Interim Results
Smith (DS) PLC
10 December 2003
10 December 2003
DS Smith Plc - 2003/04 Interim Results
DS Smith Plc (LSE:SMDS), the international packaging manufacturer and office
products wholesaler, announces its results for the six months to 31 October
2003.
HIGHLIGHTS
Financial
• Turnover: £744.7m (first half 2002/03: £741.1m)
• Profit before tax and amortisation of intangibles: £39.3m (£44.8m)
• Return on average capital employed: 11.0% (12.7%)
• Earnings per share before amortisation of intangibles: 8.8p (10.1p)
• Cash inflow before dividends and acquisitions: £17.0m (inflow of £18.3m)
• Gearing: 44.2% (47.5%)
• Results after amortisation of intangibles: profit before tax £38.0m
(£43.9m); earnings per share 8.4p (9.8p)
Operations
• A robust performance given the cyclical downturn in the paper market
• Further progress in Corrugated Packaging
• Spicers' profit improvement continues
Commenting on the half year results, Chairman, Antony Hichens said:
'Market conditions remained difficult in the first half and, as expected,
margins in our Paper business were significantly affected by the continuing
cyclical downturn in the paper market. We produced a robust result across the
Group and our focus on raising operational performance was reflected in further
profit improvements in Corrugated Packaging and at Spicers.
'Although sales volumes are increasing in some areas of the Group, pricing
remains under pressure. We are working on further ways to enhance our market
positions and drive efficiencies. For the full year we anticipate delivering
results broadly in line with expectations.'
Enquiries
DS Smith Plc 020 7932 5000
Tony Thorne, Group Chief Executive
Gavin Morris, Group Finance Director
Peter Aubusson, Group Communications Manager
Financial Dynamics 020 7269 7291
Richard Mountain/Robert Gurner
OVERVIEW
Market conditions remained difficult in the first half and, as expected, margins
in our Paper business were significantly affected by the continuing cyclical
downturn in the paper market. We produced a robust result across the Group and
our focus on raising operational performance was reflected in further profit
improvements in Corrugated Packaging and at Spicers.
Group turnover for the half year to 31 October 2003 was slightly ahead at £744.7
million (first half 2002/03: £741.1 million). Operating profit before
amortisation of intangibles was £43.5 million (£48.6 million) and the operating
margin was 5.8% (6.6%). Return on average capital employed for the six months
was 11.0% (12.7%).
Profit before tax and amortisation of intangibles was £39.3 million (£44.8
million) and earnings per share before amortisation of intangibles were 8.8
pence (10.1 pence).
There was a cash inflow before dividends and acquisitions of £17.0 million
(£18.3 million). Net borrowings were £215.8 million at the end of first half
2003/04 (£217.9 million) resulting in lower gearing of 44.2% (47.5%). Interest
cover before amortisation of intangibles remained strong at 8.1 times.
INTERIM DIVIDEND
The Board announces an unchanged interim dividend of 2.8 pence per share which
will be paid on 9 March 2004 to ordinary shareholders on the register at the
close of business on 6 February 2004.
OPERATING REVIEW
Packaging
Total sales were £484.0 million (£475.2 million) and operating profit before
amortisation of intangibles was £35.2 million (£39.2 million). Operating margin
was 7.3% (8.2%) and return on average capital employed was 10.7% (12.6%).
Paper and Corrugated Packaging
Sales in the Paper and Corrugated Packaging segment were £376.4 million (£377.2
million). Operating profit before amortisation of intangibles was £27.7 million
(£31.6 million) with lower profits in Paper being partly offset by higher
profits in Corrugated Packaging. Operating margin was 7.4% (8.4%) while return
on average capital employed was 10.7% (12.6%).
Paper
During the first half of the financial year there was pressure on the price of
corrugated case materials (CCM) in both our UK and French paper operations.
