apparently robust set of first half results from DS Smith but investors haven’t missed the fact that organic volume growth for its corrugated boxes is below target and pricing is under pressure," said AJ Bell's investment director Russ Mould.

“The company argues it has achieved a better performance than the wider market, but even if this is the case it is hardly a reason for investors to get excited."

“The growth of e-commerce, which requires boxes to send goods out to consumers, saw market sentiment towards packaging companies reach fairly elevated levels for a while, but today’s update from DS Smith adds to signs that the growth story is losing momentum," Mould added.

Quick facts: DS Smith PLC

Price: 323.4 GBX

Market: LSE
Market Cap: £4.44 billion

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