DS Smith expects lower OCC prices for the rest of the year

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Major cardboard packaging manufacturer and recycler DS Smith has said that it expects lower OCC prices in the next half of this year compared to the first half.

On announcing its annual results, it said that the recent spike in prices of OCC had softened and that the impact of this was likely to remain limited to the first half of its financial year.

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The company revealed its revenue was up 2% for the financial year ending April 2020 to £6,043 million, with profit before tax increasing to £368 million.

DS Smith chief executive Miles Roberts said: “We have made good strategic and financial progress in the year, with the disposal of our plastics division reinforcing our focus on sustainable fibre-based packaging and our strong commercial focus driving record margin.

“Of course, the year ended with the onset of the Covid-19 pandemic and I am extremely proud of our employees and their tremendous support, working with our suppliers and communities to ensure every factory has remained open throughout the pandemic, delivering essential supplies with outstanding levels of services in this extraordinary time.

“Our business model is resilient, built on our consistent FMCG and e-commerce customer base. In the short-term however, the impact of Covid-19 on the economies in which we operate is likely to impact volumes to industrial customers and add to operating costs.

“In particular, infrastructure constraints have driven elevated OCC prices, although we currently expect the impact to be limited to H1.

“With the current economic uncertainty, we continue to focus on our employees, our customers, our communities and on the efficiency and cash generation of our business and accordingly, the Board considers it premature to resume dividend payments at this stage.

“In the medium-term, the growth drivers of e-commerce and sustainability are as strong as ever. The Covid-19 crisis is also expected to accelerate a number of structural drivers for corrugated packaging and our scale and innovation led customer offering positions us well and gives us confidence for the future.”

DS Smith saw a reduced sales price across European operations driven principally by a fall in testliner and kraftliner pricing.

With reduced input costs of £321 million down to cost control and lower OCC and paper pricing, DS Smith was able to offset this against a revenue decline of £280 million from reduced end product pricing.

The company expects the cost impact of Covid-19 to be approximately £15 million due to increased overtime to cover absenteeism, shielding and sanitation costs, increased haulage costs due to restricted labour supply and a spike in input prices, plus other costs associated with a sudden shift in demand patterns.

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