In its of this end of year results, DS Smith reported a growth in adjusted operating profits of 4% from £631m ($717m) to £660m ($823m)
As a company, DS Smith is made up of three divisions - paper, packaging and recycling (Credit: DS Smith)
Corrugated packaging giant DS Smith has recorded a strong financial showing in Europe as the company reports a relatively positive end of year results.
The UK-based business had organic profit growth in Europe of £7m ($8.7m), however, this was more than offset by a reduction of £67m ($83m) in profits in North America.
The firm also reported a 10.9% return on sales across the group during the 2019-20 financial year, a 0.7% growth when compared to the 2018-19 year.
Overall, the company’s recorded revenue went down by 2% from more than £6.1bn ($7.6bn) to more than £6bn ($7.4bn).
It says that, although it saw an increase in revenue principally from the additional nine-month contribution of the Europac business – completed in January 2019 – this was offset by a reduction in the sales price and mix.
Its adjusted operating profits did, however, increase by 4% from £631m ($717m) to £660m ($823m), with this being due to the inclusion of Europac and a fall in input costs.
FMCG and e-commerce business model remains resilient during Covid-19 pandemic: DS Smith CEO on end of year results
Covid-19 impacted operations across all of DS Smith throughout the fourth quarter of the financial year, even as the group’s sites remained fully operational throughout the period.
This was due to it being an essential supplier for critical supply chain areas such as fast-moving consumer goods (FMCG) sectors like food and pharmaceuticals.
Relatively speaking, the pandemic’s impact on the firm between March and April was limited, resulting in a reduction in operating profits of £15m ($18.7m).
DS Smith CEO Miles Roberts said he was “extremely proud” of his employees and their “tremendous support, working with suppliers and communities to ensure every factory has remained open throughout the pandemic”.
He added: “Our business model is resilient, built on our consistent FMCG and e-commerce customer base.
“In the short-term, however, the impact of Covid-19 on the economies in which we operate is likely to impact volumes to industrial customers and add to operating costs.
“In particular, infrastructure constraints have driven elevated OCC [old corrugated cases] prices, although we currently expect the impact to be limited to H1 [the first half of next year].
“With the current economic uncertainty, we continue to focus on our employees, our customers, our communities, and on the efficiency and cash generation of our business.”
Due to this economic uncertainty, the company did not declare a final dividend after the board concluded that the outlook remains too uncertain to commit to a resumption of dividend payments in the short-term.
DS Smith has, however, said its board will actively consider the resumption of the dividend payment when it has greater clarity over the outlook.
Corrugated box volume growth down to e-commerce and FMCG customer base, says DS Smith
The firm’s organic corrugated box volumes grew by 0.6% across the financial year, reflecting progressive growth across the 12 months.
In the first half of 2019-20, it went up by 0.7%, reporting a 1.5% period on period growth for the four months in the second half of the year up to 29 February 2020.
This reduced by 1% in March 2020, falling by 4.5% in April 2020 due to the Covid-19 pandemic.
During this month, while FMCG and e-commerce categories continue to grow, the industrial sector fell heavily.
Regionally in April, DS Smith’s northern European business saw volumes increase by 7% as the pandemic hit later there, and it benefited from a very strong e-commerce customer base.
However, its southern European operations were heavily impacted by the pandemic as lockdown measures were particularly extreme in the region, and many of its customers remained closed for a significant period.
Alongside this, its work in eastern Europe saw an 8% drop in volume as supply chains were emptied and industry was disrupted, although it was quick to rebound as supply chains were filling again towards the end of May.
DS Smith’s North American business, whilst all of its factories remained open, has seen much more disruption due to significant variations in activity levels between different customers and states.
As such the region saw a fall in packaging volumes of 16% in April, with volume progression in May 2020 – compared to May 2019 – showed a similar pattern to that in April.
June has however seen an improving trend with many customers re-opening production.
A driving factor in DS Smith’s volume growth was led by e-commerce and a resilient FMCG customer base.