TIDMSMDS
RNS Number : 5981J
Smith (DS) PLC
06 December 2018
6 December 2018
DS Smith Plc - 2018/19 HALF YEAR RESULTS
Increased margins driving strong growth
6 months to 31 October 2018 Change Change
(reported) (constant
currency)
--------------------------------------- ---------- ------------ -----------
Continuing operations(10) , excluding
Plastics
Revenue GBP3,073m +15% +16%
Adjusted operating profit GBP304m +32% +32%
Profit before tax GBP162m +27% +28%
Adjusted EPS(1) (9) 16.5p +9% +9%
Statutory EPS(9) 9.5p +4% +5%
Interim dividend per share(9) 5.2p +14% +14%
Return on sales(4) 9.9% +120bps +120bps
ROACE(5) 13.9% 0bps 0bps
Group, including Plastics
Revenue (Group) GBP3,255m +15% +15%
Adjusted operating profit(1) (Group) GBP318m +27% +28%
--------------------------------------- ---------- ------------ -----------
Highlights
-- Successful and differentiated business model
o Return on sales margin +120 bps
o Good organic volume growth(2) of 3.2%
o Excellent cost recovery reflects business mix and strength of
business model
o Growth from FMCG and e-commerce leadership
o US acquisition fully integrated and delivering well ahead of
acquisition case
-- Strong balance sheet
o Increase in cash flow from operating activities from
continuing operations
o Net debt / EBITDA(6) (excluding rights issue proceeds) fallen
to 2.1x
o Refinancing complete - new long-term facility
o Plastics strategic review making good progress
-- Europac acquisition completion expected around calendar year end
o Reported performance to Q3 2018 in line with expectations
o Integration planning well advanced
-- Compelling commercial differentiation and structural drivers for growth
o E-commerce, sustainable packaging, dynamic retail changes
o DS Smith innovation-led solutions for multinational
customers
-- Good momentum into H2
1.
"We are very pleased with the progress we have made over the
last six months. We have strong momentum in the market, delivering
good top line growth and substantially increased profit levels. We
continue to win market share through our strong FMCG presence and
our leadership in both e-commerce and sustainable packaging. DS
Smith is extremely well positioned to capitalise on these ongoing
growth trends and we are confident about the future prospects for
the business."
Miles Roberts, Group Chief Executive
Sustainable delivery against medium term targets
Medium term targets Delivery in H1 2017/18(8)
Continuing operations
--------------------------------------- --------------------------
Organic volume growth(2) >=GDP(3) +1% +3.2%
Return on sales(4) 8% - 10% +120bps to 9.9%
ROACE(5) 12% - 15% unchanged at 13.9%
Net debt / EBITDA(6) <=2.0x 0.8x
Cash conversion(7) >=100% 114%
--------------------------------------- --------------------------
See notes to the financial tables below
Enquiries
DS Smith Plc +44 (0)20 7756 1800
Investors
Hugo Fisher, Group Communications Director
Rachel Stevens, Investor Relations Director
Media
Greg Dawson, Corporate Affairs Director
Brunswick +44 (0)20 7404 5959
Dan Roberts
Christina Clark
Presentation and dial-in details
A presentation to investors and analysts will be held at 9:00am
today at the London Stock Exchange, 10 Paternoster Square, London
EC4M 7LS. The event is available by webcast by clicking here or by
registering via the link on our website
https://www.dssmith.com/investors/results-and-presentations.
Alternatively, dial-in access for the presentation is available
with details as follows: +44 (0) 20 3003 2666 (standard access) or
0808 109 0700 (UK Toll Free) Password: DS Smith. The slides
accompanying the presentation will be available on our website
shortly before the start of the presentation, as well as on the
webcast.
The webcast will remain available for replay, accessed via our
website per the link above, and a replay is available for 7 days on
+44 (0) 20 8196 1998, pin 4655414#.
Notes to the financial tables
The Group uses certain key non-GAAP measures in order to provide
an additional view of the Group's overall performance and position,
eliminating significant items that may obscure understanding of the
key trends and position. These measures are used internally to
evaluate business performance, as a key constituent of the Group's
planning process, as well as comprising 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. Note 15 explains the use of non-GAAP performance measures.
(1) Before adjusting items and amortisation of intangible assets.
(2) Corrugated box volumes, adjusted for working days, on a like-for-like basis
(3) GDP growth (year-on-year) for the countries in which DS
Smith operates, weighted by our sales by country = 2.1%. Source:
Eurostat (14 Nov 2018)
(4) Operating profit before adjusting items and amortisation of
intangible assets as a percentage of revenue, as re-stated under
IFRS15
(5) Operating profit for the prior 12 month period before
adjusting items and amortisation of intangible assets as a
percentage of the average monthly capital employed over the
previous 12 month period. Average capital employed includes
property, plant and equipment, intangible assets (including
goodwill), working capital, provisions, capital debtors/creditors
and assets/liabilities held for sale
(6) Net debt at average exchange rates over Group operating
profit before depreciation, adjusting items and amortisation of
intangible assets for the previous 12 month period, calculated in
accordance with banking covenants
(7) Free cash flow before tax, net interest, growth capital
expenditure and pension payments as a percentage of operating
profit before adjusting items and amortisation of intangible
assets
(8) Organic volume growth, cash conversion and return on sales
given for the 6 months to 31 October 2018, ROACE and net debt /
EBITDA given for the 12 months to 31 October 2018
(9) 2017/18 EPS and interim DPS have been restated to reflect
the bonus element of the July 2018 rights issue as required by IAS
33 earnings per share
(10) References to continuing operations excludes the plastics
division, which is now treated as discontinued
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 is based on constant currency
performance. Organic volume growth means corrugated box volume
growth, on a like-for-like basis.
Overview
In the half year to 31 October 2018, DS Smith has delivered good
growth and a 120 bps increase in return on sales. In addition, we
have seen continuing excellent performance from Interstate
Resources, which is now substantially integrated within DS Smith,
and we expect to complete our acquisition of Europac in the coming
month, for which preparatory integration work is substantially
complete. There were strong profit growth contributions both
organically and from acquisitions and adjusted operating profit
grew at 32% with adjusted EPS increasing by 9% including the impact
of the recent rights issue.
Performance for 6 months to 31 October 2018
Unless otherwise noted, this commentary relates to the
continuing operations of the Group, on a constant currency
basis.
The organic volume growth of 3.2%, ahead of our target of
GDP+1%, builds on the very strong growth in the comparable prior
period, and was achieved despite corrugated box prices rising to
fully recover the higher price of paper. Growth is due to both
market share gains, with very good volumes once again from our
multi-national customers, reflecting our strong competitive
position and our innovative packaging solutions across Europe and
the US.
For the half year period, revenues increased on a constant
currency basis by 16%, principally reflecting the full recovery of
paper prices through box selling price rises, the contribution from
acquired businesses, particularly North America, and volume growth
in corrugated boxes. Group revenues also increased on a reported
basis by 15%, with the organic growth contribution being 6%.
Return on sales for the period was 9.9%, up 120 basis points on
the comparable prior period, and now at the top of our target range
of 8 - 10%. This reflects the benefit of a strong business model,
focussed on value-added packaging, together with strong returns and
synergies from acquisitions and continued operational leverage from
another year of good volume growth. The comparable prior period was
adversely influenced by the headwind of rising input costs which
have now been recovered as anticipated. Adjusted operating profit
was up 32% on a constant currency basis, with the organic growth
contribution being 11%.
Return on average capital employed remained level at 13.9%,
which, whilst still in the upper half of our target range of 12 -
15 %, now reflects the reclassification of the plastics division
into discontinued operations. It also includes the full effect of
12 months from Interstate Resources.
Balance Sheet
Net debt / EBITDA decreased from 2.2x at 30 April 2018 to 0.8x
at 31 October 2018, as net debt reduced by GBP1,032 million to
GBP648 million, reflecting the combination of free cash flow of
GBP209 million and the c.GBP1 billion proceeds from the June 2018
rights issue, which is held as restricted cash pending completion
of the acquisition of Europac. Excluding the impact of rights issue
proceeds, net debt / EBITDA would have been 2.1x, a reduction from
2.2x at the last balance sheet date, reflecting the growth of the
business in combination with our focus on tight balance sheet
management. We estimate that, following completion of the Europac
acquisition, net debt / EBITDA at 30 April 2019 will be less than
2.3x, a reduction to our previous estimate at the time of the
announcement of the acquisition of being under 2.5x at that date.
This improvement in our estimate reflects ongoing efforts to reduce
working capital, tighter control of capital expenditure, reduced
acquisition activity and demonstrates our commitment to bring net
debt on or below our medium term targets following the Europac
acquisition. The above estimates do not reflect any disposal
proceeds from either the Plastics division or the Europac
anti-trust remedies.
Underlying cash flow from the business continued to be good,
with a further working capital inflow of GBP28 million generated
during the period. On 29 November 2018 we signed a GBP1.4bn five
year revolving credit facility ("RCF") with our banking group to
replace our existing GBP800m RCF and to ensure liquidity for the
five years following the Europac acquisition. Covenants are
consistent with our existing facilities and calculated in exactly
the same way as previously reported.
Operating Review
Unless otherwise noted, the commentary below refers to changes
on a constant currency basis.
UK
Half year ended Half year Change
31 October 2018 ended
31 October
2017
Revenue GBP577m GBP553m 4%
Adjusted operating
profit* GBP59m GBP55m 7%
Return on sales* 10.2% 9.9% +30bps
*Adjusted, before amortisation and adjusting items
In the UK revenues increased 4% to GBP577 million (H1 2017/18:
GBP553 million) while adjusted operating profit has increased 7% to
GBP59 million (H1 2017/18: GBP55 million). Corrugated box volumes
in the period were strong, reflecting continued success with large
FMCG customers, and a sustained leading position in e-commerce
which is being replicated in other European regions. Margin in the
region is above the top of the Group target range, reflecting the
mix of our business, our leading recycling operations and good
recovery of the paper price rises.
Western Europe
Half year Half year Change Change - constant
ended ended - reported currency
31 October 31 October
2018 2017
Revenue GBP784m GBP726m +8% +8%
Adjusted operating
profit* GBP58m GBP55m +5% +5%
Return on sales* 7.4% 7.6% (20bps) (20bps)
*Adjusted, before amortisation and adjusting items
In Western Europe organic corrugated box volumes were in line
with the Group average, reflecting a good performance in the French
and Iberian businesses, and particularly strong volumes in the
Benelux region (having been weak in the comparable period). Revenue
increased by 8% driven by underlying volume growth and increases in
box prices, to mitigate the input price rises in the period.
