DS Smith momentum continues to build in second half

The FTSE 100 packaging giant said higher sales volumes, initial price recovery and an enhanced performance from its United States business was better than expected and, while input costs had risen materially in the second half, its financial performance for the full year ended 30 April was set to be line with expectations.

Its long-term strategic direction focussed on fast-moving consumer goods (FMCG) and consumer markets had been accelerated by consumer trends resulting from the Covid-19 pandemic, the firm said.

Corrugated box volumes had grown progressively through the financial year, with the second half expected to achieve a volume increase of more than 7% year-on-year.

DS Smith said its growth in e-commerce continued to be “excellent”, with the roll-out of its new digital platform for ordering, supported by its European distribution sites, described as “going well”.

The company was investing in new box plants in Italy and Poland, and expanding capacity in Germany.

Demand from its industrial customer base had also improved in line with its expectation for positive growth in this sector over the coming year.

Following the sale of its plastics division in 2020, DS Smith noted that this was its first full year as a pure fibre-based business focussed on sustainable packaging, which it said was a development received “strongly” by its customers.

After a period of targeted investment in new packaging capacity, the company said strong growth had resumed in its American division.

DS Smith said its offer was being recognised through further major contract wins from large global customers, resulting in increased use of its new plant in Indiana.

Those increased packaging volumes, together with associated higher domestic use of the firm’s paper production and improved pricing, had resulted in “significantly improved” profitability from the US.

Cash generation was still a key area of focus, the board said, with it expecting a continued strong free cash flow performance, driven by a “significant” working capital inflow, with cash conversion of over 100% and a continued reduction in its net debt.

Input costs, including old corrugated containers (OCC), had increased “significantly” during the second half, due to a combination of high levels of demand and lower availability of raw materials due to the impact of the coronavirus crisis on the market, which also resulted in “substantially higher” paper prices.

However, the company said it was making good progress in recovering those higher costs through increased packaging prices, with the usual lag, as it moved into its next financial year.

“I am pleased to report continued positive momentum across the business,” said group chief executive officer Miles Roberts.

“As a purely fibre-based business we are benefiting from accelerating consumer trends in online shopping and the drive for a more environmentally conscious life.

“Environmental sustainability is at the heart of our strategy and we are excited at the significant opportunities this presents for our packaging solutions and, despite the general macroeconomic uncertainty, for sustained growth across the business.”

At 0901 BST, shares in DS Smith were up 1.38% at 419.36p.