Redefining
Packaging for
a Changing World
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Annual Report 2021
Contents
Strategic Report
Highlights
1
2
3
4
6
9
10
12
14
15
16
18
20
22
24
30
34
36
40
47
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56
Group Chief Executive’s introduction
Redefining Packaging for a Changing World
Our stakeholders
Our business – at a glance
The changing relationship with packaging
Helping customers meet their biggest
challenges
Leading the transition to the circular
economy
Now and Next – our sustainability strategy
Chairman’s statement
Section 172 statement
Our business model
Our differentiation and market drivers
Group Chief Executive’s interview
Our strategy – customers
Our strategy – people
Our strategy – sustainability
Our strategy – financial
Operating review
Financial review
Principal risks
Viability statement
Task Force on Climate-related Financial
Disclosures (TCFD)
59
Non-financial information statement
Governance
62
Board of Directors
64
67
70
72
73
76
78
84
Chairman’s introduction to Governance
Board leadership and Company Purpose
Division of responsibilities
Composition, succession and evaluation
Nomination Committee Report
Audit, risk and internal control
Audit Committee Report
Remuneration Committee Report
108 Additional information
Financial Statements
111
Independent Auditor’s report
121
122
123
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated statement of financial position
124 Consolidated statement of changes in equity
125
Consolidated statement of cash flows
126 Notes to the consolidated financial statements
182
183
Parent Company statement of
financial position
Parent Company statement of
changes in equity
184 Notes to the parent Company
financial statements
191
192
Five-year financial summary
Shareholder information
Please note: Some of the images in this
report were taken before the Covid-19
pandemic and the need for social distancing.
2020/21 Financial highlights
+3.5%
£5,976m
Corrugated box volumes
Revenue2
(2020: +0.6%)
(2020: £6,043m)
8.4%
Return on sales1
(2020: 10.9%)
£311m
Operating profit2
(2020: £455m)
£502m
Adjusted operating profit1
(2020: £660m)
12.1p
Dividend per share
(2020: nil)
-£306m
to £1,795m net debt
(2020: £2,101m)
£486m
Free cash flow1
(2020: £354m)
2020/21 Non-financial highlights
x4
14%
increase in training attendance
across all platforms
reduction in accident frequency
rate
54 million
units of plastic replaced in the
year
23%
CO2e per tonne reduction since
2015
1. Based upon continuing operations, before adjusting items and amortisation.
These are all non-GAAP performance measures – see note 32 to the consolidated
financial statements.
2. From continuing operations.
GROUP CHIEF EXECUTIVE’S INTRODUCTION
Foreword
“In this report we set out details of
our performance and strong
momentum in the second half of
the year 2020/21, and how our
business is extremely well
positioned through our circular
business model to meet the
challenges of the changing world.”
Miles Roberts, Group Chief Executive
Over the course of 2020/21 we have not only responded to the
impact of Covid-19, we have continued to make significant
progress in furthering our strategy to be the leading supplier of
sustainable packaging solutions.
Our priority throughout this pandemic has been and continues to
be the safety and wellbeing of our people. We have worked in
tandem with governments to ensure that our factories could
remain open and continue to keep goods moving, including vital
supplies like medicines and food.
The opportunity for DS Smith is clear. We are an industry leader,
with a fast moving consumer goods (FMCG) focused customer
base and high quality assets across Europe and into North America,
built up over the last decade and led by our customers’
requirements. We have invested substantially in innovation for
many years resulting in differentiated, value-adding solutions in
growth areas of the market, such as e-commerce and plastic
replacement. As such, we are at the intersection of powerful
trends – sustainability, e-commerce and digital – which result in
compelling opportunities for us and we are partnering with
customers and stakeholders to realise those.
The launch of our new sustainability vision and strategy,
Now and Next, maps out ambitious commitments and goals for
the next decade. We are furthering our transition to a circular
economy by partnering with our employees, customers,
communities and stakeholders to keep materials in use, design
out waste and regenerate natural systems, while continuing to
focus on CO₂ reduction, protecting biodiversity and reducing
water consumption.
And while paper and packaging is one of the hardest sectors to
de-carbonise, we were delighted to commit to a science-based
target by 2030 and Net Zero by 2050 to reinforce our leadership in
the circular economy and climate action.
We also recognise that this changing world has placed increased
demands on our employees’ wellbeing, which is why we have
launched a new framework to support this critical area. Our safety
statistics have again improved, for the 12th year in a row.
Meanwhile, from Kemsley to Krusevac, Tampere to Timisoara, and
in over 300 locations across the world, our employees continue to
embody our values by supporting the local communities in which
we operate.
In this report we set out what we have achieved in the year
2020/21, but also how we are well positioned to respond to the
uncertain outlook facing the global economy. We explain the
underlying growth drivers for the corrugated industry, and why
DS Smith is ready to take advantage of those opportunities from
the surge in e-commerce to plastic replacement.
There is no denying the world has dramatically changed and
through our Purpose of ‘Redefining Packaging for a Changing
World’, which we have been working hard to embed over the past
two years, we continue to support our customers and stakeholders
to respond to a more digitally connected world.
Finally, I would like to take this opportunity to officially welcome
Geoff Drabble as Chairman and thank, once again, our outgoing
Chairman Gareth Davis for his decade of service to DS Smith.
Miles Roberts
Group Chief Executive
Annual Report 2021 dssmith.com 1
STRATEGIC REPORT OUR BUSINESS
Redefining Packaging
for a Changing World
Our Purpose
‘Redefining Packaging for a Changing World’
Our Purpose is to ’Redefine Packaging for a Changing World’. It is
our reason for being. It sets out why we exist and the value we
bring to our customers and all stakeholder groups.
Our Purpose sharpens our instincts and encourages us to tackle
some of the world’s biggest challenges, such as replacing
problem plastics.
Our Purpose focuses our DS Smith team on the rapidly changing
world around us as consumers’ lives and shopping habits are
changing due to the acceleration of the digital world. It encourages
us to look outside of the confines of the packaging industry and
forward to see how these changes influence shopping patterns,
such as switches from stores to home shopping, and will impact on
the environment and how packaging plays its part in a more
sustainable experience for all.
Our Purpose feeds all parts of our organisation, including people,
policies, research and development, design and customer
interactions. We are redefining packaging through our four
strategic goals: delighting our customers. Realising the potential
of our people, leading the way in sustainability and doubling our
size and profitability. We believe that if we deliver in this way, we
will meet our vision to be the leading supplier of sustainable
packaging solutions.
We deliver our Purpose through our strategic goals:
To delight our customers:
by delivering outstanding
results to them as we
increase their sales, reduce
their costs, manage their risk
and become circular ready
To realise the potential of
our people: by creating a
safe environment where
every colleague can develop
their skills and ideas
To lead the way in
sustainability: by
championing sustainable
supply cycle solutions and
using materials responsibly
through our production
processes and beyond
To double our size and
profitability: by driving
operational and commercial
excellence, growing our
market share and expanding
into new markets
Helps us to deliver our vision
To be the leading supplier of sustainable packaging solutions
Underpinned by our values
Be caring
We take pride in what we do
and we care about our
customers, our people and the
world around us
Be challenging
We are not afraid to
constructively challenge each
other and ourselves to find a
better way forward
Be responsive
We seek new ideas and
understanding and are quick to
react to opportunities
Be trusted
We can always be trusted
to deliver on our promises
Be tenacious
We get things done
2
Our stakeholders
Our strategic goals are aligned with the requirements of all our stakeholders, so that we are
delivering for all.
Our people
We are around 29,000 people across 34 countries worldwide,
speaking 26 languages. We are inspired by our Purpose and are
diverse in our thinking.
By giving everyone a voice, we provide a meritocracy with
development opportunities for all and recognition of personal
achievement, regardless of gender, ethnicity, age or religion. We
have workplace conversations through team briefings, leadership
visits, digital and hard copy communications. We have mechanisms
for feedback through our employee works councils, biennial
employee survey and more regular pulse surveys, which inform
local action plans and sharing of best practice. We also have a
confidential hotline known as ‘Speak Up!’ for employees to report
concerns where they do not wish to go through their local
management. More formally, our European Works Council (EWC)
brings together employee representatives from the European
countries in which we operate and provides a forum for
information sharing and consultation.
Read more on page 24
Our customers
Our customers are largely fast moving consumer goods (FMCG)
companies that produce goods typically sold in supermarkets and
increasingly via e-commerce channels. We make corrugated
packaging for some of the largest global food brands. We also
make packaging for online retailers and industrial customers and
sell paper and recycling to third parties. As the world changed
through the Covid-19 pandemic, our customers’ needs changed.
They require an innovative and flexible partner with world class
supply chains and scale. We aim to be the easiest packaging
company to do business with and provide more ways to work with
customers than ever before.
Read more on page 22
Our investors
Our shares are listed on the London Stock Exchange, and we raise
our debt from banks and through listed bonds. Our equity and
bonds are owned by a wide range of investors in the UK, Europe,
the US and beyond. We engage with equity investors and analysts
through regular meetings and conferences, and similarly engage
with our banking syndicate, fixed income investors and ratings
agencies periodically.
Our suppliers
We have approximately 40,000 suppliers, ranging from small
suppliers of goods and services, to large paper manufacturers from
whom we source substantial volumes of paper for our corrugated
board. We engage with suppliers to enforce our established
supplier standards and supplier code of conduct, which set out our
ways of working, including for example, in relation to our
obligations under anti-modern slavery laws.
The environment and communities
Leading in sustainability and care for the environment is core to
our Purpose and one of our four strategic goals. Reducing CO₂,
water usage and waste to landfill are priorities, and we have
committed to setting science-based carbon-reduction targets
in alignment with the Paris Agreement. The transition to a
circular economy is our particular focus. Our strategic partnership
with the Ellen MacArthur Foundation is informing our Now and
Next sustainability strategy and is supporting our work in
replacing problem plastic with fibre-based packaging, and
educating five million people across Europe and North America in
the circular economy.
Our Purpose also guides our community programmes and
charitable foundation which supports local and larger initiatives,
from sponsoring local educational projects to donations to
environmental and education-focused charities, such as the
Arkwright Foundation. Since its establishment in 2011, the
DS Smith Charitable Foundation has donated over £2 million to
causes aligned with our Purpose. DS Smith manages more
packaging for recycling than it makes, meaning we are a net
recycler of packaging. We have testing environmental targets so
that we continue to improve our impact on the environment.
Read more on page 30
Governments and non-governmental organisations
We engage in detailed consultation with governments to promote
efficient fibre recycling and the acceleration of the circular
economy, and we participate in industry organisations to combine
our influence. We take a leadership role with relevant non-
governmental organisations, such as our global partnership with
the Ellen MacArthur Foundation. We are engaging with leading
ESG organisations such as the Science Based Targets initiative to
set meaningful and ambitious goals around our carbon emissions.
A sample of the talented women across DS Smith who shared
their career stories as part of our International Women’s Day
celebration in March 2021.
Annual Report 2021 dssmith.com 3
STRATEGIC REPORT OUR BUSINESS
At a glance
We have created a circular business focused on sustainable packaging.
Our business model overview
Find out more on page 16
The value we create
• Satisfied customers
• Packaging that is sustainable
• Returns to our capital providers
• Safety and opportunities for our
people
• Leadership in sustainability
• Community involvement
Recycling
We provide a full recycling and waste
management service, ranging from simple
recycling collections through to full
recycling and waste management
solutions, which help us take responsibility
for the collection of used packaging.
We are Europe’s largest cardboard and
paper recycler and are also one of the
leading full service recycling and waste
management companies in Europe. We
collect quality paper and cardboard for
recycling from a range of sectors,
including retailers, manufacturers, local
authorities, and other recycling and waste
management companies. The used paper
and board we collect provides cost efficient
raw material for the Group’s recycled paper
making processes. We also sell used fibre to
third parties globally.
c. 1,000 employees
c. 6 million tonnes fibre managed in
2020/21
Our resources
• Our people and
values
• Manufacturing and
other physical
assets
• Our relationships
• Intellectual capital
• Financial capital
• Natural capital
What we do
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Packaging
We are a leading international sustainable
packaging company, delivering innovative
corrugated products with a high quality
service across Europe and North America.
Our product portfolio includes packaging
for consumer products, e-commerce,
promotion, transit and industrial packaging.
We partner with customers to provide
innovative packaging solutions. Not only
do we help specify packaging solutions to
generate more sales, but we do so while
ensuring lower cost and meeting
performance criteria. We complement our
product range with consultancy services
on supply chain optimisation and
creative design.
Our packaging is fully sustainable and made
from largely recycled and/or recyclable
material, which means the packaging we
produce helps our customers to achieve
their own sustainability targets. Our
corrugated packaging is typically produced
within c. 200km of its destination due to
the requirements for just-in-time delivery
and the increased focus on sustainability.
c. 24,000 employees
c. 8.8 billion m2 corrugated board sold
in 2020/21
Paper
We are a leading international
manufacturer of corrugated case material
(CCM), which is the paper used for
conversion into corrugated board. We also
manufacture some specialist paper grades
such as plasterboard liner. DS Smith is
overall ‘short paper’, meaning we are a net
buyer of paper for our packaging
requirements. We operate a paper sourcing
platform that ensures we procure the
paper that is right for our customers’
packaging. We determine whether we
make or buy our required paper, and then
we sell some of our paper output. Paper is
readily transportable and is traded globally,
so in some cases it is more efficient to sell
our paper and buy in other regions,
depending on local pricing.
We operate 14 CCM paper mills, 12 in
Europe and two in the US. Of those, two are
kraftliner (virgin paper) mills (one in the US,
one in Europe) and the remainder are
principally dedicated to the production of
recycled CCM (testliner). We also have two
small mills in Europe producing specialist
paper grades. Fibre for our testliner is
principally sourced from our own recycling
operations.
c. 4,000 employees
c. 4.6 million tonnes CCM produced in
2020/21
4
Where we operate
Our business operates in four geographic segments, three in Europe and one in North America.
Northern Europe
Southern Europe
Eastern Europe
North America
£2,370m
£2,156m
£909m
£541m
2020/21 revenue
2020/21 revenue
2020/21 revenue
2020/21 revenue
c. 11,000 employees
c. 9,000 employees
c. 7,000 employees
c. 2,000 employees
Belgium, Denmark, Finland,
Germany, Netherlands, Norway,
Sweden, Switzerland and
United Kingdom
France, Italy, Portugal
and Spain
United States
Austria, Bosnia-Herzegovina,
Bulgaria, Croatia, Czechia,
Estonia, Greece, Hungary,
Latvia, Lithuania, Macedonia,
Poland, Romania, Serbia,
Slovakia, Slovenia and Turkey
We also have offices in India and China, where we offer sourcing and consultancy services, and a packaging sales site in Morocco.
Annual Report 2021 dssmith.com 5
STRATEGIC REPORT REDEFINING PACKAGING FOR A CHANGING WORLD
The changing
relationship with
packaging
Over the past year, we have seen an acceleration of the ongoing structural changes in
the packaging market driven by the evolving consumer relationship with packaging.
New technologies, customer demands and external pressures like Covid-19 and climate
change are all aligning to reshape shopping behaviours with an increased focus on
areas such as e-commerce, health and wellbeing and a continued prioritisation on
sustainable packaging.
As we enter recovery, research shows that many of the online shopping habits European
consumers adopted over lockdown are here to stay. This, together with changing
demographics, access to fast broadband, advances in artificial intelligence and
improvements in delivery infrastructure, will surely contribute to continued fast growth
in 2021 and beyond.
Products being over-packaged or delivered in non-recyclable materials can lead to
strong criticism, complaints, and active public debate. Plastics are perceived to be the
least sustainable form of packaging and brands, retailers and food producers are
increasingly looking for more sustainable alternatives.
With European consumers planning to continue or increase buying groceries online
(62 per cent) and home meal kits (49 per cent)1, we have responded to the challenges of
these segments by partnering with TemperPack to introduce ClimaCell®, a sustainable
thermal insulation barrier for temperature-sensitive goods such as meal kits, perishable
groceries and medical products.
While leveraging the convenience of these new delivery channels, consumers continue
to prioritise sustainable packaging. Almost a third (29 per cent) have stopped buying
from particular brands because their packaging was not sustainable, with half (48 per
cent) of online shoppers saying that they have experienced ‘unsustainable packaging’2.
It is not just sustainability that has increased in importance. Awareness of the hygiene
and food safety of packaging has also significantly shifted, with 71 per cent of
respondents in the US more concerned than prior to the pandemic3. While there is no
evidence of virus transfer from cardboard, we partnered with Touchguard to develop a
new range of bacteria and virus-safeguarded sustainable cardboard packaging. The
easily identifiable touch-safe zones can be applied at scale across a range of industries
and applications.
48%
European shoppers have
experienced ’unsustainable
packaging’
29%
European consumers have stopped
buying from a particular brand
because their packaging was
unsustainable
1. DS Smith and OnePoll, 2020.
2.
3. McKinsey Packaging Survey (2020).
Ipsos MORI and DS Smith, Sustainable Packaging – Did Covid-19 change everything?, 2020.
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STRATEGIC REPORT
Annual Report 2021 dssmith.com 7
REDEFINING PACKAGING FOR A CHANGING WORLD
8
Helping customers
meet their biggest
challenges
While consumers’ relationships with packaging has undeniably changed, so too
have the needs of our customers and the challenges they have faced. We have
responded with tailor-made solutions that helped our customers respond to
trends such as increased e-commerce demand or the need for more sustainable
packaging. We continue to help new and existing customers navigate this period
of uncertainty through security of supply, quality and innovation.
As is often the case, adversity encourages innovation and many companies saw
real opportunity around e-commerce driven by unprecedented demand. Since
summer 2020, more than 85,000 UK businesses including farms and restaurants
have launched online stores selling directly to their local communities and
beyond. This has necessitated interactions with a raft of new customers
designing supply chains for the first time. Through our ePack online platform, we
have helped small and medium-sized businesses make this transition to ensure
they can continue trading and delighting their consumers.
It is not just small brands that have had to adapt to changing consumer
behaviours. To respond to increasing demand during the pandemic, food retailer
Delhaize and DS Smith worked together to introduce an automated box erecting
machine to ensure efficient delivery to homes and shops across Belgium.
We have worked hard to continue innovating with our customers to respond to
these trends, transforming our sustainability and innovation workshops through
new digital platforms. By launching ‘Impact Centre Online’, we are working
directly with our customers to develop the next generation of e-commerce
packaging, implement new sustainable design principles and develop
alternatives to problem plastics.
Meanwhile, alongside ongoing calls from consumers for sustainable packaging,
by taking a leadership role in alliances such as 4Evergreen, we are supporting
plans to increase the 84 per cent fibre-based packaging recycling rate in Europe
to 90 per cent by the end of the decade. This can only be achieved through
innovative collaboration between the packaging and recycling supply cycle – by
working together to deliver innovation from product design through to collection
and recycling systems infrastructure. This is particularly important as more
packaging ends up in people’s homes.
And this is why our circular approach is so important. By thinking differently and
working closely with our customer Laithwaite’s Wine, DS Smith has closed the
loop on over 1,000 tonnes of cardboard packaging, ensuring materials are kept in
the supply cycle for as long as possible, while maximising value.
“We continue to help new and existing
customers navigate this period of
uncertainty through security of supply,
quality and innovation.”
Annual Report 2021 dssmith.com 9
STRATEGIC REPORT REDEFINING PACKAGING FOR A CHANGING WORLD
Leading the
transition to the
circular economy
Today, we face huge challenges to mitigate the effects of climate change and achieve
agreed climate targets, with a 2021 UN poll suggesting that two-thirds of people want
action against climate change1. By improving circularity of resources, as well as
decarbonising energy production, business and society can work together to lead a step
change in sustainable business.
Greenhouse gas emissions are not falling quickly enough to achieve climate targets.
According to the Ellen MacArthur Foundation, a switch to renewable energy can only cut
them by 55 per cent, which means a further 45 per cent of the target must be tackled
through better adoption of a circular economy2.
At DS Smith, our Purpose of ‘Redefining Packaging for a Changing World’ is reinforced by our
robust circular business model. Our products are made from renewable resources and once
our paper and cardboard has been used it can be recycled up to 25 times.
DS Smith’s new sustainability strategy, Now and Next, allows us to move beyond just
having a strong circular business model ourselves to delivering more circular solutions for
our customers and wider society – replacing problem plastics, taking carbon out of supply
chains and providing innovative recycling solutions.
Almost half of Europeans (46 per cent) say they want to use more cardboard or paper-
based packaging rather than plastic-based packaging, and almost a third of European
shoppers say they have stopped buying particular brands altogether because their
packaging was not sustainable3. With over 700 packaging designers developing thousands
of packaging specifications every year, we are helping our customers to create circular
alternatives.
Through our circular design principles, brands can keep materials in use, design out waste
so that it is easier for consumers to reuse and recycle packaging, and regenerate natural
systems.
Moreover, we have been working to reduce plastic packaging by innovating in sectors
where sustainable fibre-based packaging can make a big difference in reducing plastic use.
Through partnerships, such as Aquapak and MULTIVAC, we have extended our ability to
tackle ‘hard to recycle’ plastics and we’ve developed over 650 designs focused specifically
on plastic replacement – with over 54 million units of plastic replaced in the year alone.
As companies embrace sustainable packaging, there is an opportunity to make significant
progress against their environmental and social responsibilities while also responding to
changing consumer behaviours in light of Covid-19.
46%
Europeans want to use more
cardboard or paper-based packaging,
rather than plastic-based packaging
54 million
Units of plastic replaced in the year
1. United Nations Development Programme, People’s Climate Vote, 2021.
2. The Ellen MacArthur Foundation, Completing the Picture: How the Circular Economy
Tackles Climate Change (2019).
3. DS Smith and OnePoll, 2021.
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Annual Report 2021 dssmith.com 11
STRATEGIC REPORT REDEFINING PACKAGING FOR A CHANGING WORLD
Now and Next sustainability strategy
Led by our Purpose and to achieve our vision to be the leading supplier of sustainable packaging
solutions, Now and Next is our new sustainability strategy that sets out how we will tackle the
sustainability challenges we are facing today, as well as those that will impact future generations.
Now and Next
strategy
Our focus is on:
Closing the loop
through better
design
Protecting natural
resources by
making the most of
every fibre
Reducing waste
and pollution
through circular
solutions
Equipping people to
lead the transition
to a circular
economy
We will continue to:
Drive carbon reduction
Care for forests and their biodiversity
By 2025 we will
protect forests and
enhance biodiversity
wherever we operate
By 2030 we will reduce our
CO2 emissions by 30 per cent
per tonne of production
against a 2015 baseline
Maintain that 100 per cent of in-scope
sites are ISO 50001 certified each year1
NOW
We work with customers to design circular
packaging solutions that achieve more from
less, delivering for rapidly changing consumer
lifestyles with minimum impact on the
world around us.
By 2021, we will train 100 per cent of our
designers on Circular Design Principles
By 2023, we will manufacture 100 per cent
reusable or recyclable packaging
By 2025, we will optimise fibre use for
individual supply chains in 100 per cent of
our new packaging solutions
By 2025, we will take one billion pieces of
problem plastics off supermarket shelves,
take 250,000 lorries off the road and work
with partners to find solutions for ‘hard to
recycle’ packaging
By 2025, we will engage 100 per cent of our
people on the circular economy
Managing water responsibly
• By 2021, all sites in current or future
water stressed areas will have a
mitigation plan in place
• By 2025, achieve zero non-
conformances with consents to
discharge
• By 2030, all paper mills to operate at or
below internal benchmark rates for
water consumption
12
Sending zero waste to landfill
• By 2030, send zero waste to landfill
Sourcing sustainably
• By 2025, ensure that 100 per cent of our
suppliers comply with our sustainability
standards
• By 2025, we will measure and improve
biodiversity in our own forests
• Maintain that 100 per cent of the papers
we purchase are recycled or chain of
custody certified each year2
• Maintain that 100 per cent of relevant
sites are FSC certified each year3
Contributing to our communities
• By 2025, launch 100 biodiversity
projects across Europe and North
America
• By 2025, all of our paper mills will run a
biodiversity programme in their local
community
Alignment with international frameworks
We support several international frameworks:
• United Nations Global Compact
• United Nations Declaration of Human Rights and the
Convention on the Rights of the Child
• International Labour Organization Eight Fundamental
Conventions
• Organisation for Economic Co-operation and Development
Guidelines for Multinational Enterprises.
For more information, see our latest Sustainability Report.
NEXT
We will work together with partners to develop fully
circular strategies, from design to production and
supply to recycling, creating positive impact packaging
for our changing world.
By 2030, we aim for all of our packaging to be
recycled or reused and to pilot 20 new business
models for improving post-consumer waste quality
and recycling rates
By 2030 we are aiming to optimise every fibre for
every supply chain
By 2030 our aim is to use packaging and recycling to
enable the circular economy by replacing problem
plastics, reducing customer carbon and eliminating
consumer packaging waste
By 2030 we will engage five million people on the
circular economy and circular lifestyles
People are the foundation of our success and we
prioritise their health, safety and wellbeing and
contribute to our communities
How we contribute
to the Sustainable
Development Goals
The UN Sustainable Development Goals
(UN SDGs) are an ambitious plan to create a
better world by 2030.
Although we impact many of the goals, we
have identified four that are most relevant
to our business and where we can make a
significant contribution:
Responsible Consumption and
Production: we keep materials
in use for longer, reduce waste
and pollution and protect
natural resources.
Climate Action: we reduce our
emissions to combat climate
change and its impacts.
Life on Land: we minimise our
use of sustainably sourced
fibre, protecting and restoring
ecosystems.
Decent Work and Economic
Growth: we commit to being a
responsible employer,
underlining our ethical, labour
and employment standards.
• Maintain that 100 per cent of our sites
Find out more online at
are engaged in community programmes
each year4
Respecting human rights
• By 2022, we will conduct a human rights
risk assessment
www.dssmith.com
1.
2.
3.
4.
Includes sites accounting for at least 90 per cent of overall Group energy consumption.
Includes certification to controlled wood standard as a minimum.
Includes Packaging, Paper and Paper Sourcing sites that trade or manufacture products
derived from timber.
Includes sites with greater than 50 employees.
Increasing our ambition on
climate change
We have announced new climate targets,
including a commitment to reach Net Zero
emissions by 2050 and a science based
target for 2030, which requires at least a
40 per cent reduction of CO2 emissions per
tonne of product compared to 2019. Turn
to pages 30 and 31 to learn more.
Annual Report 2021 dssmith.com 13
STRATEGIC REPORT Chairman’s statement
“Our Purpose of ‘Redefining
Packaging for a Changing World’
has never been more relevant in a
year that has presented significant
challenges for society at large
from the Covid-19 pandemic. As a
packaging provider we have
continued to operate throughout,
thanks to the dedication and
commitment of our people.”
Geoff Drabble, Chairman
I am delighted to have joined the Board as your new Chairman, and
it has been a pleasure getting to know the business, albeit virtually
in most instances. I have been very impressed with the
commitment of the people I have met, and look forward to meeting
many more as lockdown and travel restrictions progressively ease.
A year of challenge and progress
Our Purpose of ‘Redefining Packaging for a Changing World’ has
never been more relevant in a year that has presented significant
challenges for society at large from the Covid-19 pandemic. As a
packaging provider we have continued to operate throughout,
thanks to the dedication and commitment of our people, as we are
integral to the food and medical supply chain and classified as an
essential industry. We have long been committed to fast moving
consumer goods (FMCG) and e-commerce customers and we have
seen very strong growth within e-commerce from an accelerated
change in shopping habits and an evolving retail environment.
Covid-19
Throughout the year, we have been guided by our values and core
priorities: firstly, to the health and wellbeing of our people; and
secondly, to serving our customers. Our people have responded
magnificently, adapting ways of working where needed. This has
enabled us to continue to serve our customers, ultimately getting
food and other vital supplies to consumers around Europe and
beyond. I would particularly like to thank my colleagues who have
worked so hard throughout such a challenging period, whether
coping with health issues or anxieties for themselves or their
families, or the strains that the various restrictions have placed on
us all. Thank you.
Performance
Volumes have been resilient throughout the year, dipping only
modestly in the first half of the year as activity among our
industrial customers temporarily fell, and accelerating
14
considerably in the second half of the year, driven by solutions for
e-commerce customers in particular. Volumes from our bedrock of
FMCG customers remained solid throughout. Covid-19 restrictions
resulted in significant volatility in various input costs, including
used fibre, impacting profitability. I am delighted to see the
improved performance from our US business, as we begin to see
the benefit of the Indiana site develop and market conditions
improve. While it has been a challenging year, we are well placed to
benefit from the accelerated, long-term growth drivers of
e-commerce and sustainable solutions. We have consistently
invested in these key areas over many years in anticipation of the
growth which is now playing out as expected, with e-commerce in
particular accelerated by Covid-19. That investment has taken the
form of designers, technicians and equipment, resulting in a range
of both e-commerce products and services, so that our packaging
adds value in the e-commerce supply cycle. Looking ahead, we are
investing further in new packaging sites in Italy and Poland. These
sites will provide capacity to allow us to take advantage of the
customer demand and growth in these regions and we are
confident in the returns they will deliver.
Health and safety is of paramount importance to us, and I am very
pleased to note that we have continued our long-term trend of
improvement, with the accident frequency rate, our headline
measure for health and safety, declining by 14 per cent compared
to last year, the 12th year of improvement in a row.
Sustainability
Sustainability is at the heart of our business, both in how we
operate and as an opportunity for growth. In the year, we launched
an ambitious new sustainability strategy, Now and Next, focused
on the circular economy, taking us to 2030, and we have
committed to setting further, more challenging science-based
targets in relation to carbon reduction, in line with the Paris
Agreement. We are engaging with stakeholders, particularly
customers and investors, on the topic of sustainability and ESG
more widely, more than ever, as their interests and requirements
grow, and we are taking a leadership position in the debate, in
collaboration with the Ellen MacArthur Foundation, as the only
packaging business that is a global strategic partner.
The Board
I would first like to thank the outgoing Chairman, Gareth Davis, on
behalf of the Board and the Company, for his tireless service as
Chairman over the past nine years. He has championed the
strategy taken by the management team and seen the business
through some transformative acquisitions, with the Company now
past its third anniversary of being in the FTSE 100. His enthusiasm,
commitment and wise counsel will be missed.
On 1 May 2020, Alina Kessel was appointed to the Board as a
Non-Executive Director, and Chris Britton stepped down at our
2020 AGM. I would like to welcome Alina and thank Chris for over
seven years of service.
Dividend
The Board considers the dividend to be a very important
component of shareholder returns and it is integral to our capital
allocation policy of delivering a return to shareholders while
maintaining a robust balance sheet with the flexibility for
re-investment in projects expected to deliver returns in our return
on capital range, in the medium term. We have a longstanding
capital allocation and dividend policy of paying a dividend with
cover of 2.0 – 2.5 times to adjusted EPS. Having taken the prudent
decision to pause dividends in 2019/20 at the peak of the Covid-19
crisis, due to the uncertainty created by restrictions on activity, I
am very pleased to be able to resume payment this year. In respect
of 2020/21, we paid an interim dividend of 4.0 pence and propose
a final dividend of 8.1 pence, together 12.1 pence, representing a
cover of 2.0 times, in line with our policy.
Outlook
On behalf of the Board, I would like to welcome colleagues who
have joined DS Smith during the year and to thank everyone for
their commitment and hard work. The continued investment in our
business, together with the strong support of our customers and
the momentum built over recent quarters, give us confidence for
the current year and future. Whilst the business has seen reduced
profitability over the last twelve months, we firmly believe that we
exit 2020/21 stronger, further focused on the accelerated
opportunities a post Covid-19 world offers and that our customers
will continue to recognise this going forward.
The current year has started well, with the volume momentum of
the final quarter of FY21 continuing into this year. Inflationary cost
pressures have also continued, in particular old corrugated cases,
but also other costs such as energy, transport and labour.
Packaging prices have started to increase and we expect to fully
recover these increasing costs.
Accordingly, while there remains uncertainty in the overall
economic environment, demand is strong and we expect to make
good progress this year.
Engaging with stakeholders: Section 172 statement
The Board aims to promote the success of the Company for the benefit of its shareholders as a whole, taking into account the
long-term consequences of its decisions and looking at those decisions through a variety of lenses. This involves the Board and
management considering in detail and discussing the interests of the Company’s stakeholders, including our people, our
customers, our investors, local communities and non-governmental organisations and our suppliers; the importance of maintaining
our reputation for high standards of business conduct; and the environment. More information about our stakeholders is set out on
page 3. Examples of what that has looked like in practice over the past year are summarised below.
In the governance section of this Annual Report we use s172
to highlight the examples referred to below:
Stakeholder
Strategic Report
Governance
Our people
Pages 3 and 27 (engagement and feedback), 28 (decisions
made in consultation with employees), 25 (engagement on
health and safety), 28 (global recognition programme)
Our customers
Pages 3 (engagement), 9 (collaboration)
Pages 68 (engagement with our workforce), 67
(involvement in virtual onboarding), 69 (induction site
visits), 68 (EWC meetings and EWC representative
attending Remuneration Committee meetings and
Remuneration Committee Chairman attending EWC
Executive meeting)
Page 68 (engagement with our customers via updates from
sales, marketing and innovation functions)
Our investors
Page 3 (engagement)
Pages 67 (engagement with our shareholders)
The environment
and communities
Pages 3 (engagement and charitable giving), 32
(engagement with ESG rating agencies)
Governments
and non-
governmental
organisations
Page 3 (engagement)
Pages 67 (discussion of environmental impact
assessments), 68 (engagement with other stakeholders
including briefing on community engagement)
Page 68 (engagement with other stakeholders including
the Ellen MacArthur Foundation)
Our suppliers
Page 3 (engagement and supplier standards)
Page 68 (engagement with our suppliers via updates from
Group procurement)
This statement is made in conformity with the requirement to explain how directors fulfil section 172 of the Companies Act 2006.
Annual Report 2021 dssmith.com 15
STRATEGIC REPORT OUR BUSINESS MODEL
To be the leader in sustainable
packaging solutions
Our business model is focused on value-adding corrugated packaging and supported by upstream
paper production and recycled paper collection.
Our relationships
and resources
Our people and values
We employ around 29,000 people
globally and develop them so they
can realise their potential. Our
values and management
standards guide how we operate.
Manufacturing and other
physical assets
We have an extensive network of
packaging manufacturing sites,
paper mills, recycling depots and
innovation centres, supported by
the infrastructure of the
countries in which we operate.
Our relationships
We interact in a way consistent
with our corporate values to build
and maintain trusted
relationships with our customers,
suppliers and communities.
Intellectual capital
We have substantial customer
understanding, innovation and
patented designs.
Financial capital
We are funded by a combination
of shareholder equity, debt and
reinvested cash flow.
Natural capital
We operate a circular model
through the recycling of natural
material, in particular wood fibre.
16
Our circular business model
OCC and
recovered fibre
OCC and recovered
fibre is converted
into paper again
Paper
manufacturing
CCM
Paper is converted
into corrugated
board and then into
packaging
Recycling
Corrugated
packaging
Used
packaging
Used packaging is
collected and brought
to our recycling facilities
Customers
Retailers
Consumers
Boxes
Packaging is used
by our customers,
retailers and
consumers
OCC: old corrugated cases, i.e. used corrugated board, a feedstock for recycled paper
CCM: corrugated case material, the paper used to form corrugated board
How we create value
1. Insight
We work with leading fast moving
consumer goods (FMCG) brand owners,
major retailers and industrial companies.
This breadth of interaction means that we
have considerable knowledge of how
changing consumer, retail and regulatory
trends affect the use of packaging. We use
this insight to inform our innovation.
2. Innovation
Our Impact Centres are where we
showcase our insight and our designers
partner with customers to create inspiring,
innovative packaging solutions. Best
practice is shared across all our regions.
We are also innovators in the use of
light-weight corrugated board. Our
proprietary technology to test the strength
of corrugated board as it is manufactured
means we can use the optimum paper
weight required.
Our differentiators
Market drivers
Scale
Innovation
Sustainability and
circular economy
See more on pages 18 and 19
Responding to retail
channel changes
E-commerce
Sustainability
3. Design
Using our network of designers and
PackRight Centres, we create packaging
that fulfils our customers’ requirements for
all stages of the primary product’s journey,
whether improving protection in transit,
ease of identification in the supply cycle, or
presenting the primary product to
maximise sales.
4. Manufacturing
Our paper mills manufacture corrugated
case material (CCM) and our corrugated
plants convert CCM into corrugated board,
then print, cut and pre-glue the boxes,
which are then shipped flat on pallets,
ready for assembly and filling at our
customers’ factories. We maximise the
efficiency of our manufacturing, for
example, using light-weight papers where
possible to reduce the cost and carbon
impact of the packaging produced.
The value we create
Satisfied customers
We develop packaging that helps
our customers sell more, reduce
costs, manage risks and become
circular-ready.
Packaging that is
sustainable
Our packaging is usually fully
recyclable and made from largely
recycled material. We recycle more
packaging than we produce.
Returns to our capital
providers
Investors benefit from strong
operational and financial
performance.
Safety and opportunity for
our people
We aim to create equality of
opportunity for people to grow and
develop throughout their career in a
safe working environment.
Leadership in sustainability
We are leading the debate on
packaging sustainability through our
engagement with major
organisations such as the Ellen
MacArthur Foundation.
Community involvement
We have an active programme of
community involvement in addition
to satisfying a societal need for
recyclable packaging.
Annual Report 2021 dssmith.com 17
STRATEGIC REPORT DIFFERENTIATION
Our differentiation
and market drivers
DS Smith is in a strong position to capitalise on the opportunities that current market changes present.
Scale, innovation and sustainability are the most material differentiators; scale drives our flexibility
and agility, innovation meets changing customer needs, while sustainability is at the heart of
our offering.
Differentiators
Scale
Our packaging and paper operations cover 34 countries
giving the widest coverage of any packaging company across
Europe. We have around 29,000 employees and over 300
manufacturing sites, including our growing operations in the US.
Our footprint matches our customers’ requirements. Our large
customers are multinational, so require a global, consistent
approach to their packaging. For example, over 50 per cent of our
boxes are for customers served in more than one country.
Customers are increasingly looking for closer partnership
with their suppliers and need to work with fewer, more
sophisticated suppliers.
Our people have a deep understanding of our customers as a result
of working closely with them over many years. Our understanding
around emerging trends and creativity to design innovative,
sophisticated packaging that solves our customers’ challenges,
helps us to develop our relationships further by extending the
ranges, categories and services we provide. As a demonstration of
this success, our average rate of box volume growth among large
customers has been over 10 per cent over the last three years,
considerably ahead of Group volume growth.
Innovation
DS Smith is a leader in packaging innovation, with c. 700
designers and innovators. Through our network of innovation
hubs, nine Impact Centres, and 42 PackRight Centres, supported
by designers at our manufacturing sites, we work collaboratively
with customers to solve their challenges. To offer a more flexible
approach we have created an enhanced customer experience
through virtual collaboration.
Innovation is delivered by DS Smith and then applied across our
wide customer base. Examples of innovation are performance
packaging and ParceLive.
Our packaging is vital to keep supply chains running, meet the
complex needs of our customers and ensure that each valuable
product is making it safely to its destination. With supply chains
becoming more integrated and demanding, we strive to maximise
the performance of our packaging, such as strength, while
reducing costs and the amount of material used.
18
Innovative seasonal gift packaging for BrewDog
By using performance as the basis of supply, we provide packaging
that delivers a certain performance rather than being specified by
the weight of paper used. Our industry-first science-based
optimisation programme PACE™ (Performance, Assurance,
Consistency & Environmental excellence) enables us to guarantee
performance. Using proprietary technology, we measure the
board strength throughout the process to optimise the use of
fibre. We analyse the supply chain challenges to define the right
specification and deliver cost, efficiency and carbon savings for our
customers. Other innovation includes ParceLive, an advanced
multi-sensory tracker allowing us to record real-time data linked to
every touchpoint along the supply chain.
Advising global brands, we engage early in their product
development process. This includes providing design input on the
development of their primary packaging with a focus on
sustainability and circularity, efficiency and brand consistency
throughout all the packaging touchpoints.
Sustainability and circular economy
Sustainability is at the heart of our offering and our circular
business model delivers corrugated packaging made from
renewable resources that are recyclable in our closed loop
systems. Through this approach we keep valuable materials in use
for longer, reducing waste. By prioritising recycled papers and
championing responsible forest management, we help protect our
natural resources and create value for our customers. As our
customers set ambitious sustainability targets and consumers
demand more sustainable packaging, we can help our customers
to get ready for the circular economy.