Adjusted operating profit grew by only 5%, principally reflecting
the lower proportion of paper manufacturing in the region than the
Group as a whole.
DCH and Northern Europe
Half year Half year Change Change - constant
ended ended - reported currency
31 October 31 October
2018 2017
Revenue GBP556m GBP557m - +1%
Adjusted operating
profit* GBP55m GBP43m +28% +31%
Return on sales* 9.9% 7.7% +220bps +220bps
*Adjusted, before amortisation and adjusting items
DCH and Northern Europe has seen volume growth across the
region, with a particularly positive contribution from our FMCG
customers in Northern Europe. Revenue increased by 1%, and adjusted
operating profit grew 31% reflecting the lagged recovery of input
costs in the packaging business, offset by the contribution from
our paper mills in the region.
Central Europe and Italy
Half year Half year Change Change - constant
ended ended - reported currency
31 October 31 October
2018 2017
Revenue GBP815m GBP717m +14% +15%
Adjusted operating
profit* GBP75m GBP63m +19% +19%
Return on sales* 9.2% 8.8% +40bps +30bps
*Adjusted, before amortisation and adjusting items
Organic corrugated box volumes in Central Europe and Italy have
grown around the Group average, reflecting in particular a very
good performance from Italy, significantly driven by e-commerce.
Revenues increased by 15%, reflecting the contributions from
Ecopaper and Ecopack, which were acquired in March this year and as
such contributed an incremental six months to this half year
period. Revenues also reflect volume growth and the benefit of box
price rises. Adjusted operating profit increased 19%, reflecting
again the contribution from the Ecopaper and Ecopack businesses and
the recovery of input costs.
North America
Half year Half year Change Change -
ended ended - reported constant currency
31 October 31 October
2018 2017
Revenue GBP341m GBP110m +210% +210%
Adjusted operating
profit* GBP57m GBP15m +280% +280%
Return on sales* 16.7% 13.6% +310bps +310bps
*Adjusted, before amortisation and adjusting items
Corrugated box volumes in the period have shown continued good
growth with particular strength in innovative packaging solutions
for food and other FMCG customers. Revenues have grown strongly,
principally reflecting the inclusion of Interstate Resources for
the full six months compared to the comparable period of just over
two months and a strong organic growth performance during the
period. The recently acquired packaging business, Corrugated
Container Corp, is also included in the period. Revenues have been
driven by good trading conditions for the paper operations in the
region and the benefit of integration with the wider DS Smith
platform. Profit performance is considerably ahead of that in 2017,
again principally reflecting the additional circa four months of
trading included and the positive pricing dynamics in the market.
As highlighted at our capital markets day earlier this autumn, we
are delighted that customers are now beginning to develop their
business with us both in Europe and the US and the access to our
innovation is delivering results for customers in both regions.
Strategic Review of Plastics division
Following the initial review of the Plastics business, the Board
has concluded that it is an attractive asset with good growth
prospects, and we are now exploring opportunities for a potential
sale of the division. As such, the plastics division is now being
treated as discontinued.
The plastics business has continued to trade well with revenues
up 2%, while there has been some impact to short term profitability
due to the impact of higher polymer prices and the normal lag in
recovery through prices.
Outlook
The outlook remains positive as we begin our second half with
good momentum. The recovery of paper price increases that has been
ongoing over the past 12 - 18 months is now completed. Our
short-paper business model is robust and designed to deliver good
returns throughout the paper cycle, and we have a clear trajectory
to reduce net debt / EBITDA into line with our medium term target
of less than or equal to 2.0x. The growth drivers for packaging,
such as e-commerce, sustainable packaging and the more
sophisticated requirements of customers and retailers remain,
continuing the long-term trend of structural growth.
We continue to see exciting opportunities for the business and
accordingly the Board remains confident about the outlook for DS
Smith.
Financial Review
Unless otherwise noted, this commentary relates to the
continuing operations of the Group, on a constant currency
basis.
Group reported revenue for the half year to 31 October 2018
increased by 15% to GBP3,073 million (H1 2017/18: GBP2,663
million), reflecting acquisitions (GBP247 million), sales price
growth and volume. Organic growth was 6%. The sales price increase
principally reflected the recovery by the packaging business of
rising paper prices, which is now complete. Good volumes in
packaging contributed GBP48 million to revenue in the period, with
some negative volume (GBP26 million) principally due to
China-related sales of recyclate. On a constant currency basis,
revenue also increased by 16%.
Operating profit of GBP201 million increased versus the prior
year (H1 2017/18: GBP157 million) principally due to the
contribution from acquisitions, partially offset by higher
amortisation of GBP53 million (H1 2017/18: GBP40 million), again
due to the acquisitions and the impact of the guaranteed minimum
pension ("GMP") equalisation charge.
Adjusted operating profit increased 32% to GBP304 million (H1
2017/18: GBP231 million), with a GBP1 million headwind from
currency translation. On a constant currency basis, adjusted
operating profit growth was also 32%, benefitting from a GBP32
million contribution from acquisitions, principally the additional
months of ownership for the North America businesses. The profit
drop-through from higher volumes (GBP15 million) reflects the net
impact of corrugated box volumes, partially offset by the reduction
in recycling volumes. The benefit of higher pricing and sales mix
(GBP156 million), as described above, was balanced against rising
costs (GBP141 million), which principally relate to the increased
price of paper.
Free cash flow (being EBITDA plus the cash flow effect of
working capital, pension payments, capital expenditure (net of
proceeds, tax and interest)) was GBP209 million (H1 2017/18: GBP162
million), driven by EBITDA of GBP393 million and a further positive
contribution from working capital of GBP28 million, partially
offset by capital expenditure, tax and interest payments. Net debt
movement for the period was GBP1,032 million at 31 October 2018
principally reflecting the GBP1,002 million raised via a rights
issue in July 2018 to fund the acquisition of Europac, such funds
being held as restricted cash. The acquisition is expected to
complete in the coming month. In addition, free cash flow was
offset by acquisitions of GBP41 million (for Corrugated Container
Corp, in the US, including borrowings acquired), restructuring and
integration costs of GBP37 million and dividends of GBP53
million.
Capital expenditure net of disposal proceeds was GBP118 million
in the period (H1 2017/18: GBP115 million) with c. GBP270 million
expected to be spent in the full financial year (2017/18: GBP329m),
excluding the impact of Europac.
Amortisation for the period was GBP53 million (H1 2017/18: GBP40
million), with c. GBP100 million expected for the full financial
year, continuing operations (excluding any amortisation relating to
Europac). Depreciation for the period was GBP89 million (H1
2017/18: GBP76 million), with the charge for the full financial
year expected to be c. GBP185 - GBP190 million for continuing
operations, excluding the depreciation charge from Europac.
Technical guidance inclusive of Europac will be published
following the completion of that acquisition. Capex and
depreciation for Europac are expected at the outset to be broadly
in line with those items historically reported by Europac.
Return on average capital employed of 13.9% for the 12 month
period to 31 October 2018 (12 months to 31 October 2017: 13.9%)
represents a consistent performance and remains in the upper half
of our target range, despite the initially dilutive impact of
recently acquired businesses. This return on average capital
employed, for continuing operations, compares to the prior year
figure of 14.6% prior to the exclusion of the plastics
division.
Adjusting items before tax of GBP58 million were incurred in the
period (H1 2017/18: GBP39 million), including GBP15 million for GMP
equalisation, GBP11 million relating to acquisition costs, GBP8
million of acquisition-related financing costs, and GBP24 million
to integration and other restructuring initiatives. Within this
last item, GBP14 million relates to centralisation and optimisation
IT projects, resulting primarily from the Group's expansion
activities. GMP equalisation is a non-cash cost relating to a
change in legal interpretation of pension rights accrued between
1990 and 1997. Total operating cost adjusting items for the year,
excluding those relating to Europac and GMP equalisation, are
expected to be less than GBP45 million, a reduction versus prior
guidance.
Net adjusted financing costs before adjusting items were GBP36
million (H1 2017/18: GBP27 million), reflecting the increase in
debt over the period due to consideration paid for acquisitions.
Adjusting finance costs of GBP8 million relate to costs incurred on
the acquisition of Europac and the unwind of the discount of the
Interstate Resources redemption liability. The pension interest
charge for the period was GBP1 million, similar to last year, with
a charge of GBP4 million expected for the full year. The interest
charge for the year as a whole is expected to be around GBP66
million, inclusive of the pension interest charge and excluding the
impact of the Europac acquisition.
Profit before tax was higher at GBP162 million (H1 2017/18:
GBP128 million), through higher operating profit, offset by higher
interest, GMP equalisation and benefiting slightly from improved
share of results of associates. Adjusted profit before tax of
GBP220 million (H1 2017/18: GBP167 million) was higher through the
growth in adjusted operating profit.
Tax on adjusted profits has been charged at a rate on continuing
operations before amortisation and adjusting items of 23%.
Unadjusted profit after tax for continuing operations was GBP122
million (H1 2017/18: GBP98 million). Profit for the period was
GBP130 million (H1 2017/18: GBP107 million).
Earnings per share for continuing operations before amortisation
and adjusting items increased 9% to 16.5 pence (H1 2017/18: 15.2
pence), reflecting the growth in operating profit, partially offset
in the period by the equity issue in July 2018 to raise funds for
the Europac acquisition, which is expected to complete in the
coming month. Total unadjusted earnings per share for continuing
operations were 9.5 pence (H1 2017/18: 9.1 pence) due to higher
profit from operations, together with the issues of equity noted
above.
Financial position
Total equity increased to GBP3,231 million at 31 October 2018
from GBP2,110 million at 30 April 2018 due to the equity issue of
GBP1,002 million, retained profits of GBP130 million, and foreign
currency translation gains of GBP71 million, offset by actuarial
losses on employee benefits of GBP24 million and dividends of GBP53
million.
Net debt at 31 October 2018 was GBP648 million (30 April 2018:
GBP1,680 million), representing 0.8x EBITDA for the prior 12 month
period, calculated on the basis of a full year contribution from
acquired businesses. Expenditure on acquisitions was GBP37 million
and borrowings of GBP4 million were also assumed. GBP1,002 million
was raised by the issue of equity, principally in a rights issue as
discussed above.
On 29 November 2018 the Group signed a GBP1.4 billion, five year
extendable revolving credit facility with its banking group.
