2024/25 HALF YEAR RESULTS
05/12/2024 07:00
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RNS Number : 8718O Smith (DS) PLC 05 December 2024
5 December 2024
DS Smith Plc - 2024/25 HALF YEAR RESULTS -
IN-LINE PERFORMANCE DESPITE CHALLENGING ENVIRONMENT
6 months to 31 October 2024 Change Change
Continuing operations (reported) (constant currency)
Revenue £3,371m (4%) (2%)
Adjusted operating profit((1)) £221m (39%) (38%)
Profit before tax £29m (89%) (89%)
Adjusted basic EPS((1)) 8.3p (53%) (52%)
Statutory basic EPS 3.1p (79%) (79%)
Dividend per share 6.2p +3% +3%
Return on sales (RoS)((2)) 6.6% (380bps) (370bps)
ROACE((3)) 8.3% (450bps) (450bps)
Net debt / EBITDA((4)) 2.8x - -
See notes to financial table below
· Adjusted operating profit of £221m (H1 2023/24: £365m), in line
with our expectations, despite ongoing challenging market conditions
· Like for like box volume growth of 2%, coupled
with relentless focus on customer service, quality and innovation
· Lower adjusted profit driven by the expected lower packaging
prices
· Higher input costs, notably fibre and paper, broadly offset
by cost reduction and productivity initiatives
· £75m of International Paper transaction costs reflected in
statutory profits
· Interim dividend 6.2 pence per share
· Continued capital and operational investment to support our
customers and drive long term productivity and environmental efficiency
· DS Smith and IP shareholders overwhelmingly voted in favour of the
Recommended all-share offer from International Paper to combine the businesses
and create a truly international sustainable packaging solutions leader
o Completion expected Q1 2025
Miles Roberts, Group Chief Executive, commented:
"We have delivered a solid performance, with profitability in line with our
expectations, despite a continued challenging market environment. We
have maintained our relentless focus on customer service, product
quality and innovation, together with significant cost and productivity
initiatives, to mitigate the impact of a softer than expected overall market.
Looking forward, whilst recognising the recent paper price weakness, we
continue to expect modest growth in packaging volumes and increasing
sequential prices to recover higher input costs.
We announced in April a recommended offer from International Paper to create
a truly international sustainable packaging solutions leader that is well
positioned in attractive and growing markets across Europe and North
America and I am delighted that both DS Smith and International Paper
shareholders overwhelmingly voted in favour of the transaction. We
are working extensively with International Paper and expect completion in
the first quarter of 2025. Our planning for the integration of our
businesses is progressing well, and we remain excited about the opportunities
for customers, employees and shareholders."
Enquiries
DS Smith Plc
+44 (0)20 7756 1800
Investors
Hugo Fisher, Group Investor Relations Director
Media
Greg Dawson, Corporate Affairs Director
Brunswick
+44 (0)20 7404 5959
Simon Sporborg
Dan Roberts
There will be a webcast audio presentation at 9:00am with the slides of the
half year results, followed by a Q&A, given by Miles Roberts, Group Chief
Executive and Richard Pike, Group Finance Director.
To access the webcast, please register here
(https://stream.brrmedia.co.uk/broadcast/6720f8bcc86085b1bff5b3d6) . A copy of
the slides presented will also be available on the Group's website,
https://www.dssmith.com/investors/results-and-presentations
(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.
Standard International Access: +44 (0) 33 0551 0200
UK Toll Free: 0808 109 0700
Password: DS Smith
The webcast will be available to review:
https://www.dssmith.com/investors/results-and-presentations
(https://www.dssmith.com/investors/results-and-presentations)
Notes to the financial tables
Note 14 explains the use of non-GAAP performance measures. 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 establishing the targets against
which compensation is determined. Reporting of non-GAAP measures alongside
reported measures is considered useful to enable investors to understand how
management evaluates performance and value creation internally, enabling them
to track the Group's adjusted performance and the key business drivers which
underpin it over time. Reported results are presented in the Consolidated
Income Statement and reconciliations to adjusted results are presented on the
face of the Consolidated Income Statement, in note 2, note 3, note 7, and note
14.
(1) Operating profit (adjusted EBITA) is before adjusting items (as set out
in note 3) and amortisation of £50 million.
(2) Operating profit before amortisation and adjusting items as percentage of
revenue.
(3) Operating profit before amortisation and adjusting items as a percentage
of the average monthly capital employed over the previous 12 month period.
Average capital employed includes property, plant and equipment, right-of-use
assets, intangible assets (including goodwill), working capital, provisions,
capital debtors/creditors, biological assets and assets/liabilities held for
sale.
(4) EBITDA being operating profit before adjusting items, depreciation and
amortisation and adjusted for the full year effect of acquisitions and
disposals in the period. Net debt is calculated at average exchange rates as
opposed to closing rates. Ratio as calculated in accordance with bank
covenants. See note 14 on non-GAAP measures for reconciliation.
Cautionary statement: This announcement contains certain forward-looking
statements with respect to the operations, performance and financial condition
of the Group. By their nature, these statements involve uncertainty since
future events and circumstances can cause results and developments to differ
materially from those anticipated. The forward-looking statements reflect
knowledge and information available at the date of preparation of this
announcement and DS Smith Plc undertakes no obligation to update these
forward-looking statements. Nothing in this statement should be construed as a
profit forecast.
Unless otherwise stated, all commentary and comparable analysis in the
overview and operating review relates to the operations of the Group on a
constant currency basis.
In-line H1 profit performance
The business delivered profitability in line with management's expectations,
despite a continuing challenging market environment. Like for like box volumes
grew by 2 per cent compared to H1 2023/24, consistent with our medium term
target, reflecting our strong customer relationships and focus on service and
innovation. We described in our FY 2023/24 results in June 2024 that we
expected the benefit of packaging prices to be weighted to the second half of
our current financial year. As anticipated, packaging pricing has yet to fully
reflect the input cost price increases, in particular for OCC and paper that
we have experienced in 2024 and while the overall demand environment has been
positive, packaging demand and paper pricing in the second quarter of our
financial year were not as strong as expected.
The North America and Eastern Europe regions were the fastest growing in terms
of volume growth, with Northern and Southern Europe consistent with the prior
year, reflecting the overall subdued market demand.
For the six month period revenue declined to £3,371 million, down 2 per cent
on a constant currency and 4 per cent on a reported basis, driven by lower
selling prices (£124 million), partially offset by box volume growth (£51
million). While packaging pricing has increased sequentially since the start
of the period, pricing was c.£160 million lower than the prior period,
approximately 5 per cent, with the balance reflecting positive external paper
and recyclate pricing.
The net impact of box and other volumes led to a £10 million positive impact
on adjusted operating profit. However, this was more than offset by the
reduction in sales pricing (£124 million), which reflects the lag in
achieving packaging price increases to reflect higher input costs over the
current period and during the prior financial year. Overall costs in the
period increased slightly (£22 million), with increases in fibre and paper
partially offset by reduced costs in other raw materials and significant cost
and productivity initiatives.
Group return on sales declined during the period to 6.6 per cent (H1 2023/24:
10.4 per cent), below our medium term target of 10-12 per cent, reflecting the
reduction in profitability despite the impact of increased packaging volumes.
Basic earnings per share from continuing operations fell 79 per cent to 3.1
pence, reflecting the lower profitability and the impact of adjusting items
principally in relation to the recommended offer from International Paper.
Adjusted basic earnings per share declined by 52 per cent on a constant
currency basis to 8.3 pence.
Return on average capital employed declined slightly to 8.3 per cent, below
our medium term target of 12-15 per cent, reflecting the movement in profit
and an increase in capital employed as we continue to invest in the business.
Cash flow and net debt
Net debt increased slightly to £2,472 million at 31 October 2024 from £2,230
million at 30 April 2024, reflecting a small free cash outflow and our FY
2023/24 final dividend. Our net debt/EBITDA ratio is at 2.8 times, higher than
our medium term target of at or below 2.0 times, but well below our primary
covenant requirements of 3.75 times.
Free cash flow was impacted by a working capital outflow of £55 million,
versus £253 million in the comparative period, and higher net capital
expenditure of £239 million (H1 2023/24: £208 million), leading to an
outflow of £69 million (H1 2023/24: £54 million). We have continued to
invest in our business to drive future returns and further efficiencies. Net
capital expenditure increased 15 per cent in the first half of the year to
£239 million. We have also continued to focus on driving productivity and
efficiency including labour productivity, further procurement savings,
enhancing our operational efficiency and driving down waste and overheads.
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. Performance against our
financial key performance indicators and medium-term targets has been
described above.
Dividend
The Board considers the dividend to be an important component of shareholder
returns. Today, we are announcing an interim dividend for this year of 6.2
pence per share, a slight increase from our level from last year.
