• Strong financial performance and position, growing market share
• Strong European performance
• US domestic performance offset by continued weak export paper pricing
• Successful integration of Europac and disposal of Plastics division
Miles Roberts, Group Chief Executive, commented: “We have made good strategic and financial progress in the year, with the disposal of our Plastics division reinforcing our focus on sustainable fibre-based packaging and our strong commercial focus driving record margin. Of course, the year ended with the onset of the Covid-19 pandemic and I am extremely proud of our employees and their tremendous support, working with our suppliers and communities to ensure every factory has remained open throughout the pandemic, delivering essential supplies with outstanding levels of service in this extraordinary time.
“Our business model is resilient, built on our consistent FMCG and e-commerce customer base. In the short term, however, the impact of Covid-19 on the economies in which we operate is likely to impact volumes to industrial customers and add to operating costs. In particular, infrastructure constraints have driven elevated OCC prices, although we currently expect the impact to be limited to H1. With the current economic uncertainty, we continue to focus on our employees, our customers, our communities and on the efficiency and cash generation of our business and accordingly the Board considers it premature to resume dividend payments at this stage.”
Performance for the first 10 months of the financial year was robust, with an impact, albeit relatively limited (c. £15 million), in the final two months of the year from the Covid-19 pandemic. 2019/20 has also seen us complete the disposal of our plastic packaging business (for £436 million), reinforcing our focus on sustainable fibre-based packaging, and begin operations in our new build corrugated packaging plant in Indiana, US – both important strategic steps.
Our corrugated box volumes in the first five months of H2 grew as anticipated, significantly ahead of the first half of the year, ahead of the market, and we have delivered record return on sales margins of 10.9 per cent, in the middle of our recently upgraded target range. On an organic basis, profit growth in Europe of £7 million was more than offset by reduced profit in North America (down £67 million). The business benefited from the acquisition of Europac, for which this has been the first full year of ownership. Europac has performed very well, with synergies (upgraded last year) realised as expected and the packaging operations are now profitable as planned. Europac has been an exceptional scale opportunity to enhance our customer offer in Iberia, a key packaging growth region, and strengthen our global supply platform, in particular with the addition of a strategically important kraftliner mill.
For the full year, revenue (continuing operations) declined 2 per cent on a constant currency basis. There was a positive contribution from European corrugated box volumes (£22 million) and an incremental c. nine month contribution from Europac (which was acquired in mid January 2019) of £376 million, offset in Europe by reduced pricing of external paper, recyclate and box prices (together down £285 million year on year), and a decline in other volumes particularly due to increased paper and recyclate integration and reduced volumes of corrugated sheet (down £175 million). The reduced sales price across the European operations was driven principally by a fall in testliner and kraftliner pricing, which partly fed through into corrugated packaging pricing progressively through the year as indexed contracts adjusted for the market price of paper, the main input cost. The North America business also recorded a fall in revenue (down £63 million), principally reflecting lower paper prices into the export market.
Operating profit improved 6 per cent (constant currency) to £455 million (2018/19: £427 million). Adjusted operating profit (continuing operations) increased by 5 per cent on a constant currency basis to £660 million (2018/19: £631 million), as we continued to focus on the margin within the business, reflected in a record return on sales for the Group of 10.9 per cent (2018/19: 10.2 per cent).
more detail at: https://www.dssmith.com/investors/results-and-presentations/2020/ds-smith-full-year-results-201920