The decisions we make during the packaging design stage can
have a domino effect on cost, carbon and other environmental
efficiencies in supply chains. Our Circular Design Principles are a
key tool for our designers to protect brands and products, not use
more materials than necessary, design for supply cycle efficiency,
design to keep materials in use and find a better way by always
challenging the status quo.
Market drivers
Responding to retail channel changes
Retail channels are changing – with the most dramatic change
being the growth in e-commerce. This has been accelerated by the
lockdowns due to Covid-19 and the growth is forecast to continue.
E-commerce as proportion of retail sales
30
25
20
15
10
5
E-commerce
The e-commerce packaging supply cycle presents many
challenges and we estimate that there are ten times the chance of
product damage in the home delivery route versus the traditional
supply chain to a store. Our proprietary innovation DISCS™ (Drop,
Impact, Shock, Crush, Shake) simulates e-commerce supply chains
and allows us to create high-performing packaging solutions which
ensure our customers’ products are received by their customers in
optimal condition. This technology dramatically shortens the
design and innovation cycle of new e-commerce packaging.
Sustainability
As consumers are increasingly demanding more sustainable
packaging solutions, replacing single-use plastic is a priority for
many customers. We work with retailers and brand owners to
develop innovative sustainable designs that replace plastic
solutions across categories, including fruit and veg punnets,
e-commerce packaging, retail and point-of-sale solutions. Another
example is ECO Bowl, a new, more sustainable alternative to
plastic packaging for frozen, chilled and ambient food. Our target is
to take one billion pieces of problem plastics off supermarket
shelves by 2025.
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
UK
France
Germany
Italy
Spain
Poland
US
Source: Euromonitor
At present, supply chains are not always optimised for
e-commerce, resulting in repacking at points in the supply chain,
which is costly and inefficient. At the same time, customers who
do go to bricks-and-mortar shops expect to find products visually
appealing and accessible, and as such the emphasis on display
packaging and retail-ready packaging continues to grow.
Short paper strategy
Corrugated packaging is our primary product and we are
‘short paper’, i.e. a net buyer of paper across the Group as a
whole, while in the US we are over 100 per cent integrated.
We choose to be short in paper in Europe, particularly in the
German and surrounding regions. This is due to the excess
supply position of the market in these regions and the
associated significant volatility and generally low financial
returns. We expect our short position to increase as we grow
our packaging business and we source more paper from new
external capacity that is being added to the general market.
Our innovative corrugated
alternative to plastic fruit punnets is
designed to appeal to consumers.
Annual Report 2021 dssmith.com 19
STRATEGIC REPORT GROUP CHIEF EXECUTIVE’S INTERVIEW
Q&A: Delivering circularity
“Our Purpose, ‘Redefining
Packaging for a Changing World’,
has never been more apt and we
are well positioned to capitalise on
a dynamic global environment.”
Miles Roberts, Group Chief Executive
Q How has DS Smith continued to adapt to
Covid-19?
Q You have launched a number of partnerships
over the past year, why?
I am extremely proud of the commitment, professionalism and
flexibility of our employees over the past year, keeping all our
plants operational and responding to our customers’ needs
throughout the period. We invested significantly to ensure that we
had the right procedures in place to ensure the wellbeing and
safety of every one of our employees.
Meanwhile, in spite of the pandemic, we have maintained our track
record of winning market share through our fibre-based offering
focused on fast moving consumer goods (FMCG) and e-commerce
customers, with growth across our largest customers, in particular,
continuing. Our US business has seen good underlying progress
over the past year, reflecting the recent investment in our new
plant in Indiana and the award of a number of significant supply
contracts from major FMCG companies.
Q E-commerce has grown significantly as a
result of the pandemic, how is DS Smith
leveraging this opportunity?
Covid-19 has accelerated some of the trends we were seeing
previously, including the growth in e-commerce and demand for
sustainable packaging. As we enter recovery, we believe we will
see a continued structural change in how people shop and live.
With much of this growth in e-commerce expected to be
permanent, DS Smith is well positioned as the leading provider
of e-commerce packaging in Europe to benefit, having invested
in innovation and development in this market segment for
many years.
20
Innovation is a critical part of our strategy and as we reinforce our
position as the leading provider of sustainable packaging
solutions, we have worked closely with a number of partners over
the past year to further expand our offering.
Examples of our partnerships include ClimaCell®, which offers a
replacement for plastic cool chain with 100 per cent recyclable
options, as well as Touchguard, who we have worked with to
develop anti-microbial packaging to provide an additional layer of
protection across the value chain.
Q How is DS Smith driving forward its
commitment to the circular economy?
Our Now and Next sustainability strategy positions DS Smith at the
forefront of the packaging industry and sets a clear roadmap to
address immediate challenges, while also working to meet the
needs of the next generation by creating solutions that are aligned
with the principles of the circular economy.
By taking a whole systems approach, we have an opportunity to
make significant progress against our environmental, social and
governance responsibilities.
Meanwhile, our business model is inherently circular and our
box-to-box model in 14 days is representative of our commitment
to this and we continue to manage more recycling than we put on
the market.
Q Carbon reduction is a key area of focus
globally, what is DS Smith doing to respond?
Over the past five years, DS Smith has achieved a 23 per cent
reduction in carbon emissions per tonne of production of our
Our strategy
Our strategy is based on balancing the requirements of our core stakeholders:
To delight our
customers
How we engage with
customers
To realise the potential
of our people
How we engage
with our people
To lead the way in
sustainability
How we engage
with society
To double our size
and profitability
How we engage with
our investors
See more on page 22
See more on page 24
See more on page 30
See more on page 34
historic target of a 30 per cent reduction by 2030. However, we
recognised that we must go further. As a manufacturing business,
this has to include decisions on which technologies to invest in at
what time to ensure maximum reduction of carbon per pound of
investment. I am therefore delighted to announce our
commitment to a science-based target by 2030 and Net Zero by
2050, which will support our production of fully renewable and
recyclable packaging. To further underline our ambition, we have
also joined the UN’s Race to Zero.
However, in addition to our carbon commitments it is also critical to
consider our wider impact. Following the launch of our Purpose,
‘Redefining Packaging for a Changing World’, in 2019, we
recognised there was a gap between our ambition and our existing
nine long-term sustainability goals and hence our Now and Next
sustainability strategy was launched in 2020.
The strategy sets out four key pillars, alongside a continued
commitment to reduce CO₂ emissions and care for forests and
biodiversity wherever we operate. The key areas of the strategy
will drive sustainable growth at DS Smith, including a focus on
closing the loop through better design; protecting natural
resources by making the most of every fibre; reducing waste and
pollution through circular solutions; and equipping people to lead
the transition to a circular economy.
We will be measuring our progress towards these goals, holding
ourselves accountable to our stakeholders through regular
indices and processes like the Ellen MacArthur Foundation
Circulytics benchmark.
Q DS Smith recently announced two new
greenfield sites in Poland and Italy, why are
you expanding in these regions?
We announced plans to expand packaging production through
investment in two new, state-of-the-art facilities in Poland and
Italy, which will provide a platform for organic growth in the
regions. The facilities will deliver cutting-edge manufacturing
technology, innovation and sustainable performance.
The investments follow significant growth over the past three
years in these markets and support DS Smith’s ambitious plans for
organic growth. We see good returns from investing in growth
markets, and we are financing it through the organic cash flow.
Q 2020/21 has seen continued volume growth.
How have you achieved this in challenging
market conditions?
Innovation is a critical part of our strategy and our long-term
strategic direction focused on FMCG and consumer markets,
embracing e-commerce and technology-based solutions, has been
accelerated by consumer trends resulting from the pandemic. The
business has continued to grow volumes despite challenging
macro-economic conditions. Corrugated box volumes have grown
progressively throughout the financial year with the second half
achieving a volume increase in excess of 8 per cent over the
comparative period last year.
Q Can you explain what you are doing to make
progress in the area of diversity and inclusion?
We recognise that diversity is key to our continued success.
Creating a diverse and inclusive culture is core to our values and
Purpose. I am pleased with the progress we have made in this area
over the past year, which includes the expansion of our diversity
and inclusion forum with representation from across the business
to develop the networks and local action plans that will have the
biggest positive impact for our people and the communities they
serve. This is supported by a programme of awareness training.
Meanwhile, 37.5 per cent of our Board members are women,
meeting the Hampton-Alexander Review’s target. We have made
significant progress over the past two years on women in senior
positions, while we have achieved gender parity on offers for our
graduate programme.
Q What do you see the coming year bringing for
DS Smith?
While we are hopeful that the vaccine will mark a turning point in
the pandemic and a road to recovery, we are facing an uncertain
macro-economic outlook for the upcoming year. However, our
focus on resilient FMCG and e-commerce markets, as well as
demand for sustainable packaging solutions within these critical
value chains, will give us the platform to drive market gains and
reinforce our strategic customer partnerships across our
integrated footprint.
As a business, we are focused on delivering for all our stakeholders
including employees, customers, suppliers and shareholders who
expect us to deliver real value and grow our business in a
sustainable way over the coming year.
Annual Report 2021 dssmith.com 21
STRATEGIC REPORT OUR STRATEGY
To delight our customers
In 2021/22 we will:
• Strengthen our value proposition to help
customers get ready for the circular
economy
• Accelerate our leadership on ecommerce
• Continue to scale up innovations within
core business priorities
• Sustain continuous improvement of
service levels
We do this by:
• Delivering on our commitments for
quality and service
• Providing value-adding packaging
solutions
• Driving innovation, rolled out
internationally
In 2020/21 we:
• Maintained continuity of service to our
customers throughout the pandemic
• Adapted to new purchase behaviours
and increasing, rapid growth of
e-commerce
• Accelerated innovation programmes,
including for plastic replacement
• Operated with increased flexibility
and agility in our co-operation with
customers
Q&A with Marc Chiron
Sales, Marketing and Innovation Director, Packaging
Q How would you describe your customer
portfolio?
We work with some of the world’s most visible and iconic brands.
We have a diverse customer base, but our market share in the
dynamic fast moving consumer goods (FMCG) category is well
above the corrugated industry average and, over the past year, we
have worked hard to ensure that they have benefitted from
innovation, sustainable solutions and most importantly continuity
of supply to keep goods moving throughout the pandemic.
Q How do you partner with your customers?
Our job is to add value to these brands by making them
attractive to new consumers, available when shoppers look for
them online or in-store and helping our customers’ products to be
sold at the targeted price-position. In addition, we focus on
transforming the design of point-of-sale, to shorten supply chain
complexities and allow our customers to be quicker to market.
Q What role do you have in supporting your
customers to meet the changing expectations
of consumers?
We help customers meet consumer demand for more sustainable
solutions and respond better to changing retail channels, including
the fast growth in e-commerce. Our end-to-end approach is
adopted by many of our multinational accounts and has been a real
source of value growth in these relationships. We engage our
customers about their future business priorities and opportunities
and create shared roadmaps to meet their future needs.
22
Our KPI
On-time, in-full deliveries (OTIF)
Definition
The proportion of our orders that are delivered on-time,
in-full across our businesses.
Why this is a KPI
Packaging is an essential part of an efficient supply chain.
Delivering as promised is a critical component to ensuring
we remain a trusted partner to our customers.
2020/21 performance
In the year 2020/21 our overall OTIF remained at 95 per
cent, despite the significant disruption caused by Covid-19,
close to our overall target of 97 per cent. We continue to
strive for higher service levels.
2021
2020
2019
95%
95%
95%
0
2021 Target: 97%
100
Our packaging customers
We have a diverse customer base, with over 80 per cent of our
customers being fast moving consumer goods (FMCG) and other
consumer products. This compares to the market in Europe which
is c. 73 per cent consumer goods, making our market share in the
dynamic FMCG category well above the corrugated industry
average. This is important to our business model as the food, drink
and personal care categories are resilient in an uncertain economic
outlook. These are goods that consumers use in their everyday
lives and purchase regularly from supermarkets and, increasingly,
online. FMCG customers require high quality, innovative, value-
adding packaging. We invest in the insights and innovation needed
to meet this demand; and deliver this on a multinational scale.
FMCG customers require packaging that helps build brand loyalty.
Packaging can add real value to the brand experience. To stand
out, consumer goods packaging is diverse and creative, and
packaging plays a role in marketing a product within a competitive
retail environment beyond simply providing protection. FMCG
customers want value. We approach packaging at every step of
the supply chain to ensure that it provides sustainable, optimised
performance from end-to-end.
FMCG customers have a global outlook. Our multinational
customers require a partner that has a geographic footprint which
matches their own. DS Smith is exceptional in having the scale,
expertise and innovative approaches to support our customers
around the world. Over the past year, we have onboarded key
global accounts across our US operations and specifically utilised
our Indiana site, which continues to expand operations.
FMCG customers demand secure supply of goods. By creating joint
business contingency plans we secure continuity of operations
and resilience of our supply chains.
DS Smith has a higher
proportion of FMCG customers
than the market average
Our corrugated
packaging customers
by volume
18%
Source: DS Smith analysis
82%
European industry
average corrugated
packaging by volume
27%
Source: FEFCO
73%
FMCG and other
consumer goods
Industrial
Value proposition for customers
More sales
Lower cost
Risk managed
Circular ready
We help our
customers
generate more
sales with the
right
packaging
We help our
customers
eliminate
unnecessary
cost
We help our
customers
address risk
throughout
the supply
chain
We help our
customers
with circular
packaging
solutions
Our paper customers
Supplying customers across the globe, we are a leading
manufacturer of sustainable packaging and speciality papers made
from 100 per cent recycled or chain of custody certified fibre
sources. The high performing packaging papers we produce, such
as corrugated case materials and kraftliners, are integral in
allowing the Group’s packaging division to produce sustainable
paper-based packaging solutions. Our customers for speciality
papers, such as plasterboard liners, come from across a variety of
industries including construction, printing, food manufacturing,
stationery supplies and education.
Combining our expertise of 16 mills across Europe and North
America with a forward-thinking research and development focus
enables us to provide customers with the high performing quality
papers they need for their onward manufacturing operations.
Through our stringent quality measurement systems and ability to
track fibre through the complete papermaking process, we ensure
delivery of high quality finished papers to all our customers. Our
commitment is to create sustainable, high performing papers, that
deliver the packaging solutions needed in an ever-changing world.
Our recycling customers
We provide recycling and waste management services to
companies of all sizes across a diverse range of sectors in both
Europe and North America. From municipalities and waste
management companies, to printers, manufacturers, wholesalers,
and some of the best-known brands and retailers the world over,
our customers benefit from our recycling expertise. We partner
with organisations large and small to keep over six million tonnes
of paper and cardboard out of landfill or incineration every year.
The paper and cardboard we collect for recycling serves our own
paper mills as part of our closed loop recycling business model,
while also being sold into our global network of third-party
paper mills.
With a full recycling and waste management service, we work with
our customers to reduce waste and recycle more. By innovating
around collection infrastructures and working with customers to
build recyclability into their supply chains, we are helping to
provide solutions for our customers’ and wider society’s biggest
recycling challenges.
In 2020 we took our experience and expertise gathered from our
pan-European network of recycling operations to help support our
customers in North America, with the launch of our first dedicated
recycling operation in the US. This new plant can handle over
36,000 tons of paper and cardboard, helping to facilitate fully
closed loop packaging and recycling solutions for our customers
in this region.
Annual Report 2021 dssmith.com 23
STRATEGIC REPORT OUR STRATEGY
To realise the potential of our people
We do this by:
• Creating an environment that people are
proud of and where they can give their
best
In 2021/22 we will:
• Progress our new sustainable ways of
working with a renewed focus on
flexibility and wellbeing
• Ensuring the health and safety and
• Continue to invest in the capability of our
managers and leaders to build high-
performing teams
• Provide consistent and standardised
training to further develop our technical
and operational capability
• Continue progress to build an inclusive
and diverse workplace
• Open up development opportunities
even further, blending technology with
face-to-face learning
wellbeing of all
• Building capability for the future
In 2020/21 we:
• Prioritised the health, safety and
wellbeing of our people during the
Covid-19 pandemic – listening and
responding to feedback
• Celebrated the contribution and success
of colleagues through our first Smithies
awards event
• Launched our refreshed and simplified
Management Standards
• Adapted and extended our development
offer – embracing technology to
overcome the challenges of Covid-19
Q&A with Darren Littleboy
Group Human Resources Director
Q What does diversity and inclusion
mean for DS Smith?
For us, inclusion starts with the belief that everyone,
regardless of background, is valued, respected and has
the opportunity to flourish. It is about embracing our
differences and valuing the creative opportunities that
brings for our business and customers. These principles
are core to our diversity and inclusion programme across
the Group.
Q How have you supported your
employees during the past year?
To support our colleagues working remotely we ran a
pulse survey and nearly 3,500 colleagues participated.
Remaining at the workplace throughout the pandemic
brought different challenges for our front-line operational
colleagues, so we also ensured their feedback was heard.
We actively used all of our employee feedback to improve
our support to employee health, safety and wellbeing.
Q What have you done to develop people?
Opening up access to development opportunities
remained a core priority. Covid-19 challenged us to
reconsider how we deliver learning. Our learning and
development community rose to the challenge to
continue to increase the range and accessibility of the
learning offer and we accelerated our move to providing
more blended solutions using virtual learning, immersive
learning and e-learning, delivering a fourfold increase in
all learning.
24
Our KPI
Accident frequency rate (AFR)
Definition
The number of lost time accidents (LTAs) per million hours worked.
Why this is a KPI
We have a strong focus on individual ownership, and we believe
that by engaging our people to contribute to a safe working
environment and culture, everyone can influence a reduction in
our AFR.
2020/21 performance
A healthy and safe working environment and culture is the
cornerstone of any responsible, sustainable and profitable
business. In the context of our health and safety aim of zero harm,
our target AFR is zero.
The past year has been like no other. The Covid-19 pandemic has
had a profound effect, touching every aspect of how we work. It is
therefore a remarkable achievement that against this ever
changing and increasingly demanding landscape, we have managed
to maintain and improve our health and safety performance. We are
very pleased with this tremendous achievement.
Health and safety key
performance indicators
Total LTAs1
AFR2
2020/21
2019/20
Reported
Pro forma3
Variance vs.
pro forma
102
2.06
97
2.08
119
2.40
-14%
-14%
1. Lost time accident (LTA): number of accidents resulting in lost time of one shift
or more.
2. Accident frequency rate (AFR): number of LTAs per million hours worked.
3. Pro forma data adjusted for acquisitions and disposals.
To realise our Purpose of ‘Redefining Packaging for a Changing
World’ we need a modern, diverse, motivated and engaged
workforce where everyone has the opportunity to realise their
potential. We are passionate about working together, sharing
ideas and exploring new ways to innovate and delight our
customers; it is fundamental to our business success. These values
have been at the forefront during the past year. Our priority has
been the health and wellbeing of our people, continuing to serve
our customers and to support the communities we serve.
At the same time, we have not lost focus or momentum on building
an inclusive workplace, recognising the contribution of colleagues
across the business and providing development opportunities for
all. As we look forward, we are building on the experience and
learning gained through the Covid-19 pandemic to shape new
sustainable ways of working that recognise the importance of
flexibility, connectedness and mental health and wellbeing.
Ensuring the health and safety of all
We are highly ambitious about health and safety with a focus on
continual improvement and high standards to achieve our target
of zero harm.
Health and safety – Vision Zero
Our vision is to provide a working environment and culture
where health and safety is integral to our business and all our
people actively engage in our drive to continuous health and
safety excellence.
The campaign for zero harm focuses on our four main
strategic goals:
Leadership – Our successful health and safety onboarding
programme has continued this year, albeit virtually, inducting
all new and promoted site managers into the behaviours and
mindsets required to perform as health and safety leaders.
In addition, virtual roll out has commenced of our Fundamentals of
First Line Management programme which incorporates content
consistent with the senior manager programme. Our next focus is
to create content applicable for all our employees to support the
drive of required health and safety mindset and behaviours
further into the organisation.
In 2020/21 we also developed and launched our bespoke
e-learning sessions on incident investigation and risk assessment
for our health and safety professionals. The aim is to ensure a
consistent understanding and service on these topics across our
sites. The focus on developing the leadership and technical skills of
our health and safety professionals has been very warmly received
and will continue into 2021/22.
Engagement – Our new proactive internal KPI, the health and
safety engagement rate (measuring the number of near misses/
safety observations per person) has increased significantly this
year, up by 15 per cent. We are particularly pleased with this, as it
reflects our people’s engagement with seeing and raising health
and safety standards.
Engagement with critical health and safety processes, like Lock
Out, Tag Out, Try Out (LOTOTO) are essential to ensure safe
working environments. This year we launched a competition
inviting our employees to create materials which would inspire and
motivate others to use LOTOTO. The response was fantastic with
over 63 innovative entries. The chosen top ten were incorporated
into a montage for display at sites, whilst the top three entries
were put to a vote with over 960 employees taking part.
The eventual winner was Timisoara, our Romanian site – with a
very moving and inspiring film which has been translated into our
core languages for use in training and raising awareness.
Processes – We completed a Group-wide auditing process this
year which resulted in an overall audit score increase of 8 per cent.
We are pleased with the progress all sites are making to meet our
very high standards of health and safety and in 2021/22 we will
continue to develop our Group-wide minimum standards to
challenge us further on our Vision Zero journey.
Culture – All our work on leadership, engagement, systems and
processes is designed to drive a culture of continuous
improvement and setting high standards. We firmly believe that
we are building the foundations to drive the change in our culture
to achieve sustainably excellent performances, year-on-year. This
year we celebrated 246 sites with zero accidents by awarding
Gold, Silver and Bronze certificates. Ten of our sites achieved our
prestigious Gold award, showing excellence in audit scores and
health and safety engagement in addition to zero accidents. These
sites were celebrated at our first ever Smithies event (see page 28
for more information).
The winning core LOTOTO Team (General Manager, Gabriel Balogh;
HSE Manager, Tiberiu Tozser; Production Manager, Christian
Schmidt; Corrugator Coordinator, Marius Brisc). DS Smith Packaging
Timisoara, Romania
“The great reaction we received to our
competition entry shows that the story
touched the hearts of many colleagues and is
proof that all at DS Smith are very connected
to the topic of health and safety. We are
proud to be the competition winners out of
a group of highly responsible and engaged
teams throughout the organisation and
we are continuing to drive the health and
safety procedures.“
Gabriel Balogh, General Manager, DS Smith Packaging
Timisoara, Romania.
Annual Report 2021 dssmith.com 25
STRATEGIC REPORT TO REALISE THE POTENTIAL OF OUR PEOPLE CONTINUED
Health and wellbeing
The changing world, with restrictions and lockdowns, has meant
increased demands on our employees’ physical and mental
wellbeing. Therefore, this year we have been refreshing and
consolidating our strategy on this highly important subject,
incorporating best practice from internal and external
benchmarking. Our new framework is designed to build positive,
healthy working environments, enabling our people to thrive and
perform sustainably. To achieve this our framework focuses on
four key areas:
Taking The Lead – Encouraging everyone to visibly and
demonstrably set the example and champion health and wellbeing
Learning & Development – Providing knowledge and
information to empower people to take ownership of their
physical and mental wellbeing
Engagement – Working together, involving and including all our
colleagues to continuously improve health and wellbeing
Toolkits – Providing best practice tools to inspire and motivate
positive and healthy people and workplaces
In summary, our aim for 2021/22 is to build on our foundations and
focus on achieving sustainable world-class performances in
health, safety and wellbeing across our Group.
Development for all
At DS Smith we are committed to our learning and development
strategy which is to:
• Deliver a sustainable, accessible and measurable learning and
development proposition
This offers online learning and resources as well as curated
content on core management and leadership skills and
dedicated professional development content for functional
and specialist colleagues.
During 2020/21 we have seen a fourfold increase in the volume of
learning and development activity taking place across the
business. Our e-learning platform provides access to both generic
development content, books, videos and audio as well as bespoke
DS Smith content on subjects ranging from paper making to
continuous improvement practices and our sales processes, and
has seen over 10,000 users. Alongside this platform we provide a
range of bitesize virtual training modules prioritising learning most
relevant to current business challenges and equipping managers
to support their team in topics such as leading remote teams,
resilience and change management, with more than 4,000
attendees between September 2020 and April 2021.
We are continuing to work with our external partner Oxford Saïd
Business School. Our Global Leadership Programme and Aspire
Programmes were moved successfully to virtual delivery and
expanded to reflect new challenges which have faced our leaders
during Covid-19.
“Aspire is a great opportunity to discuss and
reflect about yourself as being a leader. The
mix of content given by professionals of the
Oxford Saïd Business School as well as the
open exchange with other DS Smith leaders
within and beyond the courses gives you a
fantastic chance to improve your leadership
skills. Bringing Aspire to a digital level was an
inevitable step, but due to regular vibrant
online sessions it’s not a loss at all.”
Daniel Malolepszy, Site Manager, Germany
“For me personally Aspire is an absolutely
inspiring programme which strongly
supported me to grow my confidence into my
leadership skills. The regular – now virtual –
exchange with colleagues across the business
is giving so many new perspectives and
reflects an incredibly valuable part of
the programme.”
• Have a model of learning that blends structured learning with
Marina Wimmer, Head of Commercial Finance, Austria
workplace application
• Provide colleagues with support and accountability for their
own development
• Prioritise our interventions to ensure we can focus on the skills
and capabilities that will contribute to the future growth of
our business.
We launched ‘DS Smith Learning’, our virtual home for learning,
open to colleagues from across the business, which provides
access to our library of learning programmes.
Our internal ‘Fundamentals of First Line Management’ modular
programme was also rapidly redesigned for virtual delivery by
our team of 50 in-house trainers and we aim to reach 3,000
managers by the end of 2020/21. Here are some quotes from
recent attendees:
“I liked the delivery and content, it gives the FLM good tools to use
and will improve us as managers.”
“The exercises challenged me to be more self-aware and
understand how my natural self can be used to manage people
and situations.”
26
Engagement
By giving all employees a voice, we create the opportunity
to improve their work experience and feel pride in working
for DS Smith.
During the year, responding to the need to support and engage
colleagues working remotely we deployed a real-time pulse survey
in which nearly 3,500 colleagues participated.
Feedback told us that they felt supported by their managers and
had confidence their safety was being prioritised but there was
more we could do to help them manage some of the challenges of
remote working. The findings directly influenced the immediate
response locally and are now shaping new ways of working that
support greater flexibility, working in remote teams and staying
connected with colleagues as well as informing our new health
and wellbeing strategy.
Recognising that remaining at the workplace throughout the
pandemic brought specific challenges for our front-line
operational colleagues, we have worked hard to ensure their
feedback is heard. Across locations in the UK and the Nordic
countries we sought feedback by enabling front-line operational
colleagues to participate in digital surveys. At a time when a
second wave of infections was being recorded and social
restrictions were tightening, most colleagues reported a strong
sense of togetherness, positive line manager support and that
they felt able to continue to work safely.
Understanding what matters to colleagues and how we help
them to thrive and succeed continues to be the priority. 2021/22
will see the introduction of our new Let’s Keep Talking initiative
as we focus on keeping conversations going. We will pilot new
technology including on-site touchscreen feedback kiosks as
well as checking in with all 29,000 of our people via our
engagement survey.
Wellness Wednesdays
To focus wellbeing communications in our North American
business, the team has introduced concise, bi-weekly
communications providing tips on preserving and improving
mental and physical health. A DS Smith employee is featured
each week to provide insight into their wellness strategies.
Webinars and other resources have covered content as diverse as
boundary management – juggling home and work-life, parenting,
mindfulness and wellbeing.
This hugely impactful resource will continue to grow in 2021/22 to
ensure that we provide learning pathways which align to the
needs of our business and meet the challenges of new ways of
working. We are passionate about providing all our colleagues with
opportunities to grow in their current roles and to meet aspirations
for the future.
Enabling our managers
Having capable managers who enable our people to thrive and
perform at their best is a core pillar of our strategy and is reflected
in our strategic people risk priorities (organisational capability risk)
outlined on page 54. Our Group values and management standards
provide clarity around expectations and consistency in our
management practices across the Group.
During 2020/21 we launched our refreshed and simplified
standards with four core standards on health, safety and
environment, customer, team management and our focus on
continuous improvement – ‘the DS Smith Way’. The standards are
embedded in our performance management approach and
underpinned with guidance and training to bring them to life.
Developing diverse leadership talent
We continue to take action to grow a strong and diverse pipeline of
leadership talent. During 2021 additional cohorts will join our
Global Leadership and Aspire programmes delivered in partnership
with the Oxford Saïd Business School. Alumni from both
programmes are increasingly taking the lead as coaches and
mentors for emerging talent across the Group.
In addition, we will pilot a targeted career development offer for
mid-level female talent to continue to accelerate progress towards
a more gender diverse leadership population.
Annual Report 2021 dssmith.com 27
STRATEGIC REPORT TO REALISE THE POTENTIAL OF OUR PEOPLE CONTINUED
The Smithies
In 2020 we launched a global recognition programme – The
Smithies – to recognise and celebrate individuals and teams who
go above and beyond and excel at what they do – our hidden gems
of DS Smith. We were determined that the challenges of restricted
travel and social distancing would not prevent us celebrating their
successes and so created an online awards event that proved to be
an inspiring and inclusive highlight of the year.
The first Smithies event was held virtually in September
recognising 28 finalists and seven winners, watched by thousands
of employees across the world. In a post-event poll, 99 per cent
said they were more inspired to recognise their colleagues.
European Works Council
The purpose of our European Works Council (EWC) is to bring
together employee representatives from the different European
countries where we operate. The aim of the EWC is to engage
employees through an effective information and consultation
process focused on business decisions which affect the workforce
and impact on the interests of employees. This improves business
outcomes, individuals’ contribution to the business and
development opportunities.
We worked closely with the EWC members to prioritise areas
where we can jointly improve policies and processes. 2020/21 has
seen us work in partnership to develop joint action plans to
address aspects of health and safety, diversity and inclusion,
sustainable employment and fairness in the workplace.
28
“The secret to the success of the DS Smith EWC
is no secret; we work together with senior
management to jointly improve policies and
processes within the Company. The EWC and
senior management both understand that we
all want to bring the business forward. We do
not claim to be perfect, but we are working
hard at trying to make DS Smith an employer
of choice and make our colleagues proud to
work here. This takes mutual respect and hard
work from all of us, and the reward is to be
described by people outside of the Company
as setting the standard in Europe for EWCs.
True to our Purpose of ‘Redefining Packaging
for a Changing World’.”
Joseph Reed, European Works Council Chairman
Creating a modern, inclusive and diverse culture
2020/21 has seen us delivering on the actions in our diversity and
inclusion plan, to build awareness and ownership and embed the
principles of inclusion and diversity in all aspects of our people
policies and practices. We implemented our Equal Opportunities
and Anti-Discrimination policy. The policy sets clear expectations
about inclusion and a zero tolerance for discrimination, but we
know that real change comes from people not policies. To ensure
this has a practical positive impact on inclusion, we are focusing on
building real understanding and engagement, working in
partnership with our employee forums. Translated into multiple
languages, the policy is supported by modules adapted for both
online and site-based learning and engaging videos addressing
unconscious bias and building inclusive leadership.
Meaningful change starts at the top and during the year we
developed an inclusive leadership virtual workshop built around a
simple but powerful framework of ‘Courage, Curiosity and Trust’.
Over 100 of our senior leaders have participated globally so far and
they now form an internationally and culturally diverse alumni
group, role modelling and extending the principles into their
teams. We will continue to extend participation during 2021/22.
We understand that with such an international and diverse
business, the specific diversity and inclusion challenges will differ
between regions. That is why we established a diversity and
inclusion forum with representation from across the business to
build the inclusive networks and local action plans that will have
the biggest positive impact for our people and the communities
they serve.
The year has seen the forum go from strength to strength, driving
engagement and action across the business. In the UK, the
leadership team has hosted roundtable events with external
speakers sharing insights and ideas on a range of diversity and
inclusion topics. From celebrating Black History Month with our US
team to hosting a range of events and activities on International
Women’s Day, colleagues are taking the lead on inclusion.
The coming year will see us increasingly connecting our work
across inclusion and wellbeing as both are at the heart of a
sustainable healthy workplace.
Diversity of Executive team
We voluntarily take part in the Hampton-Alexander Review which
sets out recommendations for FTSE 350 companies to improve the
representation of women both on their executive committees and
the direct reports to those committees. DS Smith has three
committees that together comprise our Executive Committee;
Group Operating Committee, the Group Strategy Committee and
the Group Health, Safety, Environment and Sustainability
Committee, as described on page 71.
The Hampton-Alexander Review set a target of 33 per cent female
representation on FTSE 350 boards by 2020. The 2020 report was
published in February 2021 and represents women on Boards as of
11 January 2021 and senior management as at 31 October 2020.
Our position at that date is outlined below:
Ranking in industry sector (general industrials)
Overall FTSE 100 ranking
Women on plc Board
Female Executive Committee and direct reports
4th
44th
37.5%*
30.2%**
* Compared to FTSE 100 average of 36.2%.
** Compared to FTSE 100 average of 30.6%.
Our gender split as of 30 April 2021 is outlined in the table below:
Gender diversity
Board of Directors – Total: 8
5
Senior management – Total: 77
52
All employees – Total: 28,864
3
25
22,545
6,319
Male
Female
We have adopted the Hampton-Alexander Review definition of
senior management to provide a consistent and comparable
measure of progress on gender diversity.
It has been historically challenging to attract women into our
industry, but we are determined to make progress. As a result of
our continued action on graduate recruitment 2021, 64 per cent of
our offers went to female candidates.
“As part of the Packaging graduate scheme,
I get the opportunity to work across multiple
projects that involve some of the world’s
biggest brands, and it is so rewarding to work
on something that creates such a positive
impact for both people and planet. It is such an
exciting time to be a part of a brand that
continuously anticipates the opportunity for
packaging to lead the way in sustainability,
and I look forward to being a part of this along
my graduate journey.”
Amy Strudwick, 2020 graduate
We are also reviewing our broader talent attraction strategy and
developing external partnerships to engage with women at all
stages of their careers to understand what they want from a
modern workplace and encourage them to consider joining us. We
are now a corporate member of the WISE (Women In Science and
Engineering) campaign that promotes opportunities for women in
STEM careers and are working with our recruitment team to
reach a broader audience, showcasing our female talent and
demonstrating the diversity of opportunities available across
the business.
For gender pay gap reporting we choose to report not only on the
UK legal entities where headcount is above 250, but on the UK
total figures to provide a comprehensive view. This year the mean
gender pay gap was 3.5 per cent (4.7 per cent in 2019) whilst the
median gender pay gap was 6.2 per cent (6.7 per cent in 2019).
The improvement is encouraging but to move further we need
more women in senior positions and are working hard to deepen
the leadership pipeline. We currently have 32 per cent in our global
senior management population. We know that gaining exposure to
strategy development is key for executive succession and three
female leaders now sit on two of the Group Executive Committees.
During 2021/22 we will pilot and launch a new mid-level female
career development programme to accelerate the progression of
female talent into senior leadership roles. We have also further
extended mentoring and executive coaching support.
You can find our detailed UK gender pay gap report on
dssmith.com by searching ‘gender pay gap report’. This explains
the reasons for the gap and information on the actions we have in
place to help close the gap. However, the UK only represents a
small proportion of our total workforce and our policies and
practices are applied globally.
Annual Report 2021 dssmith.com 29
STRATEGIC REPORT
OUR STRATEGY
To lead the way in sustainability
We do this by:
• Closing the loop through better design
• Reducing waste and pollution through
circular solutions
• Equipping people to lead the transition to
a circular economy
• Protecting natural resources by making
the most of every fibre
In 2020/21 we:
• Launched our Now and Next
sustainability strategy, unveiling our
ambitions for the coming decade
• Achieved targets, including
implementing mitigation plans at sites
located in areas at risk of water stress
• Increased our MSCI rating from ‘A’ to ‘AA’,
designating us as a Containers and
Packaging leader
• Continued collaborating with the Ellen
MacArthur Foundation
In 2021/22 we will:
• Conclude the process of setting a
science-based target and commitment
to achieve Net Zero emissions by 2050,
increasing the pace at which to
decarbonise our business
• Continue embedding Now and Next,
involving every employee in delivering
our new sustainability strategy
• Continue delivering progress on Now and
Next and improvements in ESG ratings
• Continue partnering for sustainable
product innovations, such as ClimaCell®,
Hydropol™, ParceLive and Touchguard™
anti-microbial surface coatings
• Take account of a number of ESG factors
when the Remuneration Committee
considers the 2021/22 annual bonus
Q&A with Wouter van Tol:
Head of Sustainability, Government and Community Affairs
Q
Since launching Now and Next, what have you done to
embed the new strategy?
We have been collaborating across the business to ensure that our people
have the tools they need to deliver change. During the launch, we briefed
over 2,100 managers through online seminars and interactive training,
inviting employees to be involved in achieving our ambitious targets.
Clearly defined roles and responsibilities to deliver progress have been
established and we have invested in our reporting capabilities to regularly
evaluate our performance.
Q How are you helping customers transition to the
circular economy?
Our customers, like us, see the urgency in moving beyond the traditional
‘take-make-dispose’ model to a circular system built for long-term, multiple
lifecycles. We believe that there is an enormous opportunity to do more with
corrugated board to accelerate the transition to a circular economy,
particularly as an alternative to plastic, which remains difficult to recycle in
practice. Many of our Now and Next targets respond to this opportunity.
Q How are you increasing your ambition on carbon
reduction?
In 2020/21, we challenged consultants to help us to increase our ambition on
carbon reduction and to optimise our decarbonisation roadmap. We are
pleased to announce our commitment to reach Net Zero emissions by 2050
and a science-based target for 2030. We have a strong roadmap of
investments coming online in the coming years that will reduce our emissions,
paving the way for our circular packaging to play a powerful role in helping
brands and consumers reduce their carbon footprint.
30
For more information about how we are
leading the way in sustainability with
our Now and Next sustainability
strategy, please refer to the latest
DS Smith Sustainability Report and
DS Smith Sustainability Databook 2021,
which include additional metrics and
further information on our
sustainability performance.
We have again been awarded the
LSE Green Economy Mark, as we
derive substantial revenues from
environmental solutions.
Redefining Packaging for a Changing WorldSustainability Report 2021 Summary of Now and Next progress
Closing the loop through better design
In 2020/21, we achieved our target to train 100 per cent of our
designers on the circular economy, ensuring our designers are
skilled in building circularity into packaging design. Our community
of over 700 designers is actively applying our Circular Design
Principles, developed in collaboration with the Ellen MacArthur
Foundation, to hundreds of thousands of new packaging designs.
We are progressing against our target to manufacture 100
per cent recyclable or reusable packaging, a target originally set
with a deadline of 2025 but that we have brought forward to
2023, with 99.2 per cent (2019/20: 98 per cent) of packaging
manufactured in 2020/21 meeting this standard. We continue to
pilot substitutes for a small remainder of materials that are
presently difficult to recycle, such as wax coatings.
Reducing waste and pollution
Our designers have developed over 650 designs representing
hundreds of thousands of products geared towards plastic
replacement. In 2020/21, 53.9 million pieces of problem plastics
were removed from supply chains and replaced with recyclable
corrugated alternatives. We are also optimising transport by
developing solutions to remove wasted air in transit and lessen the
number of lorries on the road. In 2020/21, we invested in the
capability within our Value Tool to gather data to measure
progress against our target to remove 250,000 lorries from the
road by 2025. We have begun to explore new business models for
the rise in e-commerce waste and carbon-neutral packaging.
Equipping people to lead the transition to the circular
economy
In 2020/21, over 2,500 employees in design, senior management
and leadership, graduate and procurement roles completed formal
circular economy training, representing 9 per cent of employees
overall. Our next step is to engage sales and marketing teams as
we extend learning opportunities to eventually reach all our
people. A further 57 senior leaders and others participated in the
Ellen MacArthur Foundation Circular Economy Masterclass,
delivered by the University of Exeter. In 2020/21, we engaged
over 519,000 people on the circular economy and circular lifestyles
through online content, including posts ‘liked’ and shared, videos
viewed, and reports downloaded. We developed a lesson plan for
school engagement. We streamed a pilot of this live lesson via
YouTube, where over 100 families participated, and hope to be
able to spend more time in our communities next year to promote
the circular economy and circular lifestyles.