Combination with International Paper
In April 2024 the boards of International Paper Company and DS Smith
recommended an all-share combination of International Paper with DS Smith. The
combination will bring together complementary businesses to create a truly
global sustainable packaging solutions leader, with industry leading positions
in two of the most attractive geographies of Europe and North America. The
combined business will enhance our global proposition to customers, create
opportunities for colleagues and drive value for shareholders who can remain
fully invested in such an exciting business. DS Smith and International Paper
shareholders have voted in favour of the transaction and we are working
collaboratively with International Paper to satisfy the remaining offer
conditions as described in the Rule 2.7 announcement on 16 April 2024 and
bring about the successful completion of the recommended all-share
combination, expected to take place in the first quarter of 2025.
Further details on the proposed transaction can be found at:
https://www.dssmith.com/investors/possible-offer-for-ds-smith-by-international-paper
(https://www.dssmith.com/investors/possible-offer-for-ds-smith-by-international-paper)
Current trading and outlook
The market trends experienced during the second quarter of the current
financial year have continued into the start of the second half. We continue
to expect ongoing modest volume growth and packaging prices to improve
sequentially through the year to recover higher input costs, while recognising
the recent paper price weakness. We remain focussed on our customers, pricing
and operational and cost efficiencies, as well as working with International
Paper towards completion of the recommended offer for DS Smith.
Operating Review
Northern Europe
Half year ended Half year ended Change - reported Change - constant currency
31 October 2024 31 October 2023
Revenue £1,266m £1,348m (6%) (5%)
Adjusted operating profit* £41m £107m (62%) (61%)
Return on sales((2)) 3.2% 7.9% (470bps) (480bps)
*Operating profit before amortisation and adjusting items (refer to note 3 of
the financial statements)
In Northern Europe, corrugated box volumes were consistent with the prior
year, reflecting the tough overall economic environment of the region, which
includes the UK and Germany. Revenue decreased by 5 per cent, primarily due to
a reduction in packaging prices compared to the prior year, with input costs
in 2025, including OCC, yet to be recovered in packaging prices, leading to a
reduced adjusted operating profit and return on sales.
Southern Europe
Half year ended Half year ended Change - reported Change - constant currency
31 October 2024 31 October 2023
Revenue £1,251m £1,298m (4%) (2%)
Adjusted operating profit* £147m £189m (22%) (20%)
Return on sales((2)) 11.8% 14.6% (280bps) (270bps)
* Operating profit before amortisation and adjusting items (refer to note 3 of
the financial statements)
Southern Europe saw box volumes in line with the comparable period, with good
growth in Iberia and Italy mitigating a weaker performance in France,
reflecting the overall economic environment. Revenue reduced slightly (2 per
cent) as lower packaging pricing compared to the prior period more than offset
higher external paper revenues due to higher selling prices. Although margins
remained at the top of the Group's target range, adjusted operating profit
declined by 20 per cent compared to the prior period, due largely to the lower
packaging prices more than offsetting a strong performance from the kraft
paper mill in Viana, Portugal, reflecting strength in both its operations and
kraft paper pricing.
Eastern Europe
Half year ended Half year ended Change - reported Change - constant currency
31 October 2024 31 October 2023
Revenue £545m £567m (4%) (2%)
Adjusted operating profit* £19m £38m (50%) (49%)
Return on sales((2)) 3.5% 6.7% (320bps) (320bps)
* Operating profit before amortisation and adjusting items (refer to note 3 of
the financial statements)
Organic corrugated box volumes in Eastern Europe grew strongly during the
period. Revenues declined 2 per cent, as the decrease in packaging prices more
than offset the increased volumes, while adjusted operating profit declined
for the period with packaging pricing yet to reflect the increased input costs
in 2024.
North America
Half year ended Half year ended Change - reported Change -
31 October 2024 31 October 2023 constant currency
Revenue £309m £300m +3% +6%
Adjusted operating profit* £14m £31m (55%) (53%)
Return on sales((2)) 4.5% 10.3% (580bps) (580bps)
*Operating profit before amortisation and adjusting items (refer to note 3 of
the financial statements)
*Operating profit before amortisation and adjusting items (refer to note 3 of
the financial statements)
Packaging volumes grew very strongly during the period, reflecting excellent
progress with customer and our recent investments in additional capacity.
Revenue in the region increased by 6 per cent, principally reflecting the
higher packaging volumes. Adjusted operating profit declined by 53 per cent,
reflecting a decline in paper profitability resulting from greater downtime
due to an extended maintenance shut and the impact of a hurricane in October.
Financial Review
2024/25 half year results
Prior year comparatives within the following commentary relate to the
continuing operations of the Group.
Revenue decreased by 4 per cent on a reported basis and 2 per cent on a
constant currency basis to £3,371 million for the half year ended 31 October
2024 (H1 2023/24: £3,513 million). There was an adverse foreign exchange
impact on revenue in the period of £63 million. Lower average selling prices
and sales mix of £124 million (principally reflecting lower packaging prices)
were partially offset by increased box and other volumes of £45 million. Box
volumes grew by 2 per cent in the current period versus the prior year.
Operating profit of £96 million decreased by 69 per cent versus the prior
year both on a reported basis and a constant currency basis (H1 2023/24: £314
million). Adjusted operating profit decreased by 39 per cent on a reported
basis and 38 per cent on a constant currency basis to £221 million (H1
2023/24: £365 million). The effect of the decrease in the average sales price
and mix of £124 million combined with adverse foreign exchange impact of £8
million and higher input and other costs of £22 million were partially offset
by higher box and other volumes of £10 million.
Amortisation of £50 million (H1 2023/24: £51 million) is in line with the
prior half year on both a reported and constant currency basis.
After the effects of exchange and disposals in the current and prior periods,
depreciation was £170 million, £13 million higher on a reported basis and
£15 million higher on a constant currency basis (H1 2023/24: £157 million)
as a result of increased capital expenditure in the prior year.
Free cash flow, comprising adjusted operating profit plus depreciation,
movements in working capital (in addition to provisions and employee
benefits), net capital expenditure, taxes and net interest paid was an outflow
of £69 million (H1 2023/24: outflow of £54 million). The underlying working
capital outflow of £29 million was mainly due to the effect of higher paper
prices on inventories and higher receivables which was partly offset by the
benefit of higher trade payables. Including the effect of resets of the
Group's energy derivatives, the reported working capital cash flow was an
outflow of £55 million. The net impact on working capital from resets of
energy derivatives was an outflow of £26 million, with the unwind of resets
taken in the previous year (£39 million), offset by additional resets made in
the period (£13 million).
The Group's net debt position increased by £242 million to £2,472 million
compared to the prior year end (30 April 2024: £2,230 million; 31 October
2023: £1,990 million). Net debt was impacted principally by free cash flow
for the period of a £69 million outflow primarily driven by working capital
and £165 million of dividend payments. Foreign exchange and fair value
movements were a positive impact of £5 million.
Net capital expenditure was higher than in the previous half year at £239
million (H1 2023/24: £208 million) driven by further spend on projects
started last year, the most significant being the replacement paper making
line in Italy, the replacement recovery boiler in Portugal and the new biomass
boiler in France.
Return on average capital employed (ROACE) reduced from 12.8 per cent in the
prior year to 8.3 per cent driven by lower adjusted operating profit over the
last 12 months versus the prior year.
Return on sales for the continuing operations at 6.6 per cent, lower by 380
basis points against the previous half year of 10.4 per cent.
Certain items are presented within the financial statements as adjusting
items, in order to assist in understanding the trading results of the Group.
Adjusting items of £75 million have been recognised in the current year,
largely in respect of costs associated with the ongoing acquisition process of
DS Smith by International Paper of America. No adjusting items were recognised
in the prior half year.
Net financing costs before adjusting items of £68 million (H1 2023/24: £47
million) relate to interest on borrowings and lease liabilities, higher than
last year due to higher interest rates primarily relating to the refinancing
of the Group's European bonds in July 2023.
Income from associates was £1 million and in line with the prior half year
(H1 2023/24: £1 million).
Profit before income tax decreased to £29 million (H1 2023/24: £268 million)
principally due to lower operating profit.
The rate of tax on operating profit before amortisation and adjusting items is
25 per cent, marginally higher than the previous year's rate of 24 per cent.
The total tax credit is £14 million (H1 2023/24: £64 million expense)
driven by a tax credit in adjusting items of £41 million. The latter tax
credit represents relief of £7 million in respect of adjusting items and a
£34 million credit following the successful appeal against the State Aid
decision made in 2019.
Profit after tax decreased to £43 million (H1 2023/24: £204 million), due to
lower operating profit offset by an income tax credit.
Adjusted basic earnings per share before amortisation and adjusting items
reduced by 52 per cent to 8.3 pence on a constant currency basis (H1 2023/24:
17.7 pence), driven by the reduction in operating profit. Basic earnings per
share decreased to 3.1 pence (H1 2023/24: 14.8 pence).
