DS Smith Plc Redefining Packaging for Annual Report 2020 a Changing World Annual Report 2020 STRATEGIC REPORT Contents Strategic Report Highlights 1 Highlights 2 Group Chief Executive’s introduction 4 Redefining Packaging for a Changing World 6 Our business – at a glance 3 1,2 8 The changing consumer world Revenue (£m) Return on sales (%) Record 10 The evolving landscape of sustainability 12 Investing for growth £6,043m 10.9% return on 14 Chairman’s statement 1,2 6,043 10.9 16 Our business model 2020 2020 sales 18 Our differentiation and adjusted 1,2 20 Group Chief Executive’s interview 2019 6,171 2019 10.2 operating profit 22 Our strategy – customers 24 Our strategy – people 2018 5,518 2018 8.9 30 Our strategy – sustainability 8% 36 Our strategy – financial reduction in accident 1,3 38 Operating review Operating profit (£m) Adjusted operating frequency rate 43 Financial review profit (£m)1,2,3 51 Principal risks 53 Viability statement p.20 £455m £660m New US Governance 2020 455 2020 660 corrugated Group Chief 62 Chairman’s introduction to Governance packaging 66 Board of Directors Executive’s 2019 427 2019 631 68 Board leadership and Company Purpose site interview 70 Division of responsibilities 2018 329 2018 492 opened 72 Composition, succession and evaluation November 2019 74 Nomination Committee Report 78 Audit, risk and internal control Earnings per share (p)1,3 Adjusted earnings per 80 Audit Committee Report share (p)1,2 Circular 86 Remuneration Committee Report 91 Remuneration policy 21.2p 33.2p economy 112 Additional information 2020 21.2 2020 33.2 leader Financial Statements We manage more packaging for recycling than we make 115 Independent Auditor’s report p.51 2019 19.7 2019 33.3 125 Consolidated income statement 126 Consolidated statement 2018 21.2 2018 30.7 of comprehensive income Our principal 100% 127 Consolidated statement risks of financial position of paper from certified Net debt/EBITDA (x)2,3 Free cash flow (£m)2 sustainable sources 128 Consolidated statement changes in equity 129 Consolidated statement of cash flows 130 Notes to the consolidated 2.1x £354m financial statements 40% 2020 2.1 2020 354 188 Parent Company statement reduction in defect rate of financial position 189 Parent Company statement 2019 2.3 2019 339 of changes in equity 190 Notes to the parent Company financial statements 2018 2.2 2018 184 196 Five-year financial summary 197 Shareholder information Please note: All of the images in this report 1. Comparatives have not been restated for the adoption of IFRS 16 Leases – see note 31 to the consolidated financial statements. were taken before the Covid-19 pandemic 2. Based upon continuing operations, before adjusting items and amortisation. These are all non-GAAP performance measures – see note 33 to the and the need for social distancing. consolidated financial statements. 3. From continuing operations. Annual Report 2020 dssmith.com 1 STRATEGIC REPORT GROUP CHIEF EXECUTIVE’S INTRODUCTION Welcome We have made significant progress in the implementation of our strategy over the past 12 months, further establishing Capturing the opportunities of a changing world ourselves as a market leader in the delivery of sustainable, The world is changing in many ways. Consumers are driving this change, calling for more fibre-based packaging. It has, however, been an unprecedented convenience through e-commerce and a more dynamic retail experience, itself prompting end to the financial year following the outbreak of Covid-19. changes in retail formats. Consumers are also driving the move towards sustainability, The safety and wellbeing of our people is our first priority, putting pressure on brand owners and retailers to do more. We are ambitious when it while recognising our responsibility to support our customers comes to tackling some of the world’s most complex sustainability challenges. By investing to keep essential goods such as food and pharmaceuticals in our leading position at the forefront of these drivers, we are not only responding to moving. All our sites have continued to operate through the today and tomorrow’s world but also growing our business. pandemic, with modified working practices where necessary. In these uncertain times, our long-term vision drives us to realise the growth opportunity within the changing world in which we operate. We partner with our customers and stakeholders to meet new challenges, from Covid-19 to the accelerating climate crisis, evolving retail formats and diversifying supply chains, through to new consumer p.8 behaviours driven by digitalisation and legislative change. Importantly, we completed the sale of our Plastics division The in the past year – a vital step in our strategy to provide “In this report we set out sustainable, fibre-based packaging. We have also fully changing integrated our Europac acquisition in Iberia and France and consumer what we have achieved in further expanded