Covenants and calculation of covenants are consistent with the
existing covenants and reported leverage. This facility replaces a
GBP800 million revolving credit facility maturing in 2020 and the
Europac Bridge facility and provides liquidity for the Group for
the next 5 years, further reinforcing the Group's strong financial
position and liquidity profile.
The Group has for many years sold without recourse certain trade
receivables and on realisation the receivable is de-recognised and
proceeds are presented within operating cash flows in accordance
with IFRS. These arrangements have systematically reduced early
payment discounts and have thus provided the Group with more
economic alternatives. The facilities available are committed for
three years and are not relied upon by the Group for liquidity and
not included in leverage calculations by our banks. Balances have
slightly reduced, at GBP550 million (30 April 2018: GBP559
million), representing a decrease also as a proportion of turnover.
The cost of these facilities are approximately GBP7 million per
annum, included in finance charges. Should these arrangements be
systematically replaced over the next three years with alternative
payment arrangements then it is estimated that this could, at an
extreme, cost the Group an additional GBP9 million - GBP10 million
full year charge.
Dividend
The Board considers the dividend to be an important component of
shareholder returns. In considering dividends the Board will be
mindful of the Group's leverage, earnings growth potential and
future expansion plans. As first set out in December 2010, our
policy is that dividends will be progressive and, in the medium
term, dividend cover should be on average 2.0x to 2.5x through the
cycle.
The Board declares an interim dividend for this half year of 5.2
pence per share (H1 2017/18: 4.6 pence per share). This represents
an increase of 14%, demonstrating the confidence of the Board in
the outlook for the Group. The dividend will be paid on 1 May 2019
to ordinary shareholders on the register at the close of business
on 5 April 2019.
Risks and uncertainties
The Board has considered the principal risks and uncertainties
affecting the Group in the second half of the year. The principal
risks and uncertainties discussed in the Business Review on pages
40 to 45 of the 2018 Annual Report, available on the Group's
website at www.dssmith.com, remain relevant.
In summary, the Group's key risks and uncertainties are:
-- Acquisition strategy;
-- Eurozone and macroeconomic markets;
-- Paper supply;
-- Capital markets and liquidity;
-- Concentration and consolidation of markets;
-- Governance and compliance;
-- Changes in shopping habits;
-- Talent barriers;
-- Digital vulnerabilities;
-- Changes in fibre technology;
-- Sustainability promise; and
-- Strategic process change.
Going concern
The Group's recent trading and forecasts, after taking account
of reasonably foreseeable changes in trading performance, shows
that the Group is able to operate within its current debt
facilities. At 31 October 2018 there was significant headroom on
the Group's committed debt facilities of c. GBP800 million, which
has subsequently been further increased through the new RCF
agreement as described earlier. As a consequence, the Board
believes that the Group is well placed to manage its business risks
(as summarised above) successfully despite the uncertainties
inherent in the current economic outlook. After making enquiries,
the Board has formed a judgement 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 interim
financial statements.
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 by
the European Union, 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 Adrian Marsh
Group Chief Executive Group Finance Director
5 December 2018
INDEPENT REVIEW REPORT TO DS SMITH PLC
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 2018 which comprises the Condensed
Consolidated Income Statement, the Condensed Consolidated Statement
of Comprehensive Income, the Condensed Consolidated Statement of
Financial Position, the Condensed Consolidated Statement of Changes
in Equity, the 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.
This report is made solely to the Company in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
Review of Interim Financial Information Performed by the
Independent Auditor of the Entity issued by the Auditing Practices
Board. Our work has been undertaken so that we might state to the
Company those matters we are required to state to it in an
independent review report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the Company for our review work, for this
report, or for the conclusions we have formed.
DIRECTORS' RESPONSIBILITIES
The half yearly financial report is the responsibility of, and
has been approved by, the Directors. The Directors are responsible
for preparing the half yearly financial report in accordance with
the Disclosure and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
As disclosed in note 1, the annual financial statements of the
Group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in this half yearly financial report has been prepared in
accordance with International Accounting Standard 34, Interim
Financial Reporting, as adopted by the European Union.
OUR RESPONSIBILITY
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half yearly
financial report based on our review.
SCOPE OF REVIEW
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity issued by the Auditing Practices Board for use in the
United Kingdom. A review of interim financial information consists
of making inquiries, 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.
CONCLUSION
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 2018 is not prepared, in all material respects, in
accordance with International Accounting Standard 34 as adopted by
the European Union and the Disclosure and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
Deloitte LLP
Statutory Auditor
London, United Kingdom
5 December 2018
Condensed consolidated income statement
Half year ended Half year ended Year ended
31 October 2018 31 October 2017 30 April 2018
Unaudited Unaudited (restated) Audited (restated)
Adjusting Adjusting
Adjusting Before items After Before items After
Before items After adjusting (note adjusting adjusting (note adjusting
adjusting (note adjusting items 3) items items 3) items
Continuing items 3) items GBPm GBPm GBPm GBPm GBPm GBPm
operations Note GBPm GBPm GBPm (1) (1) (1) (1) (1) (1)
------------------ ---- --------- --------- --------- --------- --------- ---------- --------- --------- ----------
Revenue (3) 2 3,073 - 3,073 2,663 - 2,663 5,518 - 5,518
Operating costs
(3) (2,769) (24) (2,793) (2,432) (16) (2,448) (5,026) (45) (5,071)
------------------ ---- --------- --------- --------- --------- --------- ---------- --------- --------- ----------
Operating profit
before
amortisation,
acquisitions and
disposals
and guaranteed
minimum
pension
equalisation 2 304 (24) 280 231 (16) 215 492 (45) 447
------------------ ---- --------- --------- --------- --------- --------- ---------- --------- --------- ----------
Amortisation of
intangible
assets;
acquisitions
and disposals 2 (53) (11) (64) (40) (18) (58) (90) (28) (118)
Guaranteed
minimum pension
equalisation - (15) (15) - - - - - -
------------------ ---- --------- --------- --------- --------- --------- ---------- --------- --------- ----------
Operating profit 251 (50) 201 191 (34) 157 402 (73) 329
Finance income 5 2 - 2 - - - - - -
3,
Finance costs 5 (37) (8) (45) (25) (5) (30) (58) (12) (70)
Employment benefit
net
finance expense (1) - (1) (2) - (2) (4) - (4)
------------------ ---- --------- --------- --------- --------- --------- ---------- --------- --------- ----------
Net financing
costs (36) (8) (44) (27) (5) (32) (62) (12) (74)
------------------ ---- --------- --------- --------- --------- --------- ---------- --------- --------- ----------
Profit after
financing
costs 215 (58) 157 164 (39) 125 340 (85) 255
Share of profit of
equity
accounted
investments, net
of
tax 5 - 5 3 - 3 5 - 5
------------------ ---- --------- --------- --------- --------- --------- ---------- --------- --------- ----------
Profit before
income
tax 220 (58) 162 167 (39) 128 345 (85) 260
Income tax
(expense)/credit 3,6 (48) 8 (40) (32) 2 (30) (69) 46 (23)
------------------ ---- --------- --------- --------- --------- --------- ---------- --------- --------- ----------
Profit for the
period
from
continuing
operations 172 (50) 122 135 (37) 98 276 (39) 237
Discontinued
operations
Profit for the
period
from discontinued
operations,
net of tax 10 (2) 8 10 (1) 9 24 (2) 22
------------------ ---- --------- --------- --------- --------- --------- ---------- --------- --------- ----------
Profit for the
period 182 (52) 130 145 (38) 107 300 (41) 259
------------------ ---- --------- --------- --------- --------- --------- ---------- --------- --------- ----------
Profit for the
period
attributable to:
------------------ ---- --------- --------- --------- --------- --------- ---------- --------- --------- ----------
Owners of the
parent 182 (52) 130 145 (38) 107 300 (41) 259
Non-controlling
interests - - - - - - - - -
------------------ ---- --------- --------- --------- --------- --------- ---------- --------- --------- ----------
Earnings per share
(2)
------------------ ---- --------- --------- --------- --------- --------- ---------- --------- --------- ----------
Earnings per share
From continuing operations and
discontinued operations
Basic 7 10.1p 9.9p 23.2p
Diluted 7 10.0p 9.8p 23.1p
------------------ ---- --------- --------- --------- --------- --------- ---------- --------- --------- ----------
From continuing
operations
Basic 7 9.5p 9.1p 21.2p
Diluted 7 9.4p 9.0p 21.1p
------------------ ---- --------- --------- --------- --------- --------- ---------- --------- --------- ----------
Adjusted earnings per share from continuing
operations
Basic 7 16.5p 15.2p 30.7p
Diluted 7 16.4p 15.1p 30.5p
------------------ ---- --------- --------- --------- --------- --------- ---------- --------- --------- ----------
(1) Restated for the classification of the Plastics business as
a discontinued operation (note 13)
(2) Restated for rights issue (note 14)
(3) Comparatives restated for the adoption of IFRS 15 Revenue
(note 1)
Half year Half year
ended 31 ended Year ended
October 31 October 30 April
2018 2017 2018
Condensed consolidated statement of comprehensive Unaudited Unaudited Audited
income GBPm GBPm GBPm
----------------------------------------------------- ---------- ----------- ----------
Profit for the period 130 107 259
----------------------------------------------------- ---------- ----------- ----------
Items which will not be reclassified subsequently
to profit or loss
Actuarial (loss)/gain on employee benefits (24) 25 57
Income tax on items which will not be reclassified
subsequently to profit or loss 4 (3) (14)
Items which may be reclassified subsequently
to profit or loss
Foreign currency translation differences 38 26 1
Cash flow hedges fair value changes 72 7 8
Reclassification from cash flow hedge reserve
to income statement (39) 10 10
Income tax on items which may be reclassified
subsequently to profit or loss - (3) 5
----------------------------------------------------- ---------- ----------- ----------
Other comprehensive income for the period, net
of tax 51 62 67
----------------------------------------------------- ---------- ----------- ----------
Total comprehensive income for the period 181 169 326
----------------------------------------------------- ---------- ----------- ----------
Total comprehensive income attributable to:
----------------------------------------------------- ---------- ----------- ----------
Owners of the parent 181 169 326
Non-controlling interests - - -
----------------------------------------------------- ---------- ----------- ----------
At 31 October At 31 October At 30 April
2018 2017 2018