Financial position
Total shareholder funds decreased to £3,760 million (30 April 2024: £3,949
million; 31 October 2023: £4,022 million). The movement is due primarily to
profit attributable to shareholders of £43 million (H1 2023/24: £204
million), actuarial losses on employee benefits of £2 million (H1 2023/24:
£23 million), dividends to shareholders recognised of £165 million (H1
2023/24: £165 million), a net decrease in the translation reserve of £94
million (net foreign currency translation losses of £148 million, and a
positive £54 million movement in the net investment hedge) and a net positive
movement on derivative hedges of £30 million. The latter is driven by
commodity hedging positions. The tax charge on total comprehensive income
items amounted to £3 million (H1 2023/24: credit of £17 million).
Reported net debt of £2,472 million has increased from year end (30 April
2024: £2,230 million). The Group calculates its net debt to adjusted
earnings before interest, tax, depreciation and amortisation (EBITDA) ratio in
accordance with the methodology prescribed by its bank covenants, which
excludes the effects of IFRS 16 Leases. The ratio has increased to 2.8 times
(30 April 2024: 2.1 times, 31 October 2023: 1.7 times), within the primary
covenant requirements of 3.75 times, owing to a reduction in EBITDA.
The Group continues to sell trade receivables without recourse, a process by
which the trade receivable balance sold is de-recognised, with proceeds then
presented within operating cash flows. Such arrangements enable the Group to
optimise its working capital position and reduces the quantum of early payment
discounts given. Trade receivables sold under the factoring programme
increased to £390 million (30 April 2024: £369 million) driven by new
factoring arrangements in Iberia.
Dividend
The Board declares an interim dividend of 6.2 pence per share. The dividend
will be paid on 29 January 2025 to ordinary shareholders on the register at
close of business on 13 December 2024.
Risks and uncertainties
The Board has reconsidered the principal risks and uncertainties affecting the
Group in the second half of the year. The principal risks and uncertainties on
pages 49 to 56 of the 2024 Annual Report, available on the Group's website,
www.dssmith.com, remain relevant.
In summary, the Group's key risks and uncertainties are:
· Macroeconomic impacts
· Paper/fibre price volatility
· Cyber attacks
· Shopping habits
· Regulation and governance
· Sustainability commitments
· Organisational capability
· Demand volatility and capacity management
· Disruptive market players
· Substitution of fibre packaging
· Security of paper/fibre supply
· Digitisation
Going Concern
The Board has reviewed a detailed consideration of going concern, based on the
Group's recent trading and forecasts, and including scenario analysis. This
takes into account reasonably foreseeable changes in trading performance,
including the continued uncertainty caused by high inflation and the ongoing
war in Ukraine and the reactivation of the Middle East conflict. More detail
of the assessment performed is included in note 1 to the financial statements.
At 31st October 2024 there was significant liquidity headroom, at a level of
c.£0.9 billion. The going concern assessment included the period to 30 April
2026. Based on the resilience of the Group's operations to the high-cost
environment experienced during the prior year and depressed paper prices
reflective of the bottom of the paper cycle, as well as the current and
forecast liquidity available, the Board believes that the Group is well placed
to manage its business risks successfully despite the uncertainties inherent
in the current economic outlook, and to operate within its current debt
facilities.
The Group's current committed bank facility headroom, its forecast liquidity
headroom over the going concern period of assessment and potential
controllable mitigating activities available to management have been
considered by the Directors in forming their view that it is appropriate to
conclude that there is a reasonable expectation that the Group has adequate
resources to continue in operational existence for the foreseeable future. For
this reason, the going concern basis has been adopted in preparing the
financial statements.
In reaching this conclusion the Board has also considered the implications in
a going concern context of the proposed acquisition of the Group by
International Paper which was announced on 16 April 2024. As set out in the
Rule 2.7 Announcement, the Boards of Directors of both International Paper and
DS Smith believe there is a compelling strategic and financial rationale for
the Combination, including the complementary nature of their geographic
footprints and the significant synergies expected post transaction. On this
basis, the Board of DS Smith believes this supports its going concern
assessment, in the event the transaction proceeds. The transaction is expected
to close in the early first quarter of 2025, following the approval of
International Paper shareholders and DS Smith shareholders in October 2024, as
well as being subject to customary closing conditions, including regulatory
clearances in Europe, which are substantive conditions.
The financial statements have been prepared on the going concern basis with no
material uncertainty identified after a detailed assessment.
Responsibility Statement
We confirm that to the best of our knowledge:
a) the condensed set of financial statements, prepared in accordance with
IAS 34 "Interim Financial Reporting" as adopted for use in the United Kingdom
and the Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority, gives a true and fair view of the
assets, liabilities, financial position and profit or loss of the Company and
the undertakings included in the consolidation taken as a whole;
b) the interim management report includes a fair review of the information
required by DTR 4.2.7R (indication on important events during the first six
months and description of principal risks and uncertainties for the remaining
six months of the year); and
c) the interim management report includes a fair review of the information
required by DTR4.2.8R (disclosure of related parties' transactions and changes
therein).
Miles Roberts, Group Chief Executive Richard Pike, Group
Finance Director
4 December 2024
INDEPENDENT REVIEW REPORT TO DS SMITH PLC
Conclusion
We have been engaged by the Company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 31
October 2024 which comprises the Condensed consolidated income statement,
Condensed consolidated statement of comprehensive income, Condensed
consolidated statement of financial position, Condensed consolidated statement
of changes in equity, Condensed consolidated statement of cash flows and
related notes 1 to 16. We have read the other information contained in the
half yearly financial report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in the
condensed set of financial statements.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 31 October 2024 is not prepared, in
all material respects, in accordance with UK adopted International Accounting
Standard 34 and the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
Basis for Conclusion
We conducted our review in accordance with International Standard on Review
Engagements 2410 (UK) "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" (ISRE) issued by the Financial
Reporting Council. A review of interim financial information consists of
making enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and consequently does not enable
us to obtain assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not express an audit
opinion.
As disclosed in note 1, the annual financial statements of the Group are
prepared in accordance with UK adopted International Accounting Standards. The
condensed set of financial statements included in this half-yearly financial
report has been prepared in accordance with UK adopted International
Accounting Standard 34, "Interim Financial Reporting".
Conclusions Relating to Going Concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for Conclusion section of this report,
nothing has come to our attention to suggest that management have
inappropriately adopted the going concern basis of accounting or that
management have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
this ISRE, however future events or conditions may cause the entity to cease
to continue as a going concern.
Responsibilities of the Directors
The directors are responsible for preparing the half-yearly financial report
in accordance with the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
In preparing the half-yearly financial report, the directors are responsible
for assessing the company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to
liquidate the company or to cease operations, or have no realistic alternative
but to do so.
Auditor's Responsibilities for the review of the financial information
In reviewing the half-yearly report, we are responsible for expressing to the
Company a conclusion on the condensed set of financial statements in the
half-yearly financial report. Our conclusion, including our Conclusions
Relating to Going Concern, are based on procedures that are less extensive
than audit procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of our report
This report is made solely to the company in accordance with guidance
contained in International Standard on Review Engagements 2410 (UK) "Review of
Interim Financial Information Performed by the Independent Auditor of the
Entity" issued by the Financial Reporting Council. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other
than the company, for our work, for this report, or for the conclusions we
have formed.
