# DS Smith excellent FY performance with market share gains

- Link: https://www.directorstalkinterviews.com/ds-smith-excellent-fy-performance-with-market-share-gains/4121122079
- Published: 2023-06-22T09:50:34+01:00
- Author: Amilia Stone

| 12 months to 30 April 2023
Continuing operations |  | Change(reported) | Change(constant currency) | 
| Revenue | £8,221m | +14% | +11% | 
| Adjusted operating profit^((1)) | £861m | +40% | +35% | 
| Profit before tax | £661m | +75% | +71% | 
| Adjusted basic EPS^((1)) | 43.0p | +40% | +34% | 
| Statutory basic EPS | 35.8p | +75% | +71% | 
| Dividend per share | 18.0p | +20% | NA | 
| Return on sales (RoS)^((2)) | 10.5% | +200bps | +190bps | 
| ROACE^((3)) | 14.3% | +350bps | +350bps |

See notes to financial table below

·    Excellent adjusted operating profit growth of 35% driven by improved product“
added value” and effective cost mitigation more than offsetting volume declines 
and a more challenging inflationary environment

·    Strengthening customer relationships driving record customer ratings and contract
wins

·    Good free cash flow of £354m^((8)) reducing leverage to 1.3x net debt/EBITDA(
2021/22: 1.6x)

·    Continued momentum in plastic replacement with 762 million units of plastic
replaced since 2020 and 297 million in 2022/23

·    Further improvements in [sustainability](https://www.directorstalkinterviews.com/sustainability-green-stocks-news)
metrics and ESG ratings

·    Continued investment in innovation, capacity, efficiency and environmental 
projects

·    Current trading in line with our expectations

> **Miles Roberts, Group Chief Executive, commented:**
> “The performance of the business during the year has been excellent, despite the
> challenging economic environment and I am extremely proud of all our colleagues
> for their dedication and support. We have had an unremitting focus on meeting 
> our customers’ rapidly changing needs with new innovation. This, together with
> high levels of service and our sustainability performance, has been rewarded through
> market share gains during the period.
> Our operational, environmental and financial performances have all been strong
> through the year. Our service levels have remained very high, supporting our customers
> through our robust and flexible supply chain. We have made excellent progress 
> in reducing the environmental impact of our business, and also helped customers
> replace c.300 million pieces of plastic with fibre-based alternatives during the
> year. Our cost and risk management, together with price increases to reflect multi-
> year cost inflation, have more than offset reduced volumes during the year and
> delivered the excellent growth in profit and returns.
> While economic conditions have continued to be volatile and box volumes have remained
> lower than normal, trading for the year to date is in line with our expectations.
> Our strong customer relationships in the resilient FMCG sector, together with 
> the investments we are making to drive cost efficiencies and growth, give us confidence
> for the future.”

There will be a webcast audio presentation today at 9:00am BST with the slides of
the full-year results, followed by a live Q&A, given by Miles Roberts, Group Chief
Executive, Adrian Marsh, Group Finance Director and Richard Pike, Group Finance 
Director Designate.

To access the webcast, please register [here](https://eur01.safelinks.protection.outlook.com/?url=https%3A%2F%2Fstream.brrmedia.co.uk%2Fbroadcast%2F647724a9c0e842f4c6eab009&data=05%7C01%7CAnjali.Kotak%40dssmith.com%7Cc3535b41e7f54b376e7808db6e74497e%7C423430e8247c44d1976722723b7d4cb2%7C0%7C0%7C638225217963264634%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C3000%7C%7C%7C&sdata=8QguETIg5Bqsf7JfAiiHcAMeczK1XQ2vY7y6CycBj6w%3D&reserved=0).
A copy of the slides presented will also be available on the Group’s website, https://
www.dssmith.com/investors/results-and-presentations shortly before the start of 
the presentation.

If you would like to ask a question at the end of the webcast, then you will need
to dial into the associated conference call using the following details. Please 
dial in 15 minutes before the start of the webcast to allow for registration.

Dial-in number (UK): +44 (0) 33 0551 0200

Dial-in number (UK Toll Free): 0808 109 0700

Password: DS Smith

An audio file will also be available on https://www.dssmith.com/investors/results-
and-presentations

**Operating Review**

**Deep customer relationships and cost mitigation driving profit growth**

The macro-economic backdrop has remained challenging, with overall market demand
worse than we originally expected, particularly in the second half of the year when
we saw an impact from de-stocking by our customers and weak end consumer demand,
leading to a full-year decline in our like for like box volumes of 5.8 per cent^((
4)). The medium-term target for box volume growth of GDP+1% was 3% and has been 
heavily distorted by inflation. Despite this, our strong customer relationships 
and focus on quality and service enabled us to gain market share with the more resilient
fast moving consumer goods (FMCG) and other consumer related sectors, now representing
84 per cent of our volumes.

