DS Smith Plc Annual report & accounts 2018 Annual report & accounts 2018 Redefining packaging for a changing world Strategic report Governance Financial statements 2 Our business 46 Introduction to 83 Independent Auditor’s report 4 Our global footprint corporate governance 88 Consolidated income statement 12 Chairman’s statement 48 Conversation with the Board 89 Consolidated statement of 13 Our differentiators 50 Nomination Committee comprehensive income 14 In conversation with the report 90 Consolidated statement of financial position Group Chief Executive 52 Roles and responsibilities 91 Consolidated statement of changes in equity 16 Market review of the Board 92 Consolidated statement of cash flows 18 Our business model 54 Board activities 93 Notes to the consolidated financial statements 20 Our strategy — customers 56 Board of Directors 142 Parent Company statement of financial position 22 Our strategy — people 58 Effectiveness 143 Parent Company statement of changes in equity 26 Our strategy — sustainability 59 Relations with stakeholders 144 Notes to the parent Company financial statements 30 Our strategy — financial 61 Directors’ report 148 Five-year financial summary 31 Operating review 64 Audit Committee report 149 Shareholder information 35 Financial review 68 Remuneration Committee 40 Principal risks and report viability statement 82 Directors’ responsibilities statement Highlights Adjusted operating Return on sales (%)1 ROACE (%)1 Adjusted earnings per profit (£m)1 share (p)1 £530m 9.2% 14.1% 35.5p 9.3 9.3 530 35.5 15.4 9.2 14.9 14.6 8.8 14.1 32.5 13.0 443 7.6 27.4 379 24.5 335 21.4 307 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 1. Before adjusting items and amortisation. The above are non-GAAP performance measures – see note 32 to the financial statements. 1 5.2 2018 3.2 2017 3.1 2016 3.1 2015 2014 Corrugated box volume growth (%) 5.2% 2.2 24.9 2018 22.1 2017 17.7 2016 16.6 2015 2014 Reported earnings per share (p) 24.9p 15.3 develop our our business, peopledevelop packaging for a changing world. a changing for packaging sustainable create we packaging, Every day we deliver for our for deliver we day Every and our environment. our and As a leading provider of corrugated corrugated of provider As a leading stakeholders by redefining value by working in balance to balance in working by value 361 2018 316 2017 250 2016 249 2015 2014 Operating profit (£m) £361m 218 5,765 2018 4,781 2017 4,066 2016 3,820 2015 2014 £5,765m Revenue (£m) 4,035 Annual report & accounts 2018 | dssmith.com DS Smith at a glance Our business We provide sustainable packaging solutions that help customers respond to some of their biggest challenges. Our packaging design and production is supported by paper making and recycling operations. Packaging We are a leading international packaging company, sales, but we do so while ensuring lower cost and delivering leading edge products and the highest managing risk, resulting in a step change in our quality service across Europe and north America. customers’ performance. Our product portfolio includes consumer packaging, We complement our product range with consultancy displays and promotional packaging, specialist services on supply chain audit and creative design. e-commerce packaging, customised protective Corrugated packaging is fully recyclable and largely packaging, transit packaging and industrial packaging, made from recycled material, which means the packaging providing solutions for each market requirement. we produce helps our customers achieve their own We partner with customers to develop innovative sustainability targets. packaging solutions, ensuring their products achieve Corrugated packaging is typically produced within c. 200km more for less. As supply cycle strategists, not only do of its destination due to the requirements for just-in-time we help specify packaging solutions to generate more delivery and the significant effect of transport cost. Paper We are a leading global manufacturer of sustainable Paper is readily transportable and is traded globally. corrugated case material (CCM), which is the paper used We operate eight paper mills in Europe principally by the packaging industry for conversion into board for dedicated to the production of recycled CCM and making corrugated boxes. We also make some specialist two mills in the US, one of which makes recycled CCM paper grades such as plasterboard liner, all of which are and the other virgin kraftliner from sustainable forest made from recyclable material. products. We also have two small mills in Europe making We operate a unique paper sourcing platform that specialist papers. co-ordinates the decisions around ‘make, buy, sell’ for the paper grades and the quality required by our