Ernst & Young LLP
London
4 December 2024
Condensed consolidated income statement
Half year ended Half year ended Year ended
31 October 2024
31 October 2023
30 April 2024
Unaudited
Unaudited
Audited
Note Before Adjusting After Before Adjusting After Before Adjusting After
adjusting
items
adjusting
adjusting items
adjusting
adjusting items
adjusting
items
(note 3)
items
items
(note 3)
items
items
(note 3)
items
£m
£m
£m
£m
£m
£m
£m
£m
£m
Revenue 2 3,371 - 3,371 3,513 - 3,513 6,822 - 6,822
Operating costs (3,150) - (3,150) (3,148) - (3,148) (6,121) - (6,121)
Operating profit before amortisation, 2 221 - 221 365 - 365 701 - 701
acquisitions and divestments
Amortisation of intangible assets; 3 (50) (75) (125) (51) - (51) (98) 1 (97)
acquisitions and divestments
Operating profit 171 (75) 96 314 - 314 603 1 604
Finance income 5 5 - 5 6 - 6 14 - 14
Finance costs 5 (74) - (74) (53) - (53) (116) - (116)
Employment benefit net finance income/(expense) 1 - 1 - - - (1) - (1)
Net financing costs (68) - (68) (47) - (47) (103) - (103)
Profit after financing costs 103 (75) 28 267 - 267 500 1 501
Share of profit of equity accounted investments, net of tax 1 - 1 1 - 1 2 - 2
Profit before income tax 104 (75) 29 268 - 268 502 1 503
Income tax (expense)/credit 6, 3 (27) 41 14 (64) - (64) (119) 1 (118)
Profit for the period attributable to
owners of the parent
77 (34) 43 204 - 204 383 2 385
Earnings per share
Earnings per share
Basic 7 3.1p 14.8p 28.0p
Diluted 7 3.1p 14.8p 27.9p
Adjusted Earnings per share
Basic 7 8.3p 17.7p 33.1p
Diluted 7 8.3p 17.6p 32.9p
Condensed consolidated statement of comprehensive income
Half year ended Half year ended Year ended
31 October 2024 31 October 2023 Unaudited 30 April 2024
Unaudited £m Audited
£m £m
Profit for the period 43 204 385
Items which will not be reclassified subsequently to profit or loss
Actuarial loss on employee benefits (2) (23) (2)
Income tax on items which will not be reclassified subsequently to profit or - 6 1
loss
Items which may be reclassified subsequently to profit or loss
Foreign currency translation differences (148) (1) (147)
Cash flow hedges fair value changes 44 (77) (236)
Reclassification from cash flow hedge reserve to income statement (14) (3) 25
Movement in net investment hedge 54 (11) 41
Income tax on items which may be reclassified subsequently to profit or loss (3) 11 43
Other comprehensive expense for the period, net of tax (69) (98) (275)
Total comprehensive (expense)/income for the period attributable to (26) 106 110
owners of the parent
Condensed consolidated statement of financial position
Note At 31 October At 31 October At 30 April
2024
2023
2024
Unaudited
Unaudited
Audited
£m
£m
£m
Assets
Non-current assets
Intangible assets 2,690 2,882 2,811
Biological assets 10 11 11
Property, plant and equipment 3,768 3,626 3,743
Right-of-use assets 226 212 237
Equity accounted investments 17 17 17
Other investments 17 18 17
Employee Benefits 4 60 12 50
Deferred tax assets 34 11 23
Other receivables 8 1 4
Derivative financial instruments 18 71 15
Total non-current assets 6,848 6,861 6,928
Current assets
Inventories 647 610 591
Biological assets 5 5 5
Income tax receivable 49 31 37
Trade and other receivables 1,164 1,155 1,130
Cash and cash equivalents 10 398 908 499
Derivative financial instruments 18 69 64
Assets held for sale 3 - -
Total current assets 2,284 2,778 2,326
Total assets 9,132 9,639 9,254
Liabilities
Non-current liabilities
Borrowings 10 (2,585) (2,081) (2,040)
Employee benefits 4 (80) (79) (82)
Other payables (30) (39) (31)
Provisions (7) (10) (8)
Lease liabilities 10 (159) (144) (164)
Deferred tax liabilities (198) (231) (213)
Derivative financial instruments (57) (63) (71)
Total non-current liabilities (3,116) (2,647) (2,609)
Current liabilities
Bank overdrafts 10 (64) (215) (89)
Borrowings 10 (26) (421) (397)
Trade and other payables (1,895) (1,876) (1,819)
Income tax liabilities (134) (190) (134)
Provisions (28) (68) (60)
Lease liabilities 10 (71) (70) (75)
Derivative financial instruments (38) (127) (122)
Total current liabilities (2,256) (2,967) (2,696)
Total liabilities (5,372) (5,614) (5,305)
Net assets 3,760 4,025 3,949
Equity
Issued capital 138 138 138
Share premium 2,262 2,252 2,258
Reserves 1,360 1,632 1,553
Total equity attributable to owners of the parent 3,760 4,022 3,949
Non-controlling interests - 3 -
Total equity 3,760 4,025 3,949
Condensed consolidated statement of changes in equity
Share Share Hedging Translation Own Retained earnings Total equity attributable Non-controlling Total
capital
premium
reserve
reserve
shares 1 £m
to owners of the parent
interests
equity
£m
£m
£m
£m
£m
£m
£m
£m
At 1 May 2024 (audited) 138 2,258 (57) (89) (9) 1,708 3,949 - 3,949
Profit for the period - - - - - 43 43 - 43
Actuarial loss on employee benefits - - - - - (2) (2) - (2)
Foreign currency translation differences - - - (148) - - (148) - (148)
Cash flow hedges fair value changes - - 44 - - - 44 - 44
Reclassification from cash flow hedge reserve to income statement (14) (14) (14)
- - - - - -
Movement in net investment hedge - - - 54 - - 54 - 54
Income tax on other comprehensive income - - (6) 3 - - (3) - (3)
Total comprehensive (expense)/income - - 24 (91) - 41 (26) - (26)
Issue of share capital - 4 - - - - 4 - 4
Employee share trust - - - - - (3) (3) - (3)
Share-based payment expense (net of tax) - - - - - 1 1 - 1
Dividends paid - - - - - (165) (165) - (165)
Other changes in equity in the period - 4 - - - (167) (163) - (163)
At 31 October 2024 (unaudited) 138 2,262 (33) (180) (9) 1,582 3,760 - 3,760
At 1 May 2023 (audited) 138 2,251 113 15 (14) 1,581 4,084 3 4,087
Profit for the period - - - - - 204 204 - 204
Actuarial loss on employee benefits - - - - - (23) (23) - (23)
Foreign currency translation differences - - - (1) - - (1) - (1)
Cash flow hedges fair value changes - - (77) - - - (77) - (77)
Reclassification from cash flow hedge reserve to income statement (3) (3) (3)
- - - - - -
Movement in net investment hedge - - - (11) - - (11) - (11)
Income tax on other comprehensive income - - 10 1 - 6 17 - 17
Total comprehensive income - - (70) (11) - 187 106 - 106
Issue of share capital - 1 - - - - 1 - 1
Employee share trust - - - - 4 (8) (4) - (4)
Share-based payment expense (net of tax) - - - - - - - - -
Dividends paid - - - - - (165) (165) - (165)
Reclassification - - (2) (5) - 7 - - -
Other changes in equity in the period - 1 (2) (5) 4 (166) (168) - (168)
At 31 October 2023 (unaudited) 138 2,252 41 (1) (10) 1,602 4,022 3 4,025
1. Retained earnings include a reserve related to merger relief.
Condensed consolidated statement of cash flows
Note Half year ended Half year ended Year ended
31 October 2024 31 October 2023 30 April 2024
Unaudited Unaudited Audited
£m £m £m
Operating activities
Cash generated from operations 9 279 259 555
Interest received 5 6 14
Interest paid (110) (56) (80)
Tax paid (19) (55) (169)
Cash flows from operating activities 155 154 320
Investing activities
Acquisition of subsidiary businesses, net of cash and cash equivalents 13 - (103) (113)
Divestment of equity accounted for investment 13 - - 5
Capital expenditure (247) (225) (547)
Proceeds from sale of property, plant and equipment and intangible assets 8 17 41
Cash flows used in restricted cash and other deposits (1) 2 -
Cash flows used in investing activities (240) (309) (614)
Financing activities
Proceeds from issue of share capital 4 - 7
Repayment of borrowings (393) (601) (616)
Proceeds from borrowings 607 1,290 1,284
Proceeds/(payments) in respect of derivative financial instruments 2 - (2)
Repayment of principal on lease liabilities (33) (35) (72)
Dividends paid to Group shareholders 8 (165) (165) (247)
Other (2) (3) (2)
Cash flows from financing activities 20 486 352
(Decrease)/increase in cash and cash equivalents (65) 331 58
Net cash and cash equivalents at beginning of the period 410 368 368
Exchange losses on cash and cash equivalents (11) (6) (16)
Net cash and cash equivalents at end of the period 10 334 693 410
1. Basis of preparation
The unaudited condensed consolidated interim financial statements for the half
year ended 31 October 2024 have been prepared in accordance with IAS 34
Interim Financial Reporting as adopted for use in the United Kingdom and the
Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority.
These interim financial statements should be read in conjunction with the
Group's annual financial statements for the year ended 30 April 2024, which
have been prepared in accordance with UK-adopted international accounting
standards and with the requirements of the UK Companies Act 2006 as applicable
to companies reporting under those standards. Those accounts were reported on
by the Company's auditors and delivered to the Registrar of Companies. The
report of the auditor was not qualified or modified, did not draw attention to
any matters by way of emphasis and did not contain an adverse statement under
section 498 (2) or (3) of the Companies Act 2006.
The condensed information presented for the year ended 30 April 2024 does not
constitute full statutory accounts as defined in section 434 of the Companies
Act 2006. The financial information for the half year ended 31 October 2024 is
unaudited but has been reviewed in accordance with ISRE 2410 Review of Interim
Financial Information by Ernst & Young LLP, the Group's auditor, and a
copy of their review report forms part of this half year report.
The interim financial information has been prepared using the same accounting
policies as those adopted in the annual financial statements for the year
ended 30 April 2024, apart from as detailed below.
The following new accounting standards, amendments or interpretations have
been adopted by the Group as of 1 May 2024:
· Amendments to IAS 7 and IFRS 7 - Supplier Finance Arrangements.
· Amendments to IFRS 16 (Seller-Lessee Subsequent Measurement of
Sale and Leaseback Transactions).
· Amendments to IAS 1 - Classification of Liabilities and Debt with
Covenants.
The adoption of the amendments above has not had a material effect on the
results for the Group's financial statements.
From 1 May 2024 the Group prospectively adopted hedge accounting under IFRS 9,
as the hedge accounting requirements are simplified and are more closely
aligned to the Group's risk management strategy. This has not had a material
effect on the results for the Group's financial statements.