Margins were further squeezed by the fluctuating cost of our principal raw
material, recovered paper and, specific to the UK, lower demand for Packaging
Recovery Notes (PRNs). Government recycling targets have a large influence on
demand for PRNs and the recently announced future targets are expected to lead
to some firming of the market during 2004.
Our UK paper business, St Regis, increased its production volumes through raised
efficiency, which enabled it to maintain its substantial share of the domestic
market and increase its exports, assisted by the euro strengthening against
sterling. Towards the end of the first half we experienced increased energy and
starch prices, and further adverse movements in recovered paper prices. These
factors combined are contributing to continuing uncertainty in the outlook for
CCM margins in the second half of the year.
A new warehouse at Kemsley mill, which will reduce the use of third party
warehousing, has been commissioned. The Severnside collection and recycling
operation continued to develop its collection infrastructure with the
acquisition of a depot in Hull in May 2003.
Corrugated Packaging
Weak economic conditions, particularly in manufacturing, resulted in overall
demand for corrugated board in our major markets remaining soft, with demand
falling in the first nine months of calendar year 2003 by 1.2% in the UK and
1.6% in Europe as a whole*. Demand growth was stronger in Italy, Poland and
Turkey.
Despite some price pressure, profit in our Corrugated Packaging operations
continued to advance through targeting higher added value or growing market
segments and through cost control.
In the UK, our sheet feeding operations suffered from heavy price pressure,
although our recently acquired speciality sheet feeding plant performed well.
Results from the conventional corrugated plants were mixed but the speciality,
heavy duty and sheet plant segments made encouraging progress. A small
acquisition of the northern UK corrugated businesses of Macfarlane Group Plc was
completed on 3 November.
The French corrugated operations performed well through developing their
business in higher added value products and good cost management. The Italian
business maintained its growth, supported by the recent investment in its new
lightweight corrugated factory, while in Poland, our developing positions in
speciality products contributed to higher sales and profits. The Turkish
business has made significant progress towards profitability through increased
sales and cost reduction.
Plastic Packaging
DS Smith Plastics' turnover increased by 10% to £107.6 million. Operating
profit before amortisation of intangibles was marginally lower at £7.5 million
(£7.6 million) and operating margin was 7.0% (7.8%). Return on average capital
employed was 10.5% (12.5%).
We made sales and profit progress in our two principal business sectors, liquid
packaging and dispensing and returnable transit packaging, but the division's
overall performance was held back by the results at two small operations. The
first of these, our specialist coating business, suffered a reduction in exports
to Asia and the Middle East during the first half of the financial year; these
sales have begun to recover in recent months. The second is a new business,
StePac, in which we have been investing and which specialises in modified
atmosphere packaging for preserving the quality of fresh fruit and vegetables in
transit.
In liquid packaging and dispensing, sales growth was maintained and profits were
slightly ahead. There was some softening of markets due to economic conditions,
which particularly affected sales of higher margin products including detergent
taps in the USA.
Sales and profits in industrial returnable transit packaging advanced well
assisted by continued growth and good cost management in extruded products. The
injection moulded crate business benefited from strong demand from the brewing
sector, driven by product innovation and new environmental regulations in
Germany.
Office Products
Total Office Products sales were £260.7 million (£265.9 million) while operating
profit before amortisation of intangibles was £8.3 million (£9.4 million).
Operating margin was 3.2% (3.5%) and return on average capital employed was
12.6% (12.8%).
The office products market across Europe remains weak due to the effects of the
economic slow-down on office activity; sales volumes continue to fall and
customers are buying lower specification products than previously.
Office Products Wholesaling
Spicers' sales increased slightly to £244.4 million (£243.0 million) and
operating profit before amortisation of intangibles advanced from £6.8 million
to £7.2 million. Operating margin moved ahead from 2.8% to 2.9% and return on
average capital employed progressed from 10.6% to 12.2%.
