Profits fall at DS Smith as higher OCC prices increased input costs

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UK mill group DS Smith has reported a profit fall for its financial year up to the end of April 2021.

Profits dropped to £237 million from £368 million in the 2019/20 financial year.

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The company noted that in its first quarter of this financial year, the Covid pandemic led to a reduction in the box volumes it sold, with industrial customer categories in particular dropping.

However, costs also increased for paper for recycling, especially OCC, contributing to the profit fall.

In its financial statement, DS Smith said: “Here, we were impacted by an initial, short increase in prices in May and June 2020, due to sudden and extreme supply constraints caused by national lockdowns.

“These initial short spikes were not recovered in paper prices; however, the subsequent rises which occurred in H2 coupled with strong demand for paper have been reflected in higher paper prices which are being passed through to packaging prices along with other inflationary costs.”

In its outlook, DS Smith reported that “the volume momentum of the final quarter of FY21 continuing into this year. Inflationary cost pressures have also continued, in particular for OCC, but also other costs such as energy, transport and labour. Packaging prices have started to increase and we expect to fully recover these increasing costs.”

During the second half of its financial year, DS Smith saw packaging volumes grow by 8.2% compared to a 1% decline in the first half.

In particular, this growth was driven by the FMCG and e-commerce sectors, with the latter accelerating as a result of Covid.

DS Smith Group chief executive Miles Roberts said: “Above all else I would like to recognise the extraordinary commitment of all our 29,000 colleagues over the last 12 months. Our teams in over 300 sites have gone above and beyond what is required to keep delivering for our customers, supporting all our communities and, most of all, taking care of each other. We invested heavily to keep all of our people safe and all of factories open throughout the pandemic and this enabled us to build good momentum through the year after a challenging Q1.

“The growth drivers of e-commerce sustainability and plastic-free packaging have
accelerated over the last twelve months and we are very well placed to capitalise on this
growth. We have worked hard over many years to focus our business purely on fibre-based
packaging and this differentiation is clearly recognised by our customers.”

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