DS Smith Plc Redefining Annual Report 2021 Packaging for a Changing World Annual Report 2021 Contents 2020/21 Financial highlights Strategic Report Highlights 1 Group Chief Executive’s introduction 2 Redefining Packaging for a Changing World 3 Our stakeholders +3.5% £5,976m 4 Our business – at a glance Corrugated box volumes Revenue2 6 The changing relationship with packaging (2020: +0.6%) (2020: £6,043m) 9 Helping customers meet their biggest challenges 10 Leading the transition to the circular economy 12 Now and Next – our sustainability strategy 14 Chairman’s statement 8.4% £311m 15 Section 172 statement Return on sales1 Operating profit2 16 Our business model (2020: 10.9%) (2020: £455m) 18 Our differentiation and market drivers 20 Group Chief Executive’s interview 22 Our strategy – customers 24 Our strategy – people 30 Our strategy – sustainability 34 Our strategy – financial £502m 12.1p 36 Operating review Adjusted operating profit1 Dividend per share 40 Financial review (2020: £660m) (2020: nil) 47 Principal risks 49 Viability statement 56 Task Force on Climate-related Financial Disclosures (TCFD) 59 Non-financial information statement Governance -£306m £486m Free cash flow1 62 Board of Directors to £1,795m net debt (2020: £354m) 64 Chairman’s introduction to Governance (2020: £2,101m) 67 Board leadership and Company Purpose 70 Division of responsibilities 72 Composition, succession and evaluation 73 Nomination Committee Report 76 Audit, risk and internal control 2020/21 Non-financial highlights 78 Audit Committee Report 84 Remuneration Committee Report 108 Additional information Financial Statements x4 14% 111 Independent Auditor’s report increase in training attendance reduction in accident frequency across all platforms rate 121 Consolidated income statement 122 Consolidated statement of comprehensive income 123 Consolidated statement of financial position 124 Consolidated statement of changes in equity 125 Consolidated statement of cash flows 126 Notes to the consolidated financial statements 54 million 23% 182 Parent Company statement of units of plastic replaced in the CO2e per tonne reduction since financial position year 2015 183 Parent Company statement of changes in equity 184 Notes to the parent Company financial statements 1. Based upon continuing operations, before adjusting items and amortisation. 191 Five-year financial summary These are all non-GAAP performance measures – see note 32 to the consolidated financial statements. 192 Shareholder information 2. From continuing operations. Please note: Some of the images in this report were taken before the Covid-19 pandemic and the need for social distancing. GROUP CHIEF EXECUTIVE’S INTRODUCTION STRATEGIC REPORT Foreword “In this report we set out details of our performance and strong momentum in the second half of the year 2020/21, and how our business is extremely well positioned through our circular business model to meet the challenges of the changing world.” Miles Roberts, Group Chief Executive Over the course of 2020/21 we have not only responded to the We also recognise that this changing world has placed increased impact of Covid-19, we have continued to make significant demands on our employees’ wellbeing, which is why we have progress in furthering our strategy to be the leading supplier of launched a new framework to support this critical area. Our safety sustainable packaging solutions. statistics have again improved, for the 12th year in a row. Meanwhile, from Kemsley to Krusevac, Tampere to Timisoara, and Our priority throughout this pandemic has been and continues to in over 300 locations across the world, our employees continue to be the safety and wellbeing of our people. We have worked in embody our values by supporting the local communities in which tandem with governments to ensure that our factories could we operate. remain open and continue to keep goods moving, including vital supplies like medicines and food. In this report we set out what we have achieved in the year 2020/21, but also how we are well positioned to respond to the The opportunity for DS Smith is clear. We are an industry leader, uncertain outlook facing the global economy. We explain the with a fast moving consumer goods (FMCG) focused customer underlying growth drivers for the corrugated industry, and why base and high quality assets across Europe and into North America, DS Smith is ready to take advantage of those opportunities from built up over the last decade and led by our customers’ the surge in e-commerce to plastic replacement. requirements. We have invested substantially in innovation for many years resulting in differentiated, value-adding solutions in There is no denying the world has dramatically changed and growth areas of the market, such as e-commerce and plastic through our Purpose of ‘Redefining Packaging for a Changing replacement. As such, we are at the intersection of powerful World’, which we have been working hard to embed over the past trends – sustainability, e-commerce and digital – which result in two years, we