The Group's main currency exposures are to the Euro and the US dollar. The
following significant exchange rates applied during the periods:
Foreign exchange rates
Half year ended Half year ended Year ended
31 October 2024
31 October 2023
30 April 2024
Average Closing Average Closing Average Closing
Euro 1.183 1.194 1.159 1.145 1.161 1.170
US dollar 1.290 1.299 1.255 1.216 1.258 1.254
Going Concern
Overview
As explained in the narrative section of this half year financial report under
the heading 'Going Concern', the condensed interim financial statements are
prepared on a going concern basis. This is considered appropriate given that
the Directors believe that the Group has adequate resources to continue in
operational existence for the period to 30 April 2026.
Further details, including the analysis performed and conclusion reached, are
set out below.
Liquidity and financing position
The total debt facilities at 31 October 2024 were £3.5bn, of which £2.0bn is
publicly listed debt with no attached covenants. The Group has access to
£0.9bn of committed, undrawn bank facilities as at 31 October 2024, which
provide liquidity to the Group and carry the covenant of net debt:EBITDA of
less than 3.75x. There is significant liquidity/financing headroom across the
going concern forecast period for all scenarios modelled. For this reason, the
going concern review has focused on forecast covenant compliance.
In determining the going concern basis for preparing the financial statements,
the Directors consider the Group's objectives and strategy, its principal
risks and uncertainties in achieving its objectives and its review of business
performance and financial position. The economic environment reflected in this
Going Concern assessment is based on the 2024/25 forecast which anticipates
moderate organic box volume growth across each of our regions, recognising the
inflationary pressures in the Group's raw materials and overhead cost bases.
In preparing the financial statements, the Group has modelled three scenarios
in its assessment of going concern. These are:
· The base case is derived from the forecast prevailing at the half
year. The key inputs and assumptions include: Paper price increases and
corresponding increases in sales price, packaging volume growth at moderate
levels across the future periods, driven by continued FMCG and e-commerce
demand recovery, together with the recovery in industrial volumes. Both paper
sales price and input fibre price are consistent with those anticipated in the
forecast.
· The downside case assumes paper price decreases in H2 of FY25 and
weaker recovery levels across Packaging. European packaging volumes assume
organic growth as similar to the base case. Certain controllable cost measures
have been assumed in order to mitigate risks.
· The further downside case assumes the above downside case
scenario but modelled to assume stagnated volume growth and double
inflationary pressures on the cost base. Certain controllable cost measures
have been assumed in order to mitigate risks.
Mitigating actions
Whilst the downside and further downside case scenarios incorporate some level
of mitigating actions, a further range of options remain at the Group's
disposal should they be required which provide the opportunity to support
EBITDA, cash flow and net debt, including:
· Actions in respect of variable and controllable costs such as
discretionary bonuses, pay rises, recruitment freezes and wider labour force
actions in response to higher levels of volume reductions
· Limiting capital expenditure to minimum maintenance levels by
pausing growth spend (including brownfield sites and other expansionary spend)
· Strategic actions in respect of the Group's asset base could be
considered in respect of disposals, mothballing and closures
· A reduction or temporary suspension of the Group's dividend
The Group could also consider actions to assist covenant compliance such as
optimising working capital by negotiating longer payment terms whilst
continuing to pay suppliers in full and in line with contractual terms.
It is estimated that the Group EBITDA would have to fall for a sustained
period by about 36 per cent from FY24 levels for a breach of the net
debt:EBITDA covenant to occur. The Board considers this scenario to be a
remote possibility based upon the Group's historical performance.
Going concern basis
Based on the forecast and the scenarios modelled, together with the
performance of the Group in the current year, the Directors consider that the
Group has significant covenant and liquidity headroom in its borrowing
facilities to continue in operational existence for the length of the going
concern period until 30 April 2026. The next significant debt maturity is the
€600m bond maturing in September 2026 and the Board is confident that this
can be refinanced or repaid as required.
In reaching this conclusion the Board has also considered the implications in
a going concern context of the proposed acquisition of the Group by
International Paper which was announced on 16 April 2024. As set out in the
Rule 2.7 Announcement, the Boards of Directors of both International Paper and
DS Smith believe there is a compelling strategic and financial rationale for
the Combination, including the complementary nature of their geographic
footprints and the significant synergies expected post transaction. On this
basis, the Board of DS Smith believes this supports its going concern
assessment, in the event the transaction proceeds. The transaction is expected
to close in the early first quarter of 2025, following the approval of
International Paper shareholders and DS Smith shareholders in October 2024, as
well as being subject to customary closing conditions, including regulatory
clearances in Europe, which are substantive conditions.
The Group's borrowings and facilities are subject to change of control
provisions which allow for lenders to request repayment of the amounts owed
but only in the event of a downgrade of the Group's credit rating to below
investment grade. In light of the announcements a credit rating agency, in
their Update issued on 5 August 2024, that they view the transaction as
positive from a credit perspective (and the credit rating agency signalling
their intention to upgrade the Group's credit rating as a result of an
acquisition by International Paper), the Board considers the risk arising as a
result of these change control clauses to be remote. Even in the remote event
that the Group's borrowings are required to be repaid, the Board has also
evaluated the ability of the enlarged group to settle any repayment requests
and, based on the latest publicly available information, is satisfied that the
available cash and facilities of the combined group would be sufficient to do
so.
The scenarios modelled in the going concern assessment were based on the Group
remaining an independent entity and, therefore, remain appropriate should the
proposed acquisition not proceed. Accordingly, the Board believes the
conclusion that the Group is a going concern for the period to 30 April 2026
remains appropriate in the circumstances of the proposed acquisition
completing.
Estimates and judgements
The preparation of consolidated financial statements requires management to
make judgements, estimates and assumptions that affect whether and how
policies are applied, and the reported amounts of assets and liabilities,
income and expenses.
The application of the Group's accounting policies requires management to make
estimates and assumptions; these estimates and assumptions affect the reported
assets and liabilities and financial results of the Group. Actual outcomes
could differ from the estimates and assumptions used.
In preparing these interim financial statements, the key sources of estimates
and the critical accounting judgement were the same as those that applied to
the Group's consolidated financial statements for the year ended 30 April
2024. Key estimates were taxation, impairments and employee benefits. The
critical accounting judgement is applying the adjusting items policy.
Goodwill impairment assessment - key assumptions and methodology
The cash-generating units (CGU) that represent the lowest level at which
goodwill is monitored for impairment indicators and internal management
purposes remain consistent with the CGUs disclosed in the 2024 Annual Report.
IAS 36 requires goodwill and other intangibles with indefinite lives to be
tested for impairment on an annual basis. DS Smith does this annually at the
year-end date, 30 April. At 31 October 2024, a review of indicators of
impairment was undertaken.
The indicators of impairment review has taken into consideration potential
indicators, including the market value and net book value of the Group;
performance against budgets and forecasts (as informing future projections);
changes in the market rates which inform the discount rates used in the year
end modelling; GILT rates, which represent the market participant cost of debt
and IMF GDP outlook.
For the North America CGU, a specific assessment was made of the first half
year business performance to understand variances against its forecast and a
detailed assessment of the North American economic and price environment
influencing the paper packaging industry. Consideration was given to these
factors as to whether they represent an impairment indicator.
Given the understanding of the factors impacting the result of the first half
of the year were largely considered as items that would not be expected to
recur, the consistent long-term GDP growth outlook, the improved outlook for
the North American market and the improvement in discount and GILT rates,
management have not identified any indicators of impairment as at 31 October
2024.
Whilst the Directors believe that the assessment of indicators outcomes are
realistic, it is possible that a reduction in the headroom would occur if any
of the key assumptions applied were adversely changed. Factors which could
cause an impairment are:
• significant and prolonged
underperformance relative to the forecast; and
• deteriorations in the economies
in which the Group operates.
At 30 April 2024, to support their assertions at that time, the Directors
reviewed the sensitivity analyses to determine the impact that would result
from the above situations, including reduction or delays in future growth and
increased discount rates. In these cases, if future estimates of economic
improvements were delayed by twelve months, the growth rate in the outer years
modelled reduced, or if the estimated discount rates applied to the cash flows
were increased by 0.5%, there would still have been adequate headroom to
support the carrying value of the assets. Based on this analysis, with the
exception of North America, the Directors believed that a reasonably possible
change in any of the key assumptions detailed above would not cause the
carrying value of CGUs to exceed their recoverable amounts, although the
headroom would decrease. Sensitivities were also conducted to determine the
change required to the CGUs EBITDA and discount rates, to reduce the
recoverable amounts down to the carrying value of the assets. EBITDA growth
was based on a number of elements over the long term, including price and
volume growth in the first year as well as assumptions regarding inflation and
the cyclical paper price assumption. With all other assumptions held constant,
for Northern Europe, it would require a reduction in EBITDA of 16%, or a
discount rate of 14.0%; Southern Europe a reduction in EBITDA of 22%, or a
discount rate of 16.2% and Eastern Europe a reduction in EBITDA of 36%, or a
discount rate of 21.3%. For North America, where future cash flows include
domestic volume growth from completed expansion projects and cyclical paper
price improvements, the sensitivity conducted identified that a reasonably
possible change to the EBITDA growth assumption or discount rates applied
could reduce the headroom of $338m (£268m) to nil. Any further decrease in
EBITDA, or further increase in discount rate over and above the sensitivity
could lead to an impairment. It is possible that these factors could move
together in combination. The sensitivity identified that a reduction of 15% to
the EBITDA across the period modelled or a discount rate of 11.8% would be
required to reduce the headroom to nil.