For the twelve month period, revenue grew to £8,221 million (2021/22: £7,241 million),
up 11 per cent on a constant currency basis and 14 per cent on a reported basis 
with the decline in box volumes (£295 million) more than offset by higher selling
prices (£1,196 million) across the Group which reflect the lag in recovery of the
increases in input costs during the period 2021 to 2023. £1,026 million of this 
increase was due to higher packaging prices with the remainder of £170 million due
to increases in the price of external sales of paper and energy, offset by a decline
in the price of recycling materials.

The impact of box and other volume decline led to a (£99 million) reduction in adjusted
operating profit. Despite our continued cost and risk mitigation programmes, input
costs were significantly impacted by inflationary price rises which led to an increase
in costs, excluding the impact of volume declines, of £872 million versus the comparable
period with rises in raw materials costs of £426 million, energy costs of £73 million
and other costs, including labour and distribution, of £373 million. The impact 
of higher energy costs have been mitigated by our 3 year rolling energy hedging 
programme and reduced consumption as we managed paper production particularly in
the second half of the year.

Group return on sales grew during the year to 10.5 per cent (2021/22: 8.5 per cent),
and within our medium-term target range of 10% – 12% reflecting the increase in 
profitability despite the dilutive impact of inflation on both revenues and costs.

Basic earnings per share from continuing operations grew 71 per cent on a constant
currency basis to 35.8 pence. Adjusted basic earnings grew by 34 per cent on a constant
currency basis to 43.0 pence per share, reflecting the growth in profitability.

Return on average capital employed increased significantly by 350 bps to 14.3 per
cent. The improving trend in profitability through the year combined with the improving
returns from acquisitions and investments means ROACE was at the upper end our medium-
term target range of 12 to 15 percent.

**Cashflow and net debt**

During the year, the Group generated free cash flow^((8)) of £354 million (2021/
22: £519 million), reflecting strong profits partly offset by a working capital 
outflow and increased capital expenditure spend. Cash conversion^((7,8)), as defined
in our financial KPIs (note 14), was 101 per cent, in line with our target of being
at or above 100 per cent.

The working capital outflow of £121 million included a net benefit in the year of
£69 million in respect of margin calls to manage our energy hedging position. The
remaining balance of £181 million as at 30 April 2023 is expected to reverse in 
our financial year to 30 April 2024. The underlying working capital outflow reflects
a decline in energy and raw material prices, principally paper, at the end of the
financial year, partly mitigated by good cash collection and inventory management.

Cash generated from operations before adjusting cash items of £1,092 million (2021/
22: £1,092 million) was used to invest in net capex of £526 million, which increased
by 27 per cent on the prior year. We have continued to invest in a number of ongoing
customer-led projects together with our de-carbonisation and energy efficiency programmes.

Net debt as at 30 April 2023 was £1,636 million (30 April 2022: £1,484 million),
principally due to the increased capital expenditure and working capital outflow
described above, together with an additional interim dividend cash payment due to
a change in the timing of payments, as well as adverse movement in foreign exchange.
Our net debt/EBITDA^((6)) ratio (calculated in accordance with our banking covenant
requirements) improved to 1.3 times (2021/22: 1.6 times), substantially below our
banking covenant of 3.75 times and within our medium-term target of at or below 
2.0 times. The final payment of the Interstate put option was delayed by the beneficiary
and had it been paid our leverage would have been 1.4 times. Standard & Poor’s have
reconfirmed our investment grade credit rating with a stable outlook. The Group 
remains fully committed to maintaining its investment grade credit rating.

**Investing for growth**

Over the last decade the Group has grown strongly through organic and inorganic 
growth as we have built a comprehensive platform of geographic coverage and capability
to support our customers in our chosen markets. The structural drivers for growth
in corrugated packaging remain more relevant than ever and support our long-term
strategy of fully fibre-based solutions for a predominantly FMCG customer base. 
The consistent progress with our customers, as evidenced by record customer rating
metrics and continued market share gains, gives us the confidence to invest further
to support customers, drive growth and deliver attractive returns.  

Our capital expenditure for 2023/24 is expected to be  around £500 million. In addition
to maintenance and health and safety focussed expenditure, this will be allocated
across three main areas: investing in new product and service innovation including
helping our customers drive their sustainability agendas; investing in our capacity
and capability in both our packaging operations and aligning our paper capability
to our customer needs; and investing to drive environmental and operational efficiency.
We continue to invest to achieve our Science Based Targets initiative approved CO_(
2) reduction target of 46 per cent from 2019 to 2030 and our commitment to achieving
net zero carbon emissions by 2050.

**Leading the way in sustainability**

Sustainability has been at the heart of our business for many years as we have developed
and grown into a solely fibre-based corrugated packaging business. Our customers
value the investment we make in sustainable solutions and our approach to design
using our leading circular design metrics. We work diligently with them to address
their sustainability challenges and have replaced 762 million of their units of 
plastic since 2020 and 297 million in 2022/23.

As well as supporting our customers’ sustainability challenges we also continue 
to make good progress in delivering against our own sustainability targets. We have
reduced our CO_(2) emissions by 10 per cent in the year (15 per cent compared to
2019), achieved a 4 per cent reduction in water abstraction within paper mills in
areas at risk of water stress, achieved our target of 100 per cent reusable or recyclable
packaging and launched biodiversity programmes at each of our mills.

