DS Smith (SMDS) H2 2024 earnings summary

Executive summary

• Delivered full-year results in line with expectations, with robust profit performance despite a 2% volume decline and challenging market conditions; positive volume growth returned in H2 and Q4.

• Continued investment in innovation, sustainability, and efficiency, replacing over 1.2 billion plastic items and reducing greenhouse gas emissions by 5% year-over-year.

• Deepened customer relationships and increased share of wallet with large clients, supported by new packaging formats and sustainability initiatives.

• Announced recommended all-share offer with International Paper to create a global sustainable packaging leader, targeting completion in Q4 2024.

Financial highlights

• Revenue declined 17% year-over-year to £6,822m due to lower box demand and falling prices; operating profit fell 19% to £701m.

• Adjusted EPS declined 23% to 33.1p; free cash flow swung to an outflow of £175m from an inflow of £354m.

• Dividend per share maintained at 18.0p; final dividend of 12.0p proposed.

• Net debt increased to £2,230m as of April 2024; net debt/EBITDA at 2.1x, well within covenant limits.

• Return on average capital employed dropped from 14.3% to 10.7% due to working capital outflows and reduced profit.

Outlook and guidance

• Volume growth and positive trends from H2 2024 have continued into the new year, with packaging price recovery and benefits weighted to H2 and into FY26.

• Input cost inflation, especially in waste paper, is being offset by higher packaging prices, with full effects expected in H2 2025.

• CapEx for FY2025 expected at £400-450m, down from previous guidance of £500m, but investment in key projects continues.

• Working capital performance expected to normalize in FY2025 as energy and paper prices stabilize.

• Technical guidance includes £350m depreciation, £95m amortisation, and a 25% tax rate.