Protecting natural resources
In 2020/21, fibre use in around a quarter of new packaging
solutions was fully optimised for individual supply chains, ensuring
that whilst we use recycled fibre where we can, virgin fibre
consumption is minimised as far as practicable. There is a
significant opportunity to increase this, given that optimisation
leads to less impact , as transporting fewer fibres through the
production process requires less water and energy. We maintain
our standard that 100 per cent of papers used are sourced from
recycled or chain of custody certified sources, having achieved this
target in 2019/20. Furthermore, 100 per cent of our sites1 hold
chain of custody certification and we achieved our target for
100 per cent of our forests to be certified, meaning that we
comply with the highest social and environmental standards for
forestry in the market.
Driving carbon reduction
We have delivered a 23 per cent (2019: 20 per cent) reduction in
CO2e per tonne of production on a like-for-like basis since 2015,
demonstrating pace ahead of our target, driven mostly by
investment in energy efficiency and equipment upgrades made at
our mills. Our Group carbon emission intensity for 2020 was 212kg
CO2e /t nsp (2019: 220kg CO2e /t nsp), a reduction of 4 per cent
compared to last year on a like-for-like basis. Following our Group
Sustainability Data and Reporting policy and Greenhouse Gas
Protocol guidance, we have calculated this performance on a
like-for-like basis by including estimates of emissions from
acquisitions in our base year, which has been independently
verified. Our Europac acquisition is therefore included in all figures
to enable meaningful comparison.
In 2020, at Belišće Mill c. 27,000 tonnes of CO2e has been saved by
purchasing green electricity. Since August 2020, steam generation
at Kemsley Mill is powered by the neighbouring Wheelabrator
Combined Heat and Power (CHP) plant, reducing the mill’s reliance
on fossil fuels, removing c. 8,000 tonnes of CO2e per year. At Lucca
Mill, a new aeroderivative gas turbine has been installed in
partnership with GE Gas Power, delivering a 2 per cent efficiency
improvement, removing c. 4,000 tonnes of CO2e per year. Finally,
a new biomass dry line has been installed at Viana Mill, saving
c. 3,100 tonnes of CO2e per year. At our packaging plants, our LED
lighting rollout now has 36,672 lamps installed at 96 sites, saving
c. 14,000 tonnes of CO2e per year. The past year was the first
complete year of operation for our state-of-the-art biomass boiler
that uses residual low grade timber waste to generate energy for
our plant in Värnamo, Sweden; saving c. 2,200 tonnes of CO2e by
switching from LPG. Additionally, new CHP plants have been
operational for around one year at Blunham and Fordham. These
plants generate electrical power for the sites whilst also
harnessing the waste heat from the process, increasing overall
efficiency. We maintained ISO 50001 certification at 100 per cent
of our relevant sites2, a target achieved in 2019/20, which
continues to drive energy efficiency.
Our continued investment in carbon reduction over the coming
years will set us on the way to achieving our ambitious climate
targets, including a commitment to reach Net Zero emissions by
2050, and a science-based target for 2030 which will require at
least a 40 per cent reduction in CO2 emissions per tonne of product
compared to 2019. These targets will be validated by the Science
Based Target initiative as being in line with what the latest science
considers necessary to meet the goals of the Paris Agreement. We
will begin to report progress towards achieving this new target
next year.
Managing water responsibly
We are delighted that in the past year we achieved our target for
100 per cent of sites at risk of current or future water stress to
have mitigation plans in place, accounting for 36 per cent of our
total water consumption. These plans involve identifying
opportunities for water reduction, reuse and recycling, regular
reporting on water performance and engagement with local
stakeholders, such as the water authority. Further discussion on
1.
2.
Includes all Packaging and Supply Engine (Paper and Paper Sourcing) sites that trade or manufacture products derived from timber.
Includes sites accounting for at least 90 per cent of energy consumption.
Annual Report 2021 dssmith.com 31
STRATEGIC REPORT For example, Aschaffenburg Mill is growing wild plant species and
significantly improving soil quality at the site, attracting butterflies
and bees. At Kemsley Mill, a wildflower meadow and a variety of
educational initiatives are being set up. These are just the
beginnings of new initiatives that will improve the environment
for plants and animals, protect natural habitats and enhance
species diversity. We are delighted that for the second year
running, 100 per cent of our sites (with greater than 50
employees) engaged in community activity, having achieved this
target in 2019/20.
Caring for our people
We are committed to the health, safety and wellbeing of our
people, with a vision of zero accidents and zero harm. We are an
inclusive employer where people can thrive, succeed, and achieve
their potential. Information about how we are realising the
potential of our people can be found on pages 24-29.
Respecting human rights
As an employer of around 29,000 people and with an extensive
global supply chain involving hundreds of thousands more people,
we have a responsibility to identify, prevent and mitigate negative
human rights impacts. In 2020/21, we planned and scoped a
human rights impact assessment, selected a partner and identified
key stakeholders to involve. In 2021/22, we will conduct the
assessment, which will highlight the parts of our business with the
greatest risk to human rights. Following this, clear actions to
manage and mitigate these risks will be identified and addressed.
External recognition
• MSCI: Rated AA
• EcoVadis: Rated Gold
• Circulytics: Rated A-
• CDP: Rated B (Climate Change), B (Forests) and A-
(Water Security)
• DJSI: Rated 51
• FTSE4Good: Included since 2012
• ISS: Rated ‘Prime’ B-
• LSE Green Economy mark
• Support the Goals: Rated 4 out of 5 stars
• Sustainalytics: Rated 15.9 ‘Low ESG Risk’
• UN Global Compact: Member since 2013
TO LEAD THE WAY IN SUSTAINABILITY CONTINUED
water stress as a climate-related risk can be found on page 57.
Over the year, six (2019: six) of our mills performed better than our
benchmark rates for water consumption, with plans to bring one
additional mill per year beneath our benchmark rates, enabling
cost savings through improved efficiency. Water abstraction
reduced by 5 per cent per tonne of paper production versus last
year on a like-for-like basis, driven by behaviour change and
improvements made to our operational processes. In the past year
we received 21 notifications of water non-conformances from
local authorities (2019: 79), a substantial decrease owed to
stronger management.
Sending zero waste to landfill
In 2020, waste sent to landfill from our paper mills decreased by
32 per cent per tonne of production compared to last year on a like-
for-like basis. Overall for the Group, 268 kt (2019: 348 kt) of waste
was sent to landfill. This reduction was driven predominantly by a
significant improvement at Zarnesti Mill, which achieved zero
operational waste to landfill in the past year. Furthermore,
Aschaffenburg, De Hoop and Witzenhausen paper mills sent zero
waste to landfill during the past year. At the remaining mills, we
are developing innovative, circular solutions for waste. For
example, Lucca Mill reduced its landfill by 62 per cent compared to
last year owed to reducing rejects and utilising sludge to produce
bricks. Pazardzhik Mill diverted landfill waste partly to biogas and
compost production, a reduction of 82 per cent compared to last
year. Finally, Riceboro Mill reduced landfill waste by 24 per cent
through landspread opportunities. With a waste diversion rate of
98.9 per cent in our Packaging division, only 1.1 per cent of waste
is sent to landfill, representing c. 6,000 tonnes. This year, we
undertook a project to identify common sources of landfilled
waste and held a series of workshops to train sites on new waste
reduction, reuse and recycle opportunities, leading to a 13 per
cent reduction.
Sourcing sustainably
Whilst we put sustainability at the heart of our business, we
recognise that our impacts also occur in the supply chain and so our
target is to ensure that 100 per cent of our suppliers comply with
our sustainability standards by 2025. Our Global Supplier Standard
(GSS) sets out our expectations and in 2020/21, 100 per cent
(2019/20: 74 per cent) of our strategic suppliers and 45 per cent
(2019/20: 11 per cent) of our suppliers overall have agreed to our
standards. Having rolled out circular economy training to our
Procurement function, in January 2021 we introduced a group of
suppliers to Circulytics® to invite them to measure their circularity
and identify opportunities to become more circular.
Contributing to our communities
With support from the DS Smith Charitable Foundation, we
continued to develop our community programme themes of
inspiring the next generation through circular lifestyles and
protecting our environment through biodiversity. In 2020/21, 57
projects to improve biodiversity were funded by the Charitable
Foundation, with a further 47 applications in progress, from
wildflower meadows and community gardens to bug hotels and
ponds. For example, at DS Smith Kielce in Poland, 130 employees
and their families participated in planting over 5,000 trees and
funding has been used by our Louth plant to install a beehive and a
wildflower meadow. We continue to welcome applications,
encouraging our colleagues to act as biodiversity ambassadors. So
far, three of our mills have begun biodiversity programmes.
32
Group environmental KPIs
KPI
Direct (Scope 1) CO2e emissions
Indirect (Scope 2) CO2e emissions
Emissions from energy exports
Total CO2e (net energy export)1
Energy exported
Energy consumption (net)2
Total production
Waste to landfill3
CO2e per tonne of production
Unit
kt CO2e
kt CO2e
kt CO2e
kt CO2e
GWh
GWh
kt nsp*
kt
kg CO2e/t nsp*
1. 21% of carbon emissions generated from UK-based operations in 2020.
2. 14% of energy consumption by UK-based operations in 2020.
3. Waste to landfill 2015 not re-based.
* net saleable production
2015
(base line)
2,461
967
717
2,711
2,187
17,240
9,898
87
274
2019
(re-stated)
2,401
803
859
2,345
2,112
16,604
10,648
348
220
2020
2,267
764
766
2,265
1,924
16,276
10,708
268
212
Compared
to last year
Compared
to base year
-6%
-5%
-11%
-3%
-9%
-2%
1%
-23%
-4%
-8%
-21%
7%
-16%
-12%
-6%
8%
208%
-23%
Greenhouse gas emissions data is collected and reported in accordance with the Greenhouse Gas Protocol Corporate Accounting and
Reporting Standard (Revised). As the Company has grown over recent years through acquisitions, our emissions generating activities
have increased, making historic performance incomparable to today. Following Greenhouse Gas Protocol guidance and our Group
Sustainability Data and Reporting policy, we are now including estimations of emissions from acquisitions in our base year and historic
years, enabling meaningful comparison of emissions on a like-for-like basis over a long period. In the table above, both 2015 and 2019
figures have been restated to include acquisitions (and remove disposals) to provide a comparison to the business as it exists today.
Our latest Sustainability Report includes both recalculated and restated historic emissions and historic emissions as reported, alongside
additional materials, energy, water and waste metrics. Definitions, scope and emission factors applied are also provided.
Independent Assurance Statement
Bureau Veritas UK Limited has been commissioned by DS Smith Plc to provide an independent opinion on the following environmental
performance indicators: total energy consumption; total energy exported; Scope 1 and 2 greenhouse gas (GHG) emissions; raw material
usage; water consumption; total water effluent; landfill waste; discharge to air and water; and total production, for calendar year 2020.
In addition, the verification scope included review of the estimation calculations used to determine the following information for the
restated calendar year 2015 base year data: Scope 1 and 2 (GHG) emissions; emissions from energy exports; and total production. Bureau
Veritas UK Limited reported: ‘Based on our verification activities and scope of work, nothing has come to our attention to suggest that
the reported data does not provide a fair representation of environmental performance across DS Smith for the defined period’. A full
verification statement including methodology, limitations and exclusions can be found on the DS Smith website
(https://www.dssmith.com/sustainability/reports-performance-and-data).
For a complete review of our
Now and Next progress,
please see the latest
DS Smith Sustainability
Report.
For the second year running, we’ve implemented the
SASB ‘Containers & Packaging’ standard.
Please see page 63 of the latest
DS Smith Sustainability Report for our standard
disclosure.
Annual Report 2021 dssmith.com 33
Redefining Packaging for a Changing WorldSustainability Report 2021STRATEGIC REPORT OUR STRATEGY
To double our size and profitability
In 2021/22 we will:
• Continue to drive growth through
organic investment
• Develop new corrugated packaging sites
in Europe
• Drive volume growth and operational
efficiency from the packaging site in
Indiana, US
We do this by:
• Driving organic market share gains
• Investing behind innovation in growing
areas of the corrugated packaging
market
• Investing in new corrugated packaging
capacity
In 2020/21 we delivered:
• +3.5 per cent like-for-like corrugated box
volume growth – ahead of target
• +37 per cent growth in free cash flow
• Maintained operations throughout
Covid-19 disruption
Q&A with Adrian Marsh
Group Finance Director
Q How have you delivered against your
financial KPIs in 2020/21?
Delivery against our KPIs has been good, in the context
of Covid-19. We have dramatically out-performed our
corrugated box volume target of GDP+1, because our
volumes have held up well, with a substantial
acceleration in the second half of the year, while GDP
has fallen very markedly. The trend has been fuelled by
e-commerce which we anticipate continuing to grow,
as consumers have adopted online purchasing as part
of their way of life. On the other hand, the first half of
the year was challenging overall, particularly due to
one-off effects from Covid-19, and that impacted the
return on sales and return on average capital employed
(ROACE) metrics. Looking at the second half of the
year, with the bulk of the one-off impacts behind us,
then you see an improved return on sales, and I expect
to see that continue into the new financial year.
Q How has cash flow fared over the
year?
We remain highly focused on cash flow with free cash
flow up 37 per cent to £486 million, reflecting a focus
on working capital and costs generally. This has
resulted in our net debt falling by £306 million to
£1,795 million at the year end.
Our KPIs
Like-for-like corrugated box volume growth
Definition
Like-for-like volume of corrugated box products sold (excluding
the effect of acquisitions), measured by area.
Why this is a KPI
We target volume growth of at least GDP +1 per cent because we
expect to win market share by delivering value to our customers
across their supply chain on a multinational basis.
2021 Performance
We delivered volume growth of +3.5 per cent, being -1.0 per cent
in H1 and +8.2 per cent in H2. The exceptional growth in the
second half of the year was driven by very strong demand in
particular from e-commerce customers and also a recovering trend
in industrial customers. While all regions showed good growth, the
UK was the stand-out country, due to our success in e-commerce.
2021
2020
0.6%
3.5%
2019
2.4%
0
2021 Target: GDP+1% = -5.5%
4
34
Further information on the calculation of financial KPIs and other non-GAAP performance
measures is given in note 32 to the consolidated financial statements.
Return on sales1
Definition
Net debt/EBITDA1
Definition
Earnings before interest, tax, amortisation and adjusting items as
a percentage of revenue.
Why this is a KPI
The margin we achieve reflects the value we deliver to our
customers and our ability to charge for that value. It is also driven
by our scale. A higher return on sales makes the profit more
resilient to adverse effects.
2021 Performance
Return on sales of 8.4 per cent, down 250 basis points on 2020,
reflects the reduction in profitability in the year, driven by
Covid-19 impacts and a decline in pricing in H1 combined with input
cost pressures in H2.
2021
2020
2019
8.4%
10.9%
10.2%
0
2021 Target: 10%-12%
12
Cash conversion
Definition
Free cash flow before tax, net interest, growth capex, pension
payments and adjusting items as a percentage of earnings
before interest, tax, amortisation and adjusting items. Free cash
flow is the net movement on debt before cash outflow for
adjusting items, dividends paid, acquisition and disposal of
subsidiary businesses (including borrowings acquired) and
proceeds from issue of share capital.
Why this is a KPI
We focus on cash conversion as part of our wider focus on capital
management and maintaining a prudent balance sheet. Working
capital is a key focus within the business in order that all capital is
employed where it can best deliver returns for the business.
2021 Performance
Cash conversion was 150 per cent, in line with our target,
reflecting a particularly strong working capital improvement.
Adjusted net debt (calculated at average FX rates and after
deducting IFRS 16 lease liabilities) over earnings before interest,
tax, depreciation, amortisation, and adjusting items for the
preceding 12 month period (adjusted for acquisitions and
disposals made during the financial year, and to remove the
income effect of IFRS 16 Leases). This definition is in accordance
with the Group’s covenants.
Why this is a KPI
Net debt/EBITDA is a key measure of balance sheet strength and
financial stability.
2021 Performance
Net debt reduced by £306 million to £1,795 million, reflecting
strong cash flow, while net debt/EBITDA ended the year at
2.2 times, broadly similar to last year and a good reduction
compared to the half year at 2.4 times.
2021
2020
2019
2.2x
2.1x
2.3x
0
2021 Target:
2.0x
2.5
≤
Adjusted return on average capital employed1
Definition
Earnings before interest, tax, amortisation and adjusting items as
a percentage of average capital employed, including goodwill, over
the prior 12 month period.
Why this is a KPI
Our target ROACE to be delivered throughout the economic cycle,
is above our cost of capital. ROACE is a key measure of financial
success and sustainability of returns and reflects the returns
available for investment in the business and for the servicing of
debt and equity. All investments and acquisitions are assessed
with reference to this target.
2021 Performance
ROACE declined 240 basis points to 8.2 per cent, reflecting the
reduction in adjusted operating profit for the business in the year
on a stable capital base.
2021
2020
2019
150%
103%
102%
2021
2020
2019
8.2%
10.6%
13.6%
0
2021 Target:
100%
150
0
2021 Target: 12%-15%
15
≥
1. Comparative results for 2019 have not been restated for IFRS 16 Leases
adopted in 2020.
Annual Report 2021 dssmith.com 35
STRATEGIC REPORT Operating review
Overview
Through clear and consistent strategic direction we have
positioned our business as a solely fibre-based Group, centred on
innovation and sustainability with the scale and expertise to
deliver for multinational consumer companies predominantly in
the fast moving consumer goods (FMCG) and e-commerce sectors.
The start of the 2020/21 financial year coincided with the initial
impacts of Covid-19 being felt across many parts of the business.
This manifested in an initial fall in our packaging volumes and
significant volatility in the cost of various raw materials. In
response we invested in safeguarding the health and safety of our
colleagues, and in the security and operational effectiveness of all
our sites. This was in addition to carrying additional costs from
production underutilisation. The effect of the above was a
significant fall in profitability during the first quarter of the year.
With all our sites fully operational and the maintenance of high
levels of customer service, we started to see a good gain in market
share with increasingly positive volume growth, primarily in the
FMCG/e-commerce sectors, during the second quarter of the year.
This was combined with a lessening in the volatility of input costs.
The second quarter of the year therefore showed a significant
improvement in the run-rate of profitability over the first quarter,
albeit at a lower level than the comparative period last year.
Encouragingly, the momentum in packaging volumes seen in
the second quarter has continued to build throughout the
remainder of the financial year resulting in second half growth
of 8.2 per cent, against the previous comparative period, which
compares to -1.0 per cent in the first half.
The strong demand for packaging was accompanied by an increase
in input costs, particularly in the fourth quarter of the financial
year. Given the strong demand, and good levels of customer
service, these costs are starting to be recovered with good
initial progress.
Overall profitability in H2 therefore showed a strong improvement
over the first half and significantly closed the underperformance
with the comparative period last year. Our US operations have
performed very well, particularly in H2, with profit for the year up
70 per cent (on a constant currency basis) compared to the prior
year, and H2 63 per cent ahead of H1, reflecting strong corrugated
box volumes overall and improved paper and packaging market
pricing in the second half.
During the year we continued to invest in our business to capitalise
on the accelerated growth trends of e-commerce and
sustainability and the strong pipeline of opportunities ahead. This
included the announcement of two new state-of-the-art
packaging plants in Italy and Poland, increased investment in
digital platforms and innovation of new products.
Focus on people and customers during Covid-19
Throughout the Covid-19 pandemic our primary focus has been on
the health and wellbeing of our c. 29,000 employees, who have
responded magnificently to the challenge. Secondly, we have
focused on maintaining an uninterrupted supply to our customers,
36
the majority of whom are FMCG companies which are essential in
the food supply chain. As such, our factories were classified by
governments as essential operations and I am extremely proud
that all our Paper and Packaging sites have remained operational
throughout the pandemic. New ways of working have been
implemented to reflect the best guidance on safe operations,
which led to some additional costs. In the year 2020/21, we saw a
reduction in our overall box volumes during the first quarter
principally due to weakness in the industrial customer categories,
together with increased volatility of input costs, when the crisis
was at its peak. The greater impact however has been from the
cost of paper for recycling (PfR) and old corrugated cases (OCC).
Here, we were impacted by an initial, short increase in prices in
May and June 2020, due to sudden and extreme supply constraints
caused by national lockdowns. These initial short spikes were not
recovered in paper prices; however, the subsequent rises which
occurred in H2 coupled with strong demand for paper have been
reflected in higher paper prices which are being passed through to
packaging prices along with other inflationary costs.
Strong organic growth momentum
Organic corrugated box volumes have grown 3.5 per cent across
the year, reflecting substantial growth from H1 (-1.0 per cent) into
H2 (+8.2 per cent). The progression in H2 was driven by
exceptionally strong growth from Northern Europe, notably the
UK, and strong growth also in Eastern Europe and North America.
E-commerce was the driver behind much of the growth reflecting
very substantial growth with existing e-commerce customers,
while working with other customers to accelerate their transition
into e-commerce sales.
The core market growth drivers of e-commerce, consumer and
retail channel evolution and plastic substitution are more relevant
than ever in the post Covid-19 world. Public awareness of the
importance of alternatives to plastic packaging has continued to
grow over the past 12 months despite the pandemic and we have
continued to develop corrugated packaging alternatives to take
advantage of this opportunity.
Our packaging growth has also been supported by the
development and implementation of new digitally enabled
platforms that allow for enhanced ways of working with our
customers. These include, for example, digital virtual creation
centres that allow for the remote development of new products
and designs through to platforms that enable the placing of new
orders centrally with delivery from our extensive distribution
network throughout Europe.
For the full year, revenue declined 1 per cent on a constant
currency basis. There was an overall positive contribution from
corrugated box volumes (£123 million), having been negative
(down £21 million) in H1, demonstrating the strength of growth in
H2. This benefit was offset by reduced box pricing throughout H1,
reflecting the annualisation of lower paper pricing in prior periods
with some net improvement in H2 (£137 million decline for the full
year), and a decline in other volumes (£60 million) particularly due
to increased paper and recyclate integration and reduced volumes
of corrugated sheet sold externally.
Operating profit declined year-on-year to £311 million
(2019/20: £455 million). Adjusted operating profit fell by
24 per cent on a constant currency basis to £502 million
(2019/20: £660 million), resulting in a return on sales for the
Group of 8.4 per cent (2019/20: 10.9 per cent). This profit decline
was despite corrugated box volume growth of £40 million, offset
by additional costs incurred by the business in dealing with
Covid-19 and ensuring all our colleagues were safe and our
factories remained operational, and a more general input cost
volatility, particularly in recyclate, in total a £66 million headwind.
Profits were also impacted by the lower average selling prices for
boxes, largely in H1 (as set out above), although in H2 we have
seen more general price inflation. Corrugated box prices stabilised
through H2 as the testliner price also increased, with some
annualised pricing declines offset by new price increases agreed,
with the increased box prices expected to continue to benefit the
business as we progress through the current financial year. The
Europac acquisition synergies came in as expected at £21 million,
completing the programme of €70 million overall.
Basic earnings per share from continuing operations fell
38 per cent on a constant currency basis to 13.3 pence
(2019/20: 21.2 pence). Adjusted basic earnings per share of
24.2 pence fell by 28 per cent compared to the prior year on a
constant currency basis (2019/20: 33.2 pence), reflecting the
decline in operating profit.
Momentum in our business
Our corrugated box business is over 80 per cent weighted by
volume to the growing FMCG, e-commerce and consumer sector,
with the remaining sectors being mainly industrial, such as
automotive and chemicals. E-commerce volumes are split across
FMCG and the other consumer categories, depending on the
product sold. The benefit of this end-customer profile is both the
resilience of volumes in difficult economic times, as seen in our H1
period, and the exceptional growth evidenced in the past six
months, as consumers have appreciated the convenience of
e-commerce and our customers have expanded their offerings,
and we expect this trend to continue.
Box pricing is also gathering momentum. In the past year,
particularly in H2, paper prices have increased materially and we
are actively recovering these through well established pricing
mechanisms albeit with the customary level of delay. This is
consistent with 2017 and 2018, when paper prices of similar
magnitudes were all successfully recovered. Exceptionally strong
demand for packaging has allowed us to ensure this price recovery
is already well progressed with the major benefit to fall in the
2021/22 financial year.
Overall, the acceleration of volumes and momentum in pricing
resulted in much stronger H2 profitability versus H1, with adjusted
operating profit for the H2 period of £272 million versus
£230 million for the H1 period.
Investing for growth
We continue to invest behind the strong structural demand for our
products and are focused on ensuring we are able to respond to
our customer needs across our global footprint. As announced in
December 2020, we are building two new greenfield corrugated
box plants, in Italy and Poland. Both represent additional
packaging capacity, including dedicated equipment focused on
e-commerce packaging. The Polish site will be quickly filled with
existing customer demand and the Italian site will allow us to
expand further our strong e-commerce offer. Work on both sites
has begun and both are expected to begin operations in Q4 of the
current financial year. In addition to these new sites, we are
significantly expanding our Arnstadt packaging facility in Germany,
a site which serves a range of high quality FMCG customers.
Together, these three site developments add c. 5 per cent to our
corrugated capacity.
Capex for 2021/22 is expected to increase from the £323 million in
2020/21 to around £430 million of which c. 55 per cent has been
allocated to growth, efficiency and environmental capex. We
remain extremely focused on capital allocation and where possible
recycling capital from disposal of non-core assets into investment
in growth assets. All the projects undertaken have estimated
returns on capital in excess of the Group target ROACE.
Leading the way in sustainability
Sustainability has been at the heart of our business for many years
as we have developed and grown into a solely fibre based
packaging business. This has accompanied the setting of
stretching environmental targets since 2011 that have been
consistently upgraded on the back of strong performance and also
the desire to consistently outperform our customers’
requirements. Our latest sustainability strategy, Now and Next,
was launched in the autumn of 2020. This is focused on the
circular economy, where we take the leading packaging role as
well as carbon reduction. This policy includes 26 KPIs covering a
broad range of sustainability issues, from carbon reduction to
recyclability, where DS Smith can and does make a difference.
On 9 June 2021, we announced a series of further enhanced
climate targets. These include a science-based target which
requires a minimum 40 per cent reduction of CO2 emissions per
tonne of product by 2030, compared to 2019 levels, and a
commitment to reach at least Net Zero emissions by 2050. These
targets will be validated by the Science Based Targets initiative as
in line with the goals of the Paris Agreement. To further underline
the Group’s ambition and commitment, we also announced our
membership of the UN’s Race to Zero.
This year, we have continued to deliver against all of our ESG
targets. Most notably, our CO2e emissions (per tonne of
production) have reduced by 23 per cent compared to our
comparative 2015 baseline. This excellent reduction puts us ahead
of target to deliver against our current goal of 30 per cent by 2030.
Please go to our website and/or our latest Sustainability Report for
more details on our delivery against ESG goals.
In addition to our progress against our own sustainability targets,
we continue to work actively with our customers to help them
address their sustainability challenges. Our circular design
principles and our recently-launched circularity metrics allow us
to analyse our customers’ increasing sustainability requirements.
We have invested significantly in training and development in
our designers’ capabilities, which differentiates our offering
as we drive re-use, recyclability, carbon and other resource
utilisation for the benefit of our customers, their customers and
the environment.
Annual Report 2021 dssmith.com 37
STRATEGIC REPORT OPERATING REVIEW CONTINUED
Dividend
The Board considers the dividend to be a very important
component of shareholder returns. In December 2020 we
announced an interim dividend of 4.0 pence per share. Our policy is
that dividends will be progressive and that, in the medium term,
dividend cover should be on average of 2 to 2.5 times (relative to
adjusted earnings per share), through the cycle. Accordingly, we
are announcing a final dividend for this year of 8.1 pence, taking
the total dividend for the year to 12.1 pence (2019/20: nil), in line
with our policy.
Our medium-term targets and key performance
indicators
We measure our performance according to both our financial and
non-financial medium-term targets and key performance
indicators. Whilst a number of the outcomes are clearly
disappointing, they are reflective of a highly unusual year and the
Board is committed to restoring our performance to the levels of
achievement prior to the pandemic.
As set out above, like-for-like corrugated box volumes grew by
3.5 per cent, well ahead of our target of GDP+1 per cent of
-5.5 per cent, based on year-on-year GDP growth to 30 April 2021,
weighted by our sales in the markets in which we operate,
estimated at -6.5 per cent. The GDP figure is particularly impacted
by Covid-19. As described earlier, volume growth has been led by
growth with e-commerce and consumer-focused customers.
Return on sales fell 250 basis points to 8.4 per cent
(2019/20: 10.9 per cent), due to the overall fall in adjusted
operating profit, below our medium-term target range of
10 to 12 per cent.
Adjusted return on average capital employed (ROACE) is
8.2 per cent (2019/20: 10.6 per cent), below our medium-term
target range of 12 to 15 per cent. The reduction reflects the
decline in adjusted operating profit, and the continued impact of
Interstate Resources in North America and of Europac in Europe,
which have been dilutive to return on capital in these initial years.
This pattern was also seen at the time of the SCA Packaging
acquisition in 2012, where ROACE initially dipped and then built
up as the acquisition synergies were fully realised and our
expectations are for ROACE to improve into the target range
as the effects of the pandemic are reduced.
Net debt as at 30 April 2021 was £1,795 million (30 April 2020:
£2,101 million), with the reduction principally due to excellent
cash management resulting in free cash flow of £486 million.
Working capital performance was extremely good with both a
strong focus in the business and the benefit of rising input costs
such as paper and OCC on our payables. Some of this commodity
related payables benefit may reverse in 2021/22. Cash generated
from operations before adjusting cash items of £943 million was
used to invest in net capex of £323 million, an 11 per cent
reduction on the prior year reflecting capex constraints put in
place at the start of the year and eased later in the year.
Net debt/EBITDA (calculated in accordance with our banking
covenant requirements) is 2.2 times (2019/20: 2.1 times),
substantially below our banking covenant of 3.75 times. The Group
remains fully committed to its investment grade credit rating.
During the year, the Group generated free cash flow of
£486 million (2019/20: £354 million), despite the reduction in
profit. Cash conversion, as defined in our financial KPIs (note 32),
was 150 per cent, well ahead of our target of being at or above
100 per cent.
38
DS Smith is committed to providing all employees with a safe and
productive working environment. We are pleased once again, for
the 12th consecutive year, to report improvements in our safety
record, with our accident frequency rate (defined as the number of
lost time accidents per million hours worked) reducing by a further
14 per cent to 2.06, reflecting our ongoing commitment to best
practice in health and safety. We are proud to report that 246 sites
achieved our target of zero accidents this year and we continue to
strive for zero accidents for the Group as a whole.
The Group has a challenging target for customer service of
97 per cent on-time, in-full deliveries. Despite the significant
operational challenges due to Covid-19, in the year we achieved a
continued strong performance at 95 per cent. However,
management remains fully committed to delivering our target and
the highest standards of service, quality and innovation to all our
customers and we will continue to challenge ourselves to meet the
demanding standards our customers expect. Other markers of
quality such as our defects rate (measured in parts-per-million)
have improved significantly, having reduced 22 per cent.
Operating review
Unless otherwise stated, any commentary and comparable
analysis in the operating review is based on constant currency
performance.
Group
£m
Revenue
Adjusted
operating profit1
Operating profit
Year ended
30 April
2021
Year ended
30 April
2020
Change –
reported
Change –
constant
currency
£5,976m £6,043m
(1%)
(1%)
£502m £660m
£311m £455m
(24%)
(32%)
(24% )
(32%)
1. Adjusted to exclude amortisation and adjusting items.
Revenue from corrugated box volume growth offset by a
reduction in sales price and mix resulted in a decrease in revenue
of 1 per cent. Operating profit declined 32 per cent to £311 million
due to the decline in sales price and mix and input cost headwinds,
partially offset by the benefit from strong volume growth.
Northern Europe
£m
Revenue
Adjusted
operating profit1
Return on sales1
Year ended
30 April
2021
Year ended
30 April
2020
£2,370m £2,333m
Change –
reported
+2%
Change –
constant
currency
+1%
£138m £219m
(37%)
9.4% (360bps)
(37%)
(350bps)
5.8%
1. Adjusted to exclude amortisation and adjusting items.
The Northern Europe division has seen very strong corrugated box
volume growth, reflecting an exceptional level of growth in the
UK, driven in particular by e-commerce, and good trading in
Benelux and Germany.
While revenues remained broadly flat, the reduction in adjusted
operating profit reflects very good corrugated box volume growth
more than offset by the annualisation of pricing declines, and a
significant impact on input costs in our paper mills due to the
volatility in OCC pricing. This region has a higher proportion of
higher value point-of-sales and display business which was
particularly badly impacted by retailers in-store activity during
lockdowns. Return on sales reduced by 350 basis points to
Revenue fell 5 per cent, principally due to increased internal
utilisation of paper. Adjusted operating profit for the division
improved by 70 per cent, reflecting improved volumes across our
packaging plants, including the ramp-up of the new Indiana site,
the improvement in domestic paper and packaging pricing and the
US export paper price. As a result, return on sales improved to
11.6 per cent, with H2 profitability substantially ahead of H1.
Brexit
The UK left the EU in January 2020 and the transition period ended
on 31 December 2020. The UK comprises 15 per cent of Group
revenue with the majority of our operations in continental Europe.
Product for UK customers is largely manufactured within the UK
and materials sourced within the UK, and as such we did not
experience substantial disruption in the first few months of 2021
as the new trading arrangements between the UK and EU came
into place. While there are some friction impacts of Brexit, in
particular limited capacity with carriers and brokers at the start of
the year, we have planned, in collaboration with key trading
partners, and accordingly the overall impact on DS Smith has not
been material.
Outlook
The continued investment in our business, together with the strong
support of our customers and the momentum built over recent
quarters, give us confidence for the current year and future. Whilst
the business has seen reduced profitability over the last twelve
months, we firmly believe that we exit 2020/21 stronger, further
focused on the accelerated opportunities a post-Covid-19 world
offers and that our customers will continue to recognise this going
forward.
The current year has started well, with the volume momentum of the
final quarter of FY21 continuing into this year. Inflationary cost
pressures have also continued, in particular OCC, but also other costs
such as energy, transport and labour. Packaging prices have started
to increase and we expect to fully recover these increasing costs.
Accordingly, while there remains uncertainty in the overall economic
environment, demand is strong and we expect to make good
progress this year.
5.8 per cent. The recovery of the higher paper prices and
margins is well underway and in-store retail activity is also
recovering quickly.
Southern Europe
£m
Revenue
Adjusted
operating profit1
Return on sales1
Year ended
30 April
2021
Year ended
30 April
2020
Change –
reported
Change –
constant
currency
£2,156m £2,214m
(3%)
(4%)
£223
(29%)
£314m
10.3% 14.2% (390bps)
(30%)
(390bps)
1. Adjusted to exclude amortisation and adjusting items.
Volumes in the year have grown across the region, driven by good
volume growth in Italy, while revenues declined 4 per cent as
average selling prices reflected prior paper price declines.
Adjusted operating profit fell by 30 per cent, reflecting the
challenging economic and market environment and in particular
the volatility of OCC and of pulp used at our Viana kraftliner mill.
This region was particularly badly impacted in H1 with significantly
lower tourist and agricultural activity in the early months of
the pandemic.
Eastern Europe
£m
Revenue
Adjusted
operating profit1
Return on sales1
Year ended
30 April
2021
Year ended
30 April
2020
£909m £892m
Change –
reported
+2%
Change –
constant
currency
+2%
£78m
8.6%
£88m
(11%)
9.9% (130bps)
(10%)
(120bps)
1. Adjusted to exclude amortisation and adjusting items.
Volumes in this region have again been very good throughout the
period, with particularly strong performance in operations in Poland
and the Baltics, with revenues increasing 2 per cent.
Adjusted operating profit fell by 10 per cent, reflecting declines in
both the Paper and Packaging operations in the region. The region
has less paper capacity than the others and as such did not see the
same impact from the OCC volatility in the period.
North America
£m
Revenue
Adjusted
operating profit1
Return on sales1
Year ended
30 April
2021
Year ended
30 April
2020
£541m £604m
Change –
reported
(10%)
Change –
constant
currency
(5%)
£63m
11.6%
+62% +70%
£39m
6.5% +510bps +510bps
1. Adjusted to exclude amortisation and adjusting items.
Volumes in the region have been very good, reflecting growth in a
number of packaging sites as we manage the ramp-up of the new
box plant in Indiana. Full utilisation is expected to be completed on
plan in the financial year 2022/23. Volumes in North America were
badly impacted by Covid-19 in Q1 due to certain customer site
closures, so the recovery through the year has been particularly
pleasing and a testament to the support and confidence of many
old and new customers to our new products, production capacity
and ways of working.
Annual Report 2021 dssmith.com 39
STRATEGIC REPORT FINANCIAL REVIEW
Robust performance despite
challenging environment
“Excellent box volume growth year-
on-year and strong cash
performance demonstrated the
resilience of our business model,
with uninterrupted operation
through the extraordinary pandemic
challenges, working to meet
customers’ needs. Our new
greenfield investments provide
further growth and reflect our
ongoing commitment to supplying
sustainable, innovative fibre based
packaging solutions, providing the
leadership our customers expect
from us.”
Adrian Marsh, Group Finance Director
Overview
2020/21 presented a variety of challenges, most notably the
economic contraction triggered by the Covid-19 pandemic. From
an operations standpoint the business continued uninterrupted
throughout the year in all regions, providing essential products
and services to its customers.
After a challenging first half year influenced by the pandemic,
the second half year saw a strong recovery in box volumes
across all regions with momentum continuing to build
throughout the period. The recent commencement of work on
greenfield sites in Italy and Poland will add further capacity to
the growing demand in these markets. The Indiana site in North
America continues to drive both packaging volume growth and a
shortening of the paper position in this market, in line with our
long-term strategic objectives.
The business experienced higher input costs in 2020/21, most
notably the cost of recyclate. The final quarter of 2019/20 saw
fibre prices close to record lows; however, dual price spikes in Q1
and Q4 of 2020/21 drove the average cost of paper production
significantly higher. During the first half of the year, paper prices
continued the decline seen in H2 of 2019/20. However, the
second half saw prices increase above pre-pandemic levels, driven
by both tightness of demand and increases in core input costs.
The effective pass-through of these higher prices on to customers
in both the Paper and Packaging businesses mitigated some of the
input cost impact and will continue to be a key focus area in
2021/22.
During this significant period of macro-economic uncertainty, the
Group remains committed to achieving its medium-term financial
measures and key performance indicators, as established by the
Board. The results, which do not make any adjustments for the
impact of Covid-19, are described below:
• Organic corrugated box volume growth of 3.5 per cent
(2019/20: +0.6 per cent)
• Revenue down 1 per cent on a constant currency and reported
basis to £5,976 million (2019/20: £6,043 million)
• Adjusted operating profit of £502 million, a decrease of
24 per cent on a reported and constant currency basis
(2019/20: £660 million)
• 32 per cent decrease in operating profit to £311 million on a
statutory basis; 32 per cent decrease on a constant currency
basis (2019/20: £455 million)
• 38 per cent decrease in statutory profit before tax to
£231 million on a constant currency basis and 37 per cent
decrease on a reported basis (2019/20: £368 million)
40
• Decrease in adjusted return on sales of 250 bps to 8.4 per cent
(2019/20: 10.9 per cent)
positive foreign exchange translation impact. On a constant
currency basis, revenues decreased by 1 per cent.
• Adjusted return on average capital employed of 8.2 per cent
(2019/20: 10.6 per cent)
• Net debt to EBITDA ratio of 2.2 times (2019/20: 2.1 times)
• Cash conversion 150 per cent (2019/20: 103 per cent).
Unless otherwise stated, the commentary below references the
continuing operations of the Group.
Non-GAAP performance measures
The Group presents non-GAAP measures alongside reported
measures, in order to provide a balanced and comparable view of
the Group’s overall performance and position. Non-GAAP
performance measures eliminate amortisation and unusual or
non-operational items that may obscure understanding of the key
trends and performance. These measures are used both internally
and externally to evaluate business performance, as a key
constituent of the Group’s planning process, they are applied in the
Group’s financial and debt covenants, as well as comprising targets
against which compensation is determined. Amortisation relates
primarily to customer contracts and relationships arising from
business combinations. Unusual or non-operational items
include business disposals, restructuring, acquisition related and
integration costs and impairments, and are referred to as
adjusting items.
Reporting of non-GAAP measures alongside statutory measures is
considered useful by investors to understand how management
evaluates performance and value creation, enabling them to track
the Group’s performance and the key business drivers which
underpin it and the basis on which to anticipate future prospects.
