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FTSE 100 packaging player DS Smith grew revenues and profits at a double-digit rate in the first half of its financial year driven by strong demand from the “resilient” fmcg sector. 

Revenue increased by 16% on a reported basis and 22% on a constant currency basis to £3,362 million for the half year ended 31 October 2021, driven by strong demand for packaging and higher average selling prices reflecting recovery of paper and other input costs. 

External paper and recycling revenues increased as higher pricing more than offset reduced volumes sold externally as it used a greater proportion of paper production internally to satisfy the growth in packaging volumes. 

The period saw sustained strong demand, with organic corrugated box volumes growing by 9.4% and 8.8% over the last 12 months, reflecting continued growth in the resilient FMCG sector, which represents over 80% of the company’s volume. 

Regionally, it posted growth in all areas, with the US and Southern Europe performing “especially well”. 

It said that in a challenging supply chain environment, its large scale, security of supply and high service levels had driven ongoing gains with large multinational customers.  

Raw material, energy and transportation input costs all rose significantly over the comparative period. However, these were mitigated by effective supplier arrangements, long term hedging positions and rising packaging selling prices. 

Volume growth combined with increased packaging selling prices were only partly offset by the increased input costs, meaning operating profit grew by 26% to £276 million.  

DS Smith said the momentum in the business “gives confidence in an acceleration of margin growth to our medium-term target of 10-12 per cent”. 

CEO Miles Roberts commented: “We are continuing to benefit from a very dynamic market with demand for packaging for different retail solutions evolving rapidly and COP26 intensifying the desire for sustainable packaging solutions for the circular economy. Our leadership in these areas has contributed to record volumes with particularly strong growth in the US and Southern Europe regions, where we have invested recently, as well as with our multi-national FMCG customers. 

“In a challenging operating environment, I am pleased to see good progress. Our supply chains have remained secure and the significant increases in input costs have been mitigated by effective hedging of energy cost, our long term supplier agreements and raising packaging prices. Combined with strong volume growth this has significantly increased our profit with continuing good progress recovering from the impacts of Covid-19. Strong cash generation has returned our financial leverage to within our medium-term target.  

“We have built a business to benefit from the significant structural growth drivers within fibre based corrugated packaging. These benefits, combined with our scale, geographic footprint, sustainability and innovation focus, position us very well for continued volume and market share growth. Together with pricing momentum, this underpins our confidence to deliver a significant improvement in profitability during the second half of this year in line with our expectations and towards our medium-term targets.” 

DS Smith shares have opened up 2.7% to 390.9p so far this morning.

Morning update 

B&M European Value Retail has this morning announced a special dividend of 25p per share to return £250m to shareholders in light of its strong trading performance. 

At its interim results on 11 November 2021, the company announced continued strong performance versus pre-pandemic levels, with ongoing evaluation of its leverage and cash position. 

As a result of that evaluation, the board has now determined to return surplus cash to shareholders. 

The special dividend will be paid on 14 January 2022 to shareholders on the register of the Company on 17 December 2021. 

AIM-listed Real Good Food has posted a rebound in sales and cut its losses in the first six months of its financial year. 

Revenue for the first six months of the year was ahead of the pre covid-19 levels by 0.7% to £19.9m, with sales from continuing operations up 29.9% year-on-year. 

Innovation in cake decoration continued to drive revenue growth with 39 new products launched in the first six months of the financial year, producing revenues of £0.4m. 

The restructure in the cake decoration business resulted in an overhead saving of £1.4m versus year-on-year and £0.8m not including any furlough benefit. 

Overall, a profit was reported at the Group underlying adjusted EBITDA level of £0.7m compared to an EBITA loss of £0.8m last year and £0.2m in pre-Covid 2019. 

Its loss before tax was cut to £1.2m from £4.7m (And £4.1m in 2019) reflecting lower overheads, and lower interest costs on the investor loans. 

Based on our review at the half year, there has been no impairment of the cake decoration business and the board is confident that the business has strong long-term growth potential and that it will be restored to greater profitability over the coming trading periods. 

Following the easing of the covid-19 restrictions, revenues have increased across most sectors.  

Retail and international sales continue to perform well in the year to date, whilst manufacturing sector customers have been slower to ramp up.   