Condensed consolidated statement of financial Unaudited Unaudited Audited
position Note GBPm GBPm GBPm
---------------------------------------------- ---- ------------- ------------- -----------
Assets
Non-current assets
Intangible assets 2,059 2,024 2,043
Biological assets 3 3 3
Property, plant and equipment 2,385 2,231 2,396
Equity accounted investments 29 25 24
Other investments 11 11 11
Deferred tax assets 51 77 64
Other receivables 8 8 7
Derivative financial instruments 9 12 15
---------------------------------------------- ---- ------------- ------------- -----------
Total non-current assets 4,555 4,391 4,563
---------------------------------------------- ---- ------------- ------------- -----------
Current assets
Inventories 547 491 543
Biological assets 5 4 4
Other investments 10 1,014 - -
Income tax receivable 10 11 15
Trade and other receivables 891 881 863
Cash and cash equivalents 10 435 558 297
Derivative financial instruments 79 27 44
Assets held for sale 13 223 1 -
---------------------------------------------- ---- ------------- ------------- -----------
Total current assets 3,204 1,973 1,766
---------------------------------------------- ---- ------------- ------------- -----------
Total assets 7,759 6,364 6,329
---------------------------------------------- ---- ------------- ------------- -----------
Liabilities
Non-current liabilities
Borrowings 10 (1,846) (1,925) (1,811)
Employee benefits 4 (143) (161) (106)
Other payables (14) (12) (14)
Provisions (4) (4) (4)
Deferred tax liabilities (197) (270) (195)
Derivative financial instruments (14) (12) (35)
---------------------------------------------- ---- ------------- ------------- -----------
Total non-current liabilities (2,218) (2,384) (2,165)
---------------------------------------------- ---- ------------- ------------- -----------
Current liabilities
Bank overdrafts 10 (191) (23) (29)
Borrowings 10 (110) (57) (162)
Trade and other payables (1,778) (1,713) (1,705)
Income tax liabilities (93) (126) (118)
Provisions (14) (21) (16)
Derivative financial instruments (33) (15) (24)
Liabilities held for sale 13 (91) - -
---------------------------------------------- ---- ------------- ------------- -----------
Total current liabilities (2,310) (1,955) (2,054)
---------------------------------------------- ---- ------------- ------------- -----------
Total liabilities (4,528) (4,339) (4,219)
---------------------------------------------- ---- ------------- ------------- -----------
Net assets 3,231 2,025 2,110
---------------------------------------------- ---- ------------- ------------- -----------
Equity
Issued capital 137 107 107
Share premium 2,232 1,260 1,260
Reserves 861 657 742
---------------------------------------------- ---- ------------- ------------- -----------
Total equity attributable to owners of the
parent 3,230 2,024 2,109
Non-controlling interests 1 1 1
---------------------------------------------- ---- ------------- ------------- -----------
Total equity 3,231 2,025 2,110
---------------------------------------------- ---- ------------- ------------- -----------
Condensed consolidated statement of changes in equity
Total
reserves
attributable
to owners
Share Share Hedging Translation Own Retained of the Non-controlling Total
capital premium reserve reserve shares earnings parent interests equity
GBPm GBPm GBPm GBPm GBPm GBPm1 GBPm GBPm GBPm
----------------- ------- ------- ------- ----------- ------ --------
At 1 May 2018
(audited) 107 1,260 (7) 49 (1) 701 2,109 1 2,110
------------------ ------- ------- ------- ----------- ------ -------- ------------ --------------- -------
Profit for the
period - - - - - 130 130 - 130
Actuarial loss on
employee
benefits - - - - - (24) (24) - (24)
Foreign currency
translation
differences - - - 38 - - 38 - 38
Cash flow hedges
fair
value changes - - 72 - - - 72 - 72
Reclassification
from
cash flow hedge
reserve
to income
statement - - (39) - - - (39) - (39)
Income tax on
other
comprehensive
income - - - - - 4 4 - 4
------------------ ------- ------- ------- ----------- ------ -------- ------------ --------------- -------
Total
comprehensive
income - - 33 38 - 110 181 - 181
------------------ ------- ------- ------- ----------- ------ -------- ------------ --------------- -------
Issue of share
capital 30 972 - - - - 1,002 - 1,002
Employee share
trust - - - - (1) (7) (8) - (8)
Share-based
payment expense
(net of tax) - - - - - (1) (1) - (1)
Dividends paid - - - - - (53) (53) - (53)
------------------ ------- ------- ------- ----------- ------ -------- ------------ --------------- -------
Other changes in
equity
in the year 30 972 - - (1) (61) 940 - 940
------------------ ------- ------- ------- ----------- ------ -------- ------------ --------------- -------
At 31 October 2018
(unaudited) 137 2,232 26 87 (2) 750 3,230 1 3,231
------------------ ------- ------- ------- ----------- ------ -------- ------------ --------------- -------
At 1 May 2017
(audited) 95 728 (22) 40 (4) 516 1,353 2 1,355
Profit for the
period - - - - - 107 107 - 107
Actuarial gain on
employee
benefits - - - - - 25 25 - 25
Foreign currency
translation
differences - - - 26 - - 26 - 26
Cash flow hedges
fair
value changes - - 7 - - - 7 - 7
Reclassification
from
cash flow hedge
reserve
to income
statement - - 10 - - - 10 - 10
Income tax on
other
comprehensive
income - - (3) - - (3) (6) - (6)
------------------ ------- ------- ------- ----------- ------ -------- ------------ --------------- -------
Total
comprehensive
income - - 14 26 - 129 169 - 169
------------------ ------- ------- ------- ----------- ------ -------- ------------ --------------- -------
Issue of share
capital 12 532 - - - - 544 - 544
Employee share
trust - - - - 2 (6) (4) - (4)
Share-based
payment expense
(net of tax) - - - - - 6 6 - 6
Dividends paid - - - - - (44) (44) - (44)
Transaction with
non-controlling
interests - - - - - - - (1) (1)
------------------ ------- ------- ------- ----------- ------ -------- ------------ --------------- -------
Other changes in
equity
in the period 12 532 - - 2 (44) 502 (1) 501
------------------ ------- ------- ------- ----------- ------ -------- ------------ --------------- -------
At 31 October 2017
(unaudited) 107 1,260 (8) 66 (2) 601 2,024 1 2,025
------------------ ------- ------- ------- ----------- ------ -------- ------------ --------------- -------
(1) Retained earnings include a reserve related to merger
relief.
Condensed consolidated statement of cash flows
Half year
Half year ended Year ended
ended 31 October 30 April
31 October 2017 2018
2018 Unaudited Audited
Unaudited (restated) (restated)
Continuing operations Note GBPm GBPm (1) GBPm (1)
------------------------------------------------- ---- ----------- ----------- -----------
Operating activities
Cash generated from operations 9 380 295 527
Interest received 1 - 1
Interest paid (44) (26) (42)
Tax paid (47) (24) (68)
------------------------------------------------- ---- ----------- ----------- -----------
Cash flows from operating activities 290 245 418
------------------------------------------------- ---- ----------- ----------- -----------
Investing activities
Acquisition of subsidiary businesses, net
of cash and cash equivalents 14 (37) (521) (615)
Capital expenditure (121) (124) (328)
Proceeds from sale of property, plant and
equipment and intangible assets 3 9 16
Cash flows from restricted cash and other
deposits (1,026) - (6)
------------------------------------------------- ---- ----------- ----------- -----------
Cash flows used in investing activities (1,181) (636) (933)
------------------------------------------------- ---- ----------- ----------- -----------
Financing activities
Proceeds from issue of share capital 1,002 283 283
Repayment of borrowings (990) (353) (490)
Proceeds from borrowings 926 924 1,008
(Repayment of)/proceeds from settlement
of derivative financial instruments (22) (11) 2
Repayment of finance lease obligations (2) (2) (4)
Dividends paid to Group shareholders 8 (53) (44) (157)
Other - (6) (4)
------------------------------------------------- ---- ----------- ----------- -----------
Cash flows from financing activities 861 791 638
------------------------------------------------- ---- ----------- ----------- -----------
(Decrease)/increase in cash and cash equivalents
from
continuing operations (30) 400 123
Discontinued operations
Cash generated from discontinued operations 4 8 18
------------------------------------------------- ---- ----------- ----------- -----------
(Decrease)/increase in cash and cash equivalents (26) 408 141
Net cash and cash equivalents at 1 May 268 123 123
Exchange gains on cash and cash equivalents 2 4 4
------------------------------------------------- ---- ----------- ----------- -----------
Net cash and cash equivalents 10 244 535 268
------------------------------------------------- ---- ----------- ----------- -----------
(1) Restated for the classification of the Plastics business as
a discontinued operation (note 13).
1. Basis of preparation
The unaudited condensed consolidated interim financial
statements for the half year ended 31 October 2018 have been
prepared in accordance with IAS 34 Interim Financial Reporting and
the disclosure requirements of the Listing Rules. These interim
financial statements should be read in conjunction with the Group's
annual financial statements for the year ended 30 April 2018, which
have been prepared in accordance with International Financial
Reporting Standards as adopted by the EU ('IFRSs'). Those accounts
were reported on by the Company's auditor 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 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 2018, which are prepared in
accordance with IFRSs, apart from as detailed below.
The comparative information presented in this half year report
has been restated as a result of the adoption of IFRS 15 Revenue,
the rights issue during the period, and the classification of the
Plastic business as a discontinued operation.
The following new accounting standards, amendments or
interpretations have been adopted by the Group as of 1 May
2018:
-- IFRS 15 Revenue from Contracts with Customers;
-- IFRS 9 Financial Instruments;
-- IFRIC Interpretation 22 Foreign Currency Transactions and Advance Consideration; and
-- Amendments to IFRS 2 Classification and Measurements of Share-based Payment Transactions.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 replaces IAS 18 Revenue and related interpretations,
introducing a single, principles-based approach to the recognition
and measurement of revenue from all contracts with customers. The
new approach requires identification of performance obligations in
a contract and revenue to be recognised when or as those
performance obligations are satisfied, as well as additional
disclosure.
The Group's review of the requirements of IFRS 15 against
existing policy and practice concluded that timing of revenue
recognition was materially consistent with the requirements of IFRS
15. For the majority of the Group's contracts, the performance
obligation is the delivery of goods, which under IFRS 15 would be
recognised at a single point of time, on delivery of goods,
consistent with the current accounting treatment under IAS 18.
The Group utilises customised dies, tools and moulds in order to
fulfil customer orders, which vary considerably in value and
treatment in the customer contracts. While some are immaterial in
the context of the contract, others are of more significant value
and contractually distinct and are therefore considered a separate
performance obligation under IFRS 15. Previously, revenue from
dies, tools and moulds was netted within operating costs, while
under IFRS 15 it represents a separate performance obligation and
is included within revenue. In addition to the IFRS 15 adjustment
relating to dies, tools and moulds, energy income, historically
netted within operating costs while not material, has been
determined to be more appropriately stated within revenue.
