Top story

FTSE 100 packaging giant DS Smith brushed off a fall in in volumes and a near £800m hike in costs to strong grow sales and profits amid a significant jump in prices.

Reporting its results for the six months to 31 October, the group said the overall market was “worse than we originally expected”, leading to a decline in our volumes of 3%.

The volume reduction reflected very strong comparatives in the previous year, a weaker than expected industrial sector and economic challenges particularly in the UK and Germany.

However, revenue grew to 26% to £4.3bn on a constant currency basis and 28% on a reported basis, despite the small decline in box volumes (representing £64m) as it was more than offset by £950m of price rises across the group.

Some £655m of this pricing increase was due to higher packaging prices with the remainder of £295 million due to increases in price of external sales of paper, recycling material and energy.

DS Smith said these increases reflect the lag in recovery of the significant increases in input costs during 2021 and 2022.

Input costs were also significantly impacted by inflationary price rises, supply chain issues and general availability which led to an increase in costs of £779m versus the comparable period with rises in raw materials costs of £370m, energy costs of £158m and other costs, including labour and distribution, of £251m.

However price rises, hedging and its procurement and risk management function ensured that production was unaffected and the extra costs were more than mitigated.

Operating profit of £349m increased by 69% versus the prior year, 68% on a constant currency basis.

Adjusted operating profit increased to £418m, a 51% and 49% increase on a reported and constant currency basis.

DS Smith warned the macro-economic outlook for the rest of the financial year remains “challenging”.

“However, we have an excellent customer base, efficient high quality assets, dedicated colleagues and a strong balance sheet allowing continued organic investment to support our customers,” it stated.

These factors and current momentum in the business means it expects 2023 financial year performance to be ahead of previous expectations with the second half being consistent with the first half.

CEO Miles Roberts commented: “The performance during this six month period has been strong, benefiting from our constant focus on our customers’ evolving needs during this time of significant economic volatility.

“This has enabled us to achieve continued market share gains, an increase in profitability and improvements in our key financial performance ratios. We are particularly pleased with the performance of the Southern Europe region that continues to deliver major benefits from the acquisition of Europac in 2019.”

DS Smith shares are up 2.2% this morning to 324p.

Morning update

British American Tobacco has guided to full year revenue growth of between 2%-4% on growth in next generation production and “resilient” performance in cigarettes.

In a pre-close trading update, the group noted continued strong incremental category growth in new generation products internationally, driven by disposables segment

Its Vuse range has extended its global leadership position in Vapour, extending its category leadership positing in the US and becoming the no.2 brand in the UK and France.

Category volume share was up 1.6 ppts in key THP markets to reach 19.5% Sept year-to-date.

In Europe, Glo reached 20.4% volume share, up 4ppts in key THP markets.

Meanwhile, it maintained volume share leadership in ‘modern oral’ in Europe at 69.1%

Velo remains volume share leader in 15 Modern Oral markets in Europe driven by innovation including Velo Mini pouches and our Velo Max ranges.

Group cigarette value share flat year-to-date, with US and APME gains offset by AMSSA and Europe declines.

Continued strong pricing was partially offset by mainly geographic mix

CEO Jack Bowles commented: We continue to accelerate our A Better Tomorrow TM transformation, at pace. We are confident in delivering our 2022 guidance, demonstrating once again the strength and resilience of our business. I am proud of our people and their focus on the delivery of our three strategic priorities.

“Our New Category business continues to drive strong volume, revenue and market share growth and has become a significant contributor to group performance.

“In our combustibles business, we expect our targeted portfolio of brands across price tiers to deliver a robust performance across APME, AMSSA and Europe, driven by resilient volumes.

“We expect to deliver strong adjusted operating margin improvement despite increasing inflation in our supply chain. This has been made possible through robust pricing, the scale of our brands and increasingly focusing our marketing investments. Our three year Quantum programme is expected to deliver in excess of £1.5bn annualised cost savings by the end of 2022.”

“In summary, our transformation is accelerating, driven by our New Categories performance, and we are delivering on our full year guidance. Together, this will enable us to further invest in, and accelerate the transformation of, our business.”

Elsewhere this morning, premium drinks mixers producer East Imperial has announced the appointment of SUTL Group as the company’s exclusive distribution partner in Vietnam.

The partnership with SUTL will enable East Imperial to continue to build its presence in the luxury hotel and high-end tourism market.

The announcement “reiterates East Imperial’s commitment to building a deep regional network across APAC” and follows East Imperial’s existing partnership with SUTL Group for distribution in Singapore, as well as agreements with Leung Yick in Hong Kong and Wen Hua Hang Wine Spirits Company in China.

Tony Burt, CEO & Founder of East Imperial, commented: “Today’s announcement represents another important milestone for East Imperial. The partnership with SUTL offers a fantastic opportunity to develop our presence in Vietnam’s premium beverage market and secure market share in this valuable region.

“Vietnam is among the leading international destinations for tourists, and I am incredibly excited to bring our products to discerning consumers throughout the country. I am also delighted to continue our relationship with SUTL, whose depth of expertise and extensive distribution network provides us with the best platform to achieve our retail ambitions in Vietnam.

“Today’s update, together with the recent announcements of our US distribution agreement with RNDC and US bottling partnership with The Lion Brewery, demonstrates the momentum in the business and our determination to ensure we have a strong position in our key markets.”

On the markets this morning, the FTSE 100 is 0.1% up to 7,481.8pts.

Early risers include Nichols, up 3.4% to 1,116p, Hilton Food Group, up 2.9% to 533.1p and McBride, up 2.4% to 21.5p.

Fallers include British American Tobacco, down 1.9% to 3,345p, Hotel Chocolat, down 2.1% to 143p and Kerry Group, down 3.4% to €86.28.

Yesterday in the City

The FTSE 100 closed yesterday down 0.4% to 7,489.2pts.

Naked Wines was amongst the day’s strong rises, jumping 11.3% to 108.3p, despite slipping to a loss in the first half but pointed to an improvement in underlying profitability as it embarks on a new strategy to turn the group’s performance around.

Other risers included Bakkavor, up 4% to 97.2p, Kerry Group, up 3.9% to €89.32, Ocado, up 3.6% to 685.8p, Haleon, up 3.6% to 305.7p, DS Smith, up 2.6% to 317p, Hotel Chocolat, up 1.7% to 146p and Premier Foods, up 1.3% to 107p.

Fallers included Hilton Food Group, down 1.9% to 518p, WH Smith, down 1.2% to 1,447p, Coca-Cola HBC, down 1% to 1,989.5p, Just Eat, down 1% to 1,831p and B&M European Value Retail, down 0.9% to 409.9p.