our operations in North America with the year 2019/20, and how the opening of a new greenfield site in Indiana. world We have continued to win awards for our packaging innovation we are well positioned to and our safety statistics have again improved, for the 11th year in a row. Embracing the diversity of our people respond to the evolving and creating fair opportunity for them to grow and develop has seen several new programmes introduced, including global landscape.” our Aspire programme for future leaders. Meanwhile, our community programme has been delivered across all of our sites with more than 50 employees, which is more important than ever as we respond to Covid-19 together. In this report we set out what we have achieved in the year p.10 2019/20, but also how we are well positioned to respond to the uncertain outlook facing the global economy. We explain The evolving the underlying growth drivers for the corrugated industry, and why DS Smith is ready to take advantage of those landscape of opportunities – from plastic replacement to the continued sustainability growth in e-commerce. As a company we take pride in responding to the world around p.12 us for the benefit of our customers, employees, suppliers and stakeholders — we are ‘Redefining Packaging for Investing for growth a Changing World’. On a personal note and on behalf of everyone at DS Smith, I would also like to take this opportunity to thank Gareth Davis, our outgoing Chairman, for the enormous contribution he has made to DS Smith and for his wise counsel over the past decade. We look forward to welcoming Geoff Drabble as Chairman Designate. Miles Roberts Group Chief Executive 2 Annual Report 2020 dssmith.com 3 STRATEGIC REPORT OUR BUSINESS Redefining Packaging for a Changing World Our Purpose Our investors DS Smith equity is listed on the London Stock Exchange, Our Purpose is ‘Redefining Packaging for a Changing World’. We deliver our Purpose by: Our stakeholders and we raise our debt from a selection of banks and through Our strategy is designed to balance the requirements of It is our reason for being. It is why we exist. It captures the Developing the right strategies listed bonds. all our stakeholders, so that we are delivering for all. value we bring to all our stakeholder groups and the wider We tackle big challenges in their entirety rather than just Our equity and bonds are owned by a wide range of investors world. We always keep an eye on the future and recognise the one part to find the answers that would otherwise be in the UK, Europe, the US and beyond, including pension funds, changing world in which we operate. Towns, cities and entire out of reach. From design to production and supply to insurance groups, sovereign wealth funds, private investors populations are rapidly transforming. The growth in digital recycling, we offer our customers a connected solution Our people and employees. We engage with equity investors and analysts technology is revolutionising the way we shop and live. that is sustainable for all. We employ around 30,000 people across 34 countries through regular meetings and conferences, and similarly We increasingly expect to purchase products tailored for us, Thinking differently worldwide, speaking 28 languages. engage with our banking syndicate, fixed income investors whenever we want them, delivered to us in a way that fits We take a flexible approach to the solutions we create By giving all employees a voice, we create the opportunity and ratings agencies periodically. our busy lifestyles. We want more choice and convenience, and operate where our customers need us. Our people to improve their work experience and feel pride in working for but with less impact on the world around us. thrive on finding innovative ways to help customers sell DS Smith. We engage people in a number of ways: on site The environment and communities This presents huge opportunities for all of us, but also requires more, reduce costs, and manage risk and complexity in through team briefings and leadership visits, online and in new ways of thinking. How do we deliver more products, their supply chains. print through newsletters and providing mechanisms for DS Smith engages with those communities it touches, ranging without more vehicles making our cities more congested? How feedback through our employee works councils, biennial from local initiatives such as sponsoring local educational do we deliver more to people’s homes, without filling them Innovating together employee survey and more regular pulse surveys, which projects, to larger initiatives such as donations by our with excess packaging? How can companies adapt to changing Our experts work closely with customers to understand inform local action plans and sharing of best practice. We also Charitable Foundation to environmental and education- shopping habits, while running their operations smoothly and their needs.