The Group has applied IFRS 15 with effect from 1 May 2018, with
full restatement of prior periods to ensure comparability of the
consolidated income statement. The impact of applying the changes
described above on the restatement of the results for the half year
ended 31 October 2017 and the year ended 30 April 2018 was to
increase revenue and increase operating costs relating to
continuing operations by GBP42m and GBP99 million respectively with
no impact on net profit and loss. There was no impact on
discontinued operations revenue. Other areas identified in the
review of IFRS 15 were concluded not to have material differences
to current practice.
IFRS 9 Financial Instruments
IFRS 9 has replaced IAS 39 Financial Instruments: Recognition
and Measurement and concerns the classification, measurement and
de-recognition of financial assets and financial liabilities,
introduces the expected credit loss model for the assessment of
impairment of financial assets, introduces new classification and
measurement rules for financial assets affecting the Group's other
investments previously classified as available for sale and held at
fair value, and changes the hedge accounting requirements.
The Group has determined that all existing effective hedging
relationships will continue to qualify for hedge accounting under
IFRS 9. The Group has elected to continue to apply the hedge
accounting requirements of IAS 39, as allowed under IFRS 9.
The Group's other investments previously classified as available
for sale under IAS 39 and held at fair value have been designated
on
transition as fair value through other comprehensive income,
after which the Group will record their fair value movements in
other comprehensive income.
The Group has adopted the simplified approach to provide for
losses on receivables within the scope of IFRS 9. The impact of
applying the expected credit loss model has been concluded not to
be material considering the quality and short-term nature of the
Group's trade receivables. As the anticipated impact of adopting
IFRS 9 is not material, the Group has not restated prior periods on
adoption of IFRS 9.
The adoption of the remaining standards, amendments and
interpretations has not had a material effect on the results for
the period.
The condensed information presented for the year ended 30 April
2018 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 2018 is unaudited but has been
reviewed by Deloitte LLP, the Group's auditor, and a copy of their
review report forms part of this half year report.
Foreign exchange rates
The Group's main currency exposure is to the euro and the US
dollar, and the following exchange rates have been applied during
the periods:
Half year ended Half year ended Year ended
31 October 2018 31 October 2017 30 April 2018
Average Closing Average Closing Average Closing
----------- --------- -------- --------- -------- -------- --------
euro 1.129 1.125 1.129 1.138 1.132 1.137
US dollar 1.311 1.274 1.303 1.325 1.356 1.373
----------- --------- -------- --------- -------- -------- --------
Going concern
As explained in the narrative section of this half year
financial report under the heading 'Going concern', the financial
statements are prepared on the going concern basis. This is
considered appropriate given that the Group has adequate resources
to continue in operational existence for the foreseeable
future.
Estimates and judgements
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 were the same as those that applied to the Group's
consolidated financial statements for the year ended 30 April 2018,
being pensions and other employee benefits, taxation and adjusting
items.
There are no critical accounting judgements.
Non-GAAP performance measures
In the reporting of financial information, the Group has adopted
certain non-GAAP measures of historical or future financial
performance, position or cash flows other than those defined or
specified under International Financial Reporting Standards
(IFRSs).
Non-GAAP measures are either not defined by IFRS or are adjusted
IFRS figures, and therefore may not be directly comparable with
other companies reported non-GAAP measures, including those in the
Group's industry.
Non-GAAP measures should be considered in addition to, and are
not intended to be a substitute for, or superior to, IFRS
measures.
Details of the Group's non-GAAP performance measures, including
reasons for their use and reconciliations to IFRS figures are
included as appropriate in note 15.
2. Segment reporting - continuing operations
Operating segments
The Plastics segment has been classified as a discontinued
operation during the half year ended 31 October 2018. Segmental
reporting for the Plastics segment is set out in note 13.
DCH and Central Total
Western Northern Europe North continuing
Half year ended 31 October UK Europe Europe and Italy America operations
2018 GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------------- ----- ------- --------- ---------- -------- -----------
External revenue 577 784 556 815 341 3,073
-------------------------------------- ----- ------- --------- ---------- -------- -----------
Adjusted operating profit(1) 59 58 55 75 57 304
-------------------------------------- ----- ------- --------- ---------- -------- -----------
Unadjusted items:
Amortisation (53)
Adjusting items in operating
profit (50)
-------------------------------------- ----- ------- --------- ---------- -------- -----------
Total operating profit (continuing
operations) 201
-------------------------------------- ----- ------- --------- ---------- -------- -----------
Unadjusted items:
Net financing costs (44)
Share of profit of equity accounted
investments,
net of tax 5
-------------------------------------- ----- ------- --------- ---------- -------- -----------
Profit before income tax 162
Income tax expense (40)
-------------------------------------- ----- ------- --------- ---------- -------- -----------
Profit for the period (continuing
operations) 122
-------------------------------------- ----- ------- --------- ---------- -------- -----------
DCH and Central Total
Western Northern Europe North continuing
Half year ended 31 October UK Europe Europe and Italy America operations
2017 GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------------- ----- ------- --------- ---------- -------- -----------
External revenue 553 726 557 717 110 2,663
-------------------------------------- ----- ------- --------- ---------- -------- -----------
Adjusted operating profit(1) 55 55 43 63 15 231
-------------------------------------- ----- ------- --------- ---------- -------- -----------
Unallocated items:
Amortisation (40)
Adjusting items in operating
profit (34)
-------------------------------------- ----- ------- --------- ---------- -------- -----------
Total operating profit (continuing
operations) 157
-------------------------------------- ----- ------- --------- ---------- -------- -----------
Unallocated items:
Net financing costs (32)
Share of profit of equity accounted
investment, net of tax 3
-------------------------------------- ----- ------- --------- ---------- -------- -----------
Profit before income tax 128
Income tax expense (30)
-------------------------------------- ----- ------- --------- ---------- -------- -----------
Profit for the period (continuing
operations) 98
-------------------------------------- ----- ------- --------- ---------- -------- -----------
(1) Adjusted to exclude amortisation and adjusting items.
3. Adjusting items - continuing operations
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, restructuring and
optimisation, acquisition-related and integration costs, and
impairments.
Half year Year ended
ended
31 October 30 April
2017 2018
Half year (restated)
ended 31
October
2018 (restated)
Continuing operations GBPm GBPm (1) GBPm (1)
--------------------------------------------- --------- ------------ -----------
Acquisition-related costs (11) (18) (28)
Acquisitions and disposals (11) (18) (28)
Integration costs (8) (5) (13)
Other restructuring costs (2) (4) (15)
Impairment of assets - (1) (1)
Guaranteed minimum pension equalisation (15) - -
Other (14) (6) (16)
--------------------------------------------- --------- ------------ -----------
Total pre-tax adjusting items (recognised in
operating profit) (50) (34) (73)
Finance costs adjusting items (8) (5) (12)
Adjusting tax items (1) (2) 33
Current tax credit on adjusting items 6 4 13
Deferred tax credit on adjusting items 3 - -
--------------------------------------------- --------- ------------ -----------
Total post-tax adjusting items (50) (37) (39)
--------------------------------------------- --------- ------------ -----------
(1) Restated for the classification of the Plastics business as
a discontinued operation (note 13).
Half year ended 31 October 2018
Acquisition-related costs of GBP11m relate to professional
advisory, legal and consultancy fees and directly attributable
internal salary costs relating to the review of potential deals,
and deals completed during the period. Of the total, GBP6m relates
to the proposed acquisition of Europac, with the most significant
components being transaction and sponsor fees, legal costs, and
financial and tax due diligence costs.
Integration costs relate to integration projects underway,
primarily to achieve cost synergies from the acquisitions made in
the current period and previous financial years (of which
Interstate Resources comprises GBP4m). They include those directly
attributable internal salary costs which would otherwise not be
incurred and are typically duplicated with temporary costs in the
underlying business.
Other restructuring costs of GBP2m relate to projects begun in
the prior year. The largest component is the completion of the
Iberia Packaging restructuring (GBP1.3m) project following the
Lantero acquisition and commenced in the previous year.
On 26 October 2018, the High Court issued a judgement with
respect to the equalisation between men and women of guaranteed
minimum pension (GMP) benefits accrued between 1990 and 1997, in
order to comply with sex discrimination legislation. A preliminary
estimate of the adjustment for the UK defined benefit scheme of
GBP15m has been charged to the income statement as an adjusting
item. The estimate is based on broad assumptions about the scheme's
characteristics. A detailed calculation will be performed in the
second half of the year as part of the full year end review of
assumptions.
Other adjusting items of GBP14m principally relate to a
significant multi-year major IT project which has been
substantially completed in this period. The costs of this project
extend over several years and as well as adjusting items include
capitalisation of intangible assets, particularly in the case of IT
systems. Those costs are primarily as a result of the Group's
acquisition activity, which has been focused on businesses where
the IT and financial infrastructure is limited.
Finance costs adjusting items relate to bridging finance for the
Europac acquisition of GBP3m, with the remainder relating to the
unwind of the discount on the redemption liability related to the
purchase of Interstate Resources.
The current tax credit on adjusting items of GBP6m in the half
year ended 31 October 2018 is the tax effect at the local
applicable tax rate of adjusting items that are subject to tax.
This excludes non-tax deductible deal-related advisory fees in
relation to acquisitions and disposals. Adjusting tax items of
GBP1m is an increase in tax provisions in respect of tax risks in
acquired businesses. A deferred tax credit of GBP3m has been
recognised in respect of GMP equalisation.
3. Adjusting items - continuing operations (continued)
Year ended 30 April 2018 and half year ended 31 October 2017
Acquisition-related costs of GBP28m related to professional
advisory, legal and consultancy fees and directly attributable
internal salary costs relating to the review of potential deals,
and deals completed during the periods, including the acquisition
of Interstate Resources, DPF Groupe and EcoPack and EcoPaper. Of
the total, GBP14m related to the acquisition of Interstate
Resources, with the most significant components being transaction
and sponsor fees, legal costs, and financial and tax due diligence
and advice costs.
Integration costs related to integration projects underway,
primarily to achieve cost synergies from the acquisitions made in
the current period and previous financial years (of which
Interstate Resources comprised GBP6m). They included those directly
attributable internal salary costs which would otherwise not be
incurred and are typically duplicated with temporary costs in the
underlying business.
