Trading Statement

Smith (DS) PLC
18 April 2006

                                                                   18 April 2006



                    DS SMITH PLC PRE-CLOSE TRADING UPDATE


DS Smith Plc, the international packaging manufacturer and office products
wholesaler, today issues the following trading update ahead of its preliminary
results announcement for the year to 30 April 2006, which will be made on 29
June 2006.  These will be the first full year results to be produced under
International Financial Reporting Standards.


Group Result for 2005/06

As indicated at the interim results in December 2005, trading conditions during
the second half of the financial year have continued to be challenging.  In
Packaging, we are succeeding in raising prices, we have achieved the expected
synergies in our enlarged UK Corrugated Packaging business and our Continental
European Corrugated Packaging business has performed well; however, these
benefits have been more than offset by the extraordinarily high energy costs.
In Office Products, we have experienced a sharp reduction in profitability,
principally due to the effect of lower sales margins at Spicers UK, which has
only partly been mitigated by improved results in continental Europe.


We now anticipate that our pre-exceptional profit before tax for the full year
2005/06 will be somewhat below our expectations at the time of our interim
results, although pre-exceptional earnings per share for the full year are
anticipated to be in line with our previous expectations due to the tax charge
being lower than expected.  We anticipate that cash flow for the full year will
be satisfactory and the interest charge will be slightly lower than expected.


In light of the sustained high energy costs, we have accelerated our programme
to streamline the portfolio and exit businesses with no prospect of turnaround.
This programme will result in significant exceptional charges to the profit and
loss account in 2005/06.


Energy costs

Results in the second half of the financial year have been substantially
affected by sharply higher energy costs, particularly during the winter.  The
Group's energy costs for the financial year 2005/06 are expected to be
approximately £23 million higher than in 2004/05; this increase is at the upper
end of the range anticipated in December.


Looking ahead, gas prices for 2006/07 are currently above the level of prices
during 2005/06.  The Group's electricity costs in 2006/07 are expected to be
higher than in 2005/06 as a result of the expiry, in October 2005, of its
previous fixed-price UK electricity contract.  As a result, we expect underlying
energy costs in 2006/07 to be at least £10 million higher than in 2005/06.


UK Paper and Corrugated Packaging

The effects of the higher energy costs have been most evident in the UK Paper
and Corrugated segment and significant action, including the closure of
capacity, has been taken to mitigate these costs.  Our Paper business is
benefiting from increased sales of higher added-value plasterboard liner.  The
slowdown in UK retail sales has affected demand for our corrugated packaging
(boxes) and we have experienced some disruption at a number of our larger
plants, as a result of the restructuring of our facilities to reduce costs.


The net cost of the Group's key raw material for paper production, waste paper,
is continuing to increase as a result of rising demand from Asia and the falling
value of packaging recovery notes. We raised prices of the main grades of
corrugated case materials (CCM) by approximately 20% during the second half of
the financial year.  Given the Group's vertical integration, it is important
that these higher CCM prices are now passed on through higher box prices.  We
are now increasing box prices, which had been falling consistently.  As these
box price increases are taking place late in our financial year, they will have
only a small effect on the 2005/06 profits.


Results in UK Paper and Corrugated Packaging for the second half of the
financial year are anticipated to be slightly lower than previously expected.
The price increases will benefit results in 2006/07 but the effect they will
have on net margins is uncertain, particularly given the likely higher energy
and net raw material costs.


Continental European Corrugated Packaging

The overall performance of this segment has been encouraging. Total demand in
France and Italy remained patchy but the continental European market as a whole
benefited from the improving economic conditions and continuing strong growth in
Eastern Europe.   Although margins in the corrugated packaging businesses have
been affected by higher CCM and energy costs, we have benefited from sales
growth, particularly in the Polish business, and cost reduction.  Our associate
business in the Ukraine has continued to perform well.  The French solid board
paper business has achieved good results despite pressure on its prices and
higher energy costs.


Box price increases are being implemented in all continental markets but, again,
these will have only a small effect on results in 2005/06, which are likely to
be around those of 2004/05.  Looking forward, we anticipate being able to
recover a substantial proportion of the increased CCM and energy costs.