We are delighted our progress has been recognised with further improvements in our
rating by a number of external indices including S&P Global and Sustainalytics and
through our continuing high ratings at CDP, MSCI and EcoVadis.

**Dividend**

The Board considers the dividend to be an extremely important component of shareholder
returns. Today, we are announcing a final dividend of 12.0p per share, taking the
total dividend for this year to 18.0 pence per share, an increase of 20 per cent
and consistent with our policy of 2.0-2.5 times dividend cover over the medium-term.

Subject to approval of shareholders at the AGM to be held on 5 September 2023, the
final dividend will be paid on 3 October 2023 to shareholders on the register at
the close of business on 8 September 2023.

**Progress against medium-term targets**

| Medium-term targets_Continuing operations_ | Delivery in 2022/23 | 
| Organic volume growth^((4)) ≥GDP^((5))+1%, being 3% | (5.8%) | 
| Return on sales^((2)) 10% – 12% | 10.5% | 
| ROACE^((3)) 12% – 15% | 14.3% | 
| Net debt / EBITDA^((6)) ≤2.0x | 1.3x | 
| Cash conversion^((7,8))  ≥100% | 101% |

See notes to the financial tables above

**Our medium-term targets and key performance indicators**

We measure our performance according to both our financial and non-financial medium-
term targets and key performance indicators. Our financial key performance indicators
and medium-term targets have been discussed above.

**Non-financial key performance indicators**

DS Smith is committed to providing all employees with a safe and productive working
environment. We are pleased, once again, to report improvements in our safety record,
with our accident frequency rate (defined as the number of lost time accidents per
million hours worked) reducing by a further 6 per cent to 1.8, reflecting our ongoing
commitment to best practice in health and safety. We are proud that 265 out of a
total of 325 reporting sites achieved our target of zero accidents this year and
we continue to strive for zero accidents for the Group as a whole.

In the year we achieved a good performance in our customer service measure of OTIF(
on time, in full deliveries) at 96 per cent, a significant improvement on the prior
year (94%). Management remains fully committed to our target of 97% on-time, in-
full deliveries and the highest standards of service, quality and innovation to 
all our customers and we will continue to strive to meet the demanding standards
our customers expect.

**Outlook**

While economic conditions have continued to be volatile and box volumes have remained
lower than normal,  trading for the year to date is in line with our expectations.
Our strong customer relationships in the resilient FMCG sector, together with the
investments we are making to drive cost efficiencies and growth, give us confidence
for the future.**

**Operating Review**

**Northern Europe**

|  | Year ended 30 April 2023 | Year ended 30 April 2022 | Change – reported | Change – constant currency | 
| Revenue | £3,132m | £2,790m | 12% | 11% | 
| Adjusted operating profit* | £212m | £139m | 53% | 51% | 
| Return on sales^((2)) | 6.8% | 5.0% | 180bps | 180bps |

*Operating profit before amortisation and adjusting items (refer to note 3 of the
financial statements)

In Northern Europe, organic corrugated box volumes across the region declined more
than the Group average due to weaker overall economic conditions and very strong
growth in the comparative period. Germany experienced higher levels of decline due
to a larger market exposure to the industrial sector with the UK market impacted
by a decline in the e-commerce sector following particularly strong growth over 
a number of years. Revenues increased by 11 per cent in the region due to a combination
of the increases in box prices in packaging and an increase in sales prices for 
externally sold paper and volumes of recycled fibre.

Adjusted operating profit grew substantially due to the increase in both paper and
packaging price drop-through as well as strong cost management, partly offset by
inflation and costs of £17 million related to the strategic review of our UK recycling
depot network.

**Southern Europe**

|  | Year ended 30 April 2023 | Year ended 30 April 2022 | Change – reported | Change – constant currency | 
| Revenue | £3,150m | £2,736m | 15% | 12% | 
| Adjusted operating profit* | £501m | £324m | 55% | 51% | 
| Return on sales^((2)) | 15.9% | 11.8% | 410bps | 400bps |

* Operating profit before amortisation and adjusting items (refer to note 3 of the
financial statements)

Southern Europe saw a lower decline in box volumes than the Group average, reflecting
a positive market share performance partially mitigating the overall economic conditions,
with France weaker than Iberia and Italy reflecting weakness in overall household
consumption.

Revenues grew by 12 per cent, due to the impact of increases in both packaging and
paper pricing. Adjusted operating profit grew by over 50 per cent compared to the
prior period, due to a very positive performance from the former Europac business
acquired in 2019 as well as the drop-through of price increases in packaging. Accordingly,
return on sales for the region grew to the highest within the Group.

**Eastern Europe**

|  | Year ended 30 April 2023 | Year ended 30 April 2022 | Change – reported | Change – constant currency | 
| Revenue | £1,275m | £1,118m | 14% | 14% | 
| Adjusted operating profit* | £76m | £73m | 4% | 4% | 
| Return on sales^((2)) | 6.0% | 6.5% | (50bps) | (50bps) |

* Operating profit before amortisation and adjusting items (refer to note 3 of the
financial statements)

Organic corrugated box volumes in Eastern Europe declined less than the Group average,
reflecting the relatively consistent performance of the region over the last few
years. Turkey saw the largest decline due to the impact of the recent earthquake.

