DS Smith PLC (LON:SMDS) said it has seen higher costs of packaging, energy, transport and labour, but it expects to fully recover them.
The current year has started well, with the volume momentum of the final quarter of financial year 2021 continuing into the new period.
READ: DS Smith still sitting in the box-seat as online shopping booms
In the 12 months to 30 April, revenue dipped 1% to £5.9bn with profit before tax down 37% to £231mln. The packaging giant declared a 12.1p dividend.
Profits were hit by COVID-19, especially in the first quarter, but have slowly been recovering throughout the year, especially in the US where adjusted operating profit was up 70%.
All sites were operational throughout the period as trading benefitted from a structural shift to e-commerce and paper packaging, rather than plastic, accelerated by the pandemic.
The firm said it has based its business as solely fibre-based to ride the sustainability trend, targeting multinational consumer companies, mostly in the fast-moving consumer goods (FMCG) and e-commerce sectors.
During the year it invested in operations to boost growth, including two packaging plants in Italy and Poland, increased investment in digital platforms and innovation of new products.
"With the cost of materials continuing to rise, DS Smith is passing those expenses on to customers via higher packaging costs," analysts at Hargreaves Lansdown noted.
"This makes sense and should offset those inflationary headwinds—but there’s a tipping point at which volumes will start to decline if prices rise too dramatically, so DS Smith is on a tricky tightrope, juggling the boxes of trying to maintain margins while keeping volumes up, which is far from an easy place to be.”
Shares dipped 1% to 427.84p on Tuesday morning.
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