Other restructuring costs of GBP15m included reorganisation and
restructuring in DCH and Northern Europe (GBP4m) and the UK
(GBP4m), primarily relating to completion of projects commenced in
the previous year. For the half year ended 31 October 2017, other
restructuring costs included projects of GBP5m in DCH and Northern
Europe, and GBP1m in the UK.
Other adjusting items of GBP16m principally related to major IT
projects which have been substantially completed in the current
period. The costs of this project extend over several years and as
well as adjusting items include capitalisation of intangible
assets, particularly in the case of the financial ERP system.
Finance costs adjusting items related to financing costs
incurred in the acquisition of Interstate Resources of GBP5m, with
the remainder relating to the unwind of the discount on the
redemption liability related to the purchase of Interstate
Resources.
On 22 December 2017, the US enacted a major tax reform bill,
which included, inter alia, the reduction in corporation tax rate
from 35% to 21%. The revised rate was used to revalue net deferred
tax liabilities in the US, leading to a credit of GBP37m to
adjusting tax items, of which the most significant element related
to the deferred tax liabilities arising on the recognition of
intangibles in business combinations. The remaining GBP4m debit was
an increase in tax provisions in respect of tax risks in acquired
businesses.
The current tax credit on adjusting items of GBP13m in the year
ended 30 April 2018 was the tax effect at the local applicable tax
rate of adjusting items that are subject to tax. This excluded
non-tax deductible deal-related advisory fees in relation to
acquisitions and disposals.
4. Employee benefits
Movements in the net employee benefit deficit recognised in the
Condensed Consolidated Statement of Financial Position:
Half year Half year Year ended
ended ended 30 April
31 October 31 October 2018
2018 2017 GBPm
GBPm GBPm
-------------------------------------------------- ----------- ----------- ----------
Opening employee benefit deficit (106) (181) (181)
Acquisitions - (11) (8)
Expense recognised in operating profit (4) (3) (6)
Past service cost (GMP equalisation) recognised
in adjusting items (15) - -
Employment benefit net finance expense (excluding
Pension Protection Fund levy) (1) (2) (3)
Employer contributions 10 10 25
Other payments and contributions (2) 3 13
Actuarial (losses)/gains (24) 25 57
Currency translation (3) (2) (3)
Reclassification to held for sale 2 - -
-------------------------------------------------- ----------- ----------- ----------
Employee benefit deficit (143) (161) (106)
Deferred tax asset 40 42 26
-------------------------------------------------- ----------- ----------- ----------
Employee benefit deficit after tax (103) (119) (80)
-------------------------------------------------- ----------- ----------- ----------
5. Finance income and costs - continuing operations
Half year Year ended
ended
Half year 31 October 30 April
ended 2017 2018
31 October (restated)
2018 (restated)
Continuing operations GBPm GBPm (1) GBPm (1)
-------------------------------------- ----------- ------------ -----------
Interest income from financial assets (2) - -
-------------------------------------- ----------- ------------ -----------
Finance income (2) - -
-------------------------------------- ----------- ------------ -----------
Interest on borrowings and overdrafts 31 19 54
Other 6 6 4
-------------------------------------- ----------- ------------ -----------
Finance costs before adjusting items 37 25 58
Finance costs adjusting items 8 5 12
-------------------------------------- ----------- ------------ -----------
Finance costs 45 30 70
-------------------------------------- ----------- ------------ -----------
(1) Restated for the classification of the Plastics business as
a discontinued operation (note 13).
6. Income tax expense - continuing operations
Tax on profit from continuing operations has been charged at an
underlying rate before adjusting items and amortisation of 22.8%
(half year ended 31 October 2017: 21.0%) being the expected full
year rate.
7. Earnings per share
Basic earnings per share from continuing operations
Half year
ended Year ended
Half year 31 October 30 April
ended 2017 2018
31 October
2018 (restated)(1) (restated)(1)
----------------------------------------------- ------------ -------------- --------------
Profit from continuing operations attributable
to ordinary shareholders GBP122m GBP98m GBP237m
----------------------------------------------- ------------ -------------- --------------
Weighted average number of ordinary shares 1,286m 1,083m 1,115m
----------------------------------------------- ------------ -------------- --------------
Basic earnings per share 9.5p 9.1p 21.2p
----------------------------------------------- ------------ -------------- --------------
Diluted earnings per share from continuing operations
Half year
ended Year ended
Half year 31 October 30 April
ended 2017 2018
31 October
2018 (restated)(1) (restated)(1)
------------------------------------------------------- ------------ -------------- --------------
Profit from continuing operations attributable
to ordinary shareholders GBP122m GBP98m GBP237m
------------------------------------------------------- ------------ -------------- --------------
Weighted average number of ordinary shares 1,286m 1,083m 1,115m
Potentially dilutive shares issuable under share-based
payment arrangements 6m 5m 7m
------------------------------------------------------- ------------ -------------- --------------
Weighted average number of ordinary shares (diluted) 1,292m 1,088m 1,122m
------------------------------------------------------- ------------ -------------- --------------
Diluted earnings per share 9.4p 9.0p 21.1p
------------------------------------------------------- ------------ -------------- --------------
Basic earnings per share from discontinued operations
Half year
ended Year ended
Half year 31 October 30 April
ended 2017 2018
31 October
2018 (restated)(1) (restated)(1)
----------------------------------------------- ------------ -------------- --------------
Profit from continuing operations attributable
to ordinary shareholders GBP8m GBP9m GBP22m
----------------------------------------------- ------------ -------------- --------------
Weighted average number of ordinary shares 1,286m 1,083m 1,115m
----------------------------------------------- ------------ -------------- --------------
Basic earnings per share 0.6p 0.8p 2.0p
----------------------------------------------- ------------ -------------- --------------
Diluted earnings per share from discontinued operations
Half year
ended Year ended
Half year 31 October 30 April
ended 2017 2018
31 October
2018 (restated)(1) (restated)(1)
------------------------------------------------------- ------------ -------------- --------------
Profit from continuing operations attributable
to ordinary shareholders GBP8m GBP9m GBP22m
------------------------------------------------------- ------------ -------------- --------------
Weighted average number of ordinary shares 1,286m 1,083m 1,115m
Potentially dilutive shares issuable under share-based
payment arrangements 6m 5m 7m
------------------------------------------------------- ------------ -------------- --------------
Weighted average number of ordinary shares (diluted) 1,292m 1,088m 1,122m
------------------------------------------------------- ------------ -------------- --------------
Diluted earnings per share 0.6p 0.8p 2.0p
------------------------------------------------------- ------------ -------------- --------------
(1) Restated for rights issue (note 14) and the classification
of the Plastics business as a discontinued operation (note13).
The number of shares excludes the weighted average number of the
Company's own shares held as treasury shares during the period
of
1m (half year ended 31 October 2017: 1m; year ended 30 April
2018: 1m).
Adjusted earnings per share from continuing operations
Adjusted earnings per share is a key performance measure for
management of 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
15.
A reconciliation of basic to adjusted earnings per share is as
follows:
Half year ended Year ended
Half year ended 31 October 2017 30 April 2018 (restated)
31 October 2018 (restated)
Basic Basic Diluted Basic
- Diluted - - - Diluted
pence - pence pence pence pence - pence
per per per per per per
GBPm share share GBPm share share GBPm share share
----------------------------- ---- ------ -------- ---- ------ ------- ------ -------- -----------
Basic earnings 122 9.5p 9.4p 98 9.1p 9.0p 237 21.3p 21.1p
Add back:
Amortisation of intangible
assets 53 4.1p 4.1p 40 3.7p 3.7p 90 8.0p 7.9p
Tax credit on amortisation (13) (1.0p) (1.0p) (11) (1.0p) (1.0p) (23) (2.1p) (2.0p)
Adjusting items,
before tax 58 4.5p 4.5p 39 3.6p 3.6p 85 7.6p 7.6p
Tax on adjusting
items and adjusting
tax items (8) (0.6p) (0.6p) (2) (0.2p) (0.2p) (46) (4.1p) (4.1p)
----------------------------- ---- ------ -------- ---- ------ ------- ------ -------- -----------
Adjusted earnings 212 16.5p 16.4p 164 15.2p 15.1p 343 30.7p 30.5p
----------------------------- ---- ------ -------- ---- ------ ------- ------ -------- -----------
8. Dividends proposed and paid
2018 2017
---------------------------------------------- ---------------- ----------------
Pence Pence
per share GBPm per share GBPm
---------------------------------------------- ---------- ---- ---------- ----
2016/17 interim dividend - paid (restated)(1) - - 4.3p 44
2016/17 final dividend - paid(restated)(1) - - 9.8p 113
2017/18 interim dividend - paid (restated)(1) 4.6p 53 - -
2017/18 final dividend - paid 9.8p 134 - -
2018/19 interim dividend - proposed 5.2p 71 - -
---------------------------------------------- ---------- ---- ---------- ----
(1) Restated for rights issue (note 14) 2017/18 interim dividend
restated to 4.56 pence per share.
Half year Half year Year ended
ended ended 30 April
31 October 31 October 2018
2018 2017 GBPm
GBPm GBPm
----------------------- ----------- ----------- ----------
Paid during the period 53 44 157
----------------------- ----------- ----------- ----------
The final dividend in respect of 2017/18 of 9.8 pence per share
(GBP134m) was paid after the half year end on 1 November 2018. The
2017/18 interim dividend was paid during the half year ended 31
October 2018. An interim dividend in respect of the half year ended
31 October 2018 of 5.2p per share (GBP71m) has been proposed by the
Directors after the reporting date.
The final dividend in respect of 2017/18 of 9.8 pence per share
was paid to all share-holders on the record date, including those
issued in the rights issue (see note 14).
9. Cash generated from operations
Half year Year ended
ended
Half year 31 October 30 April
ended 2017 2018
31 October (restated)
2018 (restated)
Continuing operations GBPm GBPm(1) GBPm(1)
--------------------------------------------------- ----------- ------------ -----------
Profit for the period 122 98 237
Adjustments for:
Pre-tax integration costs and other adjusting
items 24 16 45
Amortisation of intangible assets; acquisitions
and disposals 64 58 118
Guaranteed minimum pension equalisation 15 - -
Cash outflow for adjusting items (37) (32) (78)
Depreciation 89 76 157
Profit on sale of non-current assets (1) (1) (1)
Share of profit of equity accounted investments,
net of tax (5) (3) (5)
Employment benefit net finance expense 1 2 4
Share-based payment expense 4 4 9
Finance income (2) - -
Finance costs 45 30 70
Other non-cash items - 2 2
Income tax expense 40 30 23
Change in provisions (2) (2) (9)
Change in employee benefits (5) (10) (27)
--------------------------------------------------- ----------- ------------ -----------
Cash generation before working capital movement 352 268 545
--------------------------------------------------- ----------- ------------ -----------
Changes in:
Inventories (24) (45) (81)
Trade and other receivables (52) (42) (18)
Trade and other payables 104 114 81
--------------------------------------------------- ----------- ------------ -----------
Working capital movement 28 27 (18)
--------------------------------------------------- ----------- ------------ -----------
Cash generated from continuing operations 380 295 527
--------------------------------------------------- ----------- ------------ -----------
(1) Restated for the classification of the Plastics business as
a discontinued operation (note 13).
