DS Smith outlines new plant plans but pandemic hits H1 results
Thursday, December 10, 2020
DS Smith has reported a drop in its revenue and profit in its half-year results due to the impact of the coronavirus pandemic but saw an improvement in box volumes and has revealed plans to build two new European packaging plants.
In the results released today (10 December) for the six-month period ended 31 October 2020, the London-headquartered packaging giant achieved revenue of £2.89bn, down by 9% year-on-year or by 10% by constant currency conditions.
Pre-tax profit fell by 54% year-on-year, or by 55% under constant currency conditions, to £97m.
The group’s adjusted operating profit fell by 34% year-on-year, or by 35% under constant currency conditions, to £230m, while its return on sales was down by 300 basis points to 8%.
DS Smith said it has eliminated non-essential expenditure and costs while protecting necessary operational investment, particularly during the first three months of the financial period.
After “an initial challenging start”, where many of its customers' operations were either closed or disrupted due to the pandemic, the group said its sales volumes recovered strongly throughout H1 in both Europe and the US.
Overall corrugated box volumes in May were 4.7% below May 2019 but recovered to growth of 3% in October, resulting in the half-year being 1% down on the corresponding period last year.
It said that profitability also progressed strongly during the half-year, with the result that Q2 return on sales averaged 9.5%.
Staffing levels remained consistent during the period, the group added, and any money received from the UK government's furlough scheme is being repaid.
Chief executive Miles Roberts said: “I am really proud of the commitment, professionalism and flexibility of our employees in this extraordinary time, keeping all our plants operational and responding to our customers’ needs throughout the period. This has enabled the group to perform well in the context of an unprecedented environment.
“Q1 was particularly impacted by Covid-19, but pleasingly we saw real momentum in corrugated box volumes and profitability through Q2 and into H2, together with continued excellent cash flow generation.”
He added: “We have maintained our track record of winning market share through our fibre-based offering focused on FMCG and e-commerce customers, where the seasonal period has seen solid growth.
“Growth with our largest customers has been excellent and our US business has seen good underlying progress during the period, reflecting the recent investment in our new plant in Indiana and the award of a number of significant supply contracts from major FMCG companies.”
The group said the pandemic has accelerated a number of the underlying market trends, in particular towards the use of the e-commerce channel, which it said is contributing to the strong volume growth being seen throughout the whole business.
Recognising “opportunities to grow organically through investment”, the company revealed today that it is constructing two new greenfield packaging plants in Europe with an estimated combined cost of approximately £100m, which will be financed through non-core asset disposals and cash flow.
It has secured land in Italy and Poland for the facilities, which will supply the FMCG/e-commerce sector and are expected to be operational in the coming two years.
Looking ahead, the group said that while the economic and political environment remains uncertain due to Covid-19 and Brexit, it sees continued momentum for its business, “underpinning confidence in continued performance in line with our expectations for the year”.
The business has resumed the payment of dividends and declared a 4p per share dividend for the first half.
Its share price dropped back slightly to 357.5p in early trading but had recovered to 366.45p at the time of writing, up 2.22% on yesterday’s close.