continue to support our customers and stakeholders compelling opportunities for us and we are partnering with to respond to a more digitally connected world. customers and stakeholders to realise those. Finally, I would like to take this opportunity to officially welcome The launch of our new sustainability vision and strategy, Geoff Drabble as Chairman and thank, once again, our outgoing Now and Next, maps out ambitious commitments and goals for Chairman Gareth Davis for his decade of service to DS Smith. the next decade. We are furthering our transition to a circular Miles Roberts economy by partnering with our employees, customers, Group Chief Executive communities and stakeholders to keep materials in use, design out waste and regenerate natural systems, while continuing to focus on CO₂ reduction, protecting biodiversity and reducing water consumption. And while paper and packaging is one of the hardest sectors to de-carbonise, we were delighted to commit to a science-based target by 2030 and Net Zero by 2050 to reinforce our leadership in the circular economy and climate action. Annual Report 2021 dssmith.com 1 OUR BUSINESS Redefining Packaging for a Changing World Our Purpose ‘Redefining Packaging for a Changing World’ Our Purpose is to ’Redefine Packaging for a Changing World’. It is Our Purpose sharpens our instincts and encourages us to tackle our reason for being. It sets out why we exist and the value we some of the world’s biggest challenges, such as replacing bring to our customers and all stakeholder groups. problem plastics. Our Purpose focuses our DS Smith team on the rapidly changing Our Purpose feeds all parts of our organisation, including people, world around us as consumers’ lives and shopping habits are policies, research and development, design and customer changing due to the acceleration of the digital world. It encourages interactions. We are redefining packaging through our four us to look outside of the confines of the packaging industry and strategic goals: delighting our customers. Realising the potential forward to see how these changes influence shopping patterns, of our people, leading the way in sustainability and doubling our such as switches from stores to home shopping, and will impact on size and profitability. We believe that if we deliver in this way, we the environment and how packaging plays its part in a more will meet our vision to be the leading supplier of sustainable sustainable experience for all. packaging solutions. We deliver our Purpose through our strategic goals: To delight our customers: To realise the potential of To lead the way in To double our size and by delivering outstanding our people: by creating a sustainability: by profitability: by driving results to them as we safe environment where championing sustainable operational and commercial increase their sales, reduce every colleague can develop supply cycle solutions and excellence, growing our their costs, manage their risk their skills and ideas using materials responsibly market share and expanding and become circular ready through our production into new markets processes and beyond Helps us to deliver our vision To be the leading supplier of sustainable packaging solutions Underpinned by our values Be caring Be challenging Be responsive We take pride in what we do We are not afraid to We seek new ideas and and we care about our constructively challenge each understanding and are quick to customers, our people and the other and ourselves to find a react to opportunities world around us better way forward Be trusted Be tenacious We can always be trusted We get things done to deliver on our promises 2 STRATEGIC REPORT Our stakeholders Our strategic goals are aligned with the requirements of all our stakeholders, so that we are delivering for all. Our people The environment and communities We are around 29,000 people across 34 countries worldwide, Leading in sustainability and care for the environment is core to speaking 26 languages. We are inspired by our Purpose and are our Purpose and one of our four strategic goals. Reducing CO₂, diverse in our thinking. water usage and waste to landfill are priorities, and we have committed to setting science-based carbon-reduction targets By giving everyone a voice, we provide a meritocracy with in alignment with the Paris Agreement. The transition to a development opportunities for all and recognition of personal circular economy is our particular focus. Our strategic partnership achievement, regardless of gender, ethnicity, age or religion. We with the Ellen MacArthur Foundation is informing our Now and have workplace conversations through team briefings, leadership Next sustainability strategy and is supporting our work in visits, digital and hard copy communications. We have mechanisms replacing problem plastic with fibre-based packaging, and for feedback through our employee works councils, biennial educating five million people across Europe and North America in employee survey and more regular pulse surveys, which inform the circular economy.