Note 32 explains further the use of non-GAAP performance
measures and provides reconciliations as appropriate to
information derived directly from the financial statements. Where
a non-GAAP measure is referred to in the review, the equivalent
measure stemming directly from the financial statements (if
available and appropriate) is also referred to.
Trading results
Revenue decreased by 1 per cent on a reported basis to
£5,976 million (2019/20: £6,043 million). Despite higher box
volumes, Packaging revenue saw a reduction in realised selling
prices, largely reflecting the decline in paper price benchmarks in
H2 2019/20 and H1 2020/21. Strong internal demand for paper
meant that the Group continued to integrate further in 2020/21.
This also contributed to lower revenues as a higher proportion of
the paper produced in the Group’s own paper mills was consumed
internally by the Group’s box plants rather than being sold
externally. These impacts were partially offset by higher recyclate
prices sold externally in both Europe and North America.
Reported revenues are subject to foreign currency translation
effects. In the year, the euro accounted for 59 per cent of Group
revenue. As such, the movements of the euro against sterling
during the year constituted the majority of the £20 million of
Corrugated box volume growth of 3.5 per cent (2019/20: 0.6 per
cent growth) reflects the resilience of the Group’s business model
and the momentum seen in its core markets and segments, with
market share gains in all segments.
While Q1 growth was constrained by the unfolding pandemic, box
volumes rebounded progressively from Q2 onwards. The Group
was well positioned to meet the corresponding changes in
consumer behaviour which drove higher demand for both
e-commerce and FMCG products.
The Group target of volume growth of GDP+1 per cent was
achieved during 2020/21, with GDP (weighted by the countries’
mix) estimated at -6.5 per cent for the 12 months to April 2021.
As a Group, c. 82 per cent of corrugated box volumes are sold to
consumer goods customers, substantially ahead of the industry
average, an indicator that the continued development of tailored
and innovative packaging solutions is regarded as a differential
offering in the market.
Adjusted operating profit of £502 million on a reported basis is a
decrease of 24 per cent (2019/20: £660 million). This reduction is
largely attributable to pandemic effects with a lower average
selling price and mix in the Packaging and Paper business
(£(137) million) as a result of declining paper benchmarks, volatile
input costs (£(66) million) and lower other volumes of
£(19) million.
These impacts were partially offset by higher box volume
(£40 million), continued strong delivery of Europac synergies
(£21 million) and FX and other impacts (£3 million).
Operating profit at £311 million, is a decrease of 32 per cent both
on a constant currency and reported basis (2019/20: £455 million).
The Group benefitted from a strong performance by the Packaging
business in mitigating various commercial pressures, including the
headwinds of cost inflation prior to the pandemic and lately the
impact of rising paper prices. In addition, the strong focus on
value-added packaging and overall performance improvement
targeted in North America more than offset the start-up costs
associated with the commissioning and progression towards full
operation of the new facility in Indiana, US.
Depreciation increased to £304 million on a reported basis
(2019/20: £296 million), an £8 million increase driven by the
additional capital commissioned during the year to support the
Group’s growth programme. Amortisation decreased marginally
to £142 million.
The Group has continued to focus on margin recovery through
commercial disciplines and ongoing cost management and
efficiency programmes, but the impact of the pandemic, in spite of
the resilience demonstrated by the Group, led to an adjusted
return on sales decrease of 250 basis points to 8.4 per cent
(2019/20: 10.9 per cent). The Group does not expect a repeat of
the costs incurred specifically in keeping our colleagues safe and
our factories open.
Annual Report 2021 dssmith.com 41
STRATEGIC REPORT FINANCIAL REVIEW CONTINUED
The adjusted return on average capital employed (ROACE)
decreased to 8.2 per cent (2019/20: 10.6 per cent). The ROACE
remains below the target set by the Board of 12 to 15 per cent and
the Board remains fully committed to achieving this target again as
global economies recover from the pandemic
Income statement – from continuing operations
(unless otherwise stated)
2020/21
£m
2019/20
£m
including costs to deliver synergy projects implemented during
the year, IT operational costs and site rebranding, and £3 million
related to the North American integration programme, which
included the centralisation of transaction processing in that
region. Both these integration programmes were highlighted in
their respective Class 1 circulars and have now completed in this
financial year.
Revenue
Adjusted operating profit1
Operating profit
Adjusted return on sales1
Adjusted net financing costs
Share of profit of equity-accounted
investments, net of tax
Profit before income tax
Adjusted profit before income tax1
Adjusted income tax expense 1
Adjusted earnings1
Profit from discontinued operations,
net of tax
Basic adjusted earnings per share
Profit for the year attributable to
owners of the parent (including
discontinued operations)
Basic earnings per share from continuing
and discontinued operations 1
Basic earnings per share
5,976
502
311
6,043
660
455
8.4% 10.9%
(87)
(78)
5
231
429
(97)
332
7
368
580
(125)
455
12
24.2p
237
33.2p
194
527
14.2p
13.3p
38.5p
21.2p
1. Adjusted to exclude amortisation and adjusting items (see note 4).
Covid-19
The Group’s operations across all its regions were affected
throughout the year by the pandemic. However, as an essential
supplier for critical supply chains in areas such as FMCG food and
drink, pharmaceuticals and other essential suppliers the Group’s
sites remained fully operational throughout the period. The Group
adapted quickly to changes in the box demand profile as a result of
the pandemic, with strong volume growth achieved in both
e-commerce and FMCG segments.
Lockdown-induced disruption in waste collections has resulted in a
volatile year in the recyclate market. Prices spiked in Q1 and then
fell across the summer months before spiking again in the final
quarter of the year with prices now at or near a historical high in
certain core markets.
Adjusting items
Adjusting items before tax and financing costs were £49 million
(2019/20: £62 million).
The costs primarily consisted of ongoing integration programmes
relating to acquisitions made in prior years of £17 million
(2019/20: £30 million) and other restructuring programmes of
£27 million (2019/20: £24 million). Of the integration costs,
£14 million related to the Europac integration programme,
42
Within restructuring costs, £23 million principally relates to a
major restructuring programme in Germany and a structured
review of the underlying, indirect cost base of the European
Packaging business.
Merger and acquisition-related costs of £2 million
(2019/20: £10 million) were incurred, being predominantly
professional advisory fees, and contractual deferred consideration
payments on prior year acquisitions.
Loss on divestments was £3 million primarily relating to the
disposal of a small sheet plant operation in North America.
Within discontinued operations, the gain related to the finalisation
of certain provisions made on disposal of the Plastics business and
the recognition of a deferred tax asset of £9 million arising on tax
losses in relation to the disposal. The Group continues to provide
transitional support services to the buyer.
Adjusting items in 2021/22 are estimated to be less than
£10 million.
Interest, tax and earnings per share
Net finance costs were £85 million (2019/20: £94 million). The
decrease of £9 million on last year is primarily a result of lower
levels of debt throughout the year. The employment benefit net
finance expense of £3 million has remained at a similar level to
the prior year.
Adjusting financing costs of £7 million (2019/20: £7 million)
represents the unwind of the Interstate Resources put option.
The share of profits of equity-accounted investments was
£5 million (2019/20: £7 million).
Profit before tax decreased by 37 per cent on a reported basis to
£231 million (2019/20: £368 million), driven by the decrease in
operating profit, partly offset by a reduction in financing costs.
Adjusted profit before tax of £429 million (2019/20: £580 million)
decreased by 26 per cent on a reported basis, again due to the
decrease in the underlying adjusted operating profit.
The tax charge of £49 million (2019/20: £78 million) reflects the
impact of lower profits and recognition of a deferred tax asset on
losses in France, partially offset by an increase in provisions in
relation to uncertain tax positions on non-adjusting items.
The Group’s effective tax rate on adjusted profit, excluding
amortisation, adjusting items and associates was 23.0 per cent
(2019/20: 22.0 per cent). The tax credit through adjusting items
was £16 million (2019/20: £14 million).
The previous year discontinued operations profit after tax of
£237 million includes the £230 million net gain on sale of the
Plastics business.
Reported profit after tax, amortisation and adjusting items for
continuing and discontinued operations was £194 million
(2019/20: £527 million).
The decrease in operating profit led to a decrease of 37 per cent
in basic earnings per share on a reported basis to 13.3 pence
(2019/20: 21.2 pence), with adjusted earnings per share
27 per cent lower at 24.2 pence (2019/20: 33.2 pence).
Acquisitions and disposals
In recent years, the Group’s strategy has focused on growth in
order to support our global customers in the regions in which they
operate. Throughout 2020/21, the Group continued to
successfully integrate earlier acquisitions, including Europac in
Iberia and Corrugated Container Corporation in North America,
both acquired in 2018/19 and Interstate Resources in North
America, acquired in 2017/18. As set out in the respective Class 1
acquisition circulars for Interstate and Europac, the integration
programmes have now concluded.
During 2019/20 , the Group agreed to the purchase of a further
10 per cent holding in Interstate Resources for £106 million,
following the exercise of part of the pre-existing put option by
the former owners of that business. A cash settlement of £82
million was made in June 2020 with the balance to be paid in
October 2021. The final 10 per cent stake remains subject to the
put option conditions.
Cash flow
Reported net debt of £1,795 million (30 April 2020: £2,101 million)
has decreased from the prior year, driven by higher cash inflows
from operating activities and steps taken during the year to
conserve cash during the pandemic.
Net working capital inflows of £173 million are driven by a strong
focus on cash management, in particular cash collection, inventory
management and influenced by higher commodity prices, most
notably the cost of recyclate and paper costs at the end of the year
leading to increases in trade payables at the year-end compared to
the prior year. The Group has demonstrated ongoing success in
driving sustainable working capital improvements. Trade
receivables factoring is £21 million lower than April 2020 at
£407 million. Going forward the Group expects to continue to
sell high credit quality receivables under this programme within
the range £350-400 million outstanding at any one time. This
is a reduction of some 30 per cent from the peak balance of
£565 million in 2018.
Net capital expenditure decreased by £41 million to £323 million in
the year. Spending on some capital projects was initially delayed
until greater confidence in the economic outlook was established.
However, despite these constraints, the Group continued to focus
on growth and efficiency capital projects, which represented
53 per cent of the reported spend in the year. Proceeds from the
disposal of property, plant and equipment were £8 million
(2019/20: £12 million).
Tax paid of £66 million is £28 million lower than the prior year, as a
result of tax receipts of £20 million in North America, lower tax
payments in general and the timing of certain payments.
Net interest payments of £68 million decreased by £9 million over
the prior year driven by the maturity of debt bearing higher
interest rates and a lower net debt position throughout the year.
The remainder of interest principally comprises interest on the
Euro medium-term notes and US private placements, with
amortisation of debt issuance and other finance costs accounting
for the majority of the difference between cash interest paid and
finance costs reported in the income statement. Cash outflows
associated with adjusting items decreased by £5 million to
£48 million, and include restructuring and integration costs. The
current year reduction is driven by a further decrease in merger
and acquisition costs incurred in the prior year.
No dividend payments were made during the year, with payments
resumed in May 2021.
Cash generated from operations before adjusting cash items
increased by £54 million to £943 million. Net cash inflow was
£366 million, a £195 million decrease on the prior year, which
benefitted from the disposal proceeds of the Plastics business and
the Europac remedy disposals of £480 million.
Acquisitions and disposals of £74 million in the year include
payments made for the 10 per cent settlement of the Interstate
put option of £82 million and proceeds from the sale of a small
sheet business in North America of £16 million.
Cash flow
Cash generated from operations before
adjusting cash items
Capital expenditure (net of disposal of
fixed assets)
Tax paid
Net interest paid
Free cash flow
Cash outflow for adjusting items
Dividends
Acquisitions and disposals of businesses,
net of cash and cash equivalents
Other
Net cash flow
Issue of share capital
Loans, borrowings and finance leases
divested
Foreign exchange, fair value and other
movements
Net debt movement –
contining operations
Net debt movement –
discontinued operations
IFRS 16 right-of-use obligation
at 1 May 2019
Opening net debt
Closing net debt
2020/21
£m
2019/20
£m
943
889
(323)
(66)
(68)
486
(48)
–
(74)
2
366
3
(364)
(94)
(77)
354
(53)
(222)
480
2
561
2
3
2
(56)
(118)
316
447
(10)
(29)
–
(242)
(2,101)
(1,795)
(2,277)
(2,101)
Annual Report 2021 dssmith.com 43
STRATEGIC REPORT FINANCIAL REVIEW CONTINUED
Statement of financial position
At 30 April 2021, shareholder funds increased to £3,533 million,
from £3,350 million in the prior year. Profit attributable to
shareholders of £194 million contributed to the growth
(2019/20: £527 million), which was increased by a net change in
cash flow hedges of £112 million (2019/20: £32 million loss),
offset by actuarial losses on employee benefits of £5 million
(2019/20: £46 million loss) and foreign currency translation
effects of £95 million (2019/20: credit of £39 million). There were
no dividends paid in the year (2019/20: £222 million). Equity
attributable to non-controlling interests was £2 million
(2019/20: £1 million).
The Group’s bank and private placement debt covenants stipulate
the methodology upon which the net debt to adjusted earnings
before interest, tax, depreciation and amortisation (EBITDA) ratio
is to be calculated. Factored receivables and the effects of IFRS 16
Leases, adopted since 1 May 2019, are excluded from the ratio’s
determination. The ratio has increased to 2.2 times, as the
reduction in EBITDA more than offset the improvement in debt,
but represents an improvement from the H1 position of 2.4 times.
The ratio remains compliant with the covenant requirements,
which across all banking debt is 3.75 times. We retain a 3.25 times
level in the remaining US Private Placement loan notes
($298 million) of which $30 million will mature by August 2021
and the balance by August 2022. As the exercise of the second
tranche of the Interstate Resources put option is still outstanding
at 30 April 2021, this has not been factored in to the calculated
ratio. If the exercise of the remaining 10 per cent stake subject
to the put option was included, the ratio would increase to
c. 2.4 times. The Group’s publicly traded euro and sterling bonds
are not subject to any financial covenants. The bonds are,
however, subject to a coupon step up of 125 basis points for any
period the Group falls below an investment grade credit rating.
The Group is also compliant with a second banking covenant
requiring an EBITDA to net interest payable ratio of not less than
4.50 times.
The covenant calculations also exclude income statement items
identified as adjusting by the Group and any interest arising from
the defined benefit pension schemes. At 30 April 2021, the Group
has substantial headroom under its covenants, with the future
outlook assessed as part of the annual going concern review. The
Group’s investment grade credit rating from Standard and Poor’s
remains stable at BBB-, which takes into account all the items
excluded from covenant calculations and working capital.
Statement of financial position
Intangible assets
Property, plant and equipment
Right-of-use assets
Inventories
Trade and other receivables
Cash and cash equivalents
Other
Total assets
Bank overdrafts
Borrowings
Trade and other payables
Provisions
Employee benefits
Lease liabilities
Other
Total liabilities
Net assets
Net debt
Net debt to EBITDA ratio
30 April
2021
£m
2,995
3,050
226
537
819
813
260
8,700
(94)
(2,301)
(1,849)
(56)
(175)
(230)
(460)
(5,165)
3,535
1,795
2.2x
30 April
2020
£m
3,197
3,042
256
518
772
595
245
8,625
(90)
(2,398)
(1,723)
(70)
(199)
(255)
(539)
(5,274)
3,351
2,101
2.1x
Energy costs
Production facilities, in particular paper mills, are energy intensive,
therefore energy costs are significant for the Group. In 2020/21,
costs for gas, electricity and other fuels, net of periodic local
incentives, were £325 million (2019/20: £318 million). This
year-on-year comparison does, however, mask a significant
increase in energy costs from H1 £146 million to H2 £179 million.
The Group continues to invest in energy efficiency projects and
limits the exposure to volatile energy pricing by hedging energy
costs with suppliers and financial institutions, managed by the
Group’s Energy Procurement team.
Capital structure and treasury management
In addition to its trading cash flow, the Group finances its
operations using a combination of borrowings, property and
equipment leases, shareholders’ equity and, where appropriate,
disposals of non-core businesses. The Group’s funding strategy is
to achieve a capital structure that provides an appropriate cost of
capital whilst providing the desired flexibility in short and medium-
term funding to enable the execution of material investments or
acquisitions, as required.
44
The Group aims to maintain a strong balance sheet enabling
significant headroom within the financial covenants and to ensure
continuity of funding by having a range of maturities from a
variety of sources. The Group has an investment grade rating from
Standard and Poor’s of BBB – stable outlook.
The Group’s overarching treasury objective is to ensure sufficient
funds are available for the Group to execute its strategy and to
manage the financial risks to which the Group is exposed.
In November 2018, the Group signed a £1.4 billion five-year
committed syndicated revolving credit facility (RCF) with its core
banks. The second extension option was exercised in November
2020. £1.1 billion of the facility now matures in 2025 with the
remaining £0.3 billion maturing in 2024.
Available cash and debt facilities are reviewed regularly to ensure
sufficient funds are available to support the Group’s activities. At
30 April 2021, the Group’s committed facilities totalled £3.7 billion,
of which £1.5 billion remained undrawn and £3.5 billion matures
beyond one year or more. Undrawn committed borrowing facilities
are maintained to provide protection against refinancing risk.
At 30 April 2021, the committed borrowing facilities had a
weighted average maturity of 3.9 years (30 April 2020: 4.5 years).
Additional detail on these facilities is provided below. Total
gross borrowings at 30 April 2021 were £2,301 million
(30 April 2020: £2,398 million). The committed borrowing facilities
described do not include the £460 million of three-year committed
factoring facilities, which allow the sale of receivables without
recourse. Given the three-year committed nature of these
facilities, they fully protect the Group from any short-term liquidity
risks which may arise from volatility in financial markets.
The balance of trade receivables sold as part of the factoring
programme decreased by £21 million to £407 million at
30 April 2021 (30 April 2020: £428 million).
In November 2019, the Group established a €1 billion Euro
Commercial Paper Programme. At 30 April 2021, the programme
was undrawn due to the positive cash position in the Group.
Facilities
Syndicated RCF 2018
Euro medium-term notes
Euro RCF 2020
Sterling bond medium-term
note
Euro bilateral loans
US dollar private placement
Euro term loan
Committed facilities at
30 April 2021
Currency
Various
EUR
EUR
GBP
EUR
USD
EUR
Maturity
Date
£m
equivalent
2024-25
2022-26
2023
2029
2021-23
2021-22
2025
1,400
1,608
52
250
130
215
35
3,690
Impairment
The net book value of goodwill and other intangibles at 30 April
2021 was £2,995 million (30 April 2020: £3,197 million).
IAS 36 Impairment of Assets requires annual testing of goodwill
and other intangible assets, as well as an assessment of any
other assets for which there may be indicators of impairment. As
part of this testing, the Group compares the carrying amount of
the assets subject to testing with the higher of their net
realisable value and value-in-use to identify whether any
impairment exists. The asset or group of assets value-in-use is
determined by discounting the future cash flows they expect to
generate by the assumed pre-tax discount rate of 9.5 per cent,
plus a blended country risk premium for each group of assets.
Asset values were tested as at 30 April 2021, with no impairment
identified as a result of the testing performed.
Annual Report 2021 dssmith.com 45
STRATEGIC REPORT
FINANCIAL REVIEW CONTINUED
Pensions
The Group’s primary funded defined benefit pension scheme,
based in the UK, is closed to future accrual. There are a variety of
other post-retirement and employee benefit schemes operated
locally for overseas operations, and an additional unfunded
scheme in the UK relating to three former directors which is
secured against assets of the UK business. In accordance with IAS
19 Employee Benefits (Revised 2011), the Group is required to
make assumptions surrounding rates of inflation, discount rates
and current and future life expectancies, amongst others, which
could materially impact the value of any scheme surplus or liability.
A material revaluation of the relevant assets and liabilities could
result in a change to the cost to fund the scheme liabilities.
The assumptions applied are subject to periodic review.
A summary of the balance sheet position as at 30 April is
as follows:
Aggregate gross assets of schemes
Aggregate gross liabilities of schemes
Gross balance sheet deficit
Deferred tax assets
Net balance sheet deficit
30 April
2021
£m
1,178
(1,353)
(175)
40
(135)
30 April
2020
£m
1,164
(1,363)
(199)
45
(154)
The net deficit has decreased versus prior year driven by two
scheme settlements and discount rate assumptions having a small
impact at 30 April 2021, as well as the asset valuations increasing.
The 2019 triennial valuation of the main UK scheme incorporated
updates to underlying scheme assumptions, including
demographic and life expectancy rates, which, along with updates
surrounding mortality and proportion married assumptions and
future improvements, resulted in a net c. 1 per cent increase in the
valuation of the scheme liabilities. No changes were made to the
previously approved funding plan following the triennial valuation.
Total cash contributions paid into the Group pension schemes,
reported within cash generated from operations in the cash flow,
were £20 million in 2020/21 (2019/20: £20 million), which
primarily constitute the agreed contributions under the UK
defined benefit scheme deficit recovery plan.
Discontinued operations
The consolidated statement of cash flows presents a single
amount of net cash flow from discontinued operations.
During the previous year, 2019/20, the Plastics business was sold,
representing £230 million of the £237 million profit from
discontinued operations, net of tax. In the current year the gain of
£12 million predominantly relates to the recognition of a deferred
tax asset (£9 million) relating to the Plastics business disposal.
46
PRINCIPAL RISKS AND UNCERTAINTIES
Evolving the way
we manage risk
Our Group risk policy
Our Group risk policy provides the framework to ensure there is a
common understanding of risk management practices across all
parts of the Group and is fully integrated with our annual corporate
planning process. We use these practices to evaluate and accept
those risks that we believe we have the capacity, know-how and
experience to manage, or to understand and tolerate those risks
that we cannot influence, in order to realise the potential
opportunities for growth and development.
Report on our principal risks
Like many other businesses we are subject to general risks such as
changes in social, political, financial, regulatory and legislative
changes. Our principal risks and uncertainties are those that may
have the greatest impact on our key priorities when assessed by
considering our controls and other mitigating factors on a net risk
basis. These risks have been discussed at Audit Committee
meetings during 2020/21. They are summarised with details of our
key mitigating activities on pages 52 to 55.
Risks identified
Our key risks continue to follow similar themes to those in previous
years but they evolved over the past year, mainly due to the
impacts and learnings from the Covid-19 pandemic. 12 principal
risks have been identified in our latest assessment across
strategic, market, operational, financial, geopolitical and
technological risk categories. The changes compared to 2019/20
include:
• The risk of fibre packaging being substituted by non-fibre based
materials has returned to the top 12
• A new demand-led principal risk reflects the need to satisfy
significant packaging volume growth with limited production
capacity
• The recognition of increasing digitalisation risk, or missed digital
opportunities, within our operations and supply chain
• Cyber risk was previously split between a) ransomware and b)
phishing, but they are now treated on a combined basis
• Two talent-related risks have been combined and redefined to
focus on the organisation capability of our people and assets
• Sustainability risk has been redefined to be more specific about
our carbon and circular economy commitments (i.e. climate-
related ’transition’ risks)
• Disruptive markets risk has been redefined to focus on specific
and potentially highly damaging strategies of major players,
compared to a general view of market-place activity
• Recent and projected changes in shopping habits are now more
likely to present opportunities for our business than risks
• Increased confidence of liquidity risk mitigation has regraded
the risk to outside of the principal risk level.
Changes in 2020/21
We recognise that risks are evolving rapidly in our changing world
and that requires new ways of thinking and working to identify,
assess and manage risks effectively. We continue to build on the
solid foundation that we have already established. Our
preparedness for events such as the Covid-19 pandemic and the
resulting consequences enabled the Group to take a more detailed
review and further improve the risk process to obtain better
quality output from the corporate planning process and year-end
risk assessments. Changes included:
• Simplified assessments to clearly make the link between key
risks and our Corporate Plan priorities/opportunities
• In-depth reviews of principal and emerging risks with our Group
Strategy Committee (GSC), Group Operating Committee (GOC)
and Audit Committee
• Surveyed a wide internal audience to rate the severity,
likelihood and speed of a large range of relevant risks
• Implemented regular and focused risk reviews within existing
management team meetings to assess mitigations
• Stress tested our business continuity strategies in preparation
for subsequent waves of Covid-19 following the first wave
• Launched our refreshed ‘Management Standards’ where
governance, risk management and compliance are at the core.
Risk governance
Our governance framework remains robust and largely unchanged
in the past year, and has also proven pivotal in managing the
business impacts of Covid-19. In summary:
• The Board sets out the Group’s risk appetite annually, based on
the level of risk it is willing to accept in pursuit of corporate
targets
• The risk strategy and setting of objectives is executed by the
GOC with oversight from the Audit Committee and Board
• Our GOC, management committees and specialist Group
functions provide guidance to the businesses on how to better
integrate risk management processes into day-to-day activities.
The Group’s risk policy sets out how this governance framework
translates into the annual risk reporting cycle, which links with our
internal audit cycle (see page 77) and informs our management
and governance processes specifically for climate related risks
(see pages 56 to 58).
Annual Report 2021 dssmith.com 47
STRATEGIC REPORT PRINCIPAL RISKS AND UNCERTAINTIES CONTINUED
Risks assessed
There are four risks that are considered to be the most disruptive
to our plans. These have been placed in the highest priority
category. These four risks are:
• Macro-economic and political environments in Europe, the US
and broader world economies, given the international nature of
our supply chain, the competitive nature of the markets within
which we operate, and weakening major economies impacting
the level of consumer spend and demand for our packaging
products
• Volatile paper/fibre price cycles continue to put pressure on our
integrated paper and packaging business model and our ability
to capture appropriate margins
• Cyber attacks targeting business’ informational or operational
technologies are becoming more frequent and increasingly
sophisticated and, despite our defences, we and our suppliers
and customers cannot be complacent
• Sustainability has remained at the forefront throughout the
pandemic and expectations on large organisations to transition
to a low-carbon circular economy have continued to accelerate,
and present our manufacturing operations with a variety of
challenges as well as significant opportunities.
Emerging risks
Our risk management programme includes a formal review of
emerging risks. We define emerging risks as those which take the
form of a systemic issue or business practice that has either not
previously been identified, has been identified but has remained
dormant, or has yet to rise to an area of significant concern. The
impacts of the pandemic and ‘what if’ scenario discussions over the
past year have created a heightened awareness of new and
emerging risks that could impact the Group, our suppliers and
customers; for example, post-pandemic ways of working and
longer-term skill requirements may emerge as workforce planning
risks. Furthermore, scenario work to follow the TCFD guidelines
has also focused the identification and assessment of potential
short to longer-term emerging risks linked with climate change.
The Group continues to develop a more detailed understanding of
this specific area of risk management.
Prioritising our risk management efforts
Mitigating and/or preventing the effect of risk on our Corporate
Plan remains a cornerstone of our Executive and operational
management team efforts. Our risk heat map opposite provides a
summary of how we assess and evaluate the relationship
between the likelihood and severity of our principal risks and
uncertainties, taking into account the effectiveness of current
mitigations, and informs where the Group should prioritise
investments to manage them.
48
Net (mitigated) risk heat map results
10b
3
2
1
11
8
4
5
7
6
9
12
10
)
n
o
i
t
a
g
i
t
i
m
h
t
i
w
(
d
o
o
h
i
l
e
k
i
l
k
s
i
R
Risk severity (with mitigation)
List of risks
1
2
3
4
5
6
7
8
9
Eurozone and macro-economic
impacts
Paper/fibre price volatility
Cyber attacks
Sustainability commitments
Regulation and governance
Security of paper/fibre supply
Packaging capacity limits to growth
Organisation capability
Substitution of fibre packaging
10
Disruptive market players
11
12
Digitalisation
Shopping habits
Bubble colour reflects risk relative priority
(red highest risk, amber second level,
green third level priority)
Assessment of longer-term viability
In accordance with the UK Corporate Governance Code, the
Directors have assessed the viability of the Group over a three-
year period to 30 April 2024, which is a longer period than the
12-month outlook required in adopting the going concern basis of
accounting. This assessment period remains appropriate given the
timescale of the Group’s planning and investment cycle.
The Directors confirm that they have performed a robust
assessment of the principal risks facing the Group as detailed on
pages 47 and 48, including those that will threaten its business
model, future performance and solvency or liquidity.
The assessment of the Group’s viability considers a severe but
plausible scenario aligned to the principal risks and uncertainties
set out on pages 52 to 55 where the realisation of these risks is
considered remote, considering the effectiveness of the Group’s
risk management and control systems and current risk appetite.
The degree of severity applied in this scenario was based on
management’s experience and knowledge of the industry to
determine plausible movements in assumptions. The Directors
note that the Group enjoyed a large degree of resilience to the
consequential downturns from the Covid-19 pandemic.
The Group has significant financial resources including committed
and uncommitted banking and debt facilities, detailed in note 20.
In assessing the Group’s viability, the Directors have assumed that
the existing banking and debt facilities will remain in place or
mature as intended.
The Directors have also considered mitigating actions available to
the Group to respond to the stress scenarios such as restrictions
on capital investment, further cost reduction opportunities, and
dividend suspension or restriction on dividend levels. The Directors
have assumed that these mitigating actions can be applied on a
timely basis and at insignificant or no cost.
Confirmation of viability
Based on the analysis, the Directors have a reasonable expectation
that the Group will be able to continue in operation and meet its
liabilities as they fall due over the three-year period of their
assessment.
Viability Statement
Context
The Group’s strategy and key differentiators are detailed on
page 2 and pages 18 and 19, and our risk management framework
is described on pages 76 and 77. Understanding of our business
model, our strategy and our principal risks is a key element in the
assessment of the Group’s prospects, as well as the formal
consideration of viability.
The Group’s Corporate Plan cycle is the primary annual strategic
and financial planning activity through which the Board assesses
the prospects of the Group, extending for the three successive
financial years that follow beyond the year ending after the
assessment date. The planning process involves modelling under
a series of assumptions surrounding both internal and external
parameters, with key assumptions including economic growth
projections, input pricing (including paper, fibre, energy and
labour), foreign exchange rates and packaging volume growth;
combined with the effects of major capital initiatives. The robust
Corporate Plan process is led by the Group Chief Executive, the
Group Finance Director and the Group Head of Strategy, in
conjunction with divisional management. The Board undertakes
a detailed review of the Corporate Plan during its December
Board meeting.
The most recent Corporate Plan process was undertaken against
the backdrop of the ongoing Covid-19 pandemic but anticipated a
return to pre-Covid-19 levels of activity/profitability in 2022/23.
The budget process for 2021/22, conducted subsequent to the
Corporate Planning process, reflected different dynamics,
particularly with regard to fibre and paper prices, but validated the
overall Group profitability as set out in the Corporate Plan in the
first financial year. Similarly, the going concern exercise which
builds on the budget validated the overall Group profitability as set
out in the Corporate Plan for the second year. On that basis, the
Directors are satisfied that the Corporate Plan provides a suitable
basis for the viability assessment.
The Group’s trading performance will be reviewed by the senior
management team and the Board in the context of the objectives
and targets of the re-forecast, within which the Group’s strategy
remains embedded.
Although the Directors have no reason to believe that the Group
will not be viable over a longer period, the three-year period was
chosen for this assessment, having considered the speed and
degree of change possible in the key assumptions influencing the
Group, as well as the speed of evolution in the footprint of the
Group, which limits the Directors’ ability to predict beyond this
period reliably. Indeed, given the pace of change in the primary
sectors in which the Group operates, particularly FMCG and
e-commerce, as illustrated by the recent moves away from plastic
packaging and the acceleration into e-commerce driven by the
Covid-19 pandemic, the Directors believe that three years
represents the most realistic and appropriate timescale over which
to assess the Group’s viability.
Annual Report 2021 dssmith.com 49
STRATEGIC REPORT PRINCIPAL RISKS AND UNCERTAINTIES CONTINUED
Going concern
Overview
In determining the going concern basis for preparing the financial
statements, the Directors consider the Company’s objectives and
strategy, its principal risks and uncertainties in achieving its
objectives and its review of business performance and financial
position, which are all set out in the Strategic Report, Operating
review and Financial review sections of this Annual Report. The
performance of the Group was impacted during the year by the
Covid-19 pandemic but, as an essential supplier, the Group
continued to operate throughout the most restrictive lockdown
periods. In preparing the financial statements, the Directors have
undertaken a going concern review. Further details, including the
analysis performed and conclusion reached, are set out below.
Liquidity and financing position
The Group’s liquidity and funding arrangements are described in
notes 19 and 20 to the consolidated financial statements, as well
as in the capital structure and treasury management section of the
strategic report. The total drawn debt facilities at 30 April 2021
were £2.3 billion, £1.9 billion is publicly listed debt with no
attached covenants and £0.2 billion carries a covenant of net debt:
EBITDA of less than 3.25 times. In addition, the Group has access to
c. £1.4 billion committed bank facilities, which were undrawn at
30 April 2021, which provide liquidity to the Group and carry the
same covenant of net debt: EBITDA of less than 3.75 times. The
Group is not forecast to increase net debt in the going concern
analysis to 30 April 2023.
There is significant liquidity/financing headroom (in excess of
£1 billion) across the going concern forecast period in all scenarios
considered and outlined in more detail below. For this reason, the
going concern review has focused more on forecast covenant
compliance which is considered further below.
Operational and business impact of Covid-19
As a critical part of the supply chain across each of the geographies
in which the Group operates, our operations were designated as
essential businesses throughout the initial and subsequent
lockdown periods. The Group has therefore continued to trade
fully throughout the pandemic. Changes were made to operating
processes and practices to ensure the business could respond to
the specific local government requirements in each country in
which it operates.
Although the duration and severity of the lockdown restrictions
varied from country to country, in general Covid-19 impacted
trading during the first wave of the pandemic from March to June
2020. The Group experienced modest growth towards the end of
the first half, with higher and consistent monthly growth in the
second half, including those periods impacted by subsequent
waves and restrictions. This experience informs the going concern
modelling undertaken, which anticipates less impact from
Covid-19 going forward than was experienced in the year to
30 April 2021.
50
While the outlook for the Group is more certain than it was during
the last annual going concern review process, there is still
uncertainty in a number of key areas. Ongoing variability in the
speed of the economic recovery across the regions we operate in,
continued restrictions on movement across Europe and volatility in
the price of core materials mean that a level of uncertainty persists
going into the new financial year.
Financial modelling
The Group has modelled two scenarios in its assessment of going
concern. These are:
• The base case
• The downside case.
The base case:
The base case is derived from the full year 2022 budget, which
was approved by the Board in April 2021, and anticipates Covid-19
restrictions and impacts to reduce as the 2021/22 year progresses.
The key inputs and assumptions in the base case include:
• Packaging volume growth consistent with 2020/2021 reflected
across the period considered by the modelling, driven by
continued strong levels of FMCG and ecommerce demand,
together with a recovery in industrial volumes from current
levels
• The price of paper is included in the modelling at levels
consistent with those experienced in the final quarter of
2020/21 and reflecting the upward trajectory from the market
lows seen in October 2020
• Fibre prices are included in this scenario at levels consistent with
the paper price, taking into account the high entry point
anticipated for 2021/22 in the first quarter of the fiscal year.
The downside case:
In addition to the base case, a downside case has been constructed
from the more conservative scenario compiled during the
Corporate Plan process. Key assumptions are as follows:
• European packaging volumes largely stagnate at current levels
in 2021/22
• A rise in fibre prices from 2020/21 levels not mitigated by a
commensurate increase in paper prices. With a significant
portion of our packaging contracts being either directly linked/
referenced to a paper index, this results in higher input costs for
the Group that those are more difficult to pass through to end
customers
• A substantial cash outflow from working capital is incorporated
into 2021/22, providing an additional headwind to the Group’s
net debt and covenant ratios.
Outturns
Going concern basis
Based on the forecast and the scenarios modelled, together with
the performance of the Group in 2020/21, the Directors consider
that the Group has significant covenant and liquidity headroom in
its borrowing facilities to continue in operational existence for the
foreseeable future. Accordingly, at the June 2021 Board meeting,
the Directors concluded from this analysis it was appropriate to
continue to adopt the going concern basis in preparing the
financial statements. The long-term impact of Covid-19 is
uncertain and should the impact of the pandemic on trading
conditions be more prolonged or severe than currently anticipated
by the Directors under the downside scenario, the Group has
sufficient operational or financial options available to mitigate any
risk to this going concern assumption.
The purpose of the assessment was to consider if there was a
significant risk that the Group would breach its key financial
covenants on the committed bank facilities of net debt: EBITDA
less than 3.75 times. Under neither scenario was the covenant
breached at any of the forecast testing dates – 31 October 2021,
30 April 2022, 31 October 2022 and 30 April 2023 – and significant
headroom was available in each case.
An explicit reverse stress test scenario has not been modelled on
the basis that the Board feels that the downside case already
represents conservative assumptions that are considered unlikely
to occur in combination and, even if they did occur, there remains
considerable headroom over the going concern period. At a high
level, we have estimated that the Group’s EBITA would have to fall
by around half from the £502 million achieved in the year ended
30 April 2021 before the net debt: EBITDA covenant 3.75 times
ratio would be breached in the going concern assessment period.
Given the current and expected future market conditions, this
reduction, and the factors that would need to occur for this
scenario to materialise, is considered to be extremely remote.
Mitigating actions
The outturns of the above scenario modelling, combined with the
strong performance operating throughout the pandemic in
2020/21, provide the Group a level of comfort that no significant
cost/cash flow mitigations need to be built into the going concern
modelling. However, a range of options remain at the Group’s
disposal should they be required which provide the opportunity to
support operating profit, cash flow and net debt, including:
• Action in respect of variable and controllable costs such as
discretionary bonuses, pay rises, recruitment freezes and wider
labour force actions in response to higher levels of volume
reductions
• Limiting capital expenditure to minimum maintenance levels by
pausing growth spend (including greenfield sites and other
expansionary spend)
• Satisfaction of the outstanding Interstate put option for shares
instead of cash
• Strategic actions in respect of the Group’s asset base could be
considered in respect of disposals, mothballing and closures
• A reduction or temporary suspension of the Group’s dividend.
The Group could also consider actions to assist covenant
compliance, such as optimising working capital by negotiating
longer payment terms whilst continuing to pay suppliers in full and
in line with contractual terms.
Annual Report 2021 dssmith.com 51
STRATEGIC REPORT PRINCIPAL RISKS AND UNCERTAINTIES CONTINUED
1
1
1
1
2
2
1. Eurozone and macro-
economic impacts
Multiple political/economic factors from
Brexit, foreign exchange/interest rates, to
weakening major economies significantly
impact the level of consumer spend and
customer demand for our packaging
products.
2. Paper / fibre price
volatility
Volatile commodity pricing for recovered
paper (including old corrugated cases
(OCC)) and containerboard grades can
create significant short-term challenges
to capture appropriate margins by
aligning raw material costs to packaging
sales revenues.
3. Cyber attacks
A major cyber incident on our information or
operational technology (i.e. ransomware) and/
or a failure to stop/identify sophisticated
malicious cyber intruders on our IT
infrastructure (i.e. phishing attacks) resulting
in short-term trading impacts, financial losses
and reputational harm – impacting us, our
suppliers and customers.
4. Sustainability commitments
5. Regulation and governance
6. Security of paper/fibre
Our efforts to decarbonise and transition our
Our governance model fails to support the way
supply chain to a circular, low carbon economy
we are organised and our geographical spread,
are not enough or are too slow against the
resulting in unauthorised, illegal, unethical or
growing expectations of the Group to play a
inappropriate actions (including breach of
positive role in society and address global
anti-bribery, data privacy, etc.).
climate change and related environmental,
social and business challenges.
supply
Large fluctuations in the availability of
recovered paper (including OCC) and
containerboard adversely affect our
performance, as the Group remains a net
purchaser of specific grades of paper and faces
recycling collection/segregation challenges.
• Focus remains on supplying packaging to
fast moving consumer goods (FMCG)
customers with a constant focus on
quality, service and volume growth, as
these customers tend to show greatest
resilience against GDP volatility
• Investments in cost base and production
efficiencies and working capital
initiatives to balance macro-economic
trends with sustainable growth priorities
• Procurement transformations and new
supply chain flows due to Brexit are
helping to evolve our operating model.