Revenues grew 14 per cent, principally reflecting increases in packaging and paper
pricing and adjusted operating profit grew 4 per cent, reflecting the recovery of
higher paper prices offset by cost inflation and costs of £19 million related to
the decision to close our Trakia paper mill in Bulgaria.

**North America**

| 
Year ended 30 April 2023Year ended 30 April 2022Change – reportedChange -constant currencyRevenue£664m£597m11%(2%)Adjusted operating profit*£72m£80m(10%)(21%)Return on sales^((2))10.8%13.4%(260bps)(270bps)*Operating profit before amortisation and adjusting items (refer to note 3 of the financial statements)   |  |

Packaging volumes in the region declined more than the Group average, reflecting
the overall economic environment and labour shortages particularly in the first 
half, which temporarily restricted our production capacity at certain sites.

Revenues decreased 2 per cent with increased packaging prices offset by the decline
in volumes and reduced pricing from external paper volumes sold in the export market.
Adjusted operating profit reduced due to export paper price declines in the second
half and inflationary increases in costs.

**Financial Review**

**Overview**

2022/23 has seen the Group respond with strength to significant market and macro-
economic uncertainty, delivering profit growth with its highest recorded adjusted
operating profit and achieving its medium-term targets for return on average capital
employed, return on sales and leverage.

The business saw revenue growth of 14 per cent (constant currency 11 per cent) as
a short-term decline in packaging volumes were more than offset by sales mix and
average selling prices. Adjusted operating profit grew by 40 per cent (constant 
currency 35 per cent) reflecting the recovery of increased costs in the current 
and previous years.

During these significant periods of macroeconomic uncertainty, the Group remains
committed to achieving its medium-term financial measures and key performance indicators,
as established by the Board, together with maintaining its investment grade credit
rating. The principal measure of return on average capital employed (ROACE) for 
the year was 14.3 per cent (2021/22: 10.8 per cent), which was towards the top of
the target range of 12 to 15 per cent – and a 350 basis point improvement from the
previous year. The results are described below:

·    Organic corrugated box volume reduced by 5.8 per cent (2021/22: an increase
of 5.4 per cent)

·    Revenue increased 11 per cent on a constant currency and 14 per cent on a reported
basis to £8,221 million (2021/22: £7,241 million)

·    Adjusted operating profit of £861 million, an increase of 35 per cent on a 
constant currency basis and 40 per cent on a reported basis (2021/22: £616 million)

·    65 per cent increase in operating profit to £733 million on a reported basis;
61 per cent increase on a constant currency basis (2021/22: £443 million)

·    71 per cent increase in statutory profit before tax to £661 million on a constant
currency basis and 75 per cent increase on a reported basis (2021/22: £378 million)

·    Adjusted return on sales at 10.5 per cent (2021/22: 8.5 per cent)

·    Adjusted return on average capital employed of 14.3 per cent (2021/22: 10.8
per cent)

·    Net debt to EBITDA ratio of 1.3 times (2021/22: 1.6 times)

·    Cash conversion 101 per cent (2021/22: 142 per cent).

Unless otherwise stated, the commentary below references the continuing operations
of the Group.

**Non-GAAP performance measures**

The Group presents non-GAAP measures alongside reported measures, in order to provide
a balanced and comparable view of the Group’s overall performance and position. 
Non-GAAP performance measures eliminate amortisation and unusual or non-operational
items that may obscure understanding of the key trends and performance. These measures
are used both internally and externally to evaluate business performance, as a key
constituent of the Group’s planning process, they are applied in the Group’s financial
and debt covenants, as well as comprising targets against which compensation is 
determined. Amortisation relates primarily to customer contracts and relationships
arising from business combinations. Unusual or non-operational items include business
disposals, restructuring, acquisition related and integration costs and impairments,
and are referred to as adjusting items.

Reporting of non-GAAP measures alongside statutory measures is considered useful
by investors to understand how management evaluates performance and value creation,
enabling them to track the Group’s performance and the key business drivers which
underpin it and the basis on which to anticipate future prospects.

Note 14 explains further the use of non-GAAP performance measures and provides reconciliations
as appropriate to information derived directly from the financial statements. Where
a non-GAAP measure is referred to in the review, the equivalent measure stemming
directly from the financial statements (if available and appropriate) is also referred
to.

**Trading results**

Revenue increased by 14 per cent on a reported basis to £8,221 million (2021/22:
£7,241 million). Packaging price rises across the year, reflecting cost inflation,
coupled with higher selling prices of  paper and recyclate in the first half of 
the year increased revenue by £1,196 million, offsetting volume reduction effects
of £398 million.

Reported revenues are subject to foreign currency translation effects. In the year,
the euro accounted for 60 per cent of Group revenue. As such, the movements of the
euro against sterling during the year constituted the majority of the £182 million
of positive foreign exchange translation impact. On a constant currency basis, revenues
increased by 11 per cent.