This result was achieved through the programme of operational initiatives
commenced in early 2002. In the UK, Spicers continued to make progress through
sales initiatives, further reductions in operating costs and maintaining high
service levels. The French business, which was affected by the more recent
downturn in its market, has cut costs and increased sales activity to stimulate
demand. In Germany, customer confidence in our service capability is resulting
in a good rate of sales growth although results have been affected by a limited
number of bad debts; the business is making encouraging progress towards
profitability. The Spanish operation, launched in April 2002, is achieving
sales growth ahead of expectations. Preparation continues for entering the
Italian market during 2004/05.
Office Products Manufacturing
John Dickinson's sales were £24.4 million (£32.2 million) and operating profit
was £1.1 million (£2.6 million); the previous year's result included sales of
£4.4 million and operating profit of £0.5 million from the Spicer Hallfield
business which was sold in February 2003. Operating margin was 4.5% (8.1%) and
return on average capital employed was 15.1% (28.1%).
Trading conditions were difficult in both branded products and envelopes with
the latter business being additionally affected by continued intense competition
from continental Europe. This is being addressed through sales and marketing
initiatives and further cost reduction in both business areas.
BOARD APPOINTMENTS
With effect from 9 December 2003, the Board has been further strengthened by the
appointment of two additional Directors.
Jean-Paul Loison is appointed as an Executive Director of the Company and brings
to the Board his extensive international expertise in the packaging industry.
Jean-Paul, aged 61, is currently Divisional Chief Executive of the Kaysersberg
Packaging division of DS Smith Plc with responsibility for the Group's
continental European Paper and Corrugated Packaging operations. He joined
Kaysersberg Packaging S.A. in 1970 and held various senior management positions
before becoming Divisional Chief Executive in 1993 following its acquisition by
DS Smith in the previous year.
Christopher J Bunker is appointed as a Non-executive Director of the Company.
Christopher, aged 56, is currently Finance Director of the Water Division of RWE
AG and was previously Group Finance Director of Thames Water Plc. Prior to that
he was Group Finance Director of Tarmac Plc, Commercial Director of GKN
Aerospace and Defence and Finance Director of Westland Group Plc. He is
currently a Non-executive Director of John Mowlem Plc and Baltimore Technologies
Plc. Christopher's breadth of financial experience in public companies will be
a valuable addition to the Board.
OUTLOOK
Although sales volumes are increasing in some areas of the Group, pricing
remains under pressure. We are working on further ways to enhance our market
positions and drive efficiencies. For the full year we anticipate delivering
results broadly in line with expectations.
Group Profit and Loss Account
Half year to Half year to Year to
31 October 31 October 30 April
2003 2002 2003
(unaudited) (unaudited)
Note £m £m £m
Turnover 2 744.7 741.1 1,479.0
Operating profit
Before exceptional items and
amortisation of intangibles
2 43.5 48.6 88.0
Amortisation of intangibles (1.5) (1.1) (2.6)
Group operating profit 42.0 47.5 85.4
Share of profits of associated
undertakings
Before amortisation of intangibles 1.3 1.6 2.6
Amortisation of intangibles 0.2 0.2 0.4
1.5 1.8 3.0
Total operating profit 43.5 49.3 88.4
Exceptional loss on sale of businesses - - (8.5)
Profit on ordinary activities before 43.5 49.3 79.9
interest
Net interest payable and other similar (5.5) (5.4) (10.9)
items
Profit on ordinary activities before
taxation
Before exceptional items and
amortisation of intangibles
39.3 44.8 79.7
Exceptional loss on sale of businesses 3 - - (8.5)
Amortisation of intangibles (1.3) (0.9) (2.2)
38.0 43.9 69.0
Tax on profit on ordinary activities 4 (10.6) (12.1) (21.6)
Profit on ordinary activities after 27.4 31.8 47.4
taxation
(0.4) (0.4) (0.3)
Minority interests - equity
Profit for the financial period 27.0 31.4 47.1
Dividends (9.0) (9.0) (28.2)
Retained profit for the financial period 18.0 22.4 18.9
Earnings per share:
Basic 5 8.4p 9.8p 14.7p
Diluted 5 8.4p 9.8p 14.6p
Adjusted 5 8.8p 10.1p 18.0p
Dividends per share 2.8p 2.8p 8.8p
The Group's results shown above are derived from continuing operations. There
were no material acquisitions or discontinued operations in the previous year or
the current half year.