2. Segment reporting
Operating segments
Half year ended 31 October 2024 Northern Southern Eastern North Total
Europe
Europe
Europe
America
£m
£m
£m
£m
£m
External revenue 1,266 1,251 545 309 3,371
Adjusted EBITDA(1) 101 212 47 31 391
Depreciation (60) (65) (28) (17) (170)
Adjusted operating profit(1) 41 147 19 14 221
Unallocated items:
Amortisation (50)
Adjusting Items (note 3) (75)
Total operating profit 96
Unallocated items:
Net financing costs (68)
Share of profit of equity accounted investments, net of tax 1
Profit before income tax 29
Income tax credit 14
Profit for the period 43
Analysis of total assets and total liabilities
Segment assets 2,461 3,304 1,439 1,314 8,518
Unallocated items:
Equity accounted investments and other investments 34
Derivative financial instruments 36
Cash and cash equivalents 398
Tax 83
Employee benefits 60
Assets held for sale 3
Total assets 9,132
Segment liabilities (1,063) (754) (246) (110) (2,173)
Unallocated items:
Borrowings, overdrafts and interest payable (2,692)
Derivative financial instruments (95)
Tax (332)
Employee benefits (80)
Total liabilities (5,372)
1. Adjusted to exclude amortisation and adjusting items.
Half year ended 31 October 2023 Northern Southern Eastern North Total
Europe
Europe
Europe
America
£m
£m
£m
£m
£m
External revenue 1,348 1,298 567 300 3,513
Adjusted EBITDA(1) 161 250 64 47 522
Depreciation (54) (61) (26) (16) (157)
Adjusted operating profit(1) 107 189 38 31 365
Unallocated items:
Amortisation (51)
Adjusting Items (note 3) -
Total operating profit 314
Unallocated items:
Net financing costs (47)
Share of profit of equity accounted investments, net of tax 1
Profit before income tax 268
Income tax expense (64)
Profit for the period 204
Analysis of total assets and total liabilities
Segment assets 2,532 3,115 1,466 1,389 8,502
Unallocated items:
Equity accounted investments and other investments 35
Derivative financial instruments 140
Cash and cash equivalents 908
Tax 42
Assets classified as held for sale 12
Total assets 9,639
Segment liabilities (1,093) (754) (232) (109) (2,188)
Unallocated items:
Borrowings, overdrafts and interest payable (2,736)
Derivative financial instruments (190)
Tax (421)
Employee benefits (79)
Total liabilities (5,614)
1. Adjusted to exclude amortisation and adjusting items.
3. Adjusting items
Items are presented as adjusting in the financial statements where they are
significant items of financial performance that the Directors consider should
be separately disclosed to assist in the understanding of the trading and
financial results of the Group. Such items include business disposals, Group
initiated restructuring and optimisation projects, acquisition related and
integration costs, and impairments.
Half year ended Half year ended Year ended
31 October 2024
31 October 2023
30 April 2024
Unaudited
Unaudited
Audited
£m
£m
£m
Acquisition related costs (75) - (9)
Gain on acquisitions and divestment - - 10
Net (loss)/gain on acquisitions and divestments (75) - 1
Total pre-tax adjusting items (recognised in operating profit) - - 1
Current tax credit on adjusting items 7 - 1
Adjusting tax items 34 - -
Total post-tax adjusting items (34) - 2
Half year ended 31 October 2024
The £75m of acquisition related costs were incurred by the Group as part of
its ongoing combination with International Paper. This represents the amount
incurred to date of the total costs.
The total tax credit on adjusting items of £41m for the six months to 31
October 2024 comprises £7m for the tax effect at the local applicable tax
rate of adjusting items that are subject to tax, excluding non-tax-deductible
deal related advisory fees, and £34m from a decision on 19 September 2024 in
the General Court of the European Court of Justice in respect of State Aid
concerning the UK's Controlled Foreign Company Financing Exemption.
Half year ended 31 October 2023
There were no adjusting items during the half year ended 31 October 2023.
Year ended 30 April 2024
In April 2024, the Group sold its previously fully written-down Ukrainian
associate, RKTK, for £10m. £5m was received by 30 April 2024 and a further
£5m will be received over the next three years. This resulted in a £10m gain
on divestment in the year ended 30 April 2024.
The Group incurred £3m of acquisition costs in the financial year ended 30
April 2024 relating to the recommended all-share offer from International
Paper and a further £6m of other related costs.
4. Employee benefits
Movements in the net employee benefit deficit recognised in the Condensed
consolidated statement of financial position:
Half year ended Half year ended Year ended
31 October 2024
31 October 2023
30 April 2024
Unaudited
Unaudited
Audited
£m
£m
£m
Opening employee benefit deficit (32) (55) (55)
Expense recognised in operating profit (2) (2) (5)
Employment benefit net finance expense (excluding Pension Protection Fund 1 - (1)
levy)
Employer contributions 12 11 21
Other payments and contributions 3 3 8
Actuarial losses (2) (23) (2)
Currency translation - (1) 2
Closing employee benefit deficit (20) (67) (32)
Deferred tax asset 5 17 7
Closing net employee benefit deficit (15) (50) (25)
5. Finance income and costs
Half year ended Half year ended Year ended
31 October 2024
31 October 2023
30 April 2024
Unaudited
Unaudited
Audited
£m
£m
£m
Interest income from financial assets (5) (6) (14)
Finance income (5) (6) (14)
Interest on borrowings and overdrafts 59 47 103
Interest on lease liabilities 8 6 12
Other 7 - 1
Finance costs 74 53 116
6. Income tax expense
Tax on profit has been charged at an underlying rate before adjusting items
and amortisation of 25.0% (half year ended 31 October 2023: 24.0%). The UK
government, amongst others, has enacted legislation in respect of Pillar Two,
introducing a global minimum effective tax rate of 15% and a domestic minimum
top-up tax. The rules applied to the Group from 1 May 2024.
The Group has performed an assessment of the Group's Pillar Two Income taxes,
including the application of the transitional safe harbour rules and based on
this work there is no material impact of the Pillar Two legislation for the
Group. The Group has applied the exemption from recognising and disclosing
information about deferred tax assets and liabilities related to Pillar Two
income taxes as required by the amendments to IAS 12 - International Tax
Reform - Pillar Two Model Rules, issued in May 2023.
7. Earnings per share
Basic earnings per share
Half year ended Half year ended Year ended
31 October 2024
31 October 2023 30 April 2024
Unaudited
Unaudited
Audited
Profit attributable to ordinary shareholders £43m £204m £385m
Weighted average number of ordinary shares 1,378m 1,376m 1,374m
Basic earnings per share 3.1p 14.8p 28.0p
Diluted earnings per share
Half year ended Half year ended Year ended
31 October 2024 31 October 2023 30 April 2024
Unaudited
Unaudited Audited
Profit attributable to ordinary shareholders £43m £204m £385m
Weighted average number of ordinary shares 1,378m 1,376m 1,374m
Potentially dilutive shares issuable under share-based payment arrangements 6m 5m 7m
Weighted average number of ordinary shares (diluted) 1,384m 1,381m 1,381m
Diluted earnings per share 3.1p 14.8p 27.9p
The number of shares excludes the weighted average number of the Company's own
shares held as treasury shares during the period of 2m (half year ended 31
October 2023: 2m, year ended 30 April 2024: 3m).
Adjusted earnings per share
Adjusted earnings per share is a key performance measure for management
long-term remuneration and is widely used by the Group's shareholders.
Adjusted earnings is calculated by adding back the post-tax effects of both
amortisation and adjusting items.
Further detail about the use of non-GAAP performance measures, including
details of why amortisation is excluded, is given in note 14.