10. Net debt
Half year Half year
ended ended Year ended
31 October 31 October 30 April
2018 2017 2018
GBPm GBPm GBPm
-------------------------------------------------- ----------- ----------- ----------
Cash and cash equivalents 435 558 297
Overdrafts (191) (23) (29)
-------------------------------------------------- ----------- ----------- ----------
Net cash and cash equivalents 244 535 268
-------------------------------------------------- ----------- ----------- ----------
Other investments - restricted cash 3 - 3
Other investments - restricted cash (rights issue
proceeds) 1,014 - -
Other deposits 55 43 45
Borrowings due - after one year (1,837) (1,914) (1,802)
Borrowings due - within one year (108) (54) (158)
Finance leases - after one year (9) (11) (9)
Finance leases - within one year (2) (3) (4)
Derivative financial instruments
assets 7 9 12
liabilities (15) (11) (35)
-------------------------------------------------- ----------- ----------- ----------
(892) (1,941) (1,948)
-------------------------------------------------- ----------- ----------- ----------
Net debt (648) (1,406) (1,680)
-------------------------------------------------- ----------- ----------- ----------
Net debt is a non-GAAP measure not defined by IFRS, calculated
in accordance with the Group's banking covenant requirements.
Further detail on the use of non-GAAP measures is included in note
15.
Derivative financial instruments above relate to forward foreign
exchange contracts, interest rate and cross-currency swaps used to
hedge the Group's borrowings and the ratio of net debt to adjusted
EBITDA. 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 15.
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 the Group's purchases of energy.
Other deposits are included, as these short-term receivables
have the characteristics of net debt.
The rights issue proceeds are held in order to finance the
Group's acquisition of Europac (see note 14).
11. Reconciliation of net cash flow to movement in net debt
Half year Half year
ended 31 ended Year ended
October 31 October 30 April
2018 2017 (restated) 2018 (restated)
GBPm GBPm (1) GBPm (1)
---------------------------------------------------- --------- ---------------- ----------------
Continuing operations
Profit for the period 122 98 237
Income tax expense 40 30 23
Share of profit of equity accounted investments,
net of tax (5) (3) (5)
Net financing costs 44 32 74
Amortisation of intangible assets; acquisitions
and disposals 64 58 118
Guaranteed minimum pension equalisation 15 - -
Adjusting items 24 16 45
---------------------------------------------------- --------- ---------------- ----------------
Operating profit before amortisation and adjusting
items 304 231 492
Depreciation 89 76 157
---------------------------------------------------- --------- ---------------- ----------------
Adjusted EBITDA 393 307 649
Working capital movement 28 27 (18)
Change in provisions (2) (2) (9)
Change in employee benefits (5) (10) (27)
Other 3 5 10
---------------------------------------------------- --------- ---------------- ----------------
Cash generated from operations before adjusting
cash items 417 327 605
Capital expenditure (121) (124) (328)
Proceeds from sale of property, plant and equipment
and other investments 3 9 16
Tax paid (47) (24) (68)
Net interest paid (43) (26) (41)
---------------------------------------------------- --------- ---------------- ----------------
Free cash flow 209 162 184
Cash outflow for adjusting items (37) (32) (78)
Dividends paid (53) (44) (157)
Acquisition of subsidiary businesses, net of
cash and cash equivalents (37) (521) (615)
Other (5) (5) (4)
---------------------------------------------------- --------- ---------------- ----------------
Net cash flow 77 (440) (670)
Proceeds from issue of share capital 1,002 283 283
Borrowings acquired (4) (144) (204)
---------------------------------------------------- --------- ---------------- ----------------
Net movement on debt 1,075 (301) (591)
Foreign exchange, fair value and other non-cash
movements (47) (21) (15)
---------------------------------------------------- --------- ---------------- ----------------
Net debt movement - continuing operations 1,028 (322) (606)
Net debt movement - discontinued operations 4 8 18
Opening net debt (1,680) (1,092) (1,092)
---------------------------------------------------- --------- ---------------- ----------------
Closing net debt (648) (1,406) (1,680)
---------------------------------------------------- --------- ---------------- ----------------
(1) Restated for the classification of the Plastics business as
a discontinued operation (note 13).
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:
2018 2017
----------------------------------------- ----------------- -----------------
Carrying Fair Carrying Fair
amount value amount value
GBPm GBPm GBPm GBPm
----------------------------------------- -------- ------- -------- -------
Financial assets
Cash and cash equivalents 435 435 297 297
Fair value through other comprehensive
income - other investments 1,014 1,014 11 11
Available for sale - other investments 11 11 - -
Loans and receivables 899 899 870 870
Derivative financial instruments 88 88 59 59
----------------------------------------- -------- ------- -------- -------
Total financial assets 2,447 2,447 1,237 1,237
----------------------------------------- -------- ------- -------- -------
Financial liabilities
Trade and other payables (1,792) (1,792) (1,719) (1,719)
Bank and other borrowings (108) (108) (1) (1)
Medium-term notes and other fixed-term
debt (1,837) (1,799) (1,959) (1,995)
Finance lease liabilities (11) (11) (13) (13)
Bank overdrafts (191) (191) (29) (29)
Derivative financial instruments (47) (47) (59) (59)
Total financial liabilities (3,986) (3,948) (3,780) (3,816)
----------------------------------------- -------- ------- -------- -------
The fair value is the amount for which an asset or liability
could be exchanged or settled on an arm's-length basis. 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 prices for valuing forward foreign exchange and
commodity contracts and uses valuation models with present value
calculations based on market yield curves to value note purchase
agreements, the medium-term note, cross-currency swaps and interest
rate swaps. All derivative financial instruments are shown at fair
value in the Consolidated Statement of Financial Position.
The Group's medium-term notes and other fixed-term debt are in
effective cash flow and net investment hedges and are therefore
held at amortised cost. The fair values of financial assets and
liabilities which bear floating rates of interest are estimated to
be equivalent to their carrying amounts.
IFRS 7 Financial Instruments: Disclosures requires the
classification of fair value measurements using the fair value
hierarchy that reflects the significance of the inputs used in
making the assessments.
All of the Group's financial instruments are Level 2 financial
instruments in accordance with the fair value hierarchy, meaning
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).
13. Discontinued operations and disposal group held for sale
The Plastics segment has been classified as 'held for sale' and
treated as a discontinued operation following Board approval, prior
to the period-end, to explore a potential sale of the business.
Plastics principally comprises flexible packaging and dispensing
solutions, extruded and injection moulded products and foam
products. The Condensed consolidated income statement has been
restated to present the Plastics segment as a discontinued
operation. The Condensed consolidated statement of financial
position presents the discontinued assets and liabilities as
'assets held for sale' and 'liabilities held for sale'
respectively. The Condensed consolidated statement of cash flows
has also been restated, presenting a single amount of net cash flow
from discontinued operations.
(a) Condensed consolidated income statement - discontinued
operations
Half year Half year Year ended
ended 31 ended 30 April
October 31 October 2018
2018 2017 GBPm
GBPm GBPm
--------------------------------------------------- --------- ----------- ----------
Revenue 182 179 346
Operating costs (168) (159) (308)
--------------------------------------------------- --------- ----------- ----------
Operating profit before amortisation and adjusting
items 14 20 38
Amortisation of intangible assets (1) (2) (3)
Pre-tax adjusting items (2) (1) (3)
Net finance income/(cost) 1 (1) -
Profit before income tax 12 16 32
Income tax expense (4) (7) (10)
--------------------------------------------------- --------- ----------- ----------
Profit for the period from discontinued operations 8 9 22
--------------------------------------------------- --------- ----------- ----------
(b) Assets and liabilities held for sale
At 31 October
2018
GBPm
------------------------------ -------------
Intangible assets 63
Property, plant and equipment 69
Deferred tax assets 6
Inventories 30
Income tax receivable 5
Trade and other receivables 50
Assets held for sale 223
-------------------------------- -------------
Employee benefits (2)
Trade and other payables (69)
Provisions (1)
Deferred tax liabilities (6)
Income tax liabilities (13)
-------------------------------- -------------
Liabilities held for sale (91)
-------------------------------- -------------
(c) Cash generated from discontinued operations
Half year Half year Year ended
ended 31 ended 30 April
October 31 October 2018
2018 2017 GBPm
GBPm GBPm
----------------------------------- --------- ----------- ----------
Net cash from operating activities 9 13 34
Net cash from investing activities (5) (5) (16)
Net cash flows for the period 4 8 18
----------------------------------- --------- ----------- ----------
14. Acquisitions and disposals
(a) 18/19 acquisitions
In total, during the half year ended 31 October 2018, cash
consideration for acquisition of subsidiary businesses, net of cash
and cash equivalents, was GBP37m, and borrowings acquired were
GBP4m, giving a total impact on net debt from acquisitions of
GBP41m. Acquisitions during the period were not material to the
Group individually or in aggregate.
(b) Pending acquisition of Papeles y Cartones de Europa, S.A.
(Europac)
On 4 June 2018, the Group announced the proposed acquisition of
Papeles y Cartones de Europa, S.A. (Europac), a leading western
European integrated packaging business, for EUR1,667m plus acquired
cash and debt of EUR237m.
On 14 November 2018, clearance for the proposed acquisition was
obtained from the European Commission. As part of the transaction
clearance DS Smith agreed with the Commission the disposal of two
packaging businesses in Western France and Portugal. The financial
impact of these disposals will not be material.
Following the clearance, the Group anticipates the offer
documentation being posted to shareholders of Europac shortly and
expects to complete the acquisition around the 2018 calendar year
end.
The Company made a rights issue of 3 for 11 ordinary shares at
350 pence per share on 25 July 2018. Proceeds of the rights issue
of GBP1,002m net and a new committed debt facility of EUR740m will
fund the acquisition.
A provisional accounting and fair value exercise will be
conducted shortly after completion.