Group Statement of Total Recognised Gains and Losses
Half year to Half year to Year to
31 October 31 October 30 April
2003 2002 2003
(unaudited) (unaudited)
£m £m £m
Profit for the financial period 27.0 31.4 47.1
Exchange differences on foreign currency net
investments (4.9) (2.5) 7.3
Total recognised gains and losses relating to
the financial period 22.1 28.9 54.4
Group Reconciliation of Movements in Shareholders' Funds
Half year to Half year to Year to
31 October 31 October 30 April
2003 2002 2003
(unaudited) (unaudited)
£m £m £m
Profit for the financial period 27.0 31.4 47.1
Dividends (9.0) (9.0) (28.2)
Retained profit for the financial period 18.0 22.4 18.9
Exchange differences on foreign currency net
investments (4.9) (2.5) 7.3
Goodwill previously written off - - 7.4
New share capital issued 1.7 - 0.4
Increase in shareholders' funds 14.8 19.9 34.0
Opening shareholders' funds 472.9 438.9 438.9
Closing shareholders' funds 487.7 458.8 472.9
The difference between reported and historical cost profits for the periods
reported above is not material.
Group Balance Sheet
As at As at As at
31 October 31 October 30 April
2003 2002 2003
(unaudited) (unaudited)
£m £m £m
Fixed assets
Intangible assets 51.7 47.5 49.0
Tangible assets 541.9 546.7 560.9
Investments 29.5 28.5 29.0
623.1 622.7 638.9
Current assets
Stocks 145.2 148.5 155.2
Debtors 346.3 336.3 334.3
Short term investments 25.2 11.7 26.7
Cash at bank and in hand 52.2 45.8 27.7
568.9 542.3 543.9
Creditors: amounts falling due
within one year
Trade and other creditors (313.9) (336.1) (355.9)
Borrowings (24.3) (24.0) (142.7)
Net current assets 230.7 182.2 45.3
Total assets less current liabilities 853.8 804.9 684.2
Creditors: amounts falling due
after more than one year
Borrowings (268.9) (251.4) (114.0)
Other (4.4) (1.9) (2.7)
Provisions for liabilities and charges (87.0) (86.0) (87.9)
493.5 465.6 479.6
Minority interests - equity (5.8) (6.8) (6.7)
Net assets 487.7 458.8 472.9
Capital and reserves
Called up share capital 32.3 32.1 32.2
Share premium account 190.5 188.7 188.9
Revaluation reserve 8.8 8.9 8.8
Profit and loss account 256.1 229.1 243.0
Shareholders' funds - equity 487.7 458.8 472.9
Gearing (net debt expressed as a percentage
of shareholders' funds) 44.2% 47.5% 42.8%
Group Cash Flow Statement
Half year to Half year to Year to
31 October 31 October 30 April
2003 2002 2003
(unaudited) (unaudited)
Note £m £m £m
Net cash inflow from operating activities 6 59.7 64.7 142.0
Returns on investments and servicing of (5.6) (5.6) (7.5)
finance (11.5) (7.2) (15.1)
Taxation
Capital expenditure and investments
Purchase of tangible fixed assets (27.5) (34.2) (63.4)
Sale of tangible fixed assets 1.5 1.4 4.2
Purchase of holding company shares (1.0) (0.9) (0.8)
Purchase of fixed asset investments - (0.1) (0.1)
Sale of fixed asset investments 1.4 0.2 0.6
Net cash outflow from capital expenditure and
investments (25.6) (33.6) (59.5)
Cash inflow before dividends and acquisitions 17.0 18.3 59.9
Acquisitions and disposals (14.8) (17.3) (16.1)
Equity dividends paid (19.2) (19.1) (28.2)
Net cash (outflow)/inflow before use of
liquid resources and financing (17.0) (18.1) 15.6
Management of liquid resources 0.2 4.6 (8.4)
Issue of ordinary shares 1.7 - 0.3
