British paper and packaging company DS Smith posted a smaller than expected fall in annual profit on Thursday and struck an optimistic tone for the new financial year on a recovery in demand and prices.

After a surge in sales during pandemic lockdowns on the back of soaring e-commerce demand, packaging companies had to grapple with de-stocking by customers, a tough macroeconomic backdrop, and falling prices.

London-listed DS Smith, which provides packaging, paper and recycling services to companies including Amazon and Unilever, said the positive trends in packaging volumes from the second half of its last financial year had continued into the new one.

"We have seen a number of our big customers, those big branded FMCG (fast-moving consumer goods) companies, really start to grow their market share through new product development, new product launches," CEO Miles Roberts told Reuters.

"That indicates that the consumer is in a stronger, slightly more optimistic mood than they were from the start of our last financial year."

DS Smith in April agreed to a $7.20 billion all-share takeover by International Paper. However, the U.S-based suitor itself became a takeover target after Brazilian pulpmaker Suzano confirmed last month it was interested in assets owned by International Paper.

Roberts said the speculation related to Suzano and International Paper had not been a distraction.

Matt Britzman, equity analyst at Hargreaves Lansdown, wrote in a note that with International Paper subject to its own takeover speculation, there was reason for DS Smith to be cautious as there "could still be twists in this story".

DS Smith's adjusted operating profit from continuing operations for the year ended April 30 fell 19% year on year to 701 million pounds ($891 million). Analysts on average had expected a profit of 654.2 million pounds, according to LSEG data.

Shares in the company were up 1.3% at 356.40 pence in morning trade.

($1 = 0.7872 pounds)

(Reporting by Aby Jose Koilparambil in Bengaluru; Editing by Sherry Jacob-Phillips and Mark Potter)