DS Smith sees profit leap in H1

Richard Stuart-Turner
Thursday, December 9, 2021

DS Smith reported a bumper profit increase in its half-year results after achieving record corrugated box volume growth.

Roberts: "We are continuing to benefit from a very dynamic market"
Roberts: "We are continuing to benefit from a very dynamic market"

In the results released today (9 December) for the six-month period ended 31 October 2021, the London-headquartered packaging giant saw its pre-tax profit jump by 80% year-on-year or by 88% by constant currency conditions.

Its revenue of £3.36bn was up by 16% year-on-year or by 22% under constant currency conditions.

The company said that during the period it saw sustained strong demand, with organic corrugated box volumes growing by 9.4% on the comparative H1 period a year ago and by 8.8% over the last 12 months, reflecting continued growth in the resilient FMCG sector, which represents over 80% of its volume, together with a recovery in the industrial sector.

In “a challenging supply chain environment”, the company said its large scale, security of supply, and high service levels have driven ongoing gains with large multinational customers. Regionally it has grown in all areas, with the US and Southern Europe performing especially well.

The group said its revenue increase was driven by packaging volume growth and higher selling prices across the group. External paper and recycling revenues increased as higher pricing more than offset reduced volumes sold externally as the business utilised a greater proportion of its paper production internally to satisfy the growth in its packaging volumes.

Raw material, energy, and transportation input costs all rose significantly over the comparative period. However, DS Smith said these were mitigated by effective supplier arrangements, long term hedging positions, and rising packaging selling prices.

The group’s adjusted operating profit was up by 20% year-on-year, or by 26% under constant currency conditions, to £276m. This was attributed to volume growth combined with increased packaging selling prices, partly offset by the increased input costs.

Chief executive Miles Roberts said: “We are continuing to benefit from a very dynamic market with demand for packaging for different retail solutions evolving rapidly and COP26 intensifying the desire for sustainable packaging solutions for the circular economy.

“Our leadership in these areas has contributed to record volumes with particularly strong growth in the US and Southern Europe regions, where we have invested recently, as well as with our multinational FMCG customers.

“In a challenging operating environment, I am pleased to see good progress. Our supply chains have remained secure and the significant increases in input costs have been mitigated by effective hedging of energy cost, our long-term supplier agreements and raising packaging prices.”

He added: “Combined with strong volume growth this has significantly increased our profit with continuing good progress recovering from the impacts of Covid-19. Strong cash generation has returned our financial leverage to within our medium-term target.

“We have built a business to benefit from the significant structural growth drivers within fibre-based corrugated packaging. These benefits, combined with our scale, geographic footprint, sustainability, and innovation focus, position us very well for continued volume and market share growth.

“Together with pricing momentum, this underpins our confidence to deliver a significant improvement in profitability during the second half of this year in line with our expectations and towards our medium-term targets.”

The board also announced an interim dividend for this year of 4.8p per share, an increase of 20% year-on-year and consistent with its policy of 2.0-2.5 times dividend cover.

DS Smith’s share price jumped by over 2% to 389.5p in early trading but had settled down to 384.5p at the time of writing.

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