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Annual report & accounts 2017 Redefining Packaging Contents Our business Strategic report DS Smith is a leading provider of 1 Redefining packaging 8 2017 operational and financial highlights corrugated packaging in Europe 9 Chairman’s statement and of specialist plastic packaging 10 2017 at a glance 12 Our customers worldwide. We create sustainable 14 In conversation with the Group value by working in balance, to Chief Executive 16 Our markets develop our business, our people 18 Our business model and our environment. 20 What we do 21 Our key differentiators 22 Our strategic goals and KPIs 24 Our people Our vision 28 Group Chief Executive’s review 31 Operating review 32 Financial review 36 Sustainability review To be the leading supplier of 39 Principal risks sustainable packaging solutions. 41 Viability statement Governance 46 Introduction to corporate governance Our culture 48 Nomination Committee report 50 Our leadership team 52 Role and responsibilities of the Board 54 Board activities We have a clear set of values that we 56 Effectiveness expect all of our employees to own 57 Relations with stakeholders 58 Directors’ report and live by. 61 Audit Committee report 64 Remuneration Committee report 80 Directors’ responsibilities statement Be caring Financial statements We take pride in what we do and we care about our customers, 81 Independent Auditor’s report our people and the world around us. 85 Consolidated income statement Be challenging 86 Consolidated statement of comprehensive income We are not afraid to constructively challenge each other and ourselves to find a better way forward. 87 Consolidated statement of financial position Be trusted 88 Consolidated statement of changes in equity We can always be trusted to deliver on our promises. 89 Consolidated statement of cash flows Be responsive 90 Notes to the consolidated financial statements We seek new ideas and understanding and are quick to react to opportunities. 134 Parent Company statement of financial position Be tenacious 135 Parent Company statement of changes in equity We get things done. 136 Notes to the parent Company financial statements 140 Five-year financial summary 141 Shareholder information To realise our vision, we are redefining packaging to respond to the trends and report Strategic Redefining changes in our markets and to help our customers realise packaging their full potential. Consumer and retail environments are dynamic See page 2 Customer requirements are changing See page 4 Our insight and innovation deliver best-in- class packaging solutions See page 6 Annual report & accounts 2017 | dssmith.com 1 Redefining packaging Consumer and retail environments are dynamic 2 Strategic report Strategic Superior market insight • Sale of goods via e-commerce is showing double-digit growth in Europe • Consumers are making more frequent, smaller shopping trips • Discount and convenience stores are gaining market share • There are numerous methods for products being delivered in the ‘last mile’ • There is an opportunity for personalised packaging, to enhance the impact of the product €252bn goods sold via e-commerce in Europe 4.2bn parcels sent per annum in Europe Find out more about our market on page 16 “Rapid growth in e-commerce is driving change and adaptation of packaging. This is a great opportunity for DS Smith to develop packaging solutions that add value for our customers.” Isabel Rocher Head of e-commerce packaging Annual report & accounts 2017 | dssmith.com 3 Redefining packaging Customer requirements are changing 4 Strategic report Strategic Understanding customer needs • The e-commerce supply chain is much more complex than that for traditional retail due to the increased number of touch-points throughout the distribution chain • Packaging for e-commerce needs to both protect and promote the product • Product manufacturers and retailers have not yet optimised their processes for e-commerce • Eliminating void space in e-commerce will substantially reduce costs • Personalisation of packaging can potentially enhance product retention rates 55% average empty space in an e-commerce package €4bn potential saving in transportation costs across e-commerce in Europe, using right-sized packaging Find out more about how we are thinking about the future on page 17 “Achieving packaging for e-commerce that is the correct size for the product will create huge savings through more efficient distribution and will improve the consumer experience.” Chiara Covone Innovation Director Annual report & accounts 2017 | dssmith.com 5 Redefining packaging Our insight and innovation deliver best-in-class packaging solutions 6 Strategic report Strategic Adding value for our customers • DS Smith has a large network of designers and innovation experts, who work closely with our customers • DS Smith partners with e-commerce leaders to set industry standards • PackRight Centres and Impact Centres offer a route to