British packager DS Smith says weaker euro a threat to earnings

By Aashika Jain

By Aashika Jain

(Reuters) - Recycled packaging maker DS Smith Plc said it expected results in the coming year to be constrained by a weaker euro and a continuing tough economic environment in Europe.

The company's shares fell as much as 5 percent in morning trading on Thursday, making the stock one of the top losers on the FTSE-250 <.FTMC>.

DS Smith, which reported a doubling in pretax profit for the year ended April 30, said a change of 1 euro cent in the pound/euro exchange rate affected pretax profit by about 1.2 million pounds.

"If sterling continues to strengthen, it would obviously have an effect on us," Chief Executive Miles Roberts told Reuters. "We offset it last year, but we do have that headwind, and we really don't know where sterling will go."

The company, whose customers include Procter & Gamble Co , Nestle SA and Unilever Plc , generates about 65 percent of its earnings in euros and more than 70 percent of its revenue comes from outside of the UK.

Jefferies analyst Justin Jordan estimated a 3-4 percent hit in the current fiscal year due to the strong pound, while maintaining a "hold" rating on the stock.

Roberts said DS Smith, which specialises in fully recyclable corrugated packaging, would have to react if paper prices rose strongly. The company raised prices in the first half of its fiscal year to help offset a 15-20 percent rise in paper costs.

DS Smith's full-year revenue rose 10 percent to 4.03 billion pounds, while pretax profit rose to 167 million pounds from 82 million pounds a year earlier.

The company raised its final dividend to 6.8 pence per share from 5.5 pence.

DS Smith's earnings include a 12-month contribution from Swedish packaging firm SCA Packaging, which it acquired in 2012, compared with 10 months in the year-earlier period.

The company's shares were down 4 percent at 293 pence at 0848 GMT.

(Reporting by Tasim Zahid and Aashika Jain in Bangalore; Editing by Gopakumar Warrier and Ted Kerr)