• Our focus is to provide sufficient
• Regular awareness training to better equip
• Deploying our roadmap of carbon reduction
• The Group continues to maintain detailed and
• Optimising the level of integration of all our
paper from internal paper
manufacturing operations to support
our Packaging division, whilst
determining the optimal integration
level, to ensure that we can balance
the external effects of paper price
volatility over the long term
• Initiatives to implement productivity
improvements, demand forecasting
improvements and the development
of skills and tools in our sales and
paper sourcing teams
• Continual focus on contract
management to fully recover input
costs.
our employees with the knowledge to
identify potential phishing/other social
engineering techniques, supported by our
Group Head of IT Security and expanding
internal resourcing as well as external
expert advice
• Investments in specific IT security controls
to improve our capability to detect, respond
to, and prevent cyber attacks, such as tools
and services to monitor the IT estate
• Regular improvements in, and testing of, IT
disaster recovery planning, including
penetration/vulnerability testing, to ensure
the Group’s ability to recover from outages,
identify gaps and progress along our risk
remediation roadmap.
investments, focused on energy efficiency,
extensive arrangements for the management
paper mills for internal supply and
plant upgrades and switching to alternative
of standards, domestic and international
committed external supplies using open
energy sources across our production sites,
compliance rules and new regulations with
market purchases, to deliver the ‘best fit’
whilst monitoring and adapting to regulatory
clearly defined divisional reviews including
alignment between paper production,
changes in carbon taxes and resource extraction
health, safety, environment, supply chain and
quality fibre sourcing and performance
• Ensuring we meet the growing consumer and
product integrity/safety
packaging demand
investor demand for sustainable packaging
• Training employees on a variety of
• Footprint alignment and capex investments
through a focus on packaging design, use and
compliance modules including antitrust,
for our mill network to optimise internal
disposal of our products for a circular economy
anti-bribery and corruption, and modern
paper supplies against forecasted packaging
• Regular review, update and reporting on our
sustainability priorities to ensure they align with
slavery to ensure full understanding of the
needs
applicable laws and high standards expected
• Focus on re-balancing and de-risking fibre
the expectations of stakeholders, wider society
• The Group operates a workplace malpractice
sourcing strategies in our Recycling division
and scientific climate projections, as well as
helpline (‘Speak Up!’), providing a confidential
as well as technology investments for reject
implementing the TCFD recommendations and
route for employees to report perceived
solutions and recovered fibre quality testing.
submission to ESG ratings such as CDP.
malpractice of any type.
Prolonged challenging economic conditions
Supply / demand dynamics affected by
changes in FMCG and industrial markets
Increased threat potential of infiltrating IT
security controls given remote working
Delays to certain sustainability projects due to
Additional requirements to meet, and
Heightened demand for key paper grades and
government / site safety restrictions
demonstrate compliance with, new and
disrupted supply chains
Eurozone GDP growth rate
Paper / recovered fibre market price and
box selling price
IT security phishing campaign statistics
Reduction of CO2e per tonne of production
Group and divisional compliance training
Paper/recovered fibre supply volumes
changing regulations
reviews
Ability to reposition our business model
outside of our traditional geographic
markets and sources of supply.
Accelerate improvements in commercial
awareness and expertise of pricing
fluctuations and strengthen the
effectiveness of fibre and efficiency
programmes.
Accelerated investments to strengthen our
technology infrastructure and operational
resilience to prevent losses and enhance
business continuity credentials.
Capitalise on efficiencies in energy upgrade
Ability to demonstrate a standard of ethics and
Our closed loop model and paper sourcing
projects and meet the growing societal demand for
behaviours beyond the standards requested of
strategy offer significant customer
sustainable products in a circular economy.
us and potentially influence how the regulatory
opportunities and ability to generate a ‘best fit’
landscape changes.
cost and quality solution.
To double our size and profitability
To double our size and profitability
To double our size and profitability
To lead the way in sustainability
To delight our customers
To double our size and profitability
Group Chief Executive and Group Finance
Director present reviews and forecasts on
the impact of the macro-economic
environment at each Board meeting.
The Group Chief Executive and Group
Finance Director present regular
updates on paper prices to the Board.
Cyber security assessment reports, IT network
management and external advisory guidance
are reviewed by the Executive Directors and
Audit Committee.
The Board receive regular updates on the Group’s
Results of internal control reports and internal
Paper sourcing opportunities are discussed
sustainability performance and strategy.
corporate governance, ethics and compliance
with the Board, with specific focus on critical
updates are regularly reviewed by the Audit
papers.
Committee and Board.
Risk priority
classification
Risk
Inherent risk
expected
change
Key mitigating
actions
Net risk
expected
change
Perceived
Covid-19
impact
Key Risk
Indicator
Risk tolerance
to Corporate
Plan priorities
Opportunity
examples
Alignment
with strategic
priority
Governance
oversight
52
Net risk tolerance key
Re-assess
Unacceptable
Acceptable
Risk change key
Stable
Increasing
Decreasing
Risk priority
classification
Inherent risk
expected
change
Net risk
expected
change
Perceived
Covid-19
impact
Key Risk
Indicator
Risk tolerance
to Corporate
Plan priorities
with strategic
priority
1
1
1
1
2
2
Risk
1. Eurozone and macro-
2. Paper / fibre price
3. Cyber attacks
economic impacts
volatility
Multiple political/economic factors from
Volatile commodity pricing for recovered
Brexit, foreign exchange/interest rates, to
paper (including old corrugated cases
weakening major economies significantly
(OCC)) and containerboard grades can
impact the level of consumer spend and
create significant short-term challenges
customer demand for our packaging
to capture appropriate margins by
products.
aligning raw material costs to packaging
sales revenues.
A major cyber incident on our information or
operational technology (i.e. ransomware) and/
or a failure to stop/identify sophisticated
malicious cyber intruders on our IT
infrastructure (i.e. phishing attacks) resulting
in short-term trading impacts, financial losses
and reputational harm – impacting us, our
suppliers and customers.
4. Sustainability commitments
Our efforts to decarbonise and transition our
supply chain to a circular, low carbon economy
are not enough or are too slow against the
growing expectations of the Group to play a
positive role in society and address global
climate change and related environmental,
social and business challenges.
5. Regulation and governance
Our governance model fails to support the way
we are organised and our geographical spread,
resulting in unauthorised, illegal, unethical or
inappropriate actions (including breach of
anti-bribery, data privacy, etc.).
6. Security of paper/fibre
supply
Large fluctuations in the availability of
recovered paper (including OCC) and
containerboard adversely affect our
performance, as the Group remains a net
purchaser of specific grades of paper and faces
recycling collection/segregation challenges.
Key mitigating
• Focus remains on supplying packaging to
• Our focus is to provide sufficient
• Regular awareness training to better equip
actions
fast moving consumer goods (FMCG)
paper from internal paper
our employees with the knowledge to
customers with a constant focus on
manufacturing operations to support
identify potential phishing/other social
quality, service and volume growth, as
our Packaging division, whilst
engineering techniques, supported by our
these customers tend to show greatest
determining the optimal integration
Group Head of IT Security and expanding
resilience against GDP volatility
level, to ensure that we can balance
internal resourcing as well as external
• Investments in cost base and production
efficiencies and working capital
the external effects of paper price
expert advice
volatility over the long term
• Investments in specific IT security controls
initiatives to balance macro-economic
• Initiatives to implement productivity
to improve our capability to detect, respond
trends with sustainable growth priorities
improvements, demand forecasting
to, and prevent cyber attacks, such as tools
• Procurement transformations and new
supply chain flows due to Brexit are
helping to evolve our operating model.
improvements and the development
and services to monitor the IT estate
of skills and tools in our sales and
paper sourcing teams
• Regular improvements in, and testing of, IT
disaster recovery planning, including
• Continual focus on contract
penetration/vulnerability testing, to ensure
management to fully recover input
the Group’s ability to recover from outages,
costs.
identify gaps and progress along our risk
remediation roadmap.
• Deploying our roadmap of carbon reduction
investments, focused on energy efficiency,
plant upgrades and switching to alternative
energy sources across our production sites,
whilst monitoring and adapting to regulatory
changes in carbon taxes and resource extraction
• Ensuring we meet the growing consumer and
investor demand for sustainable packaging
through a focus on packaging design, use and
disposal of our products for a circular economy
• Regular review, update and reporting on our
sustainability priorities to ensure they align with
the expectations of stakeholders, wider society
and scientific climate projections, as well as
implementing the TCFD recommendations and
submission to ESG ratings such as CDP.
• The Group continues to maintain detailed and
extensive arrangements for the management
of standards, domestic and international
compliance rules and new regulations with
clearly defined divisional reviews including
health, safety, environment, supply chain and
product integrity/safety
• Training employees on a variety of
compliance modules including antitrust,
anti-bribery and corruption, and modern
slavery to ensure full understanding of the
applicable laws and high standards expected
• The Group operates a workplace malpractice
helpline (‘Speak Up!’), providing a confidential
route for employees to report perceived
malpractice of any type.
• Optimising the level of integration of all our
paper mills for internal supply and
committed external supplies using open
market purchases, to deliver the ‘best fit’
alignment between paper production,
quality fibre sourcing and performance
packaging demand
• Footprint alignment and capex investments
for our mill network to optimise internal
paper supplies against forecasted packaging
needs
• Focus on re-balancing and de-risking fibre
sourcing strategies in our Recycling division
as well as technology investments for reject
solutions and recovered fibre quality testing.
Prolonged challenging economic conditions
Supply / demand dynamics affected by
Increased threat potential of infiltrating IT
changes in FMCG and industrial markets
security controls given remote working
Delays to certain sustainability projects due to
government / site safety restrictions
Eurozone GDP growth rate
Paper / recovered fibre market price and
IT security phishing campaign statistics
Reduction of CO2e per tonne of production
box selling price
Additional requirements to meet, and
demonstrate compliance with, new and
changing regulations
Group and divisional compliance training
reviews
Heightened demand for key paper grades and
disrupted supply chains
Paper/recovered fibre supply volumes
Opportunity
Ability to reposition our business model
Accelerate improvements in commercial
Accelerated investments to strengthen our
examples
outside of our traditional geographic
awareness and expertise of pricing
technology infrastructure and operational
markets and sources of supply.
fluctuations and strengthen the
resilience to prevent losses and enhance
effectiveness of fibre and efficiency
business continuity credentials.
programmes.
Capitalise on efficiencies in energy upgrade
projects and meet the growing societal demand for
sustainable products in a circular economy.
Ability to demonstrate a standard of ethics and
behaviours beyond the standards requested of
us and potentially influence how the regulatory
landscape changes.
Our closed loop model and paper sourcing
strategy offer significant customer
opportunities and ability to generate a ‘best fit’
cost and quality solution.
Alignment
To double our size and profitability
To double our size and profitability
To double our size and profitability
To lead the way in sustainability
To delight our customers
To double our size and profitability
Governance
Group Chief Executive and Group Finance
The Group Chief Executive and Group
Cyber security assessment reports, IT network
oversight
Director present reviews and forecasts on
Finance Director present regular
management and external advisory guidance
the impact of the macro-economic
updates on paper prices to the Board.
are reviewed by the Executive Directors and
environment at each Board meeting.
Audit Committee.
The Board receive regular updates on the Group’s
sustainability performance and strategy.
Results of internal control reports and internal
corporate governance, ethics and compliance
updates are regularly reviewed by the Audit
Committee and Board.
Paper sourcing opportunities are discussed
with the Board, with specific focus on critical
papers.
Annual Report 2021 dssmith.com 53
STRATEGIC REPORT
PRINCIPAL RISKS AND UNCERTAINTIES CONTINUED
Risk priority
classification
Risk
Inherent risk
expected
change
Key mitigating
actions
Net risk
expected
change
Perceived
Covid-19
impact
Key Risk
Indicator
Risk tolerance
to Corporate
Plan priorities
Opportunity
examples
Alignment
with strategic
priority
Governance
oversight
54
2
2
2
2
3
3
7. Packaging capacity limits
to growth
Our performance and volume growth
expectations, and an increasing demand
for packaging, is limited by our
production capacity and ability to grow
organically at the pace required.
8. Organisation capability
Our management approach to our people and
assets, including succession planning, talent
retention and development, and strategy for
ageing assets, fails to identify and resource for
future capability needs, resulting in critical
gaps in skills, knowledge and equipment,
limiting productivity gains across key
business areas.
9. Substitution of fibre
packaging
Fibre-based packaging loses its credentials
as a sustainable product of choice against
developments in plastic packaging or other
materials that can be reused and recycled,
resulting in our products being substituted
and/or replaced by competitor products.
10. Disruptive market players
11. Digitalisation
12. Shopping habits
Disruptive behaviours in our key markets,
Digital transformation initiatives, from
We fail to match or adapt our offer to the pace and
should significant suppliers or competitors
point-of-sale through to manufacture and
direction of change in consumer spending across
combine, reduces our capability to purchase
delivery to customers, are too slow or the
the full retail FMCG spectrum, from the mega-
paper or restricts our ability to compete more
investments required too high to adequately
large brands, micro-brands and omni-channel
effectively, and these larger combined groups
adapt our ways of working or we miss the
distribution networks of the big box superstores
could also dispose of assets leading to new
opportunity to meet the demand for smart
and discounters, to the rise in e-commerce and
market entrants, increasing competition and
products, including customer ease of access to
importance of the consumer’s values.
causing loss in market share.
our products and services.
• Targeted organic growth in our
existing key markets from strategic
investments in new greenfield
packaging manufacturing sites,
including our operational start-up in
Indiana (USA), and new builds
commencing in Poland and Italy
• Further expansions/developments of
our current packaging sites through
multi-year capital plans, enhancing
equipment utilisation and efficiency,
whilst improving the customer-
production footprint alignment
• Developing clusters of production
sites to improve capacity loading, and
sales and operational performance
programmes to optimise a full system
of supply/demand loading, inventory
and logistics planning.
• People performance, potential and
succession management is formally
reviewed and subject to calibration by senior
management, and core skills gaps are
identified to inform clear action plans and
address key talent retention or attraction
risks, including a diversity and inclusion
action plan
• Collaboration between our Paper and
Packaging divisions and research and
development teams to deliver
innovative papers and corrugated
products, and develop new materials
with our suppliers and partners for
barrier/lamination concepts and plastic
replacements
• Annual senior talent reviews address
• Our Recycling division uses commercial
grades and critical raw materials, including
online due to Covid-19 restrictions, setting
understanding customer and consumer habits,
strategic workforce questions, and evaluate
the capability profile of the senior leadership
population, the bench strength of the talent
pipeline, and actions progressed throughout
the following year
insights and works to create pan-
European alignment in our services,
including providing our key packaging
customers with closed loop
opportunities
• Our HR and operational leaders collaborate
to prioritise key business transformation
activities aimed at new and foreseeable
work realities and operating models, to work
to deliver a step change in organisation
flexibility and productivity.
• Focused communication strategies to
maintain and build the reputation of
fibre-based materials in terms of
recyclability, innovations and
sustainability credentials, and working
with the industry to develop quality
standards.
• Focused on further developing long-standing
• The DS Smith ePack webshop is expanding to
• Focused on growing e-commerce packaging
and strong relationships with all of our
existing customers, across large FMCG,
meet small and medium sized business’s
volumes, including bespoke offers and product
packaging needs, providing a wide product
innovations, and continuing to explore
regional and local customers, whilst providing
range online, including bespoke design offers
business opportunities such as plastic
a differentiated position from our
competitors to attract new business
through digital printing, and a complete
replacements, point-of-sale packaging, social
online ordering experience and fast delivery
distancing essential solutions and end-to-end
• Continuous improvement of our procurement
• Transitioned our Impact Centre experience
services
and supply chain processes for all paper
and other customer and investor interactions
• Trend and insights teams working on
enhanced contingency plans if critical
the foundation for continuing to better utilise
needs and behavioural changes to inform
suppliers were to be disrupted
and trial different technologies going forward
research and development options and
• Industry body memberships allow for
• Expanding the use of systems and tracking
operational capabilities
monitoring of market conditions, building our
technology in logistics to provide enhanced
• Applying a clear sales platform to serve new/
influence and brand reputation, and ensuring
transport market intelligence, transport order
different customer categories, including the
we can remain competitive with our pricing
management, route planning and real time
development of technology for customer
models.
visibility of our vehicles.
interactions with our Impact Centres.
Record volume demand for certain
customers and/or markets
Potential opportunities to secure critical talent
but challenges our skills development and
culture
Heightened interest for hygienic
packaging but not to the detriment of
sustainable solutions
Packaging demand and production
volumes
Employee turnover including external/internal
hiring ratios and diversity and inclusion metrics
Fibre packaging volume and market share
growth
Erratic fluctuations in business activity and
Accelerated the move to online purchasing and
Accelerated the existing trend of changes in
heightened competition
instant virtual interactions
shopping habits
Proportion of market share
Customer satisfaction surveys and website
Revenue growth from FMCG sector
visitor traffic
Develop and grow our own business in
line with our customers’ growth, working
together to serve the changing consumer
demand, whilst maintaining high quality
and service offering.
Our HR and operational priorities focused on
improving processes, productivity and ways of
working to capture and enhance people and
equipment capabilities.
Accelerated research, development and
investment into new and enhanced
fibre-based products to serve the
sustainable packaging demand and grow
our reputation.
Strengthen our differentiation and reputation,
Capitalise on digital investments which build our
Changes in consumer needs and behaviours lead
and capture additional market share during
reputation as an easy and accessible business to
to new opportunities to actively engage
times of disruption amongst key competitors.
work with and buy from.
customers on cardboard packaging solutions.
To delight our customers
To realise the potential of our people
To lead the way in sustainability
To double our size and profitability
To delight our customers
To double our size and profitability
Demand and production metrics are
reported through monthly divisional
trading update meetings, and multi-year
demand forecasts reviewed by the GSC.
The Nomination Committee regularly reviews
Board succession planning and receives
updates on senior talent management
programmes.
The Board receives regular product
innovation updates.
The Group Finance Director provides the Board
The GOC and Board are provided with updates
Trading, customer and consumer trends and the
with regular updates on market and competitor
on digital initiatives and customer experience.
innovation pipeline are regularly discussed with
activity.
the Board.
Net risk tolerance key
Re-assess
Unacceptable
Acceptable
Increasing
Risk impact key
Stable
Decreasing
Risk priority
classification
Risk
Inherent risk
expected
change
Net risk
expected
change
Perceived
Covid-19
impact
Key Risk
Indicator
Risk tolerance
to Corporate
Plan priorities
with strategic
priority
2
2
2
2
3
3
7. Packaging capacity limits
8. Organisation capability
9. Substitution of fibre
to growth
Our performance and volume growth
expectations, and an increasing demand
for packaging, is limited by our
production capacity and ability to grow
organically at the pace required.
Our management approach to our people and
assets, including succession planning, talent
retention and development, and strategy for
ageing assets, fails to identify and resource for
future capability needs, resulting in critical
gaps in skills, knowledge and equipment,
limiting productivity gains across key
business areas.
packaging
Fibre-based packaging loses its credentials
as a sustainable product of choice against
developments in plastic packaging or other
materials that can be reused and recycled,
resulting in our products being substituted
and/or replaced by competitor products.
10. Disruptive market players
Disruptive behaviours in our key markets,
should significant suppliers or competitors
combine, reduces our capability to purchase
paper or restricts our ability to compete more
effectively, and these larger combined groups
could also dispose of assets leading to new
market entrants, increasing competition and
causing loss in market share.
11. Digitalisation
Digital transformation initiatives, from
point-of-sale through to manufacture and
delivery to customers, are too slow or the
investments required too high to adequately
adapt our ways of working or we miss the
opportunity to meet the demand for smart
products, including customer ease of access to
our products and services.
12. Shopping habits
We fail to match or adapt our offer to the pace and
direction of change in consumer spending across
the full retail FMCG spectrum, from the mega-
large brands, micro-brands and omni-channel
distribution networks of the big box superstores
and discounters, to the rise in e-commerce and
importance of the consumer’s values.
Key mitigating
• Targeted organic growth in our
• People performance, potential and
• Collaboration between our Paper and
• Focused on further developing long-standing
• The DS Smith ePack webshop is expanding to
• Focused on growing e-commerce packaging
actions
existing key markets from strategic
succession management is formally
Packaging divisions and research and
investments in new greenfield
packaging manufacturing sites,
reviewed and subject to calibration by senior
development teams to deliver
management, and core skills gaps are
innovative papers and corrugated
including our operational start-up in
identified to inform clear action plans and
products, and develop new materials
Indiana (USA), and new builds
commencing in Poland and Italy
address key talent retention or attraction
with our suppliers and partners for
risks, including a diversity and inclusion
barrier/lamination concepts and plastic
• Further expansions/developments of
action plan
replacements
our current packaging sites through
• Annual senior talent reviews address
• Our Recycling division uses commercial
multi-year capital plans, enhancing
strategic workforce questions, and evaluate
insights and works to create pan-
equipment utilisation and efficiency,
the capability profile of the senior leadership
European alignment in our services,
whilst improving the customer-
production footprint alignment
population, the bench strength of the talent
including providing our key packaging
pipeline, and actions progressed throughout
customers with closed loop
• Developing clusters of production
the following year
opportunities
sites to improve capacity loading, and
• Our HR and operational leaders collaborate
• Focused communication strategies to
sales and operational performance
to prioritise key business transformation
maintain and build the reputation of
programmes to optimise a full system
activities aimed at new and foreseeable
fibre-based materials in terms of
of supply/demand loading, inventory
work realities and operating models, to work
recyclability, innovations and
and logistics planning.
to deliver a step change in organisation
sustainability credentials, and working
flexibility and productivity.
with the industry to develop quality
standards.
and strong relationships with all of our
existing customers, across large FMCG,
regional and local customers, whilst providing
a differentiated position from our
competitors to attract new business
• Continuous improvement of our procurement
and supply chain processes for all paper
grades and critical raw materials, including
enhanced contingency plans if critical
suppliers were to be disrupted
• Industry body memberships allow for
monitoring of market conditions, building our
influence and brand reputation, and ensuring
we can remain competitive with our pricing
models.
meet small and medium sized business’s
packaging needs, providing a wide product
range online, including bespoke design offers
through digital printing, and a complete
online ordering experience and fast delivery
• Transitioned our Impact Centre experience
and other customer and investor interactions
online due to Covid-19 restrictions, setting
the foundation for continuing to better utilise
and trial different technologies going forward
• Expanding the use of systems and tracking
technology in logistics to provide enhanced
transport market intelligence, transport order
management, route planning and real time
visibility of our vehicles.
volumes, including bespoke offers and product
innovations, and continuing to explore
business opportunities such as plastic
replacements, point-of-sale packaging, social
distancing essential solutions and end-to-end
services
• Trend and insights teams working on
understanding customer and consumer habits,
needs and behavioural changes to inform
research and development options and
operational capabilities
• Applying a clear sales platform to serve new/
different customer categories, including the
development of technology for customer
interactions with our Impact Centres.
Record volume demand for certain
Potential opportunities to secure critical talent
Heightened interest for hygienic
customers and/or markets
but challenges our skills development and
packaging but not to the detriment of
Erratic fluctuations in business activity and
heightened competition
Accelerated the move to online purchasing and
instant virtual interactions
Accelerated the existing trend of changes in
shopping habits
culture
sustainable solutions
Packaging demand and production
Employee turnover including external/internal
Fibre packaging volume and market share
Proportion of market share
volumes
hiring ratios and diversity and inclusion metrics
growth
Customer satisfaction surveys and website
visitor traffic
Revenue growth from FMCG sector
Opportunity
Develop and grow our own business in
Our HR and operational priorities focused on
Accelerated research, development and
examples
line with our customers’ growth, working
improving processes, productivity and ways of
investment into new and enhanced
together to serve the changing consumer
working to capture and enhance people and
fibre-based products to serve the
demand, whilst maintaining high quality
equipment capabilities.
sustainable packaging demand and grow
and service offering.
our reputation.
Strengthen our differentiation and reputation,
and capture additional market share during
times of disruption amongst key competitors.
Capitalise on digital investments which build our
reputation as an easy and accessible business to
work with and buy from.
Changes in consumer needs and behaviours lead
to new opportunities to actively engage
customers on cardboard packaging solutions.
Alignment
To delight our customers
To realise the potential of our people
To lead the way in sustainability
To double our size and profitability
To delight our customers
To double our size and profitability
Governance
Demand and production metrics are
The Nomination Committee regularly reviews
The Board receives regular product
oversight
reported through monthly divisional
Board succession planning and receives
innovation updates.
trading update meetings, and multi-year
updates on senior talent management
demand forecasts reviewed by the GSC.
programmes.
The Group Finance Director provides the Board
with regular updates on market and competitor
activity.
The GOC and Board are provided with updates
on digital initiatives and customer experience.
Trading, customer and consumer trends and the
innovation pipeline are regularly discussed with
the Board.
Annual Report 2021 dssmith.com 55
STRATEGIC REPORT
TASK FORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURES (TCFD)
Adapting to a changing climate
As the pace of change in the world around us increases, it is
becoming more apparent that we only have limited time in which
to act if the world is to avoid the worst effects of climate change.
This presents businesses and policymakers with a range of
challenges and opportunities, not least for energy-intensive
industries such as paper and pulp. In our circular business model,
materials are kept in use for longer, which reduces waste and
pollution. Energy is used to transform materials as they move
through this system in a circular process. Lowering carbon
emissions requires a combination of resource efficiency,
technological advances, renewables deployment and policy
measures, as set out in the CEPI 2050 roadmap.
We are supportive of the Paris Agreement on climate change,
recognising the urgent need to limit the increase in global
average temperature to 1.5°C above pre-industrial levels by the
end of the century, substantially reducing the impact of climate
change. We have implemented the recommendations set out by
the Task Force on Climate-related Financial Disclosures (TCFD),
taking the opportunity to evaluate potential financial and
strategic implications arising from climate change and develop
appropriate responses.
Strategy
Our Purpose is ‘Redefining Packaging for a Changing World’.
Amongst other megatrends, climate change is a force reshaping
the world, calling for rapid decarbonisation of the global economy.
Consumers demand greater performance from our circular
packaging solutions, which reduce emissions through reusability
and recyclability. The environmental performance of our
packaging is driven largely by energy consumed during
manufacture, which exposes the Group to regulation aimed at
increasing the cost of greenhouse gas emissions (for example,
carbon taxes such as the EU Emissions Trading Scheme (ETS)).
There is therefore an opportunity to minimise our spend on carbon
taxes by lowering our emissions through utilisation of renewable
energy sources and energy efficiency measures that in turn
improve the environmental performance of our product. Our
greatest opportunity is to meet the increasing demand for
environmental performance in the design, use and disposal of our
products, responding to consumer preferences that favour
low-impact packaging. Once deployed, our roadmap of carbon
reduction investments will increase the long-term resilience of
our energy supply, providing reliable, affordable and clean
energy and improving the environmental performance of our
packaging. In the long term, shifts in market forces and changes
in weather patterns have the potential to threaten the supply or
cost of key raw materials such as recyclate, pulp and starch.
There is a chance that without substantial climate action, more
disruptive physical risks such as water scarcity take hold. This
invites opportunities to reduce reliance on key resources through
efficiency and technological measures that reduce operating
costs, and increase supply chain resilience and our ability to
operate under various conditions.
56
Scenario analysis
We applied several peer-reviewed reference scenarios to our most
material risks and opportunities to consider the effect of various
plausible future conditions on our business. In each scenario, we
assumed that we have the same business activities that we have
today and focus on a specific material risk or opportunity. We used a
combination of quantitative and qualitative methods in our
analysis, giving preference to quantitative information where good
quality, decision-useful data is available from reputable sources. We
worked with a leading climate change consultancy, who validated
our climate scenario analysis findings to date and have
recommended that we continue to develop this work to inform our
approach to climate change. Where good quality data is available
from these scenarios, we calculated the financial implications of
material risks and opportunities as illustrative estimates based on
present day costs and in the context given within each scenario.
The estimated impacts therefore should be considered in the
context of current financial performance and the actual future
impact will vary according to prevailing costs and pricing at
that time.
IEA SDS 1.5°C Pulp & Paper1: In this scenario, growth in
production and energy consumption are decoupled to
achieve decarbonisation to the extent required to be on
track with the Sustainable Development Scenario by 2030.
IEA ETP SDS 2°C2: In this scenario, mitigation measures are
applied to carbon intensive industries, alongside
technological advancements to the extent required to limit
global warming to within 2°C by 2100 versus pre-industrial
levels.
IPPC RCP 8.5 6°C3: In this scenario, a ‘business as usual’
state of no policy changes leads to growth in emissions,
causing some of the physical effects of climate change to be
felt with greater severity.
Quantifying our climate risks
Increasing spend on carbon taxes
Under EU ETS, our European mills must purchase
additional carbon allowances to cover their emissions. In
2020, we paid €39 million to the scheme. The free-issued
allowances are being reduced whilst the price of additional
allowances is increasing, therefore increasing our operating costs.
There is a risk that by 2030 the price could increase, for example,
from €50 to €110 per tonne of carbon which were this to happen
could result in an annual cost of c. €80 million by 2030, depending
on the allocation of free allowances. There is the possibility that
the scheme could be extended or that new carbon taxes could be
introduced in other parts of the world to incentivise
decarbonisation. For example, the IEA ETP 2°C scenario describes
the introduction of a North American carbon tax rising to $210 per
tonne by 2050. If this tax were applied to our projected future
emissions, this could result in an additional cost of c. £9 million
annually by 2030.
Increasing cost of raw materials or threat to supply
Key raw materials (e.g. pulp, recyclate or starch) could
become more expensive and/or difficult to acquire
Use of emerging renewable technologies
In order to avoid the worst consequences of climate
change, the global energy system must radically reduce
because of climate change. This could be due to chronic physical
reasons (e.g. extreme variability in weather patterns), regulatory
change (e.g. caps on resource extraction) or market disincentives
(e.g. licences for extraction). Aspects of climate change are likely
to affect forest growth and productivity, impacting the virgin fibre
market. Although our exposure to this market is limited as our
packaging is primarily manufactured from recycled fibres (c. 83 per
cent of the papers used by our Packaging division are from 100 per
cent recycled content), potential future yield losses could drive up
the price of virgin fibre and changing input prices may be passed
on to us by suppliers and have a subsequent impact on papers for
recycling. Using data from the Global Forest Products Model to
assume, for example, that average virgin paper price increases by
5 per cent by 2030, this could result in an additional cost, which
would likely have to be recovered through increased pricing to our
end customers. Paper and fibre price volatility and security of
supply are considered principal risks for the Group and are
balanced over the long term by optimising the best fit between
paper production, fibre sourcing and packaging demand.
Increasing likelihood of water stress
Competition for limited water resources could increase in
the long term in river basins. Using the WRI Aqueduct
tool4, we identified 25 sites at risk of future water stress and in
2020/21 we achieved our target to implement a water stress
mitigation plan at these sites. This involves business continuity
planning and regular water performance reviews, requiring that
sites maintain contact with external stakeholders (e.g. water
authority and community). We are implementing water reduction,
reuse and recycle opportunities, for example at our De Hoop and
Lucca Mills, where water is recirculated before it is returned to the
natural environment. In the IPCC RCP 8.5°C scenario, the worst-
case scenario suggests that ten further sites become at risk of
water stress during the period 2030-40. Initial analysis suggests
that this would be unlikely to have a material impact in our most
pessimistic scenario, valued at less than c. £1 million business
interruption value at risk by 2030.
Quantifying our climate opportunities
Growth in demand for sustainable packaging
As society transitions to a low emissions economy, we
see an opportunity for circular packaging to play a
powerful role in helping brands and consumers reduce their carbon
footprint. There is an opportunity to grow market share and value
in meeting the demand for sustainable packaging and we continue
to invest in innovation that balances cost, service, quality and
sustainability. Led by our strategic goal, ‘to double in size and
profitability’, we continue to drive organic growth, maximise the
opportunities from acquired businesses and invest in growing
areas of the corrugated packaging market. In the IEA SDS 1.5°C
scenario, annual paper production is described as growing by 1.2
per cent annually over the decade to 2030, meeting demand for
packaging and necessitating greater recycling. This presents a
growth opportunity that could be valued at c. £32 million increase
in EBITDA per year by 2030.
emissions, calling for rapid deployment of low carbon energy
generation. Delivering our carbon reduction target requires a
mixture of energy efficiency, fuel-switching and plant upgrade
measures. As energy systems and technologies evolve, there is an
opportunity to be at the forefront of adoption, for example
increasing the use of alternative fuels to reduce reliance on fossil
fuels. In the IEA SDS 1.5°C scenario, energy use in the Pulp and
Paper sector is described as declining by 0.6 per cent per year to
get on track with the Sustainable Development Scenario (SDS) by
2030. A reduction in energy consumption results in a lesser cost,
an opportunity that could be valued at c. £16 million per year by
2030 based on current energy costs. An example of realising this
opportunity is at our Lucca Mill, where in 2020/21 in partnership
with GE Gas Power, we deployed a new gas turbine which will
result in a 2 per cent improvement in efficiency, reducing gas
consumption and carbon emissions per tonne of product.
Increasing resource efficiency
We can achieve greater resource efficiency by
encouraging markets to improve recycling infrastructure,
including increasing waste segregation to create raw material
streams that are cleaner and require less processing. Access to
high quality wastepaper for recycling means less processing
(therefore less energy and water consumption) and less volume of
recyclate needed overall, which generates cost savings for our
papermaking operations. We continue to advocate for separate
collection of paper and cardboard recyclables to improve quality of
material by reducing contamination, increasing recycling rates,
lowering environmental impact and cost for local authorities as
part of our engagement with policymakers to contribute to
realising this opportunity.
Summary of our climate scenario analysis
Whilst the climate scenario analysis suggests that there could be
some financial risk to DS Smith by 2030, predominantly due to
increased costs which would need to be managed, we would not
have to make material changes to our business model. There are
opportunities to increase the sophistication of our modelling. For
example, we have not considered the financial implications of
secondary impacts, for example reputational damage that may
occur under some of the scenarios. Particularly as new, higher
quality data becomes available (for example, better long-term
projections of future raw material supply under various
conditions), we will continue to use climate scenario analysis to
understand the effects climate change may have on our business
and ensure we have appropriate mitigations in place to remain
competitive in the future environment in which we will operate.
1.
2.
3.
IEA Pulp & Paper Analysis: https://www.iea.org/reports/pulp-and-paper.
IEA Energy Technology Perspectives – Sustainable Development Scenario:
https://www.iea.org/reports/world-energy-model/sustainable-
development-scenario.
Intergovernmental Panel on Climate Change Representative Concentration
Pathways: https://www.wri.org/resources/data-sets/aqueduct-water-
stress-projections-data.
4. WRI Aqueduct Water Risk Atlas: https://www.wri.org/aqueduct.
Annual Report 2021 dssmith.com 57
STRATEGIC REPORT TASK FORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURES (TCFD) CONTINUED
Governance
Members of the Board, Audit Committee and Health, Safety,
Environment and Sustainability (HSES) Committee maintain
oversight of climate risk. Risks are monitored as part of our
standard operating processes to ensure that appropriate
mitigations are in place and are regularly reviewed by
management. Climate issues are assessed by the sustainability
leadership team (SUS LT) and HSES Committee when developing
strategies and policies. These are reported to executive
management on an ongoing basis, providing updates on the
delivery of plans. Progress against our targets for addressing
climate issues is monitored by the Board and Group Operating
Committee (GOC), chaired by the Group Chief Executive. The Board
receives regular updates on risk mitigation methods and progress.
Metrics and targets
We use metrics and targets to report progress to external
audiences annually and review performance internally on a
monthly basis. We have set a range of targets in our Now and Next
sustainability strategy that address climate risk such as our carbon
reduction target and water stewardship targets (pages 12 and 13).
Metrics are used to monitor progress towards these targets,
including monitoring metrics, such as ‘carbon intensity per tonne
of production (kg CO2e/tnsp)’ (page 33) and ‘total water
consumption in areas at risk of water stress (%)‘ (page 31), in
addition to mitigation metrics, such as ‘total energy consumption
(GWh)’ (page 33) and ‘sites at risk of current or future water stress
with mitigation plans in place (%)‘ (page 31). In addition, in
recognition of the importance and commitment to sustainability,
an ESG underpin has been introduced into the 2021/22 Executive
Director annual bonus plan.
For more information about
how we are leading the way
in sustainability, please see
the latest DS Smith
Sustainability Report.
“As society transitions to a low
emissions economy, we see an
opportunity for circular packaging
to play a powerful role in helping
brands and consumers reduce
their carbon footprint.”
Risk management
We undertake regular materiality analysis to ensure our
sustainability priorities remain aligned to those of our
stakeholders. In our most recent analysis, conducted in late 2019,
we consulted stakeholders on a range of climate issues, asking
them about their perception of each issue as a risk or opportunity
to our sustainability strategy. This assessment, combined with a
range of other credible sources (such as CEPI and CDP), is used to
evaluate the likelihood of occurrence and the estimated severity
of resulting financial or strategic impact over the short term
(0-1 year), medium term (1-3 years) and long term (3+ years).
Based on this assessment, material risks are evaluated in greater
depth, considering our operations, supply chain, stakeholder
expectations and regulation. Transition risks are assessed by
Group strategy and Group sustainability teams, collaborating
across multiple functions to develop responses to the financial and
strategic implications. Physical risks are assessed by each division,
supported by the Group Risk and Insurance team, involving other
internal stakeholders and drawing on expertise from specialist
organisations. Whether to mitigate, transfer or accept a risk is
influenced by a range of factors, including but not limited to site
location and added value, prioritising strategic locations. Our risk
management processes require that our material business risks,
including climate risks, are graded on a scoring scale from
negligible to critical using specific impact criteria such as a financial
value range. By way of example, a financial impact between
2.5 per cent and 10 per cent of operating income or net profit is
considered moderate financial or strategic impact. Climate risks
are evaluated using the Group’s common risk language and are
incorporated into our enterprise risk assessments where such
risks could materially affect the business during our Corporate
Plan time horizon. All divisions produce formal principal risk
assessment reports twice per year, and undertake frequent risk
reviews, considering the ratings, trends and controls. The most
material climate risks and opportunities have been selected for
climate scenario analysis, prioritising those for which good
quality data is available.
58
Redefining Packaging for a Changing WorldSustainability Report 2021 Non-financial information statement
The table below sets out where stakeholders can find information in our Strategic Report that relates to non-financial matters as
required under the Non-Financial Reporting Directive requirements:
Reporting requirements
Environmental
matters
Some of the relevant policies
• Group Sustainability policy1
Employees
Human rights
Social matters
Compliance
• Code of Conduct2
• ‘Speak Up!’2
• Group Health and Safety policy2
• Equal Opportunities and Anti-
Discrimination policy1
• Personal Data Protection policy1
• Data Retention policy1
• Code of Conduct2
• Anti-Slavery and Human Trafficking policy2
• Code of Conduct2
• Gifts and Hospitality policy2
• Compliance Framework policy (Corporate
Criminal Offence)2
• Anti-Bribery and Anti-Corruption policy2
• Competition Law Compliance policy1
• Commercial Agents policy1
Business model
Non-financial KPIs
Where to read more in this report about our impact,
including the principal risks relating to these matters
• Our sustainability approach, strategy, focus and targets
• Our sustainability performance
• Our differentiators
• Risk – sustainability
• What we create for our people
• Diversity and Inclusion
• To realise the potential of our people – performance
Health, safety and wellbeing
• Risk – organisation capability
• Gender pay gap reporting
• Our Purpose
• Sustainable governance
• Risk – governance
• Contributing to our communities
• Risk – governance
• Our business model
• Employees: accident frequency rate
• Sustainability: CO2 equivalent emissions
• Customers: on-time in-full deliveries
Page(s)
12
30-33
18
53
24
28
24
25
54
29
2
53
53
32
53
16
24
33
22
1. Available to all employees through the DS Smith intranet. Not published externally.
2. Available both on our website www.dssmith.com and to employees through the DS Smith intranet.
Our policies
A combination of online and in person training on all the key policies is carried out across the Group and there is also a system of bi-annual
certification for senior managers, certifying that they have read and understood the policies, have cascaded down to their direct reports
and that they are not aware of any breach of such policies. All employees, contractors and third parties are encouraged to report any
circumstances where there is a suspected or actual breach of any of the DS Smith policies, applicable laws, or the high standards as set
out in the Code of Conduct, either through their managers, the confidential ‘Speak Up!’ helpline or directly to the Group General Counsel
and Company Secretary. All reported incidences of actual or suspected breach of any of the policies are promptly and thoroughly
investigated. The Compliance Committee and the Audit Committee also consider any high risk areas identified by the internal audit
function, the legal team or the divisional compliance teams.
Annual Report 2021 dssmith.com 59
STRATEGIC REPORT
NON-FINANCIAL INFORMATION STATEMENT CONTINUED
Policy
Description
Code of Conduct
The Company, its subsidiaries and affiliates (Group) are committed to the highest ethical standards in the way in
which we engage with each other, our customers, employees, shareholders, suppliers and other stakeholders. Our
Code of Conduct sets out what these commitments mean and the behaviours which are expected of all its
employees, consultants and officers.
