DS Smith Plc (SMDS.L), a UK-based packaging and office products wholesaling company, reported Thursday a decline in pre-tax profit for the first half, as revenues declined 7.7% from the prior year. On an after-tax basis, profit for the period increased over last year on lower tax expense. Looking ahead, the company said that trading conditions remain uncertain, but expects to exceed the full-year expectations set out in October. DS Smith shares are currently trading above 11% on the London Stock Exchange.
The company's profit before tax for the half year decreased to GBP 34.2 million from GBP 44.1 million in the previous year. During the half year, the company recorded pre-tax exceptional items totaling GBP 0.5 million, pertaining to restructuring of the company's French Corrugated Packaging business. Pre-tax profit before exceptional items was GBP 34.7 million for the period. Profit for the period attributable to equity shareholders increased to GBP 23.4 million or 5.9 pence per share from GBP 17.3 million or 4.4 pence per share in the year-ago period.Adjusted for exceptional items, earnings per share for the period were 6 pence, lower than 7.7 pence in the prior year.
Revenues for the period declined by 7.7% to GBP 1.02 billion from GBP 1.1 billion in the comparable period last year. Segment-wise, Packaging revenues decreased to GBP 658.9 million from GBP 752.1 million a year ago. In the division, UK Paper and Corrugated Packaging revenue were GBP 367.2 million, down from GBP 437 million in the previous year, due to lower prices and the ending of the tolling agreement with MReal at Kemsley, the company said. Continental European Corrugated Packaging revenues declined to GBP 171.7 million from GBP 191.2 million in the preceding year. Plastic Packaging revenues were GBP 120 million, lower than GBP 123.9 million in the same period a year ago. Packaging was down by 3.1% negatively impacted by lower material costs, reducing selling prices and the exiting of a lower margin packaging management contract in Europe. In the Office Products Wholesaling segment, revenues slightly increased to GBP 359.1 million from GBP 350.7 million in the year earlier.
According to the company, operating margin in UK Paper and Corrugated Packaging is historically affected in the second half of the year by higher energy costs during the winter period. Revenue and operating profit in Office Products Wholesaling historically benefit in the second half of the year from the new product and catalogue launches at the start of the calendar year. Operating profit decreased to GBP 48 million from GBP 54.4 million in the year earlier. Before exceptional item, operating profit was GBP 48.5 million, compared to GBP 54.4 million in the same period last year.
Income tax expenses for the half year were GBP 10.7 million, down from GBP 26.4 million in the preceding-year period. Looking ahead, the company expects exceptional restructuring costs of around GBP 4 million in the second half, reflecting further reduction in the cost structure to meet challenging market conditions in both the Packaging and Office Product Wholesaling businesses.
In addition, the board declared an interim dividend of 1.5 pence per share, down from 2.6 pence paid in the prior-year first half, to shareholders of record on January 29, 2010, payable on March 2. In June 2009, the board had announced a reduction of the total dividend for the year to 4.4 pence. Tony Thorne, chief executive said, "Trading conditions remain uncertain. Building on a relatively good first half, we now expect to exceed the expectations we had for the full-year at the time we released our pre-close trading statement in October. However, second half performance will be dependant on the level of demand in the new calendar year and the speed of our recovery of the significant cost increases within our supply chain."
SMDS.L is currently trading at 126.7 pence, up 13.2 pence or 11.63%, on a volume of 810 thousand shares. In the past 52-week period, the shares have been trading between 48.5 pence and 138.8 pence on the LSE.
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