DS Smith profit dips but momentum positive
Tuesday, June 22, 2021
DS Smith saw a slight drop in revenue and a larger fall in profits in the 2020/21 financial year due to the impact of the coronavirus pandemic but said it is now showing positive momentum, with the rise of e-commerce and sustainability both key drivers.
The London-headquartered packaging giant recorded sales on continuing operations in the year to 30 April 2021 down 1% at £5.976bn. Adjusted operating profit was down by 24% to £502m while pre-tax profit fell by 37% to £231m.
While its profit was particularly affected in Q1 as a result of the pandemic, the company said its profit momentum is now positive; in H2 its adjusted operating profit was £272m, compared to £230m in H1.
However, the business also reported accelerating corrugated box volume growth, up by 8.2% in the second half and by 3.5% for the full-year, with further market share gains with FMCG customers in Europe and the US.
Speaking on BBC Radio 4's Today programme this morning (22 June), group chief executive Miles Roberts said: “It really has been a year of two halves; the whole year has been affected by Covid and in the first half of the year, while we were very focused on e-commerce and retail customers, we did see a fall in demand, particularly from some industrial customers who, frankly, were closed.
“But we kept all of our factories open, we invested heavily to keep all of our staff safe and all of our teams together because we felt the demand would return. We’re a purely fibre-based business making cardboard boxes, and we kept all of our teams together, and then we really saw a very strong return to growth, particularly in the second half.”
On the recent shortage of cardboard boxes due to the rise of online shopping during the pandemic, Roberts added: “Our products are made from recycled material, we specialise in recycled packaging – that’s our model and we think that’s what the consumer wants.
“As we’ve all been staying at home for longer periods and been consuming more at home, we’ve found that all those old cardboard boxes that we need, all that old newspaper that we need to recycle, has actually been stored in people’s garages and in their refuse bins, so we’ve really been working on a local authority by local authority basis to say how can we improve the return of that material so that we can make it into new packaging and get it back out into the supply chain.”
DS Smith said the strong demand for packaging was accompanied by an increase in input costs, particularly in Q4, and that, given the strong demand and good levels of customer service, these costs are starting to be recovered with good initial progress.
The company’s investments during the year included two new packaging plants in Italy and Poland, increased investment in digital platforms, and innovation of new products.
The business said the current year “has started well”, with the volume momentum seen in Q4 continuing into this year.
Inflationary cost pressures have also continued, in particular old corrugated cases (OCC), but also other costs such as energy, transport, and labour. Packaging prices have started to increase, and the company expects to fully recover these increasing costs.
“Accordingly, while there remains uncertainty in the overall economic environment, demand is strong and we expect to make good progress this year,” the business stated.
DS Smith’s share price fell by around 2.7% in early trading this morning to 419.8p but had rallied to 422.9p at the time of writing. The group employs 29,000 staff across over 300 sites in 37 countries.