Alongside the Code of Conduct we have an Employee Charter drawn up in partnership with the European Works
Council which builds on our Code of Conduct and reinforces our standing commitment to comply with applicable
legislation and regulatory requirements. We also have other key Group policies outlined below, which serve to
further expand upon the provisions in the Code of Conduct.
We are firmly committed to both the principle and realisation of equal opportunities and have further underlined
our expectations with a new Equal Opportunities and Anti-Discrimination policy launched this year supported by
comprehensive training and awareness.
DS Smith has zero tolerance for any form of bribery or corruption and is committed to complying with all applicable
anti-bribery and corruption laws. In addition to ensuring that our employees and contractors are compliant with
the Group’s Anti-Bribery and Anti-Corruption policy, we require that all third parties engaging with any DS Smith
entity comply with this policy in order to ensure compliance with applicable anti-bribery and corruption laws and
preserve our own and our customers’ reputations.
DS Smith has a zero tolerance approach to modern slavery both within the Group and within its supply chain.
We respect fundamental human rights and is committed to the principles set out in the United Nations Universal
Declaration of Human Rights and this is documented in our Code of Conduct, Employee Charter and Anti-Slavery
and Human Trafficking policy. Our progress in the area of modern slavery is set out in our annual Modern Slavery
statement. The ultimate responsibility for prevention of modern slavery rests with the Group’s leadership, with
the Board of Directors having overall responsibility for ensuring this policy is implemented across the Group.
It is important to our ongoing success that we avoid damage to our reputation due to an act carried out by an agent
in our name. The Commercial Agents policy outlines the rules that we expect to be followed across the Group when
engaging and monitoring our relationships with agents. This policy also offers guidance to our agents on what is
expected of them as an agent of DS Smith. This ensures that agents are properly vetted and monitored.
DS Smith is committed to ensuring that our activities within the European Union (EU) and outside the EU are
conducted in compliance with the principles of the EU competition rules as well as all applicable national rules that
apply to DS Smith. Group Legal is tasked with assessing and identifying antitrust risks faced within the Group.
DS Smith’s Compliance Framework policy sets out compliance processes for Corporate Criminal Offence (CCO)
which are communicated to all suppliers and is part of due diligence when considering new acquisitions. Training
on this policy takes place virtually and where possible face to face with relevant personnel across the Group
encompassing all new acquisitions as well as all new joiners. The Group General Counsel and Company Secretary
reports on CCO compliance to the Audit Committee at least twice a year.
In the course of carrying out its various business activities, we collect information from individuals and external
organisations and generates a wide range of data and information which is recorded and stored. We are therefore
committed to ensuring that data (especially personal data) is only retained for as long as this is necessary.
DS Smith is committed to promoting equal opportunities in employment. Job applicants, employees and contingent
workers will receive equal treatment regardless of age, disability, race, religion or belief, sex, sexual orientation,
gender reassignment, marriage and civil partnership, pregnancy and maternity or any other characteristic
protected by applicable law. For DS Smith it is imperative to provide a respectful work environment and we have a
zero tolerance approach to discrimination. All parties are encouraged to raise concerns if they find conduct within
DS Smith that is offensive or a violation of this policy, through their line manager, local human resources (HR) or
the ‘Speak Up!’ process so the Group can investigate and take appropriate remedial measures to end any conduct
that violates this policy. The Group Operational Committee (GOC) has overall responsibility for the effective
operation of this policy and for ensuring compliance with anti-discrimination laws. The HR team has responsibility
for implementation, management and ensuring compliance. All managers must set an appropriate standard of
behaviour, lead by example and promote the Company’s policies and standards on this matter.
Anti-Bribery and
Anti-Corruption
policy
Anti-Slavery and
Human
Trafficking policy
Commercial
Agents policy
Competition Law
Compliance policy
Compliance
Framework policy
(Corporate
Criminal Offence)
Document
Retention policy
Equal
Opportunities
and Anti-
Discrimination
policy
60
Policy
Description
Gifts and
Hospitality policy
Group Health and
Safety policy
Group Procure to
Pay policy
Group
Sustainability
policy
Personal Data
Protection policy
‘Speak Up!’ policy
We recognise that the act of giving and accepting gifts and hospitality can be part of building normal business
relationships. However, our Gifts and Hospitality policy aims to ensure that our employees and contractors never
accept gifts or hospitality which could break the law, compromise their judgement, conflict with their duty to
DS Smith or our customers, or which could appear to others that their business judgement has been improperly
influenced. Equally, our employees and contractors must never offer a gift or hospitality which could have this
effect on the recipient. In order to monitor compliance with these principles, each division is required to maintain
a gifts and hospitality register in accordance with the policy.
Health and safety is the top priority and we actively strive for the continuous improvement of health and safety
in the workplace. We aim to provide a healthy and safe working environment for all our employees and to ensure
the safety of our contractors, site visitors, the public and all others affected by our operations. The ultimate
responsibility for health and safety rests with the Group Chief Executive, the Board members and the executive
management team. This responsibility is cascaded through the organisation via divisional/regional Chief
Executive Officers and their leadership teams, enabling us to comply with local health and safety laws and
regulations in addition to our own standards and guidelines.
This policy establishes a framework for payment of procured goods and services and must be applied when
purchasing on behalf of DS Smith. This provides, amongst other benefits, for a uniform and adequate control over
these purchases and their payment which is essential for DS Smith’s financial management, ensures best
practice in full compliance of ethical and statutory obligations, ensures that transactions are transparent and
support audit and regulatory requirement and ensures adherence to all governance and controls to reduce risk
and potentially fraudulent activity.
Our sustainability strategy is supported by policies which align the management of sustainability issues across
our organisation. Risks arising from sustainability issues are considered as being among the key risks to the
Group’s operations. To manage and mitigate such risks we have policies for existing and emerging sustainability
issues. Our policies include Conflict Minerals, Carbon and Energy Efficiency, Community Engagement, Global
Supplier Standards, Water Stewardship, Zero Waste to Landfill and Sustainable Forest Management and Fibre
Sourcing. These policies are periodically reviewed and updated, with action plans communicated to the heads of
each business unit. The Board receives regular reports on performance and the Group Chief Executive is
responsible for addressing sustainability-related issues. The Health, Safety, Environment and Sustainability
Committee meets monthly and the Sustainability Steering Group oversees the process for addressing
sustainability-related issues and sets and monitors internal targets and strategies to ensure sustainability-
related risks and opportunities are appropriately managed.
DS Smith takes the issue of the protection of individuals’ personal data very seriously. Compliance with data
protection laws is critical to the success of our business. Compliance with statutory data protection is the basis of
the relationship with our employees, customers, suppliers and business partners. The management of the
relevant DS Smith company is responsible for compliance with the data protection principles and must be able to
verify their compliance.
All DS Smith employees, those providing services to DS Smith (contingent workers), shareholders, and
Non-Executive Directors are expected to conduct Company business in a legal and ethical manner as detailed in
our Code of Conduct. They have a responsibility not only to be aware of the Code of Conduct but to bring to the
attention of management any activity which may be in violation of Company policy, local law or does not meet
the standards set out in the Code of Conduct. Employees are encouraged in the first instance to report any
concerns to their line manager, local HR or employee representative. If not comfortable to do so, then there are
three ‘Speak Up!’ options available, where a report can be made through a dedicated free phone line or a website
(both maintained by an independent third party that is under a duty of confidentiality). The phone and website
support a majority of languages spoken across DS Smith. Alternatively the Group General Counsel and Company
Secretary can be contacted via email or letter. All options are available 24 hours a day seven days a week. All
‘Speak Up!’ reports are treated in the strictest confidence. It is our policy to build a climate of support if concerns
are raised, including suspected breach of our Code of Conduct, where there is an avenue to report and be
confidentially investigated.
Statement of approval
This Strategic Report, including pages 1 to 61, was approved by the Board of Directors on 21 June 2021 and is signed on its behalf by
Miles Roberts
Group Chief Executive
Annual Report 2021 dssmith.com 61
STRATEGIC REPORT Board of Directors
N R
N
RNA
RNA
Geoff Drabble
Chairman
Miles Roberts
Group Chief Executive
Adrian Marsh
Group Finance Director
Celia Baxter
Non-Executive Director
Alina Kessel
Non-Executive Director
Key strengths:
• Wealth of industrial and
international experience
• Extensive experience as a
chairman
External appointments:
• Geoff is Non-Executive
Chairman of Ferguson plc
and a Non-Executive
Director of Howden
Joinery Group Plc.
Geoff was appointed to the
Board on 1 September 2020
as a Non-Executive Director
and became the Chairman of
the Board and the
Nomination Committee on
3 January 2021. Geoff
served for 12 years as Chief
Executive of Ashtead Group
plc, the FTSE 100 industrial
equipment rental company.
He was previously an
executive director of The
Laird Group plc and held a
number of senior
management positions at
Black & Decker.
Geoff’s wealth of industrial
and international
experience, combined with
his experience of chairing
boards of listed companies
and his awareness of both
the non-executive and chief
executive perspective,
means that his skills and
experience contribute to
the Board’s practical
understanding of good
governance in action,
balancing stakeholders’
interests across the range
of issues considered by the
Board, including
environmental, social and
governance matters.
62
Key strengths:
• Clear strategic mindset
• Strong leadership skills
External appointment:
• Miles is a non-executive
director of Aggreko plc
Miles was appointed to the
Board on 4 May 2010 as
Group Chief Executive.
Following his engineering
degree he became a
chartered accountant and
brings to the Board
extensive financial and
operational experience. He
was previously Chief
Executive of McBride plc,
having originally joined as
its Group Finance Director.
He was Senior Independent
Director of Poundland Group
plc until September 2016.
As Group Chief Executive
Miles leads the executive
management of the Group
and is responsible for
DS Smith’s overall
environmental, social and
governance (ESG)
performance and its clear
objectives at the centre of
our business model. He
chairs the Group’s Health,
Safety, Environment and
Sustainability Committee
that monitors the
establishment of goals,
reporting and related
governance procedures.
Miles’ strong leadership
skills combined with his
clear strategic mindset,
rooted in the practicality of
his engineering and
accountancy training,
means that his skills and
experience, and ability to
identify material risks and
sustainable growth
opportunities for the
Group’s business, contribute
to the Board’s clear strategic
vision.
Key strengths:
• Strong financial expertise
within an international
context
Key strengths:
• Extensive HR experience
and ESG knowledge and
experience
• Wealth of finance
• Board experience in
experience in large listed
multinationals
External appointment:
• Adrian is a non-executive
director and audit
committee chairman at
John Wood Group PLC
Adrian was appointed to the
Board on 24 September
2013 as Group Finance
Director.
As the former head of Tax,
Treasury and Corporate
Finance at Tesco PLC,
Adrian has helped DS Smith
to significantly build the
finance function and deliver
strong financial results. As a
qualified accountant, and
coming from a FTSE
background, he has held
divisional CFO positions at
both AstraZeneca plc and
Pilkington plc.
Adrian’s depth of
experience in a range of
financial roles in large listed
multinationals means that
his skills and experience
contribute to the Board’s
understanding of all aspects
of the financial implications,
whether risks or
opportunities, of both the
routine and project aspects
of the Group’s business and
operations.
non-UK listed companies
External appointments:
• Celia is the senior
independent director and
the remuneration
committee chair at Senior
plc and remuneration
committee chair at RHI
Magnesita NV
Celia was appointed to the
Board as a Non-Executive
Director and Chairman of
the Remuneration
Committee on 9 October
2019.
Most recently Celia was
Director of Group HR and
responsible for all ESG
activities at Bunzl plc for 13
years. Her early executive
career was with Ford Motor
Company and KPMG. She
has held HR positions with
Hays plc, Enterprise Oil Plc
and Tate & Lyle Plc. As a
non-executive director she
was on the board of NV
Bekaert SA until May 2020.
Celia’s background of
working in a range of
sectors means that, as well
as her experience as a
remuneration committee
chairman and her
understanding of employee
dynamics and ESG issues,
she brings extensive and
practical business
knowledge to the Board.
Key strengths:
• Broad and wide-ranging
marketing experience
• International outlook
External appointment:
• Alina is a Global Client
Leader at WPP, a leading
international marketing
communications
company
Alina was appointed to the
Board on 1 May 2020 as a
Non-Executive Director.
She has over 25 years
of experience building
global brands for large
multinational clients, helping
them grow their business
through communications,
experience, commerce and
technology. Her current role
with WPP includes working
with global clients on their
sustainability agenda.
Originally from the Ukraine
and a US national, Alina has
lived and worked in the UK,
US, Australia and Germany,
where she was CEO of Grey
Advertising and, later, of
DDB Tribal Group.
Alina’s experience of living,
as well as working, in a
number of different
countries, including the US,
combined with her
expertise in marketing and
communications means that
her skills and experience will
contribute an additional
perspective to the Board’s
discussions, particularly
when considering the
interests of employees
(based in over 30 countries)
and our global customers
and discussing how to
communicate key
non-financial aspects of our
business.
Principal Board
Committees key:
A Audit
Committee
N Nomination
Committee
R Remuneration
Committee
Chair
RNA
RNA
RNA
Rupert Soames OBE
Senior Independent
Director
Key strengths:
• Wealth of international
operational experience
• Extensive understanding
of UK plc environment as
a serving CEO
External appointment:
• Rupert is Group Chief
Executive Officer at Serco
Group plc
Rupert was appointed to
the Board on 1 March 2019
as a Non-Executive Director
and became Senior
Independent Director at the
conclusion of the 2019 AGM.
He was previously Chief
Executive at Aggreko plc
and Chief Executive of Misys
plc Banking and Securities
Division. Until July 2016
Rupert was also Senior
Independent Director of
Electrocomponents plc and
a member of its
Remuneration, Nomination
and Audit Committees.
Rupert’s hands on
experience of the UK plc
environment as a serving
CEO, balancing the
management of risk and
reward, combined with the
wealth of his international
operational experience
means that his skills and
experience contribute to
the Board’s international
outlook, embedded in a
clear-sighted view of
operational realities in
today’s world.
David Robbie
Non-Executive Director
Louise Smalley
Non-Executive Director
Key strengths:
• Strong HR experience
• Extensive knowledge of
people management,
rewards and
remuneration schemes
External appointment:
• Louise is Group Human
Resources Director and
an executive director of
Whitbread PLC
Louise was appointed to the
Board on 23 June 2014 as a
Non-Executive Director.
She has held several key
transformation and HR roles
at Whitbread PLC, spanning
25 years of growth and
significant change for the
companies in that group.
She previously worked as an
HR professional in the oil
industry, with BP and Esso
Petroleum. Louise is an
alumna of the Cambridge
Institute for Sustainability
Leadership and has
experience of leading timely
evolutions to sustainability
strategies.
Louise’s experience as a
serving listed company
executive director over the
last eight years, combined
with her extensive
knowledge of progressive
people management
practices in multi-site large
scale businesses, means
that her skill and experience
contribute to the Board’s
focus on the importance of
enabling everyone who
works for the Group,
whatever their background,
to realise their potential.
Key strengths:
• Strong financial and
corporate finance
experience
• International and
strategic mindset
External appointments:
• David is the senior
independent director and
audit committee chair at
FirstGroup PLC and
non-executive director of
easyJet plc.
David was appointed to the
Board as a Non-Executive
Director on 11 April 2019
and became Chairman of the
Audit Committee at the
conclusion of the 2019 AGM.
He was previously Finance
Director of Rexam PLC,
before its £4.3 billion
acquisition by Ball
Corporation in 2016. Prior to
his role at Rexam, in the
aluminium packaging
business, David served in
senior finance roles at BTR
plc before becoming Group
Finance Director at CMG plc
in 2000 and then Chief
Financial Officer at Royal
P&O Nedloyd N.V. in 2004.
He served as a non-
executive director of the
BBC between 2006 and
2010 and as Chairman of
their audit committee. David
qualified as a chartered
accountant at KPMG.
David’s strong financial, risk
management and corporate
finance experience
combined with his
international and strategic
mindset and deep and
practical governance
experience with over 20
years serving as a director
on FTSE boards means that
his skills and experience add
depth to the Board’s
discussions in these areas.
Iain Simm
Group General Counsel
and Company Secretary
Key strengths:
• Legal expertise
• Wealth of experience in
assisting boards with
legal and governance
matters
External appointment:
• None
Iain was appointed Group
General Counsel and
Company Secretary on
6 June 2016.
He has previously held
General Counsel and
Company Secretary roles
with Signature Aviation plc
and P&O Ports Ltd. He
undertook his legal training
with Slaughter and May and
worked for a number of
years in their corporate and
commercial department.
Annual Report 2021 dssmith.com 63
GOVERNANCE Chairman’s introduction to Governance
“Good governance requires the
right information to be brought
before the right people at the
right time.”
Geoff Drabble, Chairman
Introduction
This section of the Annual Report focuses on corporate
governance. In essence, good governance requires the right
information to be brought before the right people at the right time.
Never has this been more important than in the past 12 months,
when we have all faced challenges in every aspect of our lives and
when having as comprehensive and rounded a view of the context
in which our decisions are taken has never been more relevant,
nor, at some stages in the year, more difficult.
UK Corporate Governance Code
Your Board understands that good corporate governance is an
essential element in helping to build a successful business in a
sustainable manner. There are five sections to the UK’s Corporate
Governance Code (Code) and the governance section of our Annual
Report follows the same order as the Code.
Board leadership and Company Purpose
The Code provides that a board should establish a company’s
purpose and values as well as its strategy and that its directors
should lead by example and promote the desired culture.
More information about how we engage with our stakeholders as
part of our Board activities is set out on pages 67 to 69 and how we
do so as a Group is summarised on page 3.
Division of responsibilities
My role as Chairman is to lead the Board and be responsible for its
overall effectiveness in directing the Company. It is important that
each member of the Board is clear about their responsibilities and
also that each member of the Board is able to contribute fully to all
aspects of the discussions we have as a Board.
The approval of certain Group policies (including some of those
listed in the non-financial information statement on pages 59 to
61) is one of the matters reserved to the Board and is one of the
ways as a Board we have oversight of longer-term aspects of the
Group’s operations, including our leadership on sustainability
matters and our progress in addressing climate-related issues.
Board composition, succession planning and
evaluation
I joined the Board as Non-Executive Director on 1 September 2020
and became Chairman on 3 January 2021, following Gareth Davis’
retirement from the Board. Gareth made an enormous contribution
to the Group and, as well as being instrumental in the successful
development of the business over the last decade, he chaired the
Board with consummate skill and always kept a wide range of
considerations in clear focus. Alina Kessel joined the Board with
effect from 1 May 2020, bringing her international experience and
marketing expertise to our discussions. As at 1 May 2021 our eight
member Board was made up of three women and five men.
Over the course of the last two years the Board has had a period of
structured change, as the succession planning for Non-Executive
Directors has led to a phased series of appointments and
retirements. For each appointment made, the Board looked to
appoint an outstanding candidate, with a diverse range of
experience, to maximise Board effectiveness. When we think
64
A principal decision we took as a Board in 2020, that was a high
profile example of considering the balance of all these factors, was
the decision not to pay a dividend in respect of the financial year
2019/20. Further background to this decision is set out on page
67.
The Board has taken a close interest in our stakeholders’
reactions to the publication of our Now and Next sustainability
strategy. Our progress to date in realising our strategic goal of
leading the way in sustainability is summarised on pages 30 to 33
of this report, with more details being available in our latest
Sustainability Report.
Since joining the Board I have been impressed by the way in which
the Group has shown agility, adapting to the circumstances of the
pandemic-aware world that we all now live in.
As your Chairman I look forward to supporting and challenging the
team to continue to show that agility and ability to adapt and
evolve to the long-term benefit of all our stakeholders as we
realise our Purpose of ‘Redefining Packaging for a Changing World’.
Geoff Drabble
Chairman
21 June 2021
about diversity we recognise that diversity can take many forms,
including diversity of gender, social and ethnic backgrounds, and
of cognitive and personal strengths, and that diversity at Board
level and throughout the Company is a valuable strength. We also
recognise that the mix of skills needed by Board members will
change as the landscape in which the Group operates changes.
Therefore, as we consider each new Board appointment, the role
specification is not a direct replication of the role of a retiring
Board member.
The next external evaluation of the Board and its Committees and
how they have contributed to the overall effectiveness of the
Group will be undertaken in the autumn of 2021. More information
about how the Board has assessed in 2021 its progression in
meeting the objectives we set ourselves after the 2020 internal
Board evaluation is set out on page 72.
Balancing stakeholders’ interests
The Board is conscious that all our stakeholders have multiple roles
and the past 12 months have been a difficult balancing act for
many. One example is our employees who have had to manage
home schooling of children while also, as friends or family
members, trying to give care and support to others from a
distance. As a business too we know that balancing the many,
sometimes divergent, often competing, interests of our different
stakeholders requires sensitive vigilance. As a Board we
understand the importance of making a decision in the moment
and at the time when a decision is needed. We also recognise that
some commentators might make different judgements.
Each Board pack for each Board meeting includes on the agenda a
reminder of each Director’s duties under section 172 of the
Companies Act, framing our deliberations at each meeting in the
context of a reminder that each Director must act in the way they
consider, in good faith, would be most likely to promote the
success of the Company for the benefit of its members as a whole,
while thinking about the likely consequences of any decision in the
long term, the interests of the Company’s employees, the need to
foster the Company’s business relationships with suppliers,
customers and others, the impact of the Company’s operations on
the community and the environment, the desirability of the
Company maintaining a reputation for high standards of business
conduct, and the need to act fairly as between the members of
the Company.
We use boxes like this throughout the governance section of the
Annual Report to highlight why we are telling you the information.
We hope that this will help you both find what you are looking for in
our report and understand the way we have structured our
disclosures to be both compliant with regulation and, we hope,
readable.
s172
We use this symbol throughout the governance section of
the Annual Report to highlight examples referred to in the
section 172 statement on page 15.
This year the governance section of the Annual Report opens by
summarising what each Board member contributes to the
governance of the Company and its long-term success. The
Chairman’s introduction to governance puts DS Smith’s approach to
matters of corporate governance into our DS Smith context. It is
followed by a brief summary of our approach to each of the five
sections of the Code.
Annual Report 2021 dssmith.com 65
GOVERNANCE Corporate Governance in context
Corporate Governance in action
The 2018 UK Corporate Governance Code (the Code) published by
the Financial Reporting Council (FRC) and available at www.frc.org.uk
asks companies to focus on the application of the principles of
good governance in their specific context. In the introduction to
the Code the FRC recognises that high-quality reporting on the
provisions of the Code may include an explanation of how the spirit
of the principles has been applied, which, in some cases, may be by
a different route from that suggested in the Code’s provisions.
This report outlines how we have applied the Code’s main
principles and explains where, in three specific instances
(provisions 19, 36 and 38), our approach (summarised in the box
below) differs from the Code’s.
The FRC and investors agree that a company is compliant with the
Code if it chooses to depart from a provision of the Code, so long as
ample, transparent explanation is given.
Our compliance with the UK Corporate Governance Code’s five sections
1 Board leadership and Company Purpose
Your Board rigorously challenges strategy, assesses
performance and balances the interests of all our stakeholders
to ensure that every decision we make is of the highest quality.
Robust and constructive debate is particularly important when
there are no easy answers as we all adjust to the near and
longer-term implications of the Covid-19 pandemic.
4 Audit, risk and internal control
All your Board’s decisions are discussed within the context
of the risks involved. Effective risk management, set in the
context of a well-structured internal control framework,
is central to achieving our strategic objectives, particularly
as we balance the sometimes conflicting interests of
our stakeholders.
From page 67
From page 76
2 Division of responsibilities
Your Board and its Directors, both executive and non-
executive, operate within a clear framework of roles and
responsibilities. One of the roles of Non-Executive Directors is
to broaden the diversity of viewpoints shared in the boardroom
discussion, drawing on the full range of their experience in
other industries and other countries. This has been particularly
valuable as your Board considers how we can better serve our
customers in this time of uncertainty.
Remuneration
5
Our remuneration policy, which was approved at the 2020
AGM, is designed to support our long-term strategy and to
promote long-term sustainable success. It was developed
taking into account wider circumstances as your Board
currently understands them and setting those in the context of
the longer-term future of DS Smith in this changed world. Each
element of remuneration is looked at, both individually
and cumulatively.
From page 70
3 Composition, succession and evaluation
Your Board scrutinises the effectiveness of its performance in
an annual Board evaluation and evaluates the balance of skills,
experience, knowledge and independence of the Directors.
That then informs the succession planning process, which also
takes into account the contribution made by having a diversity
of backgrounds (whether of gender, of social or ethnic
backgrounds, or of the less immediately visible cognitive
differences). All new Directors receive a tailored induction
programme, which builds on their personal experience and
ensures that appointments can be made from a wider pool of
talent than one limited to only those with previous experience
of holding a directorship with a UK listed company.
The background to Gareth Davis having been on the Board for
longer than nine years when he retired from the Board in
January 2021, although he was Chairman for less than nine,
was described in both the 2019 and 2020 Annual Reports.
From page 72
As described on page 85 in the Remuneration Report, the
pension contribution rates for Executive Directors are not, at
the date of this report, fully aligned to that available to the
workforce, although future alignment has been confirmed.
(The Group Chief Executive’s pension contribution reduced by
10% in 2020 and will reduce by a further 5% on 1 August 2021
to 15% of annual salary. The Group Finance Director’s pension
contribution was reduced by 5% in 2020 and will reduce by a
further 5% on 1 August 2021 to 10% of annual salary.)
As previously explained on page 93 of the 2020 Remuneration
Report, there could, in theory, be a combination of events that
might, in the case of a certain type of ‘good leaver’, mean that
the period from grant of long-term share award to release of
award might not be five years, as, for any PSP awards which
vest following departure that have been granted good leaver
treatment, the Remuneration Committee will reduce the two
year post-vesting holding period so that it does not extend
beyond the second anniversary of departure (provided that the
three year vesting period has been completed).
Our remuneration policy is aligned to our Purpose of
‘Redefining Packaging for a Changing World’. Each year we look
afresh at our reward principles and test that they continue to
support our values as a Group.
From page 84
66
Board leadership and Company Purpose
Board leadership in action
The Covid-19 pandemic has thrown up a wide range of challenges.
Every aspect of the business has been impacted throughout the
past year. In response to this the Board has met more regularly
than in prior years, adding informal briefing calls, their frequency
being responsive to the evolving priorities of the business. The
regular scheduled meetings have continued to take place. All
these meetings have taken place with the support of technology, a
compromise that reduces time spent travelling, but also constrains
some of the interaction that in-person meetings facilitate.
Nevertheless the scheduled meetings continue to cover all the
topics essential to support the regular cycle of annual reporting
and corporate planning processes and continue to give
opportunity to explore with the management team background to
proposals, such as the proposals to begin work on two new
greenfield sites, one in Italy and one in Poland (that were
announced in December 2020). In discussing our new
greenfield site proposals, one of the principal decisions in
2020/21, the Directors asked for more information about
environmental impact assessments done in relation to the
potential sites and sought clarification about how having these
two new sites would impact the Group’s overall carbon footprint.
s172
Health and safety is always a priority item on the Board’s agenda.
Setting the example from the top down is critically important.
s172
Miles Roberts took part this year in our virtual health and safety
on-boarding sessions, introducing the programme and then in
the second session a month later, reviewing progress on
participant commitments made at the first session.
The Code highlights the importance of effective engagement with
shareholders and other stakeholders. The Group’s key
stakeholders and their differing perspectives are identified and
taken into account, not only as part of the Board’s annual strategy
and corporate planning discussions, but also in our project
assessments and in other Board conversations. The Board
understands that the Group has a role as an employer and as a
taxpayer as well as a member of the wider communities in which
our sites are based and as a key link in the supply chains through
which so many goods pass, and that these roles are broader than
the more traditional single role of a corporate entity reporting on
its financial results to its shareholders. The balancing of the
differing perspectives of all our key stakeholders is a recurrent
theme in our Board’s conversations.
All discussions, assessments and conversations focus not only on
delivering increased value for shareholders, but also assess the
impacts of our decisions and strategies on the Group’s wider
stakeholders. The Board recognises the importance of regular,
open and constructive dialogue with shareholders and other
stakeholders and this has long been a key aspect of our culture and
of our decision-making.
s172
s172
Engagement with our shareholders
Dialogue with investors continues throughout the year, not only
ahead of the AGM. In 2020 DS Smith, like all other businesses, was
not able to offer shareholders the opportunity of attending the
AGM in person, due to the public health guidance and measures
regarding the conduct of general meetings brought in by
legislation. Instead we encouraged shareholders to email in their
questions and to watch on our website the video of the
presentation that our Group Chief Executive gave on the
Company’s performance and strategy.
The Group’s Investor Relations team coordinates ongoing
communication with shareholders and analysts and the Board
receives regular updates on the views of the Group’s shareholders
from our internal team and also from the Company’s brokers.
Celia Baxter, as Chairman of the Remuneration Committee,
leads the engagement with shareholders when we have
remuneration matters to discuss. Rupert Soames, as Senior
Independent Director, led the engagement with our shareholders
about succession planning for the Chairman’s role and Geoff
Drabble met a number of shareholders shortly after becoming
Chairman.
In respect of the financial year 2019/20 the Company did not
pay either an interim or a final dividend. The Board recognises that
the dividend is an important component of shareholder returns. In
the context of the unprecedented uncertainty due to the Covid-19
pandemic, exacerbated by its timing in relation to the 30 April year
end of the Company, decisions on the dividend needed to be taken
earlier in 2020 than had to be taken by 31 December year end
companies and had to be taken at the height of the Covid-19
uncertainty. The Board took the view that it was prudent, despite
the Group’s strong liquidity profile and resilient trading to April
2020, not to pay the interim dividend in May 2020, nor, when
assessing the overall outlook in June 2020, to pay a final dividend
for the year ending 30 April 2020. The Board is aware that this
difficult decision disappointed shareholders. In considering the
appropriate course of action in the context of all the dimensions of
the pandemic-fuelled uncertainty, the preferences of
shareholders were balanced with those of other stakeholders. By
September 2020 the Board was able to signal to investors that it
would resume payment of dividends and in December 2020
declared an interim dividend, reflecting the strong demand for
packaging, and increasing visibility and confidence over the future.
Each year shareholders (and other interested bodies) issue
materials concerning their expectations of companies. These are
summarised for, and considered by, the Board, which also informs
the comments that Board members make on the working drafts of
the Annual Report that they review, prior to its final approval
and publication.
Annual Report 2021 dssmith.com 67
GOVERNANCE BOARD LEADERSHIP AND COMPANY PURPOSE CONTINUED
Engagement with our workforce
Our engagement with our workforce is being developed further,
making good use of the already well-established European Works
Council (EWC) structure.
s172
EWC representatives meet regularly with our Group Chief
Executive and Group HR Director to discuss a wide range of
topics. While health and safety, Group performance and
sustainable employment are always on the agenda for these
discussions, this year topics have also included the
implementation of our employee charter, IT security and use of
CCTV, and the many aspects of adapting to the pandemic,
including discussion about measures to contain any spread, the
expectations of employees displaying symptoms, travel
restrictions and recognising employee contributions.
s172
Members of management continued to attend EWC meetings,
held virtually on a platform that enables live interpretation.
s172
Again this year an EWC representative joined a meeting of the
Remuneration Committee. At that meeting the EWC
representative presented to the Remuneration Committee a
summary of results and insights provided by the Group-wide
employee survey about Sharesave, our employee share plan (as
further described on page 86). Celia Baxter, the Chairman of
our Remuneration Committee, has also met with the EWC
Executive in 2021 and, building on the dialogue started at their
meeting in 2020, she both gave a presentation and answered
questions about the main changes to the Directors’ remuneration
policy approved by shareholders at the 2020 AGM and the impact
of the pandemic on the Remuneration Committee’s deliberations
on executive remuneration. Additionally the EWC Executive asked
her about how the voting process worked for resolutions at the
AGM and about the Group’s commitment to diversity at senior
levels of management.
The regular schedule of reporting to the Board includes, in relation
to our workforce, such matters as reviewing the outcomes from
the topic-based, pulse employee engagement surveys and the
regular schedule of reporting to the Nomination Committee
includes the review of employee talent. All these activities ensure
that the voice of our workforce is heard regularly in the boardroom
and provides richer context for the Board’s decision-making.
68
Engagement with our suppliers, customers and other
stakeholders
The business relationships with our suppliers, customers and
other stakeholders, such as regulators and non-governmental
organisations, are matters which the Group Chief Executive covers
in his regular reports to the Board. As Group Chief Executive, Miles
Roberts is responsible for the Group’s overall ESG performance and
its clear objectives at the centre of our business model. The Board
recognises the crucial importance of delivering on our
sustainability ambitions, helping reduce waste and protect natural
resources as our designers realise the opportunities within the
circular economy by applying our Circular Design Principles. One of
the challenges in this area can be some customers’ shorter-term
goals. The Board appreciates that there may be occasions when
the longer-term, more sustainable approach may, in the shorter
term, have a financial impact.
The Board receives regular updates from the Group
procurement function which has first-line responsibility for
relationships with suppliers. In the past year the Board has
discussed the carbon implications of the Group’s sources of energy
and how supply planning takes account of future developments in
this area.
s172
Complementing the regular briefings from operational and
functional management about Group-specific matters (such as
reports from our Corporate Affairs Director on progress made
during the year on both sustainability and our programme of wider
engagement in the community and the report to each Board
meeting on health and safety), the Board also has a programme of
briefings from the Group’s external advisers on a range of topics.
This enables current and future plans to be set in the wider
context of the broader environment. This covers not just topics
currently visible, but emerging areas of interest and concern
across a diverse range of fields.
One of the actions from the 2020 Board evaluation was to change
the frequency of Board discussions on topics such as relationships
with customers and suppliers and our continuing engagement
with the Ellen MacArthur Foundation. This has increased in
2020/21. For example, this year the Board heard from the head of
our sales, marketing and innovation (SMI) function who takes
overall responsibility for relationships with our packaging
customers, but this remains an area where the Board recognises
that more could be done.
s172
Our engagement with the local communities of which our sites and
employees are a part has been a developing area of focus in recent
years. A key target in our Now and Next sustainability strategy is
to engage in community programmes at all our sites that have
more than 50 employees, which we have again achieved in
2020/21. These programmes are guided by our Purpose and focus
on supporting the improvement and protection of the
environment and inspiring and educating. In addition this year
there have been a number of one-off donations, such as 10,000
multipurpose auxiliary bedside tables made from corrugated
cardboard donated by our Madrid plant to a field hospital in Spain
and 100,000 cardboard plane and helicopter toy models
s172
distributed in France to children confined to their homes
during their school holidays. As part of the regular cycle of
briefings the Board has been updated on these and such
community programmes as the eco-classroom, featuring a
rainwater collection system, solar panels and an organic garden in
a primary school in Hungary, and the development of the
biodiversity programmes at each of our paper mills.
Board engagement through site visits
Board site visits are an important way in which Board members can
engage with our employees and understand more about our
customers and suppliers.
s172
While travelling to attend a physical meeting as a Board, in the way
that the Board did in October 2019 when it visited our kraft paper
mill in Viana, Portugal, was not possible this year, Alina Kessel and
Geoff Drabble, as part of their induction programme, were taken
on a virtual tour of the Livingston facility by the UK
Packaging management team. In addition to a full review of
the site, the tour included updates and discussions about current
performance projects at the site and the measures in place to
manage health and safety risks, including those related to
Covid-19.
Non-Executive Directors are encouraged, when they can, to visit
sites individually, as Celia Baxter, David Robbie and Rupert Soames
were able to do as part of their induction programmes when they
first joined the Board. Such visits enable Directors individually to
assess in more detail what our Purpose of ’Redefining Packaging
for a Changing World’ looks like at a local, site level and how our
values (see page 2) underpin the delivery of our Purpose through
our strategic goals.
At each Board meeting health and safety is reported on, including
the total number of near misses and safety observations and the
number per employee. These are seen as indicators of employee
engagement in observing and reporting positive behaviour and
identifying health and safety risks. The level of engagement is
seen as a reflection of the culture and health and safety leadership
at a site. This financial year the total number has increased
by 25 per cent with the engagement rate showing a similar
improvement. On a site visit the impact of that employee
engagement with all aspects of health and safety can be seen
in action.
The regulatory requirement is to include in the Strategic Report a
statement about the Directors’ compliance with section 172 of the
Companies Act 2006 concerning taking into account the interests of
a variety of stakeholders. This is on page 15. What that statement
means in practice is also illustrated in this part of the report, which
also links to the topics covered in section 1 of the Code (board
leadership and company purpose). Here we also explain how we
have applied aspects of Code principles A to E and how we have put
the related provisions of the Code into practice.
Statement about the Company’s engagement with the
wider UK workforce
More detail about how we realise the potential of our people by
engaging with our wider workforce (a term, as described below,
that is wider than the term employees, who are those employed
directly by the Group under contracts of service) wherever they
are based (not just those based in the UK) is set out on pages 24
to 29 of the Strategic Report.
Statement about the Company’s engagement with
suppliers and customers
More detail about how we engage with our customers and
the importance of sustainability throughout our supply chain
is set out on pages 22 and 23 and 30 to 33 of the
Strategic Report.
Throughout the uncertain times of Covid-19 the safety and
wellbeing of our people has been our first priority, while
recognising our responsibility to support our customers as they
keep essential goods such as food and pharmaceuticals moving.
All our decisions have been taken in that context.
In addition to the regulatory requirement to include a statement
about section 172 of the Companies Act 2006 in the Strategic
Report, there is also a requirement to make a statement about the
Company’s engagement with the wider UK workforce and with
suppliers and customers. The methods of engagement in the UK
and across the wider workforce are broadly the same, so we have
cross-referenced, not repeated, our disclosures on these matters.
In this report we sometimes report on ‘employees’ and sometimes
on ‘workforce’. This is because sometimes the regulatory
requirements specifically ask us to report on matters relating to
‘employees’ (those who are employed directly by the Group under
contracts of service). When we use the term ‘workforce’ we are
including all those who work for the Group, including those
sub-contracted to work for the Group.
Annual Report 2021 dssmith.com 69
GOVERNANCE Division of responsibilities
Division of responsibilities of the Board and its principal Committees
The Board
The Board is collectively responsible for the long-term success of the
Group and for ensuring leadership within a framework of effective
controls. The key roles of the Board are:
• Setting the strategic direction of the Group
• Overseeing implementation of the strategy by ensuring that the
Group is suitably resourced to achieve its strategic aspirations
• Providing entrepreneurial leadership within a framework of prudent
and effective controls which enables risk to be assessed and
managed
• Ensuring that the necessary financial and human resources are in
place for the Group to meet its objectives
• Setting the Group’s values.
Chairman
• Primarily responsible for overall operation, leadership and
governance of the Board
Senior Independent Director
• Provides a sounding board to the Chairman and appraises
their performance
• Leads the Board, sets the agenda and promotes a culture of open
debate between Executive and Non-Executive Directors
• Acts as intermediary for other Directors, if needed
• Available to respond to shareholder concerns if contact through
• Regularly meets with the Group Chief Executive and other senior
the normal channels is inappropriate.
management to stay informed
• Ensures effective communication with our shareholders.
Group Chief Executive
• Responsible for executive management of the Group as a whole
• Delivers strategic and commercial objectives within the Board’s
stated risk appetite
• Builds positive relationships with all the Group’s stakeholders.
Non-Executive Directors
• Constructively challenge and help develop proposals on strategy
• Scrutinise the performance of management
• Monitor the reporting of performance.
Section 2 (division of responsibilities) of the Code sets out matters
relating to independence of Directors and the structure of the Board
and its Committees. We cover these items (including the application of
aspects of Code principles F to I) in this part of the report and in the
Nomination Committee Report that follows, where we also have more
information about the independence of Directors.