Financing - net increase/(decrease) in debt 74.6 44.0 (29.9)
Increase/(decrease) in cash in the period 59.5 30.5 (22.4)
Reconciliation of net cash flow to movement
in net debt
Increase/(decrease) in cash in the period 59.5 30.5 (22.4)
(Increase)/decrease in debt financing (74.6) (44.0) 29.9
(Decrease)/increase in liquid resources (0.2) (4.6) 8.4
Increase in net debt resulting from cash (15.3) (18.1) 15.9
flows - (2.0) (2.0)
Net debt acquired with subsidiary
undertakings 1.8 (1.9) (20.3)
Exchange differences
Increase in net debt in the period (13.5) (22.0) (6.4)
Opening net debt (202.3) (195.9) (195.9)
Closing net debt (215.8) (217.9) (202.3)
Notes to the Accounts
1 Basis of preparation
The interim financial information, which is unaudited, has been prepared
using the same policies as those adopted in the accounts for the financial
year ended 30 April 2003. Those accounts have been reported on by the
company's auditors and delivered to the Registrar of Companies. The report
of the auditors was unqualified and did not contain an adverse statement
under section 237(2) or (3) of the Companies Act 1985.
2 Analysis of Group turnover, profit and capital employed
Half year to Half year to Year to
31 October 31 October 30 April
2003 2002 2003
(unaudited) (unaudited)
£m £m £m
Turnover
Packaging: Paper & Corrugated Packaging 376.4 377.2 747.0
Plastic Packaging 107.6 98.0 195.0
484.0 475.2 942.0
Office Wholesaling 244.4 243.0 495.6
Products: Manufacturing 24.4 32.2 59.7
Intra-segment sales (8.1) (9.3) (18.3)
260.7 265.9 537.0
744.7 741.1 1,479.0
By origin: United Kingdom 415.6 440.2 865.5
Rest of World 329.1 300.9 613.5
744.7 741.1 1,479.0
Operating profit (see a) below)
Packaging: Paper & Corrugated Packaging 27.7 31.6 53.1
Plastic Packaging 7.5 7.6 14.7
35.2 39.2 67.8
Office Wholesaling 7.2 6.8 16.2
Products: Manufacturing 1.1 2.6 4.0
8.3 9.4 20.2
43.5 48.6 88.0
By origin: United Kingdom 27.6 33.9 59.7
Rest of World 15.9 14.7 28.3
43.5 48.6 88.0
Capital employed (see b) below)
Packaging: Paper & Corrugated Packaging 507.5 495.4 500.6
Plastic Packaging 139.3 128.0 136.0
646.8 623.4 636.6
Office Wholesaling 118.3 123.7 122.3
Products: Manufacturing 14.1 18.8 13.8
132.4 142.5 136.1
779.2 765.9 772.7
By origin: United Kingdom 485.3 478.1 456.9
Rest of World 293.9 287.8 315.8
779.2 765.9 772.7
2 Analysis of Group turnover, profit and capital employed
Half year to Half year to Year to
31 October 31 October 30 April
2003 2002 2003
(unaudited) (unaudited)
Return on
Sales Paper & Corrugated Packaging 7.4% 8.4% 7.1%
Packaging: Plastic Packaging 7.0% 7.8% 7.5%
7.3% 8.2% 7.2%
Office Wholesaling 2.9% 2.8% 3.3%
Products: Manufacturing 4.5% 8.1% 6.7%
3.2% 3.5% 3.8%
5.8% 6.6% 5.9%
By origin: United Kingdom 6.6% 7.7% 6.9%
Rest of World 4.8% 4.9% 4.6%
5.8% 6.6% 5.9%
Return on average capital employed (see c)
below) 10.7% 12.6% 10.6%
Packaging: Paper & Corrugated Packaging 10.5% 12.5% 11.5%
Plastic Packaging 10.7% 12.6% 10.7%
Office Wholesaling 12.2% 10.6% 12.7%
Products: Manufacturing 15.1% 28.1% 23.1%
12.6 % 12.8% 14.0%
11.0% 12.7% 11.3%
By origin: United Kingdom 11.4% 14.0% 12.4%
Rest of World 10.3% 10.4% 9.7%
11.0% 12.7% 11.3%
a) Operating profit is stated before exceptional items and amortisation of
intangibles.