It said the cake decoration market in the UK, particularly in the retail sector, remains competitive, but it remains “confident that we are delivering what our customers want and need”.   

The challenges with international logistics to the United States of America are improving but there remains a lack of containers which is increasing costs, with surcharges in excess of 100% of the pre covid-19 costs being incurred.  The expectation is that these excess costs will reduce during 2022.   

Revenue is ahead of the board’s expectation; however, the additional logistics charges mean the additional delivered margin is not evident in the results.    

Overall, the board remains optimistic and confident that the cake decoration business has a clear growth strategy and the leadership and resources to deliver on them.   

“With a lower cost base in place, and new customers being gained, the business is well placed to accelerate profitable growth,” it stated. 

Executive chairman Mike Holt commented: “We have made a good start to the year and the group is in good shape for the seasonally busier second half of the year. Our turnaround activities are gaining traction, enabling Renshaw to regain its reputation as a product innovator and first choice provider of quality products, both branded and private label.  

“Overall, prospects for the remainder of the year are good and we are confident of being able to report on further progress being made.   In addition, the board has committed to spend £0.9 million this year on capex to accelerate the progress being achieved.” 

Finally, marketing technology firm Eagle Eye has announced that Pret A Manger’s new trial loyalty scheme, Pret Perks, is launching using its Eagle Eye AIR platform. 

The loyalty beta programme builds upon the success of Pret’s coffee subscription scheme and utilises more of the features and capabilities of the AIR platform. Pret Perks is currently available to Pret coffee subscribers during this trial phase with aims to roll out further. 

The Pret Perks scheme is the next step in Pret’s digital omnichannel transformation, allowing customers to earn a star every time they purchase in shop, or use click & collect. Pret coffee subscribers will also earn a star for every month they renew their subscription or any time they purchase a treat or meal.  

After earning 10 stars, customers will be able to choose a reward from a pre-assigned category. Customers can redeem their reward in shops up to 30 days after earning it. The more customers shop at Pret, the more the reward redemptions will be tailored to their preferences. 

Eagle Eye’s AIR platform manages the earning of stars and the mechanism for redeeming the stars for rewards.  

Eagle Eye CEO Tim Mason said: “We are excited to be supporting the evolution of Pret A Manger’s digital journey. The success of Pret’s award-winning coffee subscription service has provided the foundation for Pret Perks and we are proud that our AIR platform is part of the programme’s digital infrastructure.” 

 Clare Clough, UK Managing Director of Pret A Manger added: “At Pret we know that we have loyal customers who visit us time and time again. Whether they come in each morning for their organic coffee, or regularly grab a Classic Super Club sandwich on their lunch break.  

“For a while now, we’ve wanted to find a way to reward our customers by giving them treats that are specifically tailored to their preferences, and Pret Perks does just that. As with any new piece of technology we are currently in the testing phase and rolling this out slowly to our Pret Superfans, our Coffee Subscribers, and will be looking to take learnings on board to make the loyalty programme the best it can be.” 

On the markets this morning, the FTSE 100 has edged up 0.1% to 7,341.5pts.

Risers include Nichols, back up 6.1% to 1,400p, McColl’s, up 2.3% to 12.4p and PZ Cussons, up 1% to 203p.

Fallers include Devro, down 2.3% to 210.5p, Marston’s, down 2% to 71.2p and Deliveroo, down 1.9% to 235.6p.

Yesterday in the City 

The market remained calm yesterday by the imposition of further Covid restrictions in the UK as the FTSE 100 closed flat at 7,337.3pts. 

Fallers included Vimto producer Nichols, which fell 11.4% to 1,320p, while fellow soft drinks player Coca-Cola Europacific Partners was down 4.1% to €47.30. 

Other fallers included C&C Group, down 2.8% to 232.4p, PZ Cussons, down 2.2% to 201p, Marks & Spencer, down 1.8% to 243.8p, PayPoint, down 1.7% to 621p and McBride, down 1.6% to 63p. 

The day’s risers included Glanbia, up 4.3% to €12.30, Just Eat, up 3.3% to 4,493.5p, Hilton Food Group, up 3.1% to 1,202p, SSP Group, up 2.7% to 239.6p, Naked Wines, up 2.4% to 676p and Pets at Home, up 1.5% to 471.4p.