packaging business across the globe. Recycling We provide integrated recycling and waste We harvest quality paper and cardboard for recycling management services, ranging from simple recycling from a range of sectors, including retailers, collections through to full recycling and waste manufacturers, local authorities, print, recycling and management solutions. waste management companies. We are Europe’s largest cardboard and paper The recyclate we collect provides the most cost recycler, collecting c. 5 million tonnes annually efficient raw material for the Group’s paper making and are one of the leading full recycling and waste processes. We also sell recyclate to third parties globally. management companies. Plastics We specialise in plastic packaging that is reusable and Extruded products recyclable. Our plastics business comprises flexible We design and manufacture extruded products such packaging and dispensing solutions, extruded and as corrugated plastic sheets and returnable transit injection moulded products and foam products. We packaging for a variety of industries. work with many of the world’s leading companies Injection moulded products in a diverse range of industries and markets. We are a leader in Europe in the design and manufacture Plastic packaging is a specialist market with numerous of plastic beverage crates, pallets, speciality trays and niche products. bulk containers. Flexible packaging and dispensing solutions Foam products Our product brands include Rapak™, a global leader We design and manufacture foam moulded custom in bag-in-box packaging and filling systems, and designed components and protective packaging. Worldwide Dispensers’ high quality precision moulding and customer design solutions. 2 Our vision report Strategic To be the leading supplier of sustainable packaging solutions. Our culture We have a clear set of values that we expect all of our c. 22,800 employees employees to own and live by. Over 200 manufacturing sites 34 countries Over 16 billion boxes Be caring Be challenging Be trusted Be responsive Be tenacious per year We take pride in We are not afraid We can always We seek We get what we do and to constructively be trusted new ideas and things done. we care about challenge each to deliver on understanding our customers, other and our promises. and are quick c. 2,900 our people ourselves to to react to employees and the world find a better opportunities. around us. way forward. 10 countries Find out more dssmith.com/people c. 2.9 million tonnes CCM per annum How our revenue is spent c. 800 employees 14 Cost of sales: £2,992m countries Labour costs: £1,194m Other costs: £881m 26 recycling depots 2017/18 revenue Depreciation, amortisation and impairment: £262m Restructuring and investment: £75m Financing: £74m c. 2,000 £5,765m Tax: £33m employees Dividends: £157m 13 Value retained by shareholders: £97m countries 25 sites Annual report & accounts 2018 | dssmith.com 3 Our global footprint A leading provider of corrugated packaging supported by paper and recycling operations. 4 Strategic report Strategic Our corrugated packaging business operates in five geographic UK segments. Recycling and paper form an integrated part of our global supply chain operations. £1,078m c. 5,100 Plastic packaging is a global business with manufacturing sites 2017/18 revenue employees in the US, Europe and Asia Pacific. Its products are sold globally. United Kingdom Western Europe £1,450m c. 6,700 2017/18 revenue employees Belgium, France, Netherlands, Portugal and Spain DCH and Northern Europe £1,083m c. 5,000 2017/18 revenue employees 37 c. 200 countries worldwide packaging manufacturing sites Denmark, Finland, Germany, Norway, Sweden and Switzerland Central Europe and Italy 9 c. 28,500 £1,429m c. 8,200 Impact Centres employees 2017/18 revenue employees Austria, Bosnia-Herzegovina, Bulgaria, Croatia, Czechia, Estonia, Greece, Hungary, Italy, Latvia, Lithuania, Macedonia, Poland, Romania, Serbia, Slovakia, Slovenia and Turkey 33 12 PackRight Centres paper mills North America £379m c. 1,500 28 c. 8bn 2017/18 revenue employees different languages square metres of corrugated United States board per annum Plastics £346m c. 2,000 2017/18 revenue employees Global consultancy and sourcing capability We have an independent packaging consultancy business, to help our customers make their packaging design work better for their brands by enhancing product utility and reducing environmental impact. Our consultants offer a global solution from offices based in the UK, Belgium, the US, India and China. We also offer global sourcing support through our Total Marketing Support (TMS) operations for customers who seek a consistent approach from their packaging, sourced in regions beyond