b) Capital employed excludes fixed asset investments, net borrowings, deferred
consideration due in respect of acquisitions, corporation tax, dividends
payable and minority interests.
c) Return on average capital employed for the half year is calculated as twice
the operating profit divided by the average capital employed including the
intangible assets on the balance sheet.
3 Exceptional items
The loss on sale of businesses last year included £7.4m of goodwill
previously written off to reserves.
4 Taxation
Tax on profits before exceptional items and amortisation of intangibles has
been charged at an effective rate of 27.0% (half year to 31 October 2002:
27.0%; year to 30 April 2003: 27.1%), being the expected full year
effective rate.
The tax charge for the period consists of UK taxation of £4.2m (half year
to 31 October 2002: £5.8m; year to 30 April 2003: £9.0m) and overseas
taxation of £6.4m (half year to 31 October 2002: £6.3m; year to 30 April
2003: £12.6m).
5 Earnings per share
The basic earnings per share have been calculated on the profit for the
period of £27.0m (half year to 31 October 2002: £31.4m; year to 30 April
2003: £47.1m) and on 321.1m (half year to 31 October 2002: 320.3m; year to
30 April 2003: 320.3m) ordinary shares, being the weighted average in issue
and fully paid during the period.
The adjusted earnings per share excludes the effect of exceptional items
and amortisation of intangibles and has been calculated on the adjusted
profit for the period of £28.3m (half year to 31 October 2002: £32.3m;
year to 30 April 2003: £57.8m).
6 Reconciliation of operating profit to net cash inflow from operating
activities
Half year to Half year to Year to
31 October 31 October 30 April
2003 2002 2003
(unaudited) (unaudited)
£m £m £m
Operating profit before exceptional items and
amortisation of intangibles 43.5 48.6 88.0
Depreciation 31.7 30.8 62.2
Profit on sale of tangible fixed assets (0.3) - (0.4)
Working capital (14.8) (11.8) (6.0)
Increase/(decrease) in provisions (0.3) (3.2) (3.3)
Other non cash operating items (0.1) 0.3 1.5
Net cash inflow from operating activities 59.7 64.7 142.0
7 Analysis of net debt (unaudited)
At Acquired Cash flow Exchange At
30 April differences 31 October
2003 2003
£m £m £m £m £m
Cash at bank and in hand 27.7 - 26.0 (1.5) 52.2
Overdrafts (39.8) - 33.5 0.1 (6.2)
(12.1) - 59.5 (1.4) 46.0
Debt due after one year (110.1) - (160.0) 4.2 (265.9)
Debt due within one year (101.9) - 84.9 0.2 (16.8)
Finance leases (4.9) - 0.5 0.1 (4.3)
(216.9) - (74.6) 4.5 (287.0)
Short term investments 26.7 - (0.2) (1.3) 25.2
Total (202.3) - (15.3) 1.8 (215.8)
--------------------------------------------------------------------------------
* Source: European Federation of Corrugated Board Manufacturers
This information is provided by RNS
The company news service from the London Stock Exchange
Friday, 17th May 2024
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