The following table summarises the financial position of Europac
at 31 December 2017 and its profit for the year then ended:
Carrying
values
at 31
December
2017
GBPm
------------------------------ ------------
Non-current assets 739
Current assets 222
Non-current liabilities (351)
Current liabilities (247)
------------------------------ ------------
Total identifiable net assets 363
------------------------------ ------------
Results
for
year ended
31 December
2017
GBPm
------------------------------ ------------
Revenue 760
Operating costs (663)
------------------------------ ------------
Operating profit 97
Net finance costs (8)
------------------------------ ------------
Profit before tax 89
Income tax expense (20)
------------------------------ ------------
Profit after tax 69
------------------------------ ------------
(c) 2017/18 acquisitions and disposals
In total, during the year ended 30 April 2018, cash
consideration for acquisition of subsidiary businesses, net of cash
and cash equivalents, was GBP615m, and borrowings acquired were
GBP204m, giving a total impact on net debt from acquisitions of
GBP819m. Acquisitions included Interstate Resources, and EcoPack
/EcoPaper.
On 25 August 2017, the Group acquired 80% of Indevco Management
Resources Inc. (IMRI), the owner of Interstate Resources Inc.
(Interstate Resources), for total consideration of GBP772m.
Interstate Resources is an integrated packaging and paper producer
based on the East Coast of the USA. The acquisition was funded by
the issue of a placing on 29 June 2017 of shares in the Company
with proceeds net of commissions and expenses of GBP270m, existing
debt facilities, new debt facilities of GBP400m and the issue of
52,474,156 ordinary shares to the seller. During the half year
ended 31 October 2018, fair value adjustments were made in relation
to property, plant and equipment and liabilities, leading to an
increase in goodwill of GBP7m.
On 6 March 2018, the Group acquired EcoPack and EcoPaper, a
leading integrated packaging and paper group in Romania, for total
consideration of GBP128m. The acquisition was funded by existing
cash and debt facilities and the issue of 6,492,411 ordinary shares
to the seller.
(c) Acquisition-related costs
The Group incurred acquisition-related costs in the half year
ended 31 October 2018 of GBP11m (half year ended 31 October 2017:
GBP18m; year ended 30 April 2018: GBP28m). In the current period,
these expenses primarily related to the pending acquisition of
Europac as detailed in 14(b) above. In the prior year, acquisition
costs primarily related to the acquisition of Interstate
Resources.
15. 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 and amortisation.
Total reported financial information represents the Group's
overall performance and financial position, but can contain
significant items that may obscure an understanding of the key
trends and position. These 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, which are by nature either highly variable and
can also have a similar distorting effect. Therefore, the Directors
consider that presenting non-GAAP measures which exclude adjusting
items enable comparability of the recurring core business,
complementing the IFRS measures presented.
Amortisation relates primarily to customer contracts and
relationships arising from business combinations. In addition,
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, as well as 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.
Reporting of non-GAAP measures alongside reported measures is
considered useful to investors to understand how management
evaluates performance and value creation internally, enabling them
to track the Group's performance and the key business drivers which
underpin it and the basis on which to anticipate future
prospects.
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.
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 disposal 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.
Return on sales
Return on sales is adjusted operating profit measured as a
percentage of revenue and can be derived directly from the face of
the consolidated income statement. Return on sales is used to
measure the value we deliver to customers and the Group's ability
to charge for that value.
Year ended
Half year 30 April
ended 2018
Half year
ended 31
October 31 October
2018 2017 (restated) (restated)
Continuing operations GBPm GBPm (1) GBPm (1)
-------------------------- --------- ----------------- -----------
Adjusted operating profit 304 231 492
Revenue 3,073 2,663 5,518
-------------------------- --------- ----------------- -----------
Return on sales 9.9% 8.7% 8.9%
-------------------------- --------- ----------------- -----------
(1) Restated for the classification of the Plastics business as
a discontinued operation (note 13) and the adoption of IFRS 15
Revenue (note 1).
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 of 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.
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 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, goodwill and intangible assets, working
capital, capital debtors/ creditors, provisions, biological assets
and assets/liabilities held for sale. Assets/liabilities held for
sale relating to discontinued operations are excluded from capital
employed.
Half year
ended Year ended
31 October 30 April
2017 2018
Half year
ended 31
October
2018 (restated) (restated)
Continuing operations GBPm GBPm(1) GBPm(1)
------------------------------------------------ --------- ------------ -----------
Capital employed 4,053 3,737 3,980
Currency, inter-month and acquisition movements 25 (667) (363)
------------------------------------------------ --------- ------------ -----------
Last 12 months' average capital employed 4,078 3,070 3,617
------------------------------------------------ --------- ------------ -----------
Last 12 months' adjusted operating profit (1) 568 427 492
------------------------------------------------ --------- ------------ -----------
Adjusted return on average capital employed (1) 13.9% 13.9% 13.6%
------------------------------------------------ --------- ------------ -----------
(1) Restated for the classification of the Plastics business as
a discontinued operation (note 13).
Net debt
Net debt is the measure by which the Group assesses its level of
overall indebtedness within its financial position. A split showing
the components of net debt is provided in note 10.
Net debt/EBITDA
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 the statement of
financial position strength and financial stability by which the
Group assesses its financial position.
In calculating the ratio, net debt is stated at average rates as
opposed to closing rates, and adjusting EBITDA is adjusted
operating profit before depreciation from the previous 12-month
period adjusted for the full year effect of acquisitions and
disposals in the period.
Half year Half year
ended ended Year ended
31 October 31 October 30 April
2018 2017 2018
GBPm GBPm(1) GBPm(1)
--------------------------------------------- ----------- ----------- ----------
Net debt - reported basis (see note 10) 648 1,406 1,680
Currency effects (1) (10) 7
--------------------------------------------- ----------- ----------- ----------
Net debt - adjusted basis 647 1,396 1,687
--------------------------------------------- ----------- ----------- ----------
Continuing operations adjusted EBITDA - last
12 months' reported basis 735 572 649
Acquisition effects 6 77 52
Add back of discontinued operations 43 52 49
--------------------------------------------- ----------- ----------- ----------
Adjusted EBITDA - banking covenant basis 784 701 750
--------------------------------------------- ----------- ----------- ----------
(1) Represented following the classification of the Plastics
business as a discontinued operation (note 13).
Free cash flow
Free cash flow is the net movement on debt before cash outflow
for adjusting items, dividends paid, acquisition and disposal of
subsidiary businesses (including borrowings acquired), and proceeds
from issue of share capital.
A reconciliation of 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 and 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 as follows:
Half year Half year
ended 31 ended Year ended
October 31 October 30 April
2018 2017 (restated) 2018 (restated)
GBPm GBPm (1) GBPm (1)
------------------------------- --------- ---------------- ----------------
Growth capital expenditure 44 56 165
Non-growth capital expenditure 77 68 163
------------------------------- --------- ---------------- ----------------
Total capital expenditure 121 124 328
------------------------------- --------- ---------------- ----------------
Free cash flow (note 11) 209 162 184
Tax paid (note 11) 47 24 68
Net interest paid (note 11) 43 26 41
Growth capital expenditure 44 56 165
Pension payments (note 11) 5 10 27
------------------------------- --------- ---------------- ----------------
348 278 485
------------------------------- --------- ---------------- ----------------
Adjusted operating profit 304 231 492
------------------------------- --------- ---------------- ----------------
Cash conversion 114% 120% 99%
------------------------------- --------- ---------------- ----------------
(1) Restated for the classification of the Plastics business as
a discontinued operation (note 13).
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 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-related debtors and creditors. Working
capital relating to discontinued operations is excluded from
capital employed.
Year ended
Half year Half year 30 April
ended ended 2018
31 October 31 October
2018 2017 (restated) (restated)
Continuing operations GBPm GBPm (1) GBPm (1)
----------------------------------------------- ------------ ----------------- -----------
Inventories 547 465 514
Trade and other receivables 845 805 781
Trade and other payables (1,546) (1,457) (1,420)
Inter-month movements and exclusion of capital
and acquisition-related items 155 183 114
----------------------------------------------- ------------ ----------------- -----------
Last 12 months' average working capital 1 (4) (11)
----------------------------------------------- ------------ ----------------- -----------
Last 12 months' revenue 5,928 4,921 5,518
----------------------------------------------- ------------ ----------------- -----------
Average working capital to sales 0.0% (0.1%) (0.2%)
----------------------------------------------- ------------ ----------------- -----------
(1) Restated for the classification of the Plastics business as
a discontinued operation (note 13) and the adoption of IFRS 15
Revenue (note 1).
Constant currency revenue
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 captions. Constant currency comparatives
recalculate the prior period revenue and adjusted operating profit
as if they had been generated at the current year exchange rates.
The table below shows the calculation:
Adjusted
operating
Revenue profit
Comparative half year ended 31 October 2017 GBPm(1) GBPm(1)
-------------------------------------------- -------- ----------
Reported basis 2,663 231
Currency effects (16) (1)
-------------------------------------------- -------- ----------
Constant currency basis 2,647 230
-------------------------------------------- -------- ----------
(1) Restated for the classification of the Plastics business as
a discontinued operation (note 13).
Revenue and adjusted operating profit
Half year Half year
ended 31 ended Year ended
October 31 October 30 April
2018 2017 (restated) 2018 (restated)
GBPm GBPm(1) GBPm(1)
---------------------------------------------------- --------- ---------------- ----------------
External revenue - continuing operations 3,073 2,663 5,518
External revenue - discontinued operations 182 179 346
---------------------------------------------------- --------- ---------------- ----------------
Total revenue for the Group 3,255 2,842 5,864
---------------------------------------------------- --------- ---------------- ----------------
Adjusted operating profit - continuing operations 304 231 492
Adjusted operating profit - discontinued operations 14 20 38
---------------------------------------------------- --------- ---------------- ----------------
Total adjusted operating profit 318 251 530
---------------------------------------------------- --------- ---------------- ----------------
(1) Represented for the classification of the Plastics business
as a discontinued operation (note 13).
16. Subsequent events
As detailed in note 14(b), on 14 November 2018, clearance for
the proposed acquisition was obtained from the European
Commission.
On 29 November 2018, the Group signed a GBP1.4billion, five-year
extendable revolving credit facility, replacing the GBP800m
revolving credit facility maturing in 2020 and the Europac bridge
facility.
There are no further subsequent events after the reporting date
which require disclosure.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR TABLTMBMMBTP
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December 06, 2018 02:00 ET (07:00 GMT)
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