Corrugated box volumes reduced by 5.8 per cent (2021/22: 5.4 per cent growth) driven
by a significant destocking in the supply chain reflecting the economic uncertainty
and sentiment in the Group’s core markets and segments.  The prior year volumes 
were particularly high (8.4 billion m^(2) of box sales) reflecting significant supply
chain filling across all European markets as countries moved out of Covid restrictions.
The average of the previous 2 years’ volumes of (8.2 billion m^(2) of box sales)
represents a more normalised single year.

Adjusted operating profit of £861 million on a reported basis is an increase of 
40 per cent (2021/22: £616 million). This is largely attributable to price rises(
£1,196 million) exceeding the impact of volume reduction of £99 million and input
cost increases of £872 million. Constant currency growth was 35 per cent as foreign
exchange translation benefited adjusted operating profit by £20 million. The price
rises in the year also reflect the full-year effect of price rises put into effect
in 2021/22 to recover the significant cost increases experienced in the second half
of that year.

Operating profit at £733 million, is an increase of 61 per cent on a constant currency
basis and 65 per cent on a reported basis (2021/22: £443 million), as lower amortisation
and adjusting items added to the adjusted operating profit improvement.

On a reported basis, depreciation increased to £312 million (2021/22: £290 million)
reflective of investment in new packaging production capacity in Italy and Poland.
Amortisation decreased to £113 million (2021/22: £138 million) as intangibles arising
on earlier acquisitions completed their amortisation term.

The key measure of return on average capital employed improved by 350 basis points
to 14.3 per cent (2021/22: 10.8 per cent). This performance is at the upper end 
of the Group’s medium-term target of 12 to 15 per cent and builds on the momentum
seen in the second half of the prior year.

The Group has continued to focus on margin recovery through commercial excellence,
ongoing cost management and efficiency programmes. Adjusted return on sales increased
by 200 basis points to 10.5 per cent (2021/22: 8.5 per cent), within the medium-
term target of 10 to 12 per cent.

| Income statement – from continuing operations
(unless otherwise stated) | 2022/23£m | 2021/22 £m | 
| Revenue | 8,221 | 7,241 | 
| Adjusted operating profit^(1) | 861 | 616 | 
| Operating profit | 733 | 443 | 
| Adjusted return on sales^(1) | 10.5% | 8.5% | 
| Adjusted net financing costs^(1) | (74) | (70) | 
| Share of profit of equity-accounted investments, net of tax | 2 |  7 | 
| Profit before income tax | 661 | 378 | 
| Adjusted profit before income tax^(1) | 789 | 553 | 
| Adjusted income tax expense^(1) | (197) | (131) | 
| Adjusted earnings^(1) | 592 | 422 | 
| Profit from discontinued operations,net of tax | 11 |  – | 
| Adjusted basic earnings per share^(1) | 43.0p | 30.7p | 
| Profit for the year attributable to owners of the parent (including discontinued operations) | 502 |  280 | 
| Basic earnings per share from continuing and discontinued operations | 36.6p | 20.4p | 
| Basic earnings per share from continuing operations | 35.8p | 20.4p |

1. Adjusted to exclude amortisation and adjusting items (see note 7).

**Adjusting items**

Adjusting items before tax and financing costs were £15 million (2021/22: £35 million)
which relates to the pending acquisition of the final 10 per cent of the shares 
in Interstate Resources LLC.  This is due to the crystallisation of the put option
for the final 10 per cent stake during the financial year. In relation to this, 
costs of hedging the dollar payment of the liability have been incurred which will
continue until the payment is made.

There have been no new adjusting items from continuing operations in the financial
year, in line with guidance.

Settlement of certain costs and obligations arising from the disposal of the Plastics
division in 2021 resulted in a gain in adjusting items in profit from discontinued
operations of £11 million.

Adjusting items in 2023/24 are expected to be £nil.

**Interest, tax and earnings per share**

Net finance costs were £74 million (2021/22: £70 million). The  increase of £4 million
on last year is primarily due to rises in interest rates more than offsetting the
effects of lower levels of debt. The employment benefit net finance expense of £
1 million is £2 million lower than prior year.

Adjusting financing costs in the prior year related to the final unwind of the Interstate
Resources put option.

The share of profits of equity-accounted investments was lower than the prior year
at £2 million (2021/22: £7 million) as the conflict in Ukraine continues to impact
our associate there.

Profit before tax increased by 75 per cent on a reported basis to £661 million (
2021/22: £378 million), driven by the increase in operating profit and a reduction
in amortisation offset by  increased financing costs. Adjusted profit before tax
of £789 million (2021/22: £553 million) increased by 43 per cent on a reported basis,
again due to the increase in the underlying adjusted operating profit.

The tax charge of £169 million (2021/22: £98 million) reflects the impact of higher
profits. The Group’s effective tax rate on adjusted profit, excluding amortisation,
adjusting items and associates, was 25.0 per cent (2021/22: 24.0 per cent).

