DS Smith reported its latest results earlier this morning, largely in-line with expectations.
The group has been able to fully offset rising costs with price increases and volume growth. Improved efficiency and a hedging strategy has help mitigate the impact of rising energy costs.
Full year like-for-like volume growth is expected to be in the mid single-digits, driven by strong demand from consumer goods customers.
The group expects to report net debt of less than 1.9 times cash profits (EBITDA), driven by strong free cash flow.
Inflation all around
Smith's operations at it's minority interest in the Ukraine have understandably been suspended. This part of the company contributed roughly 2 per cent to last year’s net profit.
“Companies are up against a rising tide of inflation from all angles- energy, labour and materials costs are all on the rise. But for box maker DS Smith, these issues are like water off a duck’s back,” says city-based Laura Hoy, equity analyst at Hargreaves Lansdown.
Hoy commented “that is because the group’s able to easily pass many of these costs on to its customers, who need to package their products in order to sell them.”
“Because packaging costs are just a tiny fraction of overall shipping expenses, DS Smith has more wiggle room than some to increase costs without denting volumes, and that’s exactly what’s happening,” she added.
The group said it is on track to meet full year targets, which is no mean feat considering the difficult environment.
“That’s not only due to the price hikes—volumes are also expected to rise in the mid-single digits. This underscores DS Smith’s ability to continue raising prices some way higher before its customers start to shop around,” Hoy continued.
DS Smith's management also flagged the group’s stake in a Ukrainian business, which has suspended operations amid the crisis.
“This shouldn’t have much of an impact on DS Smith’s full year results—last year this part of the company contributed around 2 per cent to profits after tax. This year profits are expected to more than double, meaning this should be an even smaller part of the equation,” Hoy added.
DS Smith’s shares were down 1.3 per cent following the announcement