Plastic Packaging

Our goal is to rebuild profitability in both of the main businesses in Plastic
Packaging.  In line with our expectations, the segment made some progress during
the second half of the financial year.  In returnable transit packaging, margins
continue to be affected by the under-recovery of higher polymer costs but sales
have strengthened, on the back of a good order book.  In liquid packaging and
dispensing, the European business remains under pressure from increased
competition but is benefiting from the restructuring undertaken during the first
half of the year.  Going forward, we expect this improving trend within the
Plastic Packaging segment to continue into 2006/07.


Office Products Wholesaling

It is anticipated that the full year operating profit for Office Products
Wholesaling in 2005/06 will be of the order of £9 million below the £21.5
million reported for 2004/05; as detailed below.  This primarily reflects issues
in the UK: sales margin erosion higher than previously indicated; and higher
costs which have been incurred to overcome service shortcomings.  As part of a
very recent review of the UK business, we will now recognise an under-accrual of
customers' rebates, some other margin adjustments and additional costs, which
total approximately £6 million.


Our strategy to develop our continental European businesses continues to
progress: Spicers France maintained its good performance; the German business
made further progress; Spicers Spain is expected to be in profit for the year as
a whole; and sales in Italy continued to grow well.  The prospects for the
Timmermans business in the Benelux region are in line with our expectations when
we acquired it in October 2005.


A new divisional chief executive, with extensive experience in office products,
was appointed in February 2006.  The Spicers UK managing director has left the
business and we are well advanced in strengthening UK sales and operations.  We
are also accelerating the programme to reduce our UK structural cost base.
These and further initiatives will be targeted at ensuring that Spicers makes
good progress in 2006/07 and establishes a strong base for ongoing profit
development.


Restructuring and Exceptional Charges

We have taken actions to improve the Group's future prospects through
restructuring and streamlining the portfolio.  We now expect to incur total
exceptional charges in 2005/06 of approximately £43 million detailed below, of
which the net cash costs are expected to be approximately £5 million, almost all
of which will occur in 2006/07.


The total exceptional charges include the following previously announced items:

  • The losses on the sales of the John Dickinson Office Products Manufacturing 
    business and BSK, one of the smaller Plastic Packaging businesses, amounting
    in total to £4.5 million.

  • The exceptional charge of £22 million resulting from the closure of the
    Sudbrook paper mill.  This closure was part of our strategy in Paper to 
    withdraw from unprofitable capacity in order to concentrate on mills with a 
    long-term future, including our principal mill at Kemsley which is ranked in
    the top quartile of European CCM mills in terms of cost-competitiveness.


In this trading update we are advising of further rationalisation steps that are
being taken:

  • At the Wansbrough paper mill in Somerset, we are proposing the closure of
    one of the two paper machines, with a capacity of 35,000 tonnes; this is
    expected to result in an exceptional charge to the profit and loss account
    in 2005/06 of approximately £7 million.

  • A programme of other cost reduction measures is being implemented
    throughout the UK Paper and Corrugated segment, which is expected to result
    in an exceptional charge of approximately £3 million in 2005/06.


The Group also anticipates taking an impairment charge, in the current year, of
up to £6 million against an investment made in the late 1990s in the debt
securities of an independent business in the packaging sector, which has also
been affected by the difficult trading conditions and the high cost of energy.


Group Outlook for 2006/07

Despite an expected further increase in energy costs, we anticipate that the
actions we are taking will allow the Group to perform more strongly in 2006/07.



Enquiries


DS Smith Plc                                      020 7932 5000
Tony Thorne, Group Chief Executive
Gavin Morris, Group Finance Director
Peter Aubusson, Group Communications Manager

Financial Dynamics                                020 7269 7291
Richard Mountain/Susanne Walker


A conference call for analysts and investors, hosted by Tony Thorne and Gavin
Morris, will take place today at 9.00am BST.  The dial-in numbers are:

UK participants - 0845 634 0047

International participants - [phone]

Alternative back-up number - [phone]


A recording of this conference call will be available for one week from 11.30am
BST today.  The dial-in numbers for the recording are:

UK callers - 020 7769 6425

International callers - [phone]

Security code for the replay - 652491#


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