Board and Board Committee meetings attendance
Total number of meetings in 2020/21
Executive Directors
Miles Roberts
Adrian Marsh
Non-Executive Directors
Geoff Drabble – joined the Board on 1 September 2020
Gareth Davis – retired from the Board on 3 January 2021
Celia Baxter
Chris Britton – retired from the Board on 8 September 2020
Alina Kessel
David Robbie
Louise Smalley
Rupert Soames
Board
7
7/7
7/7
6/6
4/4
7/7
1/1
7/7
7/7
7/7
7/7
Nomination
Committee
Audit
Committee
Remuneration
Committee
4
4/4
n/a
3/3
3/3
4/4
2/2
4/4
4/4
4/4
4/4
4
n/a
n/a
n/a
n/a
4/4
1/1
4/4
4/4
4/4
4/4
8
n/a
n/a
6/6
5/5
8/8
3/3
8/8
8/8
8/8
8/8
In addition there were a number of informal briefing calls that the Chairman and
Group Chief Executive held with the Board and other ad hoc Board meetings
were held to discuss business matters that the Chairman and Group Chief
Executive decided should be considered by the Board. Due to the public health
guidance and measures regarding the conduct of general meetings brought in by
legislation, the full Board, like other shareholders, were not able to attend the
AGM in 2020 in person, which was attended by the Chairman and the Group
General Counsel and Company Secretary.
70
Board’s principal Committees
Audit Committee
• Monitors the integrity of the
Group’s reporting process and
financial management, its
accounting processes and audits
(internal and external)
• Ensures that risks are carefully
identified and assessed and that
sound systems of risk
management and internal control
are in place
• Oversees fraud prevention
arrangements and reports
received under the ‘Speak Up!’
policy.
For more information see page 78
Nomination Committee
• Reviews the structure, size and
composition of the Board and its
Committees
• Identifies and recommends
suitable candidates to be
appointed to the Board and
reviews the wider senior
management talent pool
• Considers wider elements of
succession planning below Board
level, including diversity.
For more information see page 73
Remuneration Committee
• Recommends the policy for the
remuneration of the Chairman, the
Executive Directors, the Company
Secretary and senior executives, in
alignment with the Group’s reward
principles
• Reviews workforce remuneration
and related policies and alignment
of incentives and rewards with
culture, to help inform setting of
remuneration policy
• Considers the business strategy of
the Group and how the
remuneration policy reflects and
supports that strategy.
For more information see page 84
Board standing sub-committees
In addition to the three principal Committees of the Board there are four further standing sub-committees of the Board.
Disclosure Committee
which oversees the
Company’s compliance
with its disclosure
obligations.
US Sub Committee
which oversees the
strategic direction of
business in the US,
together with any
associated risks or
opportunities in the
business.
General Purposes
Committee
which facilitates efficient
operational management
decision-making in
relation to day-to-day
financing and
administrative matters.
Share Schemes
Committee
which facilitates
administrative matters in
relation to the Group’s
share schemes.
Management committees
Three management committees, chaired by the Group Chief Executive, and the Group Compliance Committee also support the work of
the Board and its principal Committees.
Group Health, Safety, Environment and
Sustainability Committee
Meets monthly
Oversees the management processes, targets
and strategies designed to manage health and
safety and environmental and sustainability
risks and opportunities, to ensure compliance
with the Group’s health and safety and
environmental and sustainability
responsibilities and commitments.
Group Operating Committee
Meets monthly
Considers Group-wide initiatives and
priorities. Reviews the implementation of
operational plans. Reviews changes to policies
and procedures and facilitates the discussion
of the development of new projects.
Group Strategy Committee
Meets monthly
Plans the business strategy implementation
as approved by the Board and set out by the
annual Corporate Plan process. The Corporate
Plan is used to develop the Group’s strategy,
based on the set strategic direction. The
Corporate Plan’s focus is primarily on strategic
actions, supported by high level financial
information. It covers a three-year time
horizon and is reviewed annually by
the Board.
Group Compliance
Committee
Meets quarterly
Oversees compliance
with all legal, regulatory
and organisational
requirements including
the effective interface
between the financial,
legal, risk and internal
audit functions, reporting
back to both the Group
Operating Committee
and the Audit Committee.
Annual Report 2021 dssmith.com 71
GOVERNANCE Composition, succession and evaluation
Board evaluation in practice
Formal evaluation is a valuable tool for improvement. It can be
used iteratively as part of a structured process to build, year by
year, on the assessments of prior years. It can help inform
decisions about succession planning for the Board and senior
management and therefore the composition of the Board. As well
as giving a structured opportunity to consider areas for potential
future development, a formal evaluation is an opportunity to think
consciously about what has worked well and how to maintain that
in the coming year, as well as what has been less effective and
how that might be changed. When considering the timing of the
2021 external Board evaluation the Board decided that it should
be undertaken in October 2021 after Geoff Drabble has spent a
preliminary period in the Chairman’s role, including the closing of
the 2020/21 financial year end. It is also hoped that the evaluation
can by October be carried out in person, rather than remotely
through video technologies, giving a richer opportunity for insight
and feedback from the external evaluator.
Following on from the internal evaluation undertaken in 2019/20,
for its 2020/21 Board evaluation and performance review the
Board revisited the action plan that had been agreed as part of the
2019/20 evaluation, looked at how fully it had addressed those
actions, considered whether those actions needed to be amended
or added to and also looked generally at the performance and
effectiveness of the Board and its Committees.
• The Board was satisfied with the way the Nomination
Committee had operated during the year and, following the
appointment of a new Group HR Director, was confident that
improvements to the process for recruiting to senior
management roles were underway.
• The nature of the past year has reduced the amount of time
available for wider horizon-scanning discussions in the regularly
scheduled Board meetings. It is hoped that 2021 will permit the
Board to spend more focused time understanding insights
around global, societal and consumer trends, including those
outside the immediate categories in which the Company
operates, utilising both internal and external expertise.
• The Board has valued the increased frequency and depth
of the Board discussions of briefings (including metrics) on
ESG (environmental, social and governance) topics such as
relationships with customers, suppliers and the businesses’
efforts and involvement in the many and diverse communities
in which we operate, and recognises that these are fast-
evolving areas .
As with every high performing board, the Directors will continue to
watch for areas of improvement, not just when Board evaluation is
a formal agenda item at a Board meeting.
72
Succession and composition
More details about succession planning are set out in the
Nomination Committee Report, later in this Report. More details
about the current composition of the Board are set out in the
biographies of the Directors on pages 62 and 63. Geoff Drabble
joined the Board with effect from 1 September 2020. Chris Britton
retired from the Board on 8 September 2020 and Gareth Davis
retired from the Board with effect from 3 January 2021. All the
other Directors held office throughout the year under review.
This section and the Nomination Committee Report that follows
explain how we have applied aspects of Code principles J to L in
section 3 (composition, succession and evaluation) and how we
have put the provisions of that section of the Code into practice.
Nomination Committee Report
“A key objective is to make sure
the Board has individuals with the
necessary range of skills and
knowledge and diversity of
experiences to lead the Company.”
Geoff Drabble,
Chairman of Nomination Committee
Dear shareholders
The Nomination Committee supports the Board in executive and
non-executive succession planning. Our principal objectives as a
Nomination Committee are:
• To make sure the Board has individuals with the necessary
range of skills and knowledge and diversity of experiences to
lead the Company
• To ensure that the Board is effective in discharging its
responsibilities and overseeing appropriately all matters relating
to corporate governance.
Our key responsibilities
As a Committee we have delegated authority from the Board to
focus on Board and Committee composition and succession
planning. In discharging those key responsibilities in relation to
succession planning we also consider ways to:
• Improve diversity in the pipeline for senior management roles
• Further strengthen the senior management team.
As Chairman of this Committee, I report to the Board on the
outcome of our meetings.
Our year under review
Alina Kessel joined the Board in May 2020 and I joined in
September 2020. I then took on the role of Chairman when Gareth
Davis retired from the Board in January 2021. Alina and I each bring
our own perspectives and experience to these roles and look
forward to building on the contributions of our predecessors.
Our priorities over the year were:
• To scope out the key skills, experience, characteristics and
requirements for new Non-Executive Directors
• To keep under review succession planning at the Executive
Director level and support succession planning at senior
management levels
• To keep under review our leadership needs, both executive and
non-executive, with a view to ensuring the continued ability of
DS Smith to compete effectively in the marketplace
• To monitor the Group’s progress towards increasing the relative
number of women in senior management positions
• To improve the diversity on the Board and in the pipeline for
senior management.
Membership and operation of the Committee
Member
Geoff Drabble (Chairman since 3 January 2021)
Celia Baxter
Alina Kessel
Miles Roberts
David Robbie
Louise Smalley
Rupert Soames
Since
2020
2019
2020
2010
2019
2014
2019
Chris Britton retired from the Board and its Committees on 8 September 2020
and Gareth Davis retired from the Board and its Committees on 3 January 2021.
During the year, the Committee held four formal meetings and
there were regular updates between formal meetings and a
number of ad hoc briefings. Details of individual Directors’
attendance can be found on page 70. The Group General Counsel
and Company Secretary acts as Secretary to the Committee.
Annual Report 2021 dssmith.com 73
GOVERNANCE NOMINATION COMMITTEE REPORT CONTINUED
Succession planning and recruitment
Over the course of the last two years the Board has had a period of
structured change, as the succession planning for Non-Executive
Directors has led to a phased series of appointments and
retirements. The process for the appointments of Alina Kessel and
myself as new Non-Executive Directors began with inviting a
number of recruitment firms to participate in a selection process,
focusing on a series of key questions in order to identify the
appropriate consultants to support our search. Inzito were
selected in that process.
A role specification was agreed and provided to Inzito, who then
put forward a shortlist of candidates for review by the Committee.
The shortlisted candidates were interviewed by a number of the
Executive and Non-Executive Directors and the Committee made a
recommendation to the Board. Rupert Soames chaired those
meetings when the recruitment of a new Chairman was being
considered and Gareth Davis was not involved in the process of the
selection or appointment. When making decisions on new
appointments, Board members consider the skills, experience and
knowledge already represented on the Board and the benefits of
diversity, in all its forms, including of gender, ethnicity and life
experience. A similar process will be followed for the next
recruitment of a Non-Executive Director to the Board.
Apart from assisting with recruitment, Inzito has no other
connection to the Company. Inzito has no connection with any
individual Directors.
One of the actions arising from the 2020 Board evaluation was to
understand better the reasons for the length of time it had been
taking to recruit to senior roles and how the process might be
improved. A new Group HR Director joined in 2020 and an
improvement of those processes is now underway.
The Committee keeps under regular review succession planning at
the Executive Director level and supports succession planning at
senior management levels. During 2018/19 the Nomination
Committee reviewed the contingency plan for unexpected
departures and the Group Chief Executive’s succession plan. At our
March 2021 meeting the Committee looked again at those plans
(which contemplate the role being filled by either an internal or
external candidate) and considered succession candidates and
emergency cover candidates for each member of the General
Operating Committee, including the Group Finance Director. The
Group HR Director has also briefed the Committee on the talent
review and calibration undertaken in relation to the Group’s top
management positions that report in to members of the General
Operating Committee, as well as the associated leadership
development programme being held at Oxford’s Saïd
Business School.
Induction, training and development programmes
Upon appointment to the Board, Directors undertake an induction
programme, receiving a broad range of information about the
Group tailored to their previous experience. This includes
information on the operational and sustainability performance and
business of the Group and details of Group strategy, corporate
governance and Board procedures. Alina Kessel and I have both
undertaken a tailored induction programme, which included a
virtual tour of the Livingston facility. Alina’s programme was
tailored to this being her first role on the board of a publicly listed
company, so it included an externally-run course specifically
designed for those new to such roles.
Assisted by the Group Company Secretary, I have responsibility for
Directors’ induction programmes, and also for the Board’s training
and professional development. Directors have been given training
and presentations during the course of the year to keep their
knowledge current and enhance their experience. This has
included topics such as cyber security and developments in
corporate governance generally and in particular on stakeholders’
expectations on remuneration reporting.
Directors will continue to receive regular training updates from
appropriate internal and external specialists on governance issues,
financial and reporting standards, digital development, cyber
security and sustainability. In addition, Directors are fully aware of
their own responsibility for identifying and satisfying their own
specific training requirements.
Time commitments
Under the Code the reasons for the Board permitting its members
to enter into significant new external appointments should be
explained in the Annual Report. In November 2020 David Robbie
was appointed as a non-executive director of easyJet plc, which
the Board noted, when approving his appointment, was his third
directorship in his portfolio of listed company appointments. As
explained in the 2020 Annual Report, as part of the process of
appointing Alina Kessel to the Board, the value of her experience
of living, as well as working, in a variety of countries, along with
her marketing and communication experience which is kept
current in her senior role with WPP, was noted. In relation to my
appointment, the Committee noted the value of my range of
extensive experience, particularly internationally, while also giving
careful consideration to the time commitments required by these
other roles.
The experience gained in all these external roles held by our Board
members broadens and deepens the knowledge and experience of
the Directors, which in turn benefits the Company.
74
The Nomination Committee this year considered the then current
term of appointment to the Board of Louise Smalley. Board
members reviewed her commitment and contribution to the Board
and its Committees, as well as the balance of her skills, knowledge
and experience with those of the other Directors and it was agreed
that her letter of appointment should be renewed for a further
year. (Directors do not participate in any debate or decision about
their own re-appointment.) The expiry date of the current term of
each of the Non-Executive Directors is set out on page 102.
Information about this year’s evaluation of the Board and its
Committees can be found on page 72.
Looking forward
As well as the regular cycle of matters that the Committee
schedules for consideration each year, we are planning over the
next 12 months to:
• Assess ways that the Nomination Committee could work more
effectively
• Encourage the focus on diversity and inclusion at all levels
throughout the Group and understand more about the
challenges and benefits of improving our reporting on diversity
• Maintain the focus on succession planning for our Executive
Directors and Group Operating Committee members. Through
both our organic growth and acquisitions, DS Smith has a
significant pool of executive talent and the Committee
continues to oversee the structure and processes in developing
these executives for potential succession, including ensuring
they are benchmarked against external talent.
Geoff Drabble
Chairman of the Nomination Committee
21 June 2021
Diversity
DS Smith acknowledges the importance of diversity of thought,
skills and experience to the effective functioning of the Board and
the wider organisation. This diversity may arise from any number
of sources, including differences in age, gender, ethnicity,
disability, sexual orientation, cultural background and religious
belief. Our Directors have experience of a wide range of industries
and backgrounds, as well as complex organisations with a
global reach.
The Board diversity and inclusion policy (most recently reviewed
by the Board in March 2021) is a policy which acknowledges the
importance of diversity and includes an explicit requirement to
take into account diversity when considering appointments to the
Board. The Board recognises that some challenges in achieving
diversity arise from social contexts with impacts not limited to the
DS Smith Group, but the Board remains committed to ensuring that
all have an equal chance of developing their careers within our
business. (See pages 26 and 27 for more about our programmes to
develop diverse leadership talent; from whom might be drawn a
future generation of non-executive directors.)
As at 1 May 2021 our eight member Board was made up of three
women and five men, meeting the Hampton-Alexander Review’s
target of one-third of Board members being women. We are very
conscious of the Parker Review recommendation that each FTSE
100 board should have at least one director from an ethnic
minority background by 2021 and are actively engaged currently in
running such a recruitment process.
Our most recently published UK gender pay gap report is available
on our website. We know that we have a relative lack of women in
senior management positions and year by year the percentage of
women in the roles that are defined as senior management roles
will fluctuate (see page 29 for details), but the trend in recent
years has been towards a better gender balance.
Independence and re-election of Directors
Biographical details of each Director, including their other
directorships, their skills and experience, can be found on
pages 62 and 63.
The Nomination Committee makes an assessment each year of the
criteria set out in the Code concerning independence and the
Committee also reviews the time commitment of Non-Executive
Directors to assess whether each has sufficient time to discharge
their duties. The Committee confirms that all the Non-Executive
Directors are independent and each has sufficient time to
discharge their duties. The Committee also considered Geoff
Drabble to be independent on his appointment to the Board.
Annual Report 2021 dssmith.com 75
GOVERNANCE Audit, risk and internal control
Risk management and internal control
Along with overall responsibility for establishing and maintaining
the Group’s systems of risk management and internal control
(including financial, operational and compliance controls), the
Board also retains ultimate accountability for the effectiveness of
the systems and processes implemented. The Board confirms it
has conducted an annual review of the overall effectiveness of the
Group’s system of internal controls and risk management
procedures implemented during the year and up to the date of
approval of this Annual Report.
The systems and processes implemented are designed to identify,
manage and, where possible, eliminate the risk of failure to
achieve business objectives; and to provide reasonable, but not
absolute, assurance against material misstatement or loss. There
is an established and ongoing process for identifying, evaluating
and managing the significant risks faced by the Group. This
includes a process of self-certification by senior divisional
management, confirming that their divisions have complied with
Group policies and procedures and reporting any significant control
weaknesses identified during the past year. In addition, it includes
reviewing the results of the work of the Group’s Internal Audit
function and Group governance and compliance teams and the
adherence to the risk identification and management processes
identified above.
These procedures have continued to be in place throughout the
year and up to the date of approval of this Annual Report.
The Board also has procedures in place to ensure that its powers to
authorise and manage conflicts are operated effectively. These
procedures were followed throughout the year and up to the date
of approval of this Annual Report.
Risk management
Our risk management framework and processes were tested in an
unprecedented way during 2020 by the impact of the Covid-19
pandemic. Management and employees responded well, tailoring
and redesigning certain risk mitigation remedies and preventative
measures to ensure that the principal risks and uncertainties the
Group faces continued to be managed effectively. The Audit
Committee has kept up to date with these developments
throughout the year and has noted the way in which our divisions
and Group functions were able to demonstrate their resilience,
with revised risk mitigation remedies being integrated into the
existing support systems.
With a larger number of previously office-based employees
continuing to work remotely in the past year, the Group has been
looking for ways to improve the assessment and management of
its key risks, despite in-person meetings and the debate
opportunities they provide, not being possible. The Group
Compliance Committee has continued to meet regularly. Recent
topics have included a specific review of business continuity in the
light of the Group’s experience in the Covid-19 pandemic. This year
the Group’s management standards were updated and, as part of
those revisions, risk management has been explicitly highlighted
as one of the foundational elements of these refreshed
management standards.
76
The Board remains encouraged by the work undertaken across the
Group with investment being made in financial, operational and
reputational risk management to ensure effort is well directed and
with the right level of intensity, enabling the Group to remain in a
strong position to respond rapidly to those risks that do emerge.
Further details on the Group’s risk management and mitigation
approach for each principal risk, including its emerging risks
reporting, are set out in the principal risks section on pages 47 to
55, which also includes the Group’s viability statement on page 49.
Emerging risks are reported on as part of the risk management
reviews. Integrating them into the reporting processes supports
the Board in maintaining a clear overview, taking account of the
experiences gained from Covid-19, the increasing disclosure
requirements in relation to ESG risks and the effect of rapidly
changing external environments.
Internal control
The Board determines the objectives and broad policies of the
Group and has a set schedule of matters which are required to be
brought to it for decision. Overall management of the Group’s risk
appetite, its tolerance to risk and discussion of key aspects of
execution of the Group’s strategy remain the responsibility of the
Board. The Board has delegated to the Audit Committee the
responsibility for establishing a system of internal controls
appropriate to the business environments in which the Group
operates. Key elements of this system include:
• A clearly defined divisional organisation structure for monitoring
the conduct and operations of individual business units
• Clear delegation of authority throughout the Group, starting
with the matters reserved for the Board
• A formal process for ensuring that key risks affecting operations
across the Group are identified and assessed on a regular basis,
together with the controls in place to mitigate those risks. Risk
consideration is embedded in decision-making processes at all
levels and the most significant risks are periodically reviewed by
the Board. The risk process is reviewed by the Audit Committee
• Control policies and procedures in functions including finance,
tax, IT, HR and legal, reviewed and updated as appropriate and
supplemented by mandatory training
• Assurance processes over the internal financial control
environment such as annual controls self-assessment and
ongoing divisional controls review programmes
• The preparation and review of comprehensive annual divisional
and Group budgets; and an annual review and approval by the
Board of the three-year Corporate Plan
• The monthly reporting of actual results using the Group
consolidation system and their review against budget, forecasts
and the previous year, with explanations obtained for all
significant variances
• The Operating Framework which outlines key control
procedures and policies to apply throughout the Group. This
includes clearly defined policies and escalating authorisation
levels for capital expenditure and investment, with larger capital
projects, acquisitions and disposals requiring Board approval.
This framework is kept under periodic review
• Regular formal meetings between the Group Chief Executive,
the Group Finance Director and divisional management to
discuss strategic, operational and financial issues
• Communicating key corporate values through our Code of
Conduct and associated policies to all employees to ensure
relevant staff are properly equipped to exercise management
oversight and control.
The framework of internal control has continued to operate
throughout the Covid-19 pandemic.
Internal Audit
The Group’s Internal Audit function undertakes regular reviews
of the operations of standalone entities, functions and Group
processes in accordance with a previously agreed audit plan,
including an assessment of implemented systems of internal
control. The Internal Auditor then makes recommendations on
potential control process improvements and will conduct
supplementary reviews to ensure that management implements
the recommendations made. During the year, Internal Audit’s
activities were supported and complemented by Group
governance and compliance teams.
The Internal Audit plan together with the work plan of the
Group governance and compliance teams is determined on a
Annual risk reporting cycle
risk assessment basis and is reviewed and approved by the
Audit Committee.
Findings from Internal Audit and Group governance and
compliance teams are reported to Group and divisional business
management as well as to the Audit Committee.
The Company elected to bring the Internal Audit function in-house
with effect from 1 May 2021 and appointed a Head of Internal
Audit during the 2020/21 financial year. The outsourced
arrangements with KPMG ceased with effect from 1 May 2021.
Professional firms will continue to provide co-source support as
required. The new function will provide assurance separately from
the Group governance and compliance teams, and is intended to
extend the coverage of independent governance and compliance
assurance for the Group. Also from 1 May 2021, the governance
and compliance team has become a centrally-led function, as
opposed to regionally and divisionally based. It will continue to
maintain and develop the internal control framework, provide
support and training to the business in complying with that
framework and manage compliance with the emerging
requirements from the recent UK government consultation on
audit matters.
May – Jul
Aug – Oct
Nov – Jan
Feb – Apr
Group Compliance
Committee reviews a
selection of Group
function and/or divisional
risks including ‘deep dive’
risk investigation
Internal Audit reviews
their programme and key
control risks
Audit Committee
reviews Group risks,
viability and risk
management
effectiveness including
go forward actions to
implement
Group Risk provides
feedback to divisions and
Group functions on risk
assessments
Divisions update risk
assessments and integrate
into their corporate plans
Group Compliance
Committee reviews a
selection of Group function
and/or divisional risks
Group Strategy
Committee undertakes
an assessment of the
principal and emerging
risks
Internal Audit reviews
their programme and key
control risks
Audit Committee
reviews and approves
completed Internal Audit
reports and reviews status
of programme – this
included in 2020 a deep
dive into three of our
principal risks
Internal Audit updates
review of Internal Audit
programme and key
control risks
Audit Committee
further updates and
approves completed
internal audit reports and
ongoing Internal Audit
work
Board reviews principal
risks and uncertainties,
risk appetite and
tolerance, and business
viability as part of
Corporate Plan
discussions
Group functions,
divisions and regions
produce year-end review
of principal and business
risks
Internal Audit
undertakes the year-end
assessment of Internal
Audit needs
Group Compliance
Committee reviews a
selection of Group
function and/or divisional
risks including in 2021 a
specific review of
business continuity
Audit Committee
reviews Group and
divisional risk reports,
annual Internal Audit
needs assessment,
including audit plans and
recommendations
This section explains how we have applied aspects of Code principles
M, N and O in section 4 (audit, risk and internal control) of the Code and
how we have put the provisions of that section into practice, firstly
through matters that come before the full Board and secondly through
the detailed work of the Audit Committee which is reported on in the
Audit Committee Report that follows.
Annual Report 2021 dssmith.com 77
GOVERNANCE Audit Committee Report
“The Group’s established
procedures enabled the financial
reporting process to continue
efficiently during the year, despite
the many challenges presented by
the Covid-19 pandemic.”
David Robbie,
Chairman of Audit Committee
The Audit Committee met on four occasions during the year, with
meetings scheduled to align with the Group’s external financial
reporting obligations. Details of individual Directors’ attendance
can be found on page 70. As and when required, the Audit
Committee members and I were joined by the Group Chief
Executive, the Group Finance Director, the Group Financial
Controller and representatives from the external Auditor and
Internal Audit for parts of these meetings, by invitation. The
external Auditor was not present at meetings where their
performance and/or remuneration was discussed. The Audit
Committee also met privately with the external Auditor
as appropriate.
The Group General Counsel and Company Secretary acts as
Secretary to the Committee.
The Board is satisfied that I, as Chairman of the Committee, and
the other members of the Audit Committee have both current and
relevant financial experience (as set out on pages 62 and 63) and
that the Audit Committee, as a whole, has competence relevant to
the sector (namely manufacturing) in which the Company
operates.
In addition to the scheduled Committee meetings, I, as Chairman of
the Audit Committee, held separate individual meetings during the
year with representatives from Internal Audit, the Group Finance
Director and his team and the external Auditor.
The Audit Committee received sufficient, reliable and timely
information from management to enable it to fulfil its responsibilities.
Dear shareholders
The Audit Committee supports the Board in its oversight of the
control framework across the Group. Our principal objectives as an
Audit Committee are:
• To monitor the integrity of the Group’s reporting process and
adherence to the Group’s accounting policies and procedures
• To ensure that risks are carefully identified and assessed; and
that sound systems of risk management and internal control
are implemented.
I am pleased to report that the Group’s established procedures and
systems to identify, mitigate and manage risks enabled the
financial reporting process to continue uninterrupted during the
year, despite the many challenges presented by the Covid-19
pandemic. The finance team delivered an impressive volume of
work in difficult times and I would like to thank them for their
sustained commitment.
Our role
The Audit Committee’s role is pivotal in ensuring the robustness of
the Group’s risk management activities and internal control
environment, thereby ensuring the integrity of the financial
reporting process. As Chairman of the Audit Committee I make
myself available at the Company’s annual general meeting (AGM)
to answer any shareholder questions on the Committee’s remit.
Membership and operation of the Committee
Member
David Robbie (Chairman)
Celia Baxter
Alina Kessel
Louise Smalley
Rupert Soames
78
Since
2019
2019
2020
2014
2019
Matters particularly focused on by the Audit Committee in its discussions with management include:
Risk management, internal
control and compliance
enhancements
Quality of earnings
Financial commitments and
liabilities
June 2020
• Review of the 2019/20 Annual Report and announcement, including a review to
ensure the report was fair, balanced and understandable
• Going concern and viability statement, including Covid-19 impact assessment
• Impairment assessment review
• Effectiveness of internal control framework update
• Review of adjusting items
• Review of risk appetite and tolerance statement
• 2020/21 Internal Audit plan
• External Auditor report
• Review of external Auditor effectiveness paper and recommendation to the Board
to re-appoint Deloitte for 2020/21
Update on M&A-related activity
• Cyber review
Pensions
Taxation matters, including
review of strategy and risks
Internal Audit status update,
in-house governance
compliance and corporate
governance update
October 2020
• Further rigorous review of adjusting items
• Non-financial areas to be targeted by Internal Audit plan
• Impairment assessment review
• 2020/21 external Auditor plan
• 2020/21 Internal Audit plan and confirmation of KPMG LLP’s independence
• Ethics and compliance report review
• Corporate governance training (provided by Deloitte)
December 2020
• Update on half year forecast results
• Going concern
• Review of announcement of half year results
• External Auditor half year report, including confirmation of independence and
objectivity
• Internal Audit review (joint with recently appointed Head of Internal Audit and
KPMG LLP)
• Non-audit fees review
April 2021
• Update on full year forecast results and trading outlook
• Interim going concern assessment and consideration of significant accounting
policies and judgements
• Annual impairment review
• Effectiveness of internal controls review
• Ethics and compliance report review
• Update on external Auditor plan and fees (including for non-audit services)
• Review of emerging risks and risk update
• Review of Internal Audit Plan
June 2021
• Review of the 2020/21 Annual Report and announcement, including a review to
ensure the report was fair, balanced and understandable
• Going concern and viability statement
• Impairment assessment review
• Effectiveness of internal control framework update
• Review of adjusting items
• Review of risk appetite and tolerance statement
• 2021/22 Internal Audit plan
• External Auditor report
• Review of external Auditor effectiveness paper and recommendation to the Board
to re-appoint Deloitte for 2021/22
• Review of the audit tender process and agreement of recommendation to the Board
Annual Report 2021 dssmith.com 79
GOVERNANCE AUDIT COMMITTEE REPORT CONTINUED
Risk management, internal control and
Internal Audit
In fulfilling the Committee’s oversight of the risk management
and control environment, a number of key activities are
undertaken during the year, including regular meetings with
senior management.
The Audit Committee considered the Group’s risk management
activities during the year (with specific discussions of such topics
as paper price volatility, regulation and governance, packaging
product development risks, business continuity and emerging risk
developments). The Audit Committee continued its regular review
of risk reporting to ensure that the balance between risk and
opportunity was in keeping with the Group’s risk appetite and
tolerance. The Audit Committee is satisfied that the Group’s
executive compensation arrangements do not prejudice robust
controls and good stewardship.
The Committee approved the Group’s annual Internal Audit plan,
which was primarily risk-based, focusing on the assurance of core
processes and projects, as well as overseeing internal compliance
activities. During the year, the Committee received regular reports
summarising findings from the Internal Audit reviews performed,
action plans to address any areas highlighted for improvement and
additional activity review summaries from internal compliance
teams. An ongoing review of the effectiveness of the Internal
Audit function is performed by the Committee, focusing on the
content and delivery of the regularly-received reviews, action
plans and activity summaries. This, along with the annual review
and evaluation of the performance of the Internal Audit function,
enabled the Committee to remain satisfied that the quality,
experience and expertise of the function is appropriate for the
business. Owing to the strong capabilities of our governance and
compliance team, which have developed with the support of the
KPMG LLP-led Internal Audit function, the Company has elected to
return to an in-house Internal Audit model from 1 May 2021 to
provide independent assurance. We would like to thank KPMG LLP
for their service and insightful reviews provided during a period of
significant growth and change for the Group.
The expanded internal control framework developed during the
2019/20 financial year has been rolled out as intended,
complemented with comprehensive training.
A key element of the Committee’s oversight role is to challenge
management and test the validity of any critical assumptions,
never more so than in times of uncertainty. In 2020/21, building
on its work in 2019/20, the Committee has again focused on
debating cyber risks generally, including those present in
operational technology. In light of Covid-19 and in common with
other businesses, the imperative of encouraging an even wider
range of scenarios than usual to be developed to enhance the
supporting evidence in relation to the viability statement and
going concern basis of accounting in the 2020 Annual Report was
recognised and acted upon. Other discussions have probed the
implications of the number of employees working from home, or
other unaccustomed locations, due to Covid-19; the degree to
which a strength, if over developed, could become a weakness;
and the level of engagement at all levels of the Group with the risk
management processes.
Confidential reporting
The Committee receives a separate report on matters raised
through ‘Speak Up!’, the Group’s confidential reporting channel,
and any related investigations. The Code specifies that reports
arising from such confidential reporting channels should either be
reviewed by the Board or an explanation given. All Board members
attend that part of the Audit Committee meeting when ‘Speak Up!’
and any related investigations are reported on. This means that
representatives from both Internal Audit and the external Auditor
(who attend the Audit Committee meetings but not Board
meetings) can contribute their perspectives, which is a valuable
part of the review process. Internal Audit are also able to provide
specialist support where such assurance is considered necessary.
Following consultation with the EWC, in March 2021 the Board
reviewed and approved a revised ’Speak Up!’ policy, updated to
reflect recent legislative developments. Board members during
that review debated the tensions inherent in having a
comprehensive policy that by its length might be less accessible
than the highly visual and simplified posters that have recently
been refreshed.
80
Financial reporting
The Code requires the Board to confirm that the Annual Report presents a fair, balanced and understandable assessment of the Group’s
performance, business model and strategy. This is an important area of focus for the Committee. At the request of the Board, the
Committee undertook procedures to advise the Board on this. Committee members gave input at various stages during the planning and
drafting process, as well as taking the opportunity to review the Annual Report as a whole and discuss, prior to the June Audit Committee
meetings, any areas requiring additional clarity or better balance in the messaging.
Significant matters considered in relation to the financial statements
Issue
Classifications and
presentation of
adjusting items
Review and conclusion
The Committee considered the application of the Group’s accounting policies, principles and disclosures in
the financial statements that relate to critical accounting estimates and judgements, and challenged the
underlying assumptions applied in areas including provisions (such as litigation and restructuring) and
adjusting items .
Continued scrutiny over the appropriateness and application of the adjusting items policy was applied
during the year, in particular around the continued costs incurred to deliver programmes to optimise the
operational footprint. Such items include acquisition costs, integration costs, impairments and gains or
losses on business disposals, which are classified as adjusting items because of their nature, incidence or
size. The Directors have considered the ongoing regulator focus on Alternative Performance Measures
but believe that identification and separate classification of these items assists in enhancing the
understanding of the trading and financial results of the Group.
The Audit Committee has reviewed the appropriateness of the income and costs both included in and
excluded from adjusting items by challenging and seeking explanations from management. The
Committee reviewed reports on the items provided by management and the external Auditor. This item is
a recurring agenda item in all Audit Committee meetings.
The Audit Committee is satisfied that the resulting presentation and disclosure of all accounting policies
and principles is appropriate.
Taxation remains a key area of focus for the Committee, due to the continued level of fiscal authority
activity, ongoing tax enquiries and disputes, and the Group’s M&A activity. The Group is exposed to
differing tax regimes and risks which affect both the carrying values of tax balances (including deferred
tax) and the resultant income statement charges. The Audit Committee reviewed the tax charge for the
half year and the full year, including the underlying tax charge, the appropriateness of and movement in
tax provisions recognised and the risks associated with them. The Audit Committee is satisfied that the
amounts recognised and the disclosure provided are appropriate.
Taxation
Annual Report 2021 dssmith.com 81
GOVERNANCE
AUDIT COMMITTEE REPORT CONTINUED
Our key responsibilities
As a Committee we have delegated authority from the Board to
focus on the following key responsibilities:
• Ensuring the integrity of financial reporting and associated
external announcements
• Reviewing and challenging the application of the accounting
policies and principles reflected in the Group’s financial
statements
• Assessing the basis on which the viability statement and
going concern statement are being made and testing
assumptions underlying them
• Managing the appointment, independence, effectiveness
and remuneration of the Group’s external Auditor, including
the policy on the supply of non-audit services
• Initiating and conducting the audit tender process for the
external audit
• Monitoring the adequacy and effectiveness of the internal
control environment
• Challenging the plans and effectiveness of the Internal Audit
function, performed on the Group’s behalf during the year by
KPMG LLP, and going forward by the in-house Internal Audit
function, which is independent from the Group’s external
Auditor
• Overseeing the Group’s risk management processes and
performance
• Reviewing the effectiveness of established fraud prevention
arrangements and reports made through the confidential
‘Speak Up!’ policy process
• Assessing the Group’s compliance with the 2018 UK
Corporate Governance Code (Code)
• Providing advice to the Board on whether the Annual Report
and financial statements, when taken as a whole, are fair,
balanced and understandable and provide all the necessary
information for shareholders to assess the Group’s
performance, business model and strategy.
Other activities of the Committee
External Auditor
Financial Reporting Council (FRC) correspondence
Effectiveness
In November 2020, the FRC issued their annual advice letter to
Audit Committee Chairs and Finance Directors in advance of the
2020/21 reporting period. Not surprisingly, the presentation of
financial information in a Covid-19 environment was a key item in
this year’s letter. Guidance provided by the FRC subsequent to the
preparation of the 2019/20 Annual Report was reviewed against
the disclosures made in the prior year’s Annual Report and
considered in the preparation of the current year’s Annual Report.
Other matters raised by the FRC included the impact of Brexit on
company-specific risks and uncertainties and the section 172
statement and reporting. All matters raised have been reviewed
and appropriate disclosure updates reflected, where required.
Continued development
In order to help the Committee continue to meet its
responsibilities, Committee meetings include regular corporate
governance updates and briefings from external advisers, such
as cyber specialists, or from members of senior management.
At its briefing session in October 2020, the Committee
considered what might be the next steps taken in response to
the recommendations in the Brydon Review, the CMA report and
the Kingman Review and in April 2021 the Committee was briefed
on the UK government’s March 2021 consultation paper calling for
feedback on a number of questions in these areas. The Committee
reviewed its effectiveness as part of the wider Board’s review of
its effectiveness, as described on page 72.
In addition to the external Auditor confirming their independence,
and objectivity, the Audit Committee also evaluates and monitors
their effectiveness through a review of the qualifications,
expertise and resources of the engagement team. This is
conducted through direct assessment and recurring activities. As
part of the current assessment of effectiveness, the Audit
Committee has taken into consideration the guidance issued by
the FRC. Based on evidence from management, the external
Auditor and, as appropriate, external sources together with its
own experience, the Audit Committee assessed the mindset and
culture, skills, character and knowledge, quality control and
judgement of the Auditor. The assessment considered the degree
of challenge to management, the issues identified and the quality
of explanations. The Audit Committee recognises that the quality
of an audit is paramount. Particular note was taken of the current
year audit work, considered against the backdrop of the Covid-19
pandemic, which has presented practical process challenges and
required enhanced audit requirements. The Committee is satisfied
with the effectiveness of the Auditor and that the current year
audit was one of high quality.
The quality of the audit is also assessed by the Committee,
informed by discussion of each post-audit review.
Separate to the meetings of the Audit Committee, I meet regularly
with the lead external Audit engagement partner, as do other
individual members of the Committee.
In December 2019, an update to the May 2015 Audit Committee
Practice Aid on Audit Quality was published by the FRC. The update
contained significant changes in respect of the external audit
tendering process as well as refined guidance on the assessment
of auditor effectiveness. Our approach to auditor effectiveness
complies with this guidance.
82
Independence and objectivity
In order to ensure the independence and objectivity of the
external Auditor, the Audit Committee maintains and regularly
reviews the Auditor Independence policy which covers non-audit
services which may be provided by the external Auditor, and
permitted fees.
The Group has a policy on the supply of non-audit services by the
external Auditor, which was most recently updated in April 2020.
The policy prohibits certain categories of work in accordance with
guidance such as the FRC Ethical Standard. It specifies that the
Group should not employ the external Auditor to provide non-audit
services where either the nature of the work or the extent of such
services might impair their independence or objectivity. The
external Auditor is permitted to undertake some non-audit
services under the Group’s policy, providing it has the skill,
competence, integrity and appropriate independence safeguards
in place to carry out the work in the best interests of the Group, for
example, permissible reporting accountant work associated with
significant acquisitions. All proposed permitted non-audit services
are subject to the prior approval of the Audit Committee.
Non-audit services and fees are reported to the Audit Committee
twice each year. During 2020/21, total non-audit fees paid to the
external Auditor of £0.4 million were 9 per cent of the annual
Group audit fee (2019/20: £0.3 million: 8 per cent): see note 3 to
the consolidated financial statements. In addition, £9.4 million
was paid to other accounting firms for non-audit work, including
£0.7 million for work relating to Internal Audit.
The EU Audit Regulation (Retained Legislation) and the FRC’s
revised Ethical Standard mean that, with effect from the Group’s
2020/21 year, a cap on the ratio of non-audit fees to audit fees
paid to the external Auditor of 70 per cent applies, which will
further restrict the non-audit services permitted.
Annually, the Audit Committee receives written confirmation from
the external Auditor of the following:
• Whether they have identified any relationships that might have
a bearing on their independence
• Whether they consider themselves independent within the
meaning of the UK regulatory and professional requirements
• The continued suitability of their quality control processes and
ethical standards.
The external Auditor also confirmed that no non-audit services
prohibited by the FRC’s Revised Ethical Standard were provided to
the Group or parent Company.
2018/19 year end, with her five year rotation to end with the
2022/23 audit.
Pursuant to the terms of the Statutory Audit Services for Large
Companies Market Investigation (Mandatory Use of Competitive
Tender Process and Audit Committee Responsibilities) Order 2014
(Competition & Markets Authority Order), which is now in force,
the Audit Committee is solely responsible for negotiating and
agreeing the external Auditor’s fee, the scope of the statutory
audit and initiating and supervising any competitive tender
process for the external audit. When a tender is undertaken, the
Committee is responsible for making recommendations to the
Board as to the external Auditor’s appointment. The Committee’s
policy is that the role of external Auditor will be put out to tender
at least every ten years in line with the applicable rules. Deloitte
has been the external Auditor following the tender process in
2013/14. Mindful of the constraints within the audit market, the
Committee decided to put the external audit out to tender a year
earlier than the ten-year limit would require. The tender process
was conducted in accordance with the applicable legal
requirements and followed the relevant FRC guidance. At its June
2021 meeting the Committee recommended to the Board that
Ernst & Young LLP be appointed external Auditor with effect from
the 2022/23 audit.