Reported profit after tax, amortisation and adjusting items for continuing and discontinued
operations was £503 million (2021/22: £280 million). The increase in operating profit
led to an increase of 75 per cent in basic earnings per share from continuing operations
on a reported basis to 35.8 pence (2021/22: 20.4 pence), with adjusted earnings 
per share from continuing operations 40 per cent higher at 43.0 pence (2021/22: 
30.7 pence) on a reported basis, 34 per cent higher on a constant currency basis.

**Acquisitions and disposals**

In recent years, the Group’s strategy has focused on organic growth in order to 
support growth with our major customers.

During 2019/20, the Group agreed to the purchase of a further 10 per cent holding
in Interstate Resources for £106 million, following the exercise of part of the 
pre-existing put option by the former owners of that business. A cash settlement
of £82 million was made in June 2020 with the balance paid in October 2021. The 
final 10 per cent stake remains subject to the put option conditions, which have
now been met in the 2022/23 financial year with a final expected payment of $129
million which will be paid in 2023/24.

In the first half of 2021/22, the Group disposed of its non-core Dutch paper mill
operations for a consideration net of transaction costs of £35 million.

**Cash flow**

Reported net debt of £1,636 million (30 April 2022: £1,484 million) has increased
from the prior year, as the rise in EBITDA from the strong business performance 
was offset by a net working capital outflow of £121 million, due largely to the 
decline in energy prices and paper raw material purchase prices at the end of the
financial year, net capital expenditure of £526 million, £111 million higher than
the previous year, and higher tax payments.  The working capital outflows were  
mitigated by maintaining focus on cash management, in particular cash collection
and inventory management. The Group’s energy and carbon hedges remained at a high
value during the year and in order to manage our counterparty risk, margin calls
of £267 million were made, of which £181 million relates to positions maturing after
the year end. After the effect of benefits from prior year margin calls reversing,
the net benefit to working capital of this credit risk management was £69 million.
There was no impact on income from these actions. The debt was also impacted by 
both the absolute amount of dividends paid and also, following shareholder feedback,
the acceleration of the 2022/23 interim dividend payment date to January 2023 which
resulted in an additional payment of £83 million in the year compared to the previous
year.

Trade receivables factoring is £21 million lower than April 2022 at £360 million.
This is a reduction of some 35 per cent from the peak balance of £559 million in
2018. Going forward the Group expects to continue to sell high credit quality receivables
under this programme within the range £350-400 million outstanding at any one time.
Such arrangements enable the Group to optimise its working capital position and 
reduces the quantum of early payment discounts given. 

Net capital expenditure increased by £111 million to £526 million in the year. The
Group continued to focus on growth and efficiency capital projects, which represented
59 per cent of the reported spend in the year, with energy efficiency and carbon
reduction projects representing 12 per cent of spend. Major investments in greenfield
packaging plants in Italy and Poland were a significant portion of this, with the
sites fully operational in 2022/23. Proceeds from the disposal of property, plant
and equipment were £19 million (2021/22: £16 million).

Tax paid of £136 million is £40 million higher than the prior year driven by increasing
levels of profit in 2021/22.

Net interest payments of £76 million increased by £14 million over the prior year
driven by higher interest rates. Timing of payments on maturing US private placements
and Euro medium-term notes accounts for the majority of the difference between cash
interest paid and finance costs reported in the income statement, partly offset 
by amortisation of debt issuance fees.

Cash outflows associated with adjusting items increased by £1 million to £14 million
as programmes which commenced in previous years concluded and minimal cash outflows
are anticipated in 2023/24.

Prior year disposal proceeds of £35 million related to the sale of the de Hoop mill.

Cash generated from operations before adjusting cash items was flat at £1,092 million.
Net cash inflow was £49 million, a £284 million decrease on the prior year.  This
reflects the effect of working capital outflows in the current year, increased net
capital expenditure and tax payments and includes the impact of bringing forward
of the date of settlement of the interim dividend.

| Cash flow | 2022/23
£m | 2021/22 £m | 
| Cash generated from operations before adjusting cash items | 1,092 |  1,092 | 
| Capital expenditure (net of disposal of fixed assets) | (526) |  (415) | 
| Tax paid | (136) | (96) | 
| Net interest paid | (76) | (62) | 
| Free cash flow | 354 | 519 | 
| Cash outflow for adjusting items | (14) | (13) | 
| Dividends | (289) | (166) | 
| Acquisitions and disposals of businesses, net of cash and cash equivalents | (-) | 12 | 
| Other | (2) | (19) | 
| Net cash flow | 49 | 333 | 
| Issue of share capital | 4 | 7 | 
| Loans, borrowings and finance leases divested | – | 1 | 
| Foreign exchange, fair value and other movements | (205) |  (30) | 
| Net debt movement –continuing operations | (152) |  311 | 
| Net debt movement –discontinued operations | – |  – | 
| Opening net debt | (1,484) | (1,795) | 
| Closing net debt | (1,636) | (1,484) |

**Statement of financial position**

At 30 April 2023, shareholder funds decreased to £4,084 million, from £4,232 million
in the prior year. Profit attributable to shareholders of £502 million (2021/22:
£280 million), together with an actuarial gain on employee benefits of £11 million(
2021/22: £68 million gain) and foreign currency translation gain of £194 million(
2021/22: loss of £40 million), was offset by a net reduction in the cash flow hedge
reserve of £645 million (2021/22: £712 million gain) driven by the significant reduction
in the underlying value of our commodity hedge positions as energy prices fell. 
Dividends paid in the year were £289 million (2021/22: £166 million).