A reconciliation of basic to adjusted earnings per share is as follows:
Half year ended Half year ended Year ended
31 October 2024 31 October 2023 30 April 2024
Unaudited
Unaudited
Audited
£m Basic Diluted £m Basic Diluted £m Basic Diluted
pence
pence
pence
pence
pence
pence
per share
per share
per share
per share
per share
per share
Basic earnings 43 3.1p 3.1p 204 14.8p 14.8p 385 28.0p 27.9p
Add back:
Amortisation of intangible assets 50 3.6p 3.6p 51 3.7p 3.7p 98 7.1p 7.0p
Tax credit on amortisation (12) (0.8p) (0.8p) (12) (0.8p) (0.9p) (26) (1.9p) (1.9p)
Adjusting items, before tax 75 5.4p 5.4p - - - (1) (0.1p) (0.1p)
Tax on adjusting items and adjusting tax items - - - (1) - -
(41) (3.0p) (3.0p)
Adjusted earnings 115 8.3p 8.3p 243 17.7p 17.6p 455 33.1p 32.9p
8. Dividends proposed and paid
Pence £m
per share
2022/23 interim dividend - paid 6.0p 83
2022/23 final dividend - paid 12.0p 165
2023/24 interim dividend - paid 6.0p 83
2023/24 final dividend - declared and paid 12.0p 165
2024/25 interim dividend- declared 6.2p 86
Half year ended
31 October 2024
Unaudited
£m
Paid during the period 165
The 2023/24 final dividend of 12.0p per share (£165m) was paid during the
half year ended 31 October 2024.
An interim dividend in respect of the half year ended 31 October 2024 of 6.2
pence per share (£86m) has been proposed by the Directors after the reporting
date.
9. Cash generated from operations
Half year ended Half year ended Year ended
31 October 2024 31 October 2023
30 April 2024
Unaudited Unaudited
Audited
£m £m
£m
Profit for the period 43 204 385
Adjustments for:
Amortisation of intangible assets; acquisitions and divestments 125 51 97
Cash outflow for adjusting items (15) - (11)
Depreciation 170 157 323
Profit/(loss) on sale of non-current assets 1 (8) (9)
Share of profit of equity accounted investments, net of tax (1) (1) (2)
Employment benefit net finance (income)/expense (1) - 1
Share-based payments 1 (3) (2)
Finance income (5) (6) (14)
Finance costs 74 53 116
Other non-cash items (18) (2) (13)
Income tax (credit)/expense (14) 64 118
Change in provisions (14) 14 7
Change in employee benefits (12) (11) (24)
Cash generation before working capital movement 334 512 972
Changes in:
Inventories (67) 3 6
Trade and other receivables (65) 106 88
Trade and other payables 77 (362) (511)
Working capital movement (55) (253) (417)
Cash generated from operations 279 259 555
10. Net debt
At 31 October At 31 October At 30 April
2024 2023
2024
Unaudited Unaudited Audited
£m
£m
£m
Cash and cash equivalents 398 908 499
Bank overdrafts (64) (215) (89)
Net cash and cash equivalents 334 693 410
Other investments - restricted cash 6 6 7
Other deposits 28 27 29
Borrowings - after one year (2,585) (2,081) (2,040)
Borrowings - within one year (26) (421) (397)
Lease liabilities (230) (214) (239)
Derivative financial instruments
assets 1 - -
liabilities - - -
(2,806) (2,683) (2,640)
Net debt - reported basis (2,472) (1,990) (2,230)
IFRS 16 liabilities 228 211 236
Net debt excluding IFRS 16 liabilities (2,244) (1,779) (1,994)
Net debt is a non-GAAP measure not defined by IFRS. While the Group has
included lease liabilities after transition to IFRS 16 Leases within total
lease liabilities (in addition to arrangements previously classified as
finance leases under IAS 17), IFRS 16 liabilities are currently excluded from
the definition of net debt as set out in the Group's banking covenant
requirements. Within lease liabilities of £230m at 31 October 2024 are £228m
of lease liabilities that would have been classified as operating leases and
£2m of lease liabilities that would have been classified as finance lease
liabilities under IAS 17.
Further detail on the use of non-GAAP measures and a reconciliation showing
the calculation of adjusted net debt, as defined in the Group's banking
covenants, is included in note 14.
Derivative financial instruments above relate to forward foreign exchange
contracts used to hedge foreign exchange exposure on the Group's borrowings
and net assets of foreign operations. The difference between the amounts shown
above and the total derivative financial instrument assets and liabilities in
the consolidated statement of financial position relates to derivative
financial instruments that hedge forecast foreign currency transactions and
firm commitments, and the Group's purchases of energy.
Other deposits are included, as these short-term receivables have the
characteristics of net debt.
During the half year ended 31 October 2024, the Group repaid the remaining
€452 million (£387 million) balance of the €750 million medium-term note.
11. Reconciliation of net cash flow to movement in net debt
Half year ended Half year ended Year ended
31 October 2024 31 October 2023
30 April 2024
Unaudited Unaudited
Audited
£m £m
£m
Profit for the period 43 204 385
Income tax (credit)/expense (14) 64 118
Share of profit of equity accounted investments, net of tax (1) (1) (2)
Net financing costs 68 47 103
Amortisation of intangible assets; acquisitions and divestments 125 51 97
Adjusted operating profit 221 365 701
Depreciation 170 157 323
Adjusted EBITDA 391 522 1,024
Working capital movement (55) (253) (417)
Change in provisions (14) 14 7
Change in employee benefits (12) (11) (24)
Other (16) (13) (24)
Cash generated from operations before adjusting cash items 294 259 566
Capital expenditure (247) (225) (547)
Proceeds from sale of property, plant and equipment and other investments 8 17 41
Tax paid (19) (55) (169)
Net interest paid (105) (50) (66)
Free cash flow (69) (54) (175)
Cash outflow for adjusting items (15) - (11)
Dividends paid (165) (165) (247)
Acquisition of subsidiary businesses, net of cash and cash - (103) (113)
equivalents
Divestment of equity accounted for investments - - 5
Other (2) (2) (2)
Net cash flow (251) (324) (543)
Proceeds from issue of share capital 4 - 7
Net movement on debt (247) (324) (536)
Foreign exchange, fair value and other non-cash movements 5 (30) (58)
Net debt movement (242) (354) (594)
Opening net debt (2,230) (1,636) (1,636)
Closing net debt - reported basis (2,472) (1,990) (2,230)
Adjusted operating profit, adjusted EBITDA, free cash flow, and net debt are
non-GAAP measures not defined by IFRS. Further detail on the use of non-GAAP
measures is included in note 14.
12. Financial instruments
Carrying amounts and fair values of financial assets and liabilities
Set out below is the accounting classification of the carrying amounts and
fair values of all of the Group's financial assets and liabilities:
At 31 October 2024 At 31 October 2023
Unaudited
Unaudited
Category Carrying amount Fair value Carrying amount Fair value
£m
£m
£m
£m
Financial assets
Cash and cash equivalents Amortised cost 398 398 908 908
Restricted cash Amortised cost 6 6 6 6
Other investments Fair value through other comprehensive income 11 11 12 12
Trade and other receivables Amortised cost 1,172 1,172 1,156 1,156
Derivative financial instruments Fair value - hedging instruments 36 36 140 140
Total financial assets 1,623 1,623 2,222 2,222
Financial liabilities
Trade and other payables Amortised cost (1,925) (1,925) (1,915) (1,915)
Bank and other loans Amortised cost (441) (441) (6) (6)
Commercial paper Amortised cost - - (15) (15)
Medium-term notes and other Amortised cost (2,170) (2,163) (2,481) (2,346)
fixed-term debt
Lease liabilities Amortised cost (230) (230) (214) (214)
Bank overdrafts Amortised cost (64) (64) (215) (215)
Derivative financial instruments Fair value - hedging instruments (95) (95) (190) (190)
Total financial liabilities (4,925) (4,918) (5,036) (4,901)
The fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date. For financial instruments carried at fair value, market
prices or rates are used to determine fair value where an active market
exists. The Group uses forward rates and prices for valuing forward foreign
exchange and commodity contracts and uses valuation models with present value
calculations based on market yield curves to value fixed rate borrowings. All
derivative financial instruments are shown at fair value in the consolidated
statement of financial position.
The majority of the Group's medium-term notes and other fixed-term debt are in
effective net investment hedges. The fair values of financial assets and
liabilities which bear floating rates of interest or are short-term in nature
are estimated to be equivalent to their carrying amounts.
The Group's financial assets and financial liabilities are categorised within
the fair value hierarchy that reflects the significance of the inputs used in
making the assessments. The majority of the Group's financial instruments are
Level 2 financial instruments in accordance with the fair value hierarchy,
meaning that although the instruments are not traded in an active market,
inputs to fair value are observable for the asset and liability, either
directly (i.e., quoted market prices) or indirectly (i.e., derived from
prices). The Group's medium-term notes are Level 1 financial instruments, as
the notes are listed on the Luxembourg Stock Exchange. Certain pension
investments are Level 3 financial instruments. The fair value of other
investments at fair value through other comprehensive income is derived from
fair value calculations based on their cash flows.
13. Acquisitions and divestments
(a) Acquisitions and divestments in the half year ended 31 October 2024
There were no acquisitions or divestments in the period.
(b) 2023/24 acquisitions and divestments
On 29 March 2024, the Group completed the acquisition of Bosis doo, a
Serbia-based packaging company, for £17m, net of cash and cash equivalents.
In April 2024, the Group sold its previously fully written-down Ukrainian
associate, RKTK, for £10m. £5m was received by 30 April 2024 and a further
£5m will be received over the next three years. This resulted in a £10m gain
on divestment in the year ended 30 April 2024.
