June 18, 2018 / 6:31 AM / 6 months ago

DS Smith's CEO says Brexit putting brake on customer spending

(Reuters) - British packaging group DS Smith Plc (SMDS.L) posted higher annual profit on Monday, but cautioned that the UK’s planned exit from the European Union had slowed investment decisions amongst a “lot of its customers”, including carmakers.

“They (customers) are either withholding or in some cases the investment is going overseas. And as our customers move, we have to respond,” Chief Executive Officer Miles Roberts told Reuters.

The FTSE-100 firm, which makes corrugated cardboard, recycled paper and plastic packaging, has grown through acquisitions, but more recently struggled with rising input costs due to a surge in paper and pulp prices and a Chinese import ban.

DS Smith said it was seeing good recovery in prices for its paper products in Western Europe - a market the company has been looking to bolster with a 1.9 billion euros (1.7 billion pounds) plan to buy Spanish rival Europac (PYCE.MC).

“Like-for-like corrugated packaging volumes in the region (Western Europe) have been strong, with both France and Iberia gaining market share with pan-European and e-commerce customers,” said DS Smith in a statement.

The company, which supplies companies including Amazon.com Inc (AMZN.O) and British fashion chain Next Plc (NXT.L), said corrugated box volume growth was at 5.2 percent, with growth seen in all regions.

The current year had started well, with volume growth momentum continuing from the last fiscal year, it added.

DS Smith said in early June that it was reviewing its plastics business and added on Monday that it had seen “a lot of interest expressed from outside parties.”

BREXIT UNCERTAINTIES

Adjusted pretax profit at the London-based company rose to 473 million pounds ($627.6 million) in the year ended April 30, from 391 million pounds, a year ago.

Revenue rose to 5.77 billion pounds from 4.78 billion pounds last year.

Shares in the company slipped 2.8 percent by 1310 GMT.

DS Smith’s CEO Roberts said a lot of the company’s customers are withholding investment decisions because of the substantial uncertainty surrounding the UK’s decision to leave EU, scheduled for next March.

“We have seen a number of investment decisions that have taken longer - only to be announced they will go elsewhere.”

Roberts quoted the example of the automotive sector, where a lot of investment has been delayed, canceled or moved outside of the country.

Jaguar Land Rover said earlier this month that it would move parts of its production to Slovakia, leading to more job cuts in UK.

However, DS Smith does not expect the Brexit impact to be material to the group as it does most of its business outside of Britain.

Reporting by Muvija M and Justin George Varghese in Bengaluru; Editing by Bernard Orr and Keith Weir

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