Equity attributable to non-controlling interests was £3 million (2021/22: £2 million).

The Group’s banking covenants stipulate the methodology upon which the net debt 
to adjusted earnings before interest, tax, depreciation and amortisation (EBITDA)
ratio is to be calculated. The effects of IFRS 16 Leases, adopted since 1 May 2019,
are excluded by the banks from the ratio’s determination. The ratio has reduced 
to 1.3 times, with an increase in adjusted EBITDA and a reduction in adjusted net
debt. This represents an improvement from the previous year-end position of 1.6 
times. The ratio remains compliant with the covenant requirements, which across 
all banking debt is 3.75 times. As the payment associated with the exercise of the
second tranche of the Interstate Resources put option is still outstanding at 30
April 2023, this has not been factored in to the calculated ratio. If the payment
was included, the ratio would increase to circa 1.4 times. The Group’s publicly 
traded euro and sterling bonds are not subject to any financial covenants. The bonds
are, however, subject to a coupon step up of 125 basis points for any period the
Group falls below an investment grade credit rating.

The covenant calculations also exclude income statement items identified as adjusting
by the Group and any interest arising from the defined benefit pension schemes. 
At 30 April 2023, the Group has substantial headroom under its covenants, with the
future outlook assessed as part of the annual going concern review. The Group’s 
investment grade credit rating from Standard & Poor’s remains stable at investment
grade, which takes into account all the items excluded from covenant calculations
and working capital.

| Statement of financial position | 30 April 2023£m | 30 April 2022£m | 
| Intangible assets | 2,927 | 2,906 | 
| Property, plant and equipment | 3,529 | 3,128 | 
| Right-of-use assets | 224 | 199 | 
| Inventories | 619 | 703 | 
| Trade and other receivables | 1,257 | 1,229 | 
| Cash and cash equivalents | 472 | 819 | 
| Derivative financial instruments | 319 | 811 | 
| Employee benefits | 24 | – | 
| Other | 86 | 91 | 
| Total assets | 9,457 | 9,886 | 
| Bank overdrafts | (104) | (73) | 
| Borrowings | (1,816) | (2,072) | 
| Trade and other payables | (2,287) | (2,540) | 
| Provisions | (65) | (55) | 
| Employee benefits | (79) | (86) | 
| Lease liabilities | (224) | (203) | 
| Derivative financial instruments | (368) | (84) | 
| Other | (427) | (539) | 
| Total liabilities | (5,370) | (5,652) | 
| Net assets | 4,087 | 4,234 | 
| Net debt | 1,636 | 1,484 | 
| Net debt to EBITDA ratio | 1.3x | 1.6x |

**Energy costs**

Production facilities, in particular paper mills, are energy intensive which results
in energy being a significant cost for the Group. In 2022/23, costs for gas, electricity
and other fuels, net of periodic local incentives, were £669 million (2021/22: £
609 million). The year saw significant increases in the first half year, which eased
into the second half, with energy costs for the first half year of £400 million 
decreasing to £269 million in the second half year (2021/22: H1 £240 million, H2
£369 million). The net impact on the Group was mitigated by an increase in energy
sales, significantly less paper production in the second half of the year, the Group’s
three-year rolling hedging programme and the benefits of free allowances following
the introduction of phase 4 of the EU Emissions Trading Scheme. The Group continues
to invest in energy efficiency projects and limits the exposure to volatile energy
pricing by hedging energy costs with suppliers and financial institutions, managed
by the Group’s Energy Procurement team.

**Capital structure and treasury management**

In addition to its trading cash flow, the Group finances its operations using a 
combination of borrowings, property and equipment leases, shareholders’ equity and,
where appropriate, disposals of non-core businesses. The Group’s funding strategy
is to achieve a capital structure that provides an appropriate cost of capital whilst
providing the desired flexibility in short and medium-term funding to enable the
execution of material investments or acquisitions, as required.

The Group aims to maintain a strong balance sheet enabling significant headroom 
within the financial covenants and to ensure continuity of funding by having a range
of maturities from a variety of sources. The Group has an investment grade rating
from Standard & Poor’s of BBB-, with a stable outlook.

The Group’s overarching treasury objective is to ensure sufficient funds are available
for the Group to execute its strategy and to manage the financial risks to which
the Group is exposed.

In November 2018, the Group signed a £1.4 billion five-year committed syndicated
revolving credit facility (RCF) with its core banks. The second extension option
was exercised in November 2020. £1.1 billion of the facility now matures in 2025
with the remaining £0.3 billion maturing in 2024.