engage with both customers and retailers about how packaging can help them sell more, reduce costs and manage their risks 27 PackRight Centres 9 Impact Centres Find out more about our customers on page 12 “Impact Centres provide consumer and retailer insights and inspire our customers by demonstrating how excellent packaging can help them. In our PackRight Centres, we work together with our customers as a team across all disciplines, from marketing to logistics, to achieve a solution that everyone buys into.” Per Frederiksen Managing Director, Market Activation Annual report & accounts 2017 | dssmith.com 7 2017 operational and financial highlights Expanding our business 1 Operating prot In November 2016 we grew our business (£m) with the addition of a new, state of the art, point of sale and display packaging £443m manufacturing site in Germany. We have also invested in our technical capability with the development of digital pre-print 443 solutions. In addition we spent £85 million 379 in 2016/2017 on acquisitions to expand 335 our packaging business in Iberia,to 307 develop our European point of sale and 249 display business, and to expand our plastic business (see below), in total welcoming over 800 new colleagues to the Group. 13 14 15 16 17 Award-winning packaging DS Smith won 12 Worldstar packaging awards, which is the most 1 Return on sales prestigious industry award, the largest number of any supplier. (%) The award wins demonstrate the depth and breadth of expertise at DS Smith, recognising work across the whole of Europe and in a 9.3% number of industries. DS Smith has also won numerous awards from its customers around Europe, including the Nestlé Relationship Excellence award in Germany, and six awards from Mars for 9.3 9.3 8.8 outstanding quality in supply. 7.6 6.8 Employee charter We have signed an employee charter with our European Works Council, 13 14 15 16 17 enshrining DS Smith’s commitment to, and expectations of, our employees. ROACE1 (%) See page 26 for more about the charter 14.9% 15.4 14.6 14.9 13.0 12.2 Investing in plastic packaging DS Smith Plastics acquired Parish Manufacturing — a leading provider of bag-in-box solutions in North America. The acquisition complements DS Smith’s expertise and leading position in the Flexible Packaging and Liquid Dispensing markets under its Rapak™ brand. 13 14 15 16 17 Earnings per share1 (p) 32.5p Thought leadership In autumn 2016, we published 32.5 a set of scenarios about how the 27.4 consumer environment might 24.5 change, and what the impact on 21.4 both retail and packaging by 17.1 2025 might be. Download our scenarios booklet or watch the video: 13 14 15 16 17 http://www.dssmith.com/packaging/strategists/our-vision/rehearsing-the-future 1 Before exceptional items and amortisation. 8 Chairman’s statement When we invest, financial discipline is paramount, and I am pleased report Strategic to report that we have once again achieved all our financial targets, with our return on average capital employed at the top of our range, at 14.9 per cent, and I am delighted with this result. Proposed acquisition in the US Today, DS Smith is announcing that it has entered into a conditional agreement to acquire 80 per cent of the total issued share capital of Interstate Management Resources, Inc for US$920 million plus assumed debt of c. US$226 million. Interstate is a family-owned integrated packaging and paper producer concentrated on the East Coast of the United States, operating from 19 production sites and having approximately 1,500 employees. There are detailed announcements available on our website. I am delighted, because we have seen significant customer pull for our innovative packaging solutions in the US and are excited by the opportunity to grow and support our customers’ needs over a wider geographic area. It is a further important step in our strategy, representing an attractive US market entry point and strengthening DS Smith’s global supply chain, and we look forward to working with all Interstate stakeholders and contributing to the overall growth of DS Smith. Dividend Performance For the year 2016/17, the Board recommends a final dividend of 10.6 pence, which together with the interim dividend of 2016/17 has been another year of delivery against all our targets 4.6 pence gives a total dividend for the year of 15.2 pence per share and of growth by DS Smith. We have grown the business both (2015/16: 12.8 pence per share). This represents an increase of organically and by acquisition, and continued to invest in areas 19 per cent on the prior year and cover of 2.1 times in relation to where we see the greatest opportunities, such as display adjusted earnings per share (before amortisation and exceptional packaging and e-commerce packaging. items), in line with our policy. In the past financial year, we have invested £85 million in targeted acquisitions, expanding our expertise and geographic coverage.

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