The payment of £103m for the final 10% stake in Interstate Resources was made
in the year ended 30 April 2024.
14. Non-GAAP performance measures
The Group presents reported and adjusted financial information in order to
provide shareholders with additional information to further understand the
Group's operational performance and financial position.
The principal adjustments to financial information are made to exclude the
effects of adjusting items (refer to note 3) and amortisation.
Total reported financial information represents the Group's overall
performance and financial position but can contain significant unusual or
non-operational items that may obscure understanding of the key trends and
position. These unusual or non-operational items include business disposals,
restructuring and optimisation project costs, acquisition-related and
integration costs, and impairments. Restructuring and optimisation items
treated as adjusting items are major programmes usually spanning more than one
year, with uneven impact on the profit and loss for those years affected.
Other adjusting items, such as business disposals, impairments, integration
and acquisition costs, are by nature either highly variable or can also have a
similar distorting effect. Therefore, the Directors consider that presenting
non-GAAP measures which exclude these adjusting items enables comparability of
the recurring core business, complementing the IFRS measures presented.
Amortisation relates primarily to customer contracts and relationships and
infrastructure optimisation projects arising from or as a result of business
combinations. Significant costs are incurred in maintaining, developing and
increasing the value of such intangibles, costs which are charged in
determining adjusted profit. Exclusion of amortisation remedies this double
count as well as, in the case of customer contracts and relationships,
providing comparability over the accounting treatment of customer contracts
and relationships arising from the acquisition of businesses and those
generated internally.
The Group's key non-GAAP measures are used both internally and externally to
evaluate business performance against the Group's KPIs and banking and debt
covenants, as a key constituent of the Group's planning process, as well as
comprising targets against which compensation is determined.
Certain non-GAAP performance measures can be, and are, reconciled to
information presented in the financial statements. Other financial key
performance measures are calculated using information which is not presented
in the financial statements and is based on, for example, average 12-month
balances or average exchange rates.
Key non-GAAP performance measures
The key non-GAAP performance measures used by the Group and their calculation
methods are as follows:
Adjusted operating profit
Adjusted operating profit is operating profit excluding the pre-tax effects of
both amortisation and adjusting items. Adjusting items include business
divestment gains and losses, restructuring and optimisation costs, acquisition
related and integration costs and impairments.
A reconciliation between reported and adjusted operating profit is set out on
the face of the consolidated income statement.
Operating profit before adjusting items
A reconciliation between operating profit and operating profit before
adjusting items is set out on the face of the consolidated income statement.
Other similar profit measures before adjusting items are quoted, such as
profit before income tax and adjusting items, and are directly derived from
the consolidated income statement, from which they can be directly reconciled.
Adjusted EBITDA
Earnings before interest, tax, depreciation and amortisation (Adjusted EBITDA)
is adjusted operating profit excluding depreciation. A reconciliation from
adjusted operating profit to adjusted EBITDA is provided in note 11.
Adjusted earnings per share
Adjusted earnings per share is basic earnings per share adjusted to exclude
the post-tax effects of adjusting items and amortisation. Adjusted earnings
per share is a key performance measure for management long-term remuneration
and is widely used by the Group's shareholders.
A reconciliation between basic and adjusted earnings per share is provided in
note 7.
Return on sales
Return on sales is adjusted operating profit measured as a percentage of
revenue. Return on sales is used to measure the value we deliver to customers
and the Group's ability to charge for that value.
Half year ended Half year ended Year ended
31 October 2024 31 October 2023
30 April 2024
£m £m
£m
Adjusted operating profit 221 365 701
Revenue 3,371 3,513 6,822
Return on sales 6.6% 10.4% 10.3%
Adjusted return on average capital employed (ROACE)
ROACE is the last 12 months' adjusted operating profit as a percentage of the
average monthly capital employed over the previous 12-month period. Capital
employed is the sum of property, plant and equipment, right-of-use assets,
goodwill and intangible assets, working capital, capital debtors/creditors,
provisions, biological assets and assets/liabilities held for sale. Assets and
liabilities relating to discontinued operations are excluded.
Half year ended Half year ended Year ended
31 October 2024 31 October 2023
30 April 2024
£m £m
£m
Capital employed 6,544 6,498 6,636
Currency, inter-month and acquisition/divestment movements 159 (181) (79)
Last 12 months' average capital employed 6,703 6,317 6,557
Last 12 months' adjusted operating profit 557 808 701
Adjusted return on average capital employed 8.3% 12.8% 10.7%
Net debt and net debt/EBITDA
Net debt is the measure by which the Group assesses its level of overall
indebtedness within its financial position. The components of net debt as they
reconcile to the primary financial statements and notes to the accounts are
disclosed in note 10.
Net debt/EBITDA is the ratio of net debt to adjusted EBITDA, calculated in
accordance with the Group's banking covenant requirements.
Net debt/EBITDA is considered a key measure of balance sheet strength and
financial stability by which the Group assesses its financial position.
The Group's banking covenant requirements currently exclude IFRS 16
liabilities from the definition of net debt, as well as requiring that EBITDA
is calculated before the effects of IFRS 16, so an adjustment to the previous
IAS 17 basis is made in the calculation.
In calculating the ratio, net debt is stated at average rates as opposed to
closing rates, and adjusted EBITDA is adjusted operating profit before
depreciation from the previous 12-month period adjusted for the full year
effect of acquisitions and divestments in the period and adjusted to an IAS 17
basis.
Half year ended Half year ended Year ended
31 October 2024 31 October 2023
30 April 2024
£m £m
£m
Net debt - reported basis (see note 10) 2,472 1,990 2,230
IFRS 16 lease liabilities (see note 10) (228) (211) (236)
Adjustment to average rate 38 (6) 7
Net debt - adjusted basis 2,282 1,773 2,001
Adjusted EBITDA - last 12 months' reported basis 893 1,123 1,024
Adjust to IAS 17 basis (87) (87) (85)
Divestment and acquisition effects 1 - 3
Adjusted EBITDA - banking covenant basis 807 1,036 942
Net debt/EBITDA 2.8x 1.7x 2.1x
Free cash flow
Free cash flow is the net movement on debt before cash outflow for adjusting
items, dividends paid, acquisition and divestment of subsidiary businesses
(including borrowings acquired) and proceeds from issue of share capital.
A reconciliation from Adjusted EBITDA to free cash flow is set out in note 11.
Cash conversion
Cash conversion is free cash flow, as defined above, adjusted to exclude tax,
net interest, growth capital expenditure and pension payments as a percentage
of adjusted operating profit. The cash conversion rate can be derived directly
from note 11, other than growth capital expenditure, which is capital
expenditure necessary for the development or expansion of the
business.
Half year ended Half year ended Year ended
31 October 2024 31 October 2023
30 April 2024
£m £m
£m
Growth capital expenditure 76 87 186
Non-growth capital expenditure 171 138 361
Total capital expenditure 247 225 547
Free cash flow (note 11) (69) (54) (175)
Tax paid (note 11) 19 55 169
Net interest paid (note 11) 105 50 66
Growth capital expenditure 76 87 186
Change in employee benefits (note 11) 12 11 24
Adjusted free cash flow 143 149 270
Adjusted operating profit 221 365 701
Cash conversion 65% 41% 39%
Average working capital to sales
Average working capital to sales measures the level of investment the Group
makes in working capital to conduct its operations. It is measured by
comparing the average monthly working capital balances for the previous 12
months as a percentage of revenue over the same period. Working capital is the
sum of inventories, trade and other receivables, and trade and other payables,
excluding capital and acquisition and divestment related debtors and
creditors.
Half year ended Half year ended Year ended
31 October 2024
31 October 2023
30 April 2024
£m
£m
£m
Inventories 647 610 591
Trade and other receivables 1,138 1,115 1,099
Trade and other payables (1,825) (1,801) (1,696)
Inter-month movements and exclusion of capital and acquisition and divestment 171 26 80
related items
Last 12 months' average working capital 131 (50) 74
Last 12 months' revenue 6,680 7,435 6,822
Average working capital to sales 2.0% (0.7%) 1.1%
Constant currency and organic growth
The Group presents commentary on both reported and constant currency revenue
and adjusted operating profit comparatives in order to explain the impact of
exchange rates on the Group's key income statement items. Constant currency
comparatives recalculate the prior year revenue and adjusted operating profit
as if they had been generated using the current year exchange rates. In
addition, the Group then separates the incremental effects of acquisitions
made in the current year, and the incremental effects of acquisitions made in
the previous year, to determine underlying organic growth. The table below
shows the calculations:
Revenue Adjusted operating profit
£m
£m
Reported basis - comparative half year ended 31 October 2023 3,513 365
Currency effects (63) (8)
Constant currency basis - comparative half year ended 31 October 2023 3,450 357
Organic growth (79) (136)
Reported basis - half year ended 31 October 2024 3,371 221
15. Related party transactions
There were no significant related party transactions outside the normal course
of business.
16. Subsequent events
There are no subsequent events after the reporting date which require
disclosure.
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