In April 2023, the Group signed a £500 million term loan facility with initial maturity
of April 2024 extendable at the Group’s discretion to April 2025. The facility remained
undrawn at the year end.

Available cash and debt facilities are reviewed regularly to ensure sufficient funds
are available to support the Group’s activities. At 30 April 2023, the Group’s committed
facilities totalled £3.4 billion, of which £1.6 billion remained undrawn and £2.9
billion matures beyond one year or more. Undrawn committed borrowing facilities 
are maintained to provide protection against refinancing risk.

At 30 April 2023, the committed borrowing facilities had a weighted average maturity
of 2.4 years (30 April 2022: 3.0 years). Additional detail on these facilities is
provided below. Total gross borrowings at 30 April 2023 were £1,816 million (30 
April 2022: £2,072 million). The committed borrowing facilities described do not
include the £440 million of three-year committed factoring facilities, which allow
the sale of receivables without recourse. Given the three-year committed nature 
of these facilities, they fully protect the Group from any short-term liquidity 
risks which may arise from volatility in financial markets.

As described above, the Group continues to sell trade receivables without recourse,
a process by which the trade receivables balance sold is de-recognised, with proceeds
then presented within operating cash flows.

The Group maintains a €1 billion Euro Commercial Paper Programme, which remained
undrawn at 30 April 2023.

| Facilities | Currency | Maturity date | £m equivalent | 
| Syndicated RCF 2018 | Various | 2024-25 | 1,400 | 
| Euro medium-term notes | EUR | 2024-26 | 1,189 | 
| Euro RCF 2020 | EUR | 2025 | 53 | 
| Sterling bond medium-term note | GBP | 2029 | 250 | 
| Euro term loan | EUR | 2025 | 17 | 
| GBP term loan | GBP | 2024 | 500 | 
| Committed facilities at
30 April 2023 |  |  | 3,409 |

**Impairment**

The net book value of goodwill and other intangibles at 30 April 2023 was £2,927
million (30 April 2022: £2,906 million).

IAS 36 Impairment of Assets requires annual testing of goodwill and other intangible
assets, as well as an assessment of any other assets for which there may be indicators
of impairment. As part of this testing, the Group compares the carrying amount of
the assets subject to testing with the higher of their net realisable value and 
value-in-use to identify whether any impairment exists. The asset or group of assets,
value-in-use is determined by discounting the future cash flows they expect to generate
from the basis of the Group’s weighted average cost of capital (WACC) of 9.5 per
cent (2021/22: 9.5 per cent), plus a blended country risk premium for each group
of assets. Asset values were tested as at 30 April 2023, with no impairment identified
as a result of the testing performed.

**Pensions**

The Group’s primary funded defined benefit pension scheme, based in the UK, is closed
to future accrual. There are a variety of other post-retirement and employee benefit
schemes operated locally for overseas operations, and an additional unfunded scheme
in the UK relating to three former directors which is secured against assets of 
the UK business. In accordance with IAS 19 _Employee Benefits (Revised 2011)_, the
Group is required to make assumptions surrounding rates of inflation, discount rates
and current and future life expectancies, amongst others, which could materially
impact the value of any scheme surplus or liability. A material revaluation of the
relevant assets and liabilities could result in a change to the cost to fund the
scheme liabilities.

The assumptions applied are subject to periodic review. A summary of the balance
sheet position as at 30 April is as follows:

|  | 30 April
2023£m | 30 April2022£m | 
| Aggregate gross assets of schemes | 848 | 1,113 | 
| Aggregate gross liabilities of schemes | (903) | (1,199) | 
| Balance sheet deficit | (55) | (86) | 
| Deferred tax assets | 14 | 21 | 
| Net balance sheet deficit | (41) | (65) |

The net deficit has decreased versus prior year driven by significant increase in
discount rate assumptions at 30 April 2023 and a less than corresponding fall in
the asset valuations.

The 2019 triennial valuation of the main UK scheme incorporated updates to underlying
scheme assumptions, including demographic and life expectancy rates, which, along
with updates surrounding mortality and proportion married assumptions and future
improvements, resulted in a net circa 3 per cent decrease in the valuation of the
scheme liabilities. No changes were made to the previously approved funding plan
following the triennial valuation. The main UK pension scheme has been undertaking
its 2022 triennial valuation, with the valuation mutually agreed between the Company
and the Scheme Trustees with anticipation of formal agreement being achieved by 
the statutory deadline of 31 July 2023.

Total cash contributions paid into DS Smith pension schemes, reported within cash
generated from operations in the cash flow, were £25 million in 2022/23 (2021/22:
£21 million), which primarily constitute the agreed contributions under the UK defined
benefit scheme deficit recovery plan.  In response to the market turmoil following
the UK “mini- budget” in September 2022, the Group made funding support of up to
£100 million to the main UK defined benefit pension scheme. This took the form initially
of a cash advance in anticipation of potential margin calls and latterly a liquidity
facility. The cash advance was fully repaid within days of being made and as at 
30 April 2023 the liquidity facility remained in place but was undrawn.

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