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DS Smith weathers industrial weakness with cost savings from Europac

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By Reuters
DS Smith weathers industrial weakness with cost savings from Europac
FILE PHOTO: Employees work on giant reels of paper at the carboard box manufacturing company DS Smith Packaging Atlantique in La Chevroliere, near Nantes, France, April 25, 2019. REUTERS/Stephane Mahe   -   Copyright  STEPHANE MAHE(Reuters)
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(Reuters) – UK-based packaging group DS Smith Plc <SMDS.L> reported a 15% jump in first-half profit on Thursday, as cost savings from its acquisition of Spanish rival Europac last year cushioned it from a weakness in industrial demand.

The company has been grappling with volatility in paper pricing and falling demand in its industrial packaging business, particularly hit by weakness in the automotive sector in Germany and the Benelux region. Half-yearly revenue from Northern Europe, one of its largest markets, fell 7%.

The company, which makes corrugated cardboard and recycled paper, posted a growth of just 0.7% in box volumes in the first half, missing Jefferies expectations of a growth of 1.4%.

Shares of the company were down nearly 4% in morning trade. They have risen 23% this year so far.

“Our leadership in e-commerce and sustainable packaging solutions has enabled us to perform well despite a difficult macro environment and volatility in paper pricing,” Chief Executive Miles Roberts said.

The company, which produces packaging products used by online giant Amazon, said adjusted operating profit for the six months ended Oct. 31 was 351 million pounds, up 15% on a reported basis.

Last year, it bought Europac for 1.9 billion euros, its biggest-ever acquisition, to boost its position in western Europe’s packaging market and meet the growing demand for sustainable packaging from its customers in the retail and fast-moving consumer goods sectors.

Its overall margins grew 110 basis points to 11% but was offset by lower margins in North America due to lower export prices of paper.

(Reporting by Yadarisa Shabong in Bengaluru; Editing by Rashmi Aich)