DS Smith profits almost wiped out in crunch

By This Is Money
Updated: 09:16 EDT, 25 June 2009

Paper and packaging firm DS Smith has seen profits plummet as demand from the struggling construction sector fell away.

Paper cut: DS Smith suffered in the construction slump.

DS Smith, the UK's leading producer of recycled paper and corrugated packaging, revealed that pre-tax profits shrank from £109.1m to £16.8m – a fall of 85% - in the year to April 30.

Cost saving at the firm already includes the closure of its oldest paper machine at Kemsley Mill in Kent, which makes corrugated case materials used in packaging industries.

Although trading since the end of April has been in line with expectations, Smith said the slowdown in demand deepened in the second half of the financial year.

Its UK paper and packaging business, which accounts for more than third of the group's £2.1 billion revenues, was hit by lower demand for corrugated packaging and plasterboard liner used mainly in the struggling construction sector.

Packaging for consumer goods held up slightly better, but the firm has also been squeezed by a recent rise in the cost of waste paper - its core raw material - and energy prices, at the same time as recession has forced down its prices.

Smith's office wholesaling products business, Spicers came under increased pressure from competitors as well as falling sales of traditional products. It warned that the current year 'would be testing, especially in the UK'.

DS Smith - which has seen a fall-off in demand for all its products – said that the timing of any recovery 'remains uncertain'.