DS Smith treads “difficult macro environment”

Overall, organic corrugated box volumes grew at a rate of 0.7 per cent, which was ahead of market growth, but behind DS Smith’s target of GDP plus 1 per cent. As well as volume growth, the group’s gains were largely driven by the contribution from Spanish packaging business Europac, which it acquired in 2019 – it fed £44m into an overall £103m lift in adjusted operating profits. The Europac deal provided £17m in cost synergies, too.

Unsurprisingly, Southern European profits rose significantly due to the addition of Europac, although the group was affected by difficult industrial conditions in France. Weak market conditions were even more noticeable in Germany, where exposure to stagnant paper manufacturing contributed to a 27 per cent drop in Northern European adjusted operating profits. “We were nervous at one point about whether there’ll be a contagion effect from poor industrial growth in Germany,” DS Smith group finance director Adrian Marsh said. The group’s focus on fast-moving consumer goods and a relatively low exposure to industrials has helped to reduce the toll of a slowing macroeconomic environment. A decline in paper prices was largely responsible for North American revenues falling by 11 per cent.

The group expects to complete the disposal of its plastics business by the end of the year and stands to bank around £400m in proceeds from the sale. Mr Marsh said the funds would go towards repaying DS Smith’s debt, reducing its leverage from 2.3 times cash profits to a multiple of two. DS Smith will also use the proceeds to buy an additional 10 per cent stake in US subsidiary Interstate Resources.

House broker Investec forecasts full-year 2020 pre-tax profits and EPS of £626m and 34.7p, respectively, rising to £676m and 37.4p in FY2021.