The Audit Committee confirms that the Company has complied
with the provisions of the Competition & Markets Authority Order
with regards to external audit tendering and audit responsibilities
throughout its financial year ended 30 April 2021.
Looking forward
As well as the regular cycle of matters that the Committee
schedules for consideration each year, we are planning over the
next 12 months to:
• Expand the range of Internal Audit’s reviews in the coming
year to include Group processes and functional assurances
such as looking at the safeguards around anti-bribery and
corruption policies and the effective operation of the ‘Speak Up!’
protocols while maintaining the rigour of internal financial
control assurance
• Look in greater detail at emerging risks for the Group
• Continue to monitor legislative and regulatory changes that may
impact the work of the Committee, particularly the outcome of
the UK government’s consultation paper on restoring trust in
audit and corporate governance which develops many of the
recommendations in the earlier Brydon Review, the CMA report
and the Kingman Review
On the basis of the Committee’s own review, approval
requirements in the non-audit services policy, and the external
Auditor’s confirmations, the Audit Committee is satisfied with the
external Auditor’s independence and effectiveness.
• Monitor adjusting items and policy.
David Robbie
Chairman of Audit Committee
Auditor’s fee, appointment and tender process
21 June 2021
External audit fee negotiations are approved by the Audit
Committee each year. There are no contractual restrictions on the
Group in regard to the current external Auditor’s appointment.
Deloitte LLP were first appointed as external Auditor to the Group
in 2006. Nicola Mitchell became the lead audit partner for the
Annual Report 2021 dssmith.com 83
GOVERNANCE Remuneration Committee Report
“As a Committee, we take our
decisions in the context of the
Group’s achievements and the
wider stakeholder experience.”
Celia Baxter,
Chairman of Remuneration Committee
Dear shareholders
Introduction
On behalf of the Board, I am pleased to present the Directors’
Remuneration Report for the year ended 30 April 2021, which sets
out our implementation of the remuneration policy that was
approved by shareholders at the Annual General Meeting (AGM) in
September 2020.
As usual, my letter on pages 84 to 86, the summary on pages 87
and 88 and the Annual Report on Remuneration on pages 94 to
107 will also be presented for approval by an advisory vote at our
AGM in September 2021.
Our purpose as a Remuneration Committee is to develop a reward
package that supports our vision and strategy as a Group and to
ensure the rewards are performance-based and encourage
long-term shareholder value creation. In the past 12 months many
things have changed in the world around us, but the Group’s
strategic focus continues to be on being a leader in sustainable
fibre-based packaging, with a corporate Purpose of ‘Redefining
Packaging for a Changing World’. All regions in which the Group
operates were affected by the Covid-19 pandemic, but all our sites
remained operational as essential suppliers to critical supply
chains. We continued to deliver to our customers, to develop new
and improved ways of meeting their needs (for example our new
web-based business, ePack) and to develop innovative sustainable
solutions. All these factors drive the Group’s ongoing profitability
and cash flow, which are the current performance measures for
our incentive plans.
Our achievements and variable pay outcome
The full financial year of 2020/21 has been impacted by Covid-19
and this has been a year unlike any other in our lifetimes, but in
these uncertain times we have worked in tandem with
governments to ensure that our factories could remain open and
continue to keep goods moving, including vital supplies like
medicines and food. Putting the safety and wellbeing of our
84
workforce as our first priority has enabled us to support our
customers and their supply chains and we are proud of what
our employees have delivered for our customers in these
difficult times.
You can read about the achievements of our business during
2020/21 in more detail in the Strategic Report starting on page 1.
Highlights for the 2020/21 financial year include:
• Return on sales of 8.4%
• Adjusted operating profit of £502 million
• 14% reduction in accident frequency rate
• MSCI Index rating has increased from A to AA.
In respect of the variable pay elements linked to the 2020/21
financial year, the Committee has decided that the Executive
Directors will receive 98% of the maximum annual bonus
opportunity. Further details are set out below and on pages
96 and 97.
Unfortunately, the performance share plan (PSP) award made in
2018 which was due to vest in June 2021 based on the three year
average earnings per share (EPS) and return on average capital
employed (ROACE) performance between 2018/19 and 2020/21
and the three year cumulative relative total shareholder return
(TSR) performance, did not meet the threshold targets for the two
financial measures and fell below median for the relative TSR
measure. The financial targets were set in 2018 in the context of
the expectation of a stable economy and were not adjusted, but
the negative impact of the pandemic on the 2020/21 results made
those targets unachievable.
With many of DS Smith’s markets in lockdown at the beginning of
the year, and consequently very weak trading and an uncertain
outlook, 2020/21 presented the Committee with significant
challenges in setting realistic but stretching targets for the annual
bonus incentive. The targets the Committee chose demanded a
significant improvement in profitability month by month as the
year progressed and were aligned to the sell-side consensus at the
time; they ultimately proved successful in incentivising an
impressive recovery from the very weak trading seen in the first
months of the year. The targets were not amended by the
Committee.
The bonus award as a percentage of maximum will apply to around
1,500 employees who participate in the Group bonus plan and the
vesting percentage of 0% under the 2018 PSP will apply to the top
150 senior managers who participate in the Group’s long term
incentive plan. When deciding the level of these variable pay
elements, the Committee considered the experience of the
Group’s stakeholders during the 2020/21 financial year. In respect
of the 2020/21 financial year, an interim dividend has been paid
and a final dividend has been recommended, subject to the
approval of shareholders at the forthcoming AGM. The share price
on 30 April 2021 was £4.21, up from a low of £2.53 earlier in 2020.
Employment levels Group-wide have been maintained, with a
strong focus on employee health and wellbeing, exemplified by a
Group-wide extra day of holiday offered in 2021. Any UK
Government furlough support taken in the initial stages of the
pandemic, when the situation was very uncertain, has been repaid.
The Group’s connection with the local communities where our
sites are based has become much stronger in the past year
through increased engagement in community programmes. (Some
examples of this are described on page 32). Our commitment to
carbon reduction has continued, with a 23% relative to production
decrease from 2015 levels. Most importantly for our customers,
and for their customers, putting in place new policies and practices
to allow production to continue, has enabled volume growth and
supported responsiveness to react to changes in customers’
needs. The proportion of orders that are delivered on time, in full
across our businesses has, despite the circumstances of the past
12 months, remained at 95 per cent, as it has been for the previous
two years. The Committee also noted that there were some
negative impacts of the pandemic in the last quarter of 2019/20
and this had resulted in no bonus award being payable under the
2019/20 plan. The Committee concluded that the variable pay
outcome (both of the annual bonus and PSP) in respect of 2020/21
appropriately reflected the Company’s performance in the period
and was commensurate with the broader stakeholder experience
in the period. It was therefore not felt necessary to apply any
discretion to amend the outcome. The Committee also concluded
that the remuneration policy has operated as intended, both in
terms of appropriately incentivising corporate performance and in
respect of quantum.
Our year under review
The key discussions and decisions taken since 1 May 2020 were:
• Finalising the proposed remuneration policy for 2020-2023 that
was approved at the 2020 AGM
• Considering the impact of Covid-19 on the business when
deciding on the appropriate approach for bonus and PSP: for
determining vesting levels and the grant size, selecting
performance measures and targets, making sure that such
decisions take into account the new economic context with
reference to the wider workforce and the expectations of other
stakeholders, such as our investors, suppliers and customers,
but at the same time balancing the business need for
meaningful incentivisation for management and recognition for
leading through unusually challenging and turbulent times
• Reviewing the salaries of the Group Chief Executive and Group
Finance Director and the next layer of management. Agreeing
that for them (unlike the majority of the workforce) pay
increases in August 2020 would be postponed until the
economic situation was more certain. Deciding, having gained
the necessary clarifications and in line with the approach taken
for others within the workforce affected by the pay review
postponement, an interim pay review would be implemented
with effect from 1 January 2021. Reviewing these salaries as
usual in April 2021 and deciding that a pay increase in line with
the average increase provided to the workforce as a whole
would be implemented on 1 August 2021
• Reviewing the market rates for comparable positions when
setting the fee for the Chairman with effect from 3 January 2021
• Bringing forward the further review of the alignment of the
Executive Directors’ pension contributions with the workforce
and making a commitment for the incumbent Executive
Directors’ pension contributions to be aligned with that available
to the workforce in the UK (being the country where they are
based for employment purposes). The Group Chief Executive’s
pension contribution reduced by 10% in 2020 and will reduce by
a further 5% on 1 August 2021 to 15% of annual salary. The
Group Finance Director’s pension contribution was reduced by
5% in 2020 and will reduce by a further 5% on 1 August 2021 to
10% of annual salary. Due to the amount of the pension
contribution reduction required to align with that available to
the workforce in the UK, currently 6%, the Committee agreed
that full alignment with the UK workforce rate would be
achieved by 1 August 2024
• Setting the targets for the annual bonus and PSP awards made
in 2020/21 and the performance measures and weighting for
the 2021/22 awards. For recipients of PSP awards below
Executive Director level it was agreed that part of the award
made in 2020 would, with an appropriate discount applied, be
made in restricted stock with no performance conditions. This
decision was taken at a time of uncertainty in July 2020 when
the impact of the pandemic was unclear, but the need for
meaningful incentivisation and retention was clear
• Agreeing to make a retention and recognition award in 2020
under the Deferred Share Bonus Plan (DSBP) to over 1,500
employees below Executive Director level whose annual bonus
is determined by reference to the Group bonus plan
• Reviewing the Group Finance Director’s PSP award level and
deciding to increase it from 175% to 200% of salary and
commensurately increasing the shareholding requirement for
from 175% to 200% of salary. This was done taking into
account his experience and advancement in the role and the
market position, ensuring that the resulting total remuneration
package remained no higher than mid-market for the Group
Finance Director role in companies in the FTSE51 to 150
(excluding Financial Services companies); while noting that the
opportunity will only be realised if the corporate targets are met
and five years after the awards have been granted
• Assessing the costs and benefits of operating Group-wide
employee Sharesave plans and deciding to continue to operate
them in countries where there are larger employee populations
and no constraining legal or taxation restrictions
• As part of developing the Committee’s understanding of the
remuneration-related policies that apply to the wider Group’s
workforce, we have held a series of briefing sessions to further
enhance our knowledge of the broader approach to reward
being taken across the Group, building on the programme that
started in 2018/19. During the year we completed the initial 18
month programme of briefing sessions, to provide information
on the type of benefits available across the Group including
retirement benefits, healthcare, life insurance, disability cover
and employee assistance programmes, including, as
appropriate, the level of State support. (Separate updates were
given to those Non-Executive Directors who had recently joined
the Committee and missed parts of the programme.) Going
Annual Report 2021 dssmith.com 85
GOVERNANCE REMUNERATION COMMITTEE REPORT CONTINUED
forward the Committee will be updated on any major policy
changes for the workforce or new approaches to remuneration.
Our conversation with our workforce
The diagram on page 89 sets out the approach the Group is taking
to collate ideas and hear any concerns from the workforce around
reward. One of the consequences of Covid-19 has been an
enforced delay on our planned expansion of this programme of
engagement at site level. While there are many things that can be
done through the medium of electronic meetings, focus sessions
at site level are most valuable and insightful when held in person.
The UK Corporate Governance Code asks the Board to ensure
effective engagement with, and encourage participation from, its
shareholders and stakeholders. As a Board we decided that the
complexities of consulting and engaging with around 29,000
people at more than 350 sites and offices, in more than 30
countries are such that engagement with the workforce was not a
role for just one person (such as a designated non-executive
director). The Board has used as its starting point for this important
work the European Works Council (EWC), a formal workforce
advisory panel. It has chosen to build on that existing structure as
it is already a well-established forum for engagement on a range
of matters relating to the workforce. The Board considers it
appropriate to use this body, initially, as a communication channel
with the workforce to hear the ‘employee voice’ in the boardroom.
An EWC representative joined a Committee meeting this year to
support and inform discussions about Sharesave (our employee
share plan). Prior to that meeting we worked closely with the EWC
representative to design a questionnaire to send out to all
employees across the Group to find out:
• What people thought about Sharesave
• What their motivations for joining the plan were
• What the main reasons holding people back from joining the
plan were.
The EWC representative then attended the Committee meeting to
present the feedback received from around 4,000 employees
(drawn from across a broad representation of the whole employee
population). He also provided his own insight on what
improvements could be made to continue to increase participation
levels. Overall, the satisfaction for those participating in Sharesave
was extremely high. Accordingly, the ongoing focus will be on
ensuring that those employees who choose not to participate are
making a fully informed choice and understand the benefits
provided by Sharesave that they are foregoing.
In addition, I once again attended a meeting of the EWC Executive
to engage with them and give an updated presentation about how
executive remuneration policy is set and take questions from them
about the way in which the Committee operates. In our meeting in
March 2021 we covered the changes made to the remuneration
policy which had been approved by shareholders at the 2020 AGM
and discussed some of the considerations the Committee has to
take into account in making its decisions about executive
remuneration in the new Covid-19 environment. The focus of the
meeting was to engage with the EWC representatives to explain
how executive remuneration aligns with wider Group pay policy,
but the representatives were also keen to share their views on
aspects of the remuneration of the wider workforce, such as the
level of discount offered when setting the Sharesave option price
and the scope for an increase in the pension contribution rates
offered to the workforce. These meetings are now a regular
feature of the routine timetable as the EWC Executive value the
opportunity they provide and find them useful to understand more
86
about matters relating to the Executive Directors’ remuneration
and its alignment with that of the wider workforce. Any other
reward-related feedback from any sources, whether that is from
pulse engagement surveys, Town Hall meetings, management site
visits or social media is fed back to the Remuneration Committee.
The Committee decided to take this more structured approach to
consulting with the workforce on executive pay, as we felt that it
would be a more effective way to open and develop the dialogue
about remuneration matters. The Committee will consider further
steps to consult more widely, taking into consideration the
complexities of achieving this when travel is likely to remain
restricted for a period in the pandemic-aware world.
Looking forward
As well as the regular annual cycle of matters that the Committee
schedules for consideration, we are planning over the next 12
months to:
• Develop further the programme of topics discussed with the
EWC representative
• Work with the EWC Executive to support them in keeping the
wider workforce appropriately informed and listening to their
feedback on executive remuneration matters
• Keep abreast of the continuing changes in regulation and best
practice with regard to remuneration policy and practice and
carefully consider the applicability of any such trends to
our business.
Due to the current uncertain times, the difficulties of predicting
customer demand and the economic conditions, target setting for
incentive plans continues to be challenging. The Committee
recognises that it may need to exercise discretion on any vesting of
the respective plans in forthcoming years.
As a Committee we are mindful that some shareholders are
encouraging companies to introduce non-financial performance
measures, particularly ESG (environmental, social and governance)
measures. To lead the way in sustainability is a key pillar of our
corporate strategy and success in the delivery of that strategy
feeds directly into the financial KPIs used in our short and long-
term incentive plans. To reinforce the importance and commitment
to this, the 2021/22 annual bonus plan will include an ESG underpin
(see page 97 for more details). Looking further ahead, although we
have the flexibility in our remuneration policy to introduce such
ESG metrics into the primary performance measures, the
Committee is conscious that this would need careful consideration.
The current incentive measures are considered to be clear,
challenging, consistent and well understood. The Committee will
however continue to consider and review this matter as practice
matures. More details about our approach to sustainability are set
out on pages 30 to 33 of the Annual Report, as well as in our latest
Sustainability Report.
Our conversation with our shareholders
Shareholder views, whether directly or indirectly expressed,
together with relevant guidance and emerging trends, are
carefully considered when reviewing reward design and outcomes.
At the AGM in September 2021, shareholders will be asked to vote
on the Remuneration Report. I hope that the Committee will have
your support.
As Committee Chairman, I continue to be available to engage with
shareholders, as they so wish, on remuneration matters.
Celia Baxter
Chairman of Remuneration Committee
21 June 2021
Remuneration at a glance
Single total figure of remuneration for 2020/21 (£'000s) (Audited)
Miles Roberts
Adrian Marsh
Miles Roberts
Adrian Marsh
£984
£1,541
£2,525
£593
£726
£1,319
Fixed pay
(salary/benefits/pension)
Annual bonus
Total £’000
Increase (decrease)
2020/21
2,525
1,319
2019/20
1,422
796
78%
66%
2020/21 annual
bonus
2018/19 PSP
vesting in 2021/22
98%
98%
0%
0%
For more information on how this is calculated see page 94.
2020/21 performance related outcomes
Vesting as a % of maximum
Miles Roberts
Adrian Marsh
Salary and shareholdings
Salary increases with effect from 1 August 2021 are set out on page 95.
The percentage of salary each Executive Director holds in shares is set out on page 101.
Pension
The contribution rates for incumbent Executive Directors are being reduced. Miles Roberts receives an annual pension allowance which
was reduced from 30% of base salary to 20% with effect from 1 August 2020 and will be reduced again to 15% with effect from
1 August 2021. Adrian Marsh receives an annual pension allowance which was reduced from 20% of base salary to 15% with effect from
1 August 2020 and will be reduced again to 10% with effect from 1 August 2021. The pension allowance of both Miles Roberts and
Adrian Marsh will be reduced further so that their pension benefit will be aligned with that available to the workforce in the UK (being the
country where they are based for employment purposes) with effect from 1 August 2024.
2021/22 application
The table below sets out a summary of how the remuneration policy for 2020-23 will apply during 2021/22.
Remuneration element
Base salary
Application of the remuneration policy
• Salaries will be increased by 2.5% (in line with the average increase of 2.5% for the workforce as a
whole) as follows:
• Group Chief Executive £814,000; and
• Group Finance Director £511,500.
Annual bonus
• No changes to maximum award levels of:
• Group Chief Executive 200%; and
• Group Finance Director 150%.
Performance share plan
(PSP)
• Bonus paid half in cash and half in deferred shares, under the deferred share bonus plan (DSBP),
with the shares vesting after three years.
• The performance measures for 2021/22 remain as adjusted EBTA and free cash flow with equal
weighting. (Details of the ESG underpin are set out on page 97.)
• No change to maximum award level for Group Chief Executive of 225%
• Increase in award level for Group Finance Director from 175% to 200%.
• The performance measures for 2021/22 will remain as adjusted EPS, adjusted ROACE and relative
TSR with equal weighting.
• Any shares that vest under this award must be retained for a further two years before they can be
sold and they are also subject to a post-employment holding condition.
Annual Report 2021 dssmith.com 87
GOVERNANCE
REMUNERATION AT A GLANCE CONTINUED
Remuneration element
Pension
Application of the remuneration policy in 2021/22 (continued)
• With effect from 1 August 2021 the contribution or cash alternative rate is reduced:
• Group Chief Executive from 20% to 15%; and
• Group Finance Director from 15% to 10%.
Shareholding guidelines
• Shareholding target remains at 225% of salary for the Group Chief Executive and increases from
175% to 200% for the Group Finance Director.
• Actual holding (valued at 30 April 2021 share price) was 1,317% and 551% respectively.
Any shares that vest under the PSP awards granted in 2020/2 1 will be held in a nominee
arrangement for the appropriate period, because they are also subject to a post-employment holding
condition (in addition to the two-year post-vesting holding condition).
Illustration of the application in 2021/22 of the remuneration policy
The balance between fixed and variable ‘at risk’ elements of remuneration changes with performance. Our remuneration policy results in
a significant proportion of remuneration received by Executive Directors being dependent on performance. The total remuneration of
the Executive Directors for maximum, target and minimum performance in 2021/22 is presented in the charts below. (The basis of the
calculation of the share price appreciation is that the share price embedded in the calculation for the PSP awards in the maximum bar
chart is assumed to increase by 50% across the performance period.) These figures are indicative as future share prices and future
dividends are not known at present.
Miles Roberts
Adrian Marsh
Maximum (fixed remuneration plus maximum annual bonus opportunity plus 100% vesting of performance shares) and share price
appreciation of 50%: £’000s
£962
£1,618
£2,680
£5,260
£584
£763
£1,497
£2,844
Fixed pay: 18%
Bonus: 31%
PSP: 51%
Fixed pay: 20%
Bonus: 27%
PSP: 53%
Maximum (fixed remuneration plus maximum annual bonus opportunity plus 100% vesting of performance shares) £’000s
£962
£1,618
£1,787
£4,367
£584
£763
£998
£2,345
Fixed pay: 22%
Bonus: 37%
PSP: 41%
Fixed pay: 25%
Bonus: 32%
PSP: 43%
Target (fixed remuneration plus half of maximum annual bonus opportunity plus 25% vesting at threshold of performance
shares) £’000s
£962
£809
£447
£2,218
£584 £381
£250
£1,215
Fixed pay: 43%
Bonus: 37%
PSP: 20%
Fixed pay: 48%
Bonus: 31%
PSP: 21%
Minimum (fixed remuneration only, i.e. latest known salary, benefits and pension) £’000s
£962
Fixed pay: 100%
£584
Fixed pay: 100%
Key attributes to consider in reviewing remuneration matters
Under the 2018 Corporate Governance Code (the Code) the
Committee is asked to describe with examples how it has
considered six specific factors. In 2020 the Committee’s review
of the remuneration policy was an example of taking all these
factors into account, but in every year the decisions made in
relation to remuneration matters are taken in alignment with
the over-arching reward principles that apply to all executive
management. These principles are periodically reviewed by
management and considered by the Remuneration Committee.
All the criteria for each element of an individual’s remuneration
are explained, so that each individual has a clear and
predictable line of sight as to what actions will impact their
remuneration outcomes, so that all remuneration is
appropriately earned for genuine business performance
aligned to Company strategy.
expressed simply. Under our reward principles incentive
levels are to be proportionate and designed in a way to
minimise any behavioural risks.
In 2021 the Committee reviewed the reward principles (set out
on page 89) and noted that these principles are clear and
88
DS Smith reward principles
As part of good practice for any reputable company we apply
the following baseline principles when setting reward across
the organisation:
• Meets legal and regulatory requirements
• Simple and clear to understand
• Affordable and sustainable
• Is competitive in the market on a total reward basis to enable
DS Smith to attract and retain the right level of talent.
However, to differentiate our employee value proposition and
ensure that our approach to reward aligns to our culture, we
have developed the following DS Smith reward principles.
1. We support a culture of meritocracy where our people are
encouraged to reach their potential and are clear on what
they need to do to succeed. For salaried employees, reward
should be differentiated using our Group salary and
incentive ranges for entry, established and high
performers. Where pay is determined through collective
bargaining and there is less scope to differentiate by
individual, the highest performers should be rewarded
through development, promotion and other
recognition opportunities.
2. We strive to have consistent policies and practices at a local
level and transparency in our benefits offering and policies.
Incentives are designed to reward collective rather than
individual effort to support our one DS Smith culture. For
senior managers, this is Group financial performance but for
3.
middle managers and frontline employees, performance
measures can be the key value drivers that the individuals
are able to influence directly such as cost, quality
and service.
4. All employees should have the opportunity to share in the
success of the Group.
5. Share ownership is fundamental at senior levels and
desirable across the Group.
6. The Group respects the need for employees to make their
own choices around what they value, although there are
certain reward components linked to health and wellbeing
where the Group may decide it is appropriate to set a
minimum Group standard.
7. Our pension offering should be competitive with the local
market where this is a benefit valued by employees.
8. When determining rewards, demonstration of an
individual’s behaviours in line with the Group’s values (be
caring, be challenging, be trusted, be responsive and be
tenacious) are considered alongside the results achieved.
In managed exits people should be treated fairly, in line
with the Group’s values and with dignity, but failure should
not be rewarded.
9.
10. Safeguards are applied to ensure that incentive levels are
proportionate, appropriately earned for genuine business
performance aligned to Company strategy and designed in
a way to minimise any behavioural risks.
Employee voice in the boardroom
Use of existing
European Works
Council (EWC)
structure
Include a reward session at
quarterly EWC Chairman meetings
led by the Group HR Director and
the Group Head of Reward
Invite EWC representative to speak
regularly at Remuneration
Committee meetings
Any reward-
related feedback
also shared with
Remuneration
Committee
Information
flow
Other sources of
feedback on the total
employee experience
f
l
o
w
I
n
f
o
r
m
a
t
i
o
n
Remuneration
Committee
Board
Run reward
focus sessions at
site level
Sessions led by Group reward
Particular focus on regions not
covered by the EWC
The remuneration sections of this report explain how we have applied aspects of principles P, Q and R in section 5 (remuneration) of the Code and
how we have put the provisions of that section into practice, as well as how we have complied with the Companies Act 2006 and other regulatory
requirements in relation to remuneration matters. After the introductory letter from the Chairman of the Remuneration Committee, we summarise
the remuneration of the Executive Directors in our ‘at a glance’ section. We have put that summary section next as we know some readers are less
interested in the more detailed sections that follow about how the implementation of the remuneration policy has operated in practice in the year
under review in 2020/21 and how the remuneration policy will operate in 2021/22. Finally there are some other required disclosures that also relate
to remuneration matters included in the last part of this Remuneration Report.
Annual Report 2021 dssmith.com 89
GOVERNANCE
Remuneration policy
(approved in 2020)
Set out below are the key elements of our Directors’ remuneration policy applicable from 8 September 2020 when the policy was
approved by our shareholders. The full policy can be found in the Annual Report 2020 on our website at https://www.dssmith.com/
investors/annual-reports/archive. Since the policy was approved at the 2020 AGM, the Committee has in 2021 undertaken a further
review of the level of pension contribution and on 1 August 2024 the maximum pension contribution for the Executive Directors will be
reduced further to be aligned with that available to the workforce in the UK (being the country where they are based for employment
purposes).
Operation and performance metrics
Maximum opportunity
Salaries will normally be increased in line with
increases for the workforce in general, unless
there has been an increase in the scope,
responsibility or complexity of the role, when
increases may be higher. Phased higher
increases may also be awarded to new Executive
Directors who were hired at a discount to the
market level to bring salary to the desired
mid-market positioning, subject to individual
performance.
The aim is to position salaries around the
mid-market level, although higher salaries may
be paid, if necessary, in cases of external
recruitment or retention.
Maximum bonus potential of 200% of base
salary, with target bonus being one half of the
maximum.
Bonus starts to be earned at the threshold level
(below which 0% is payable).
Current maximum potential for each Executive
Director is set out in the Annual Report on
Remuneration.
Normally reviewed by the Committee annually and fixed for the
12 months commencing 1 August.
The Committee takes into account:
• role, competence and performance;
• average change in broader workforce salary; and
• total organisational salary budgets.
When external benchmarking is used, the comparator groups are
chosen having regard to:
• size: market capitalisation, turnover, profits and the number
of employees;
• diversity and complexity of the business;
• geographical spread of the business; and
• domicile of the Executive Director.
Targets are set annually. The performance measures, targets
and weightings may vary from year to year in order to align with
the Company’s strategy and goals during the year to which the
bonus relates.
Performance measures can include some or all of the following:
financial measures, strategic measures and ESG measures.
Bonus payouts are determined by the Committee after the year
end, based on performance against predetermined objectives, at
least the majority of which will be financial.
Up to half of the bonus is paid in cash and the balance is deferred
into shares.
The deferred bonus shares vest after three years. Dividend
equivalents arising over the period between the grant date and
the vesting date are paid in cash or shares in respect of the
shares which vest.
The annual bonus plans are not contractual and bonuses under
the plans are not eligible for inclusion in the calculation of the
participating executives’ pension plan arrangements.
Malus and clawback provisions apply to the annual bonus plan
and the deferred bonus shares so that individuals are liable to
repay/forfeit some or all of their bonus if there is a material
misstatement of results, error in calculation, gross misconduct,
payments based on erroneous or misleading data, significant
reputational damage or corporate failure. The Committee will act
reasonably in the application of malus and clawback.
Element, purpose and link
to strategy
Basic salary
To help recruit and retain
key senior executives.
To provide a competitive
salary relative to
comparable companies,
in terms of size and
complexity.
Annual bonus
To incentivise executives to
achieve or exceed specific,
predetermined objectives
during a one-year period.
To reward ongoing delivery
and contribution to
strategic initiatives.
Deferred proportion of
bonus, awarded in shares,
provides a retention
element and additional
alignment of interests with
shareholders.
90
Element, purpose and link
to strategy
Performance share plan
(PSP)
To incentivise Executive
Directors and other senior
executives to achieve
returns for shareholders
over a longer time frame.
To help retain executives
and align their interests
with shareholders through
building a shareholding in
the Company.
Share ownership
guidelines
To further align the
interests of executives with
those of shareholders.
Operation and performance metrics
Maximum opportunity
The maximum annual award under the PSP that
may be granted to an individual in any financial
year is 225% of salary in normal circumstances
and 400% of salary in exceptional
circumstances, which is limited to buy-out
awards under recruitment.
Actual award levels to Executive Directors are set
out in the Annual Report on Remuneration.
25% of the relevant part of the award will vest
for achieving threshold performance (which for a
relative TSR performance measure would be
median performance), increasing to full vesting
for the achievement of maximum performance.
Awards of nil-cost options are made annually with vesting
dependent on the achievement of performance conditions over
the three subsequent years.
Awards will vest, subject to performance, on the third
anniversary of grant and will be subject to an additional two-year
holding period post-vesting, during which time awarded shares
may not be sold (other than for tax purposes).
The Committee reviews the quantum of awards annually to
ensure that they are in line with market levels and appropriate,
given the performance of the individual and the Company.
Performance measures can include some or all of the following:
financial measures, strategic measures, ESG measures and
relative TSR.
Dividend equivalents arising over the period between the grant
date and the vesting date are paid in cash or shares in respect of
the shares which vest.
Malus and clawback provisions apply to the PSP so that
individuals are liable to repay/forfeit some or all of their shares if
there is a material misstatement of results, error in calculation,
gross misconduct, vesting based on erroneous or misleading
data, significant reputational damage or corporate failure. The
Committee will act reasonably in the application of malus and
clawback.
During employment
Not applicable
Executive Directors are expected to build and maintain a
shareholding in the Company’s shares as a multiple of their base
salary within five years of appointment as an Executive Director
(Group Chief Executive 225%, Group Finance Director 175% 1 ).
1. Since the policy was approved at the 2020 AGM the Committee
has in 2021 decided to increase the expected shareholding
requirement of the Group Finance Director from 175% to 200%.
To achieve this, Executive Directors are expected to retain at
least 50% of shares (net of tax) which vest under the Company’s
share plans until the share ownership guidelines are met. Nil cost
options which have vested but that the Executive Director has
yet to exercise and unvested nil cost options awarded under the
DSBP (if they are only subject to a time-based condition) are
considered to count towards the shareholding on a notional
post-tax basis.
Non-Executive Directors are expected to build and maintain a
shareholding that is equivalent to 50% of their annual fee from
the Company within two years of their date of appointment.
Post-employment
In respect of share plan awards granted from 2020 onwards,
Executive Directors will be required to retain, for two years after
leaving the Company, a holding of shares at a level equal to the
lower of the shareholding requirement they were subject to
during employment and their actual shareholding on departure
(excluding shares purchased with own funds and any shares
from share plan awards made before 2020).
Annual Report 2021 dssmith.com 91
GOVERNANCE REMUNERATION POLICY CONTINUED
Element, purpose and link
to strategy
All employee share plan
Encourages long-term
shareholding in the
Company.
Operation and performance metrics
Maximum opportunity
Executive Directors have the opportunity to participate in the UK
or international sharesave plans on the same terms as other
eligible employees (which is currently an opportunity to save up
to £250, or local currency equivalent, per month). There are no
performance conditions applicable to awards.
Up to £500 per month (or local currency
equivalent).
Pension
Executive Directors can elect to:
To remain competitive in
the marketplace and
provide income in
retirement.
• participate in the Group’s registered defined contribution plan
(DC Plan); or
• receive a salary supplement; or
• a combination of the above.
Benefits
To help retain employees
and remain competitive in
the marketplace.
Directors, along with other UK senior executives, receive a car
allowance or company car equivalent, income protection
insurance, four times life cover, family medical insurance and
subsidised gym membership. Additional benefits (including a
relocation allowance) may be provided from time to time, where
they are in line with market practice.
Any reasonable business related expenses may be reimbursed
(including tax thereon, if deemed to be a taxable benefit).
Maximum: 20% (for Group Chief Executive) and
15% (for Group Finance Director) of base salary
from 1 August 2020 (combined cash supplement
and DC Plan contribution).
On 1 August 2021 the maximum pension
contribution will be reduced to 15% (for Group
Chief Executive) and 10% (for Group Finance
Director) of base salary.
A further review of the level of pension
contribution will take place in 20221.
1. Since the policy was approved at the 2020 AGM
the Committee has in 2021 undertaken a further
review of the level of pension contribution and
on 1 August 2024 the maximum pension
contribution for the Executive Directors will be
reduced further to be aligned with that available
to the workforce in the UK (being the country
where they are based for employment
purposes).
Future appointments to the Board or any Board
member changing roles would be given a pension
benefit aligned with that available to the
workforce in the country where they are based
for employment purposes.
Benefit levels may be increased in line with
market levels to ensure they remain competitive
and valued by the recipient. However, as the cost
of the provision of benefits can vary without any
change in the level of provisions, no maximum is
predetermined.
Non-Executive Directors
and Chairman
Reviewed annually by the Board (after recommendation by the
Committee in respect of the Chairman).
Attract and retain high
performing individuals.
Fee increases, if applicable, are normally effective from
1 August. The Board and, where appropriate, the Committee,
considers pay data at comparable companies of similar scale.
No prescribed maximum annual increase.
Details of current fees are set out in the annual
report on remuneration.
Aggregate annual fees limited to £1,000,000 by
Articles of Association.
The Senior Independent Director and the Chairmen of the Audit
and Remuneration Committees receive additional fees.
No eligibility for participation in bonuses, retirement plans or
share plans but limited benefits may be delivered in relation to
the permanency of their duties as a Director (e.g. hospitality,
provision of a mobile phone, tablet/laptop and travel-related
expenses). Tax may be reimbursed if these benefits are deemed
to be a taxable benefit.
If there is a temporary yet material increase in the time
commitments for non-Executive Directors, the Board may pay
extra fees on a pro-rata basis to recognise the additional
workload.
92
Discretions and judgements
The Committee will operate the annual bonus plan and long-term
plans according to the rules of each respective plan, their
respective ancillary documents and the UK Financial Conduct
Authority’s Listing Rules, which, consistent with market practice,
include discretion in a number of respects in relation to the
operation of each plan. Discretions include:
• who participates in the plan
• determining the timing of grants of awards and/or payments
• determining the quantum of an award and/or payment
• determining the extent of vesting
• how to deal with a change of control or restructuring of
the Group
• whether an Executive Director or a senior manager is a good/bad
leaver for incentive plan purposes and whether the proportion
of awards that vest do so at the time of leaving or at the normal
vesting date(s)
• how and whether an award may be adjusted in certain
circumstances (e.g. for a rights issue, a corporate restructuring
or for special dividends)
• what the weighting, measures and targets should be for the
annual bonus plan and PSP awards from year to year
• the Committee also retains the ability, within the policy, if
events occur that cause it to determine that the conditions set
in relation to an annual bonus plan or a granted PSP award are
unable to fulfil their original intended purpose, to adjust targets
and/or set different measures or weightings for the applicable
annual bonus plan and PSP awards.
The Committee can use its judgement to make adjustments to
published outturns for significant events or changes in the
Company’s asset base that were not envisaged when the targets
were originally set or for changes to accounting standards, to
ensure that the performance conditions achieve their original
purpose.
The Committee also has the discretion to reduce or apply other
restrictions to an award if, after taking into account all
circumstances known to the Committee, it determines that the
amount which a participant would otherwise receive pursuant to
an incentive award in accordance with its terms would result in the
participant receiving an amount which the Committee considers
cannot be justified or which the Committee considers to be an
unfair or undeserved benefit to the participant.
The Committee has the discretion to override formulaic outcomes
to the bonus and the PSP or DSBP in order to ensure that outcomes
reflect true underlying business performance or to reduce awards
if the business has suffered an exceptional negative event in order
to ensure that outcomes reflect overall corporate performance.
The Committee can use its discretion to waive the post-
employment shareholding requirement in the event of ill health
or death.
Any historic share awards (other than those granted in 2020) that
were granted before 8 September 2020 (when the revised policy
came into force) and still remain outstanding will remain eligible to
vest or be exercised or sold based on their original award terms
and the remuneration policy that was in force when those awards
were granted.
In summary: key objectives
of our remuneration policy
The purpose of our remuneration policy is to deliver a
remuneration package that:
• Attracts and retains high calibre Executive Directors and
senior managers in a challenging and competitive
business environment
• Reduces complexity, delivering an appropriate balance
between fixed and variable pay for each Executive
Director and the senior management team
• Encourages long-term performance by setting challenging
targets linked to sustainable growth
• Is strongly aligned to the achievement of the Group’s
objectives and shareholder interests and to the delivery of
sustainable value to shareholders
• Seeks to avoid creating excessive risks in the achievement
of performance targets
• Is consistent with the Company’s Purpose and values
• Is commensurate with pay conditions across the Group
• Is aligned to the DS Smith reward principles (as set out on
page 89)
• Takes into account overall corporate performance as well
as business performance.
All our decisions as a Remuneration Committee are taken in
this context.
Annual Report 2021 dssmith.com 93
GOVERNANCE Annual report on remuneration
The tables below show how we have applied the remuneration policy during 2020/21. They disclose all the elements of remuneration
earned by the Directors during the year. Full details of the policy that was voted on in 2020 are included in the 2020 Annual Report and is
available on our website.
Deloitte LLP has audited, as required by the applicable regulations, those tables labelled as audited.
Single total figure of remuneration for each Director (audited)
Executive Directors
Miles Roberts
Group Chief Executive
Adrian Marsh
Group Finance Director
Salary
£’000
Benefits1
£’000
Pensions2
£’000
Total fixed
remuneration
Annual bonus3
£’000
Long-term
incentives
£’0004
Total variable
remuneration
Total single
remuneration
figure
2019/20
2020/21
2019/20
2020/21
778
786
489
494
22
21
19
19
233
177
98
80
1,033
984
606
593
0
1,541
0
726
389 4
0
1904
0
389
1,541
190
726
1,422
2,525
796
1,319
1. Taxable benefits in 2019/20 and 2020/21 principally include a car allowance of £20,000 for Miles Roberts and £17,500 for Adrian Marsh. Both Directors also
2.
receive income protection, life and health cover.
In lieu of membership of the defined contribution scheme Miles Roberts receives an annual pension allowance which was reduced from 30% with effect from
1 August 2020 to 20% of base salary and Adrian Marsh receives an annual pension allowance which was reduced from 20% with effect from 1 August 2020 to
15% of base salary. The annual pension allowances are not pensionable and are not considered to be salary for the purpose of calculating any bonus payment.
More details about the further planned reductions in pension benefits are set out on page 87.
3. The annual bonus, when paid, is paid 50% in cash and 50% in deferred shares as described in the policy table on page 90.
4. The long-term incentives for 2019/20 were valued in the 2020 Annual Report using the average share price for the last three months of that financial year, which
was 311.7p. This has been restated to reflect the share price on the next working day following the actual vesting date of Saturday 18 July 2020, which was
278.6p. This also impacts the total and sub-total figures for 2019/20.
Non-Executive Directors
Geoff Drabble1
Gareth Davis2
Celia Baxter3
Chris Britton4
Alina Kessel5
David Robbie6
Louise Smalley
Rupert Soames7
Total
Fees
£’000
2020/21
2019/20
Total8
2020/21
£’000
Total8
2019/20
£’000
128
191
76
22
61
76
61
71
686
–
284
43
60
–
70
60
67
584
128
191
76
22
61
76
61
71
686
–
284
43
60
–
70
60
67
584
1. Geoff Drabble joined the Board with effect from 1 September 2020 and became Chairman with effect from 3 January 2021, when his fee increased to £330,000
per annum (fixed for three years).
2. Gareth Davis stepped down from the Board with effect from 3 January 2021.
3. Celia Baxter joined the Board with effect from 9 October 2019.
4. Chris Britton stepped down from the Board with effect from 8 September 2020.
5. Alina Kessel joined the Board with effect from 1 May 2020.
6. David Robbie joined the Board with effect from 11 April 2019.
7. Rupert Soames joined the Board with effect from 1 March 2019.
8. Non-Executive Directors received no taxable benefits, annual bonus, long-term incentives or pension payments during 2019/20 or 2020/21 .
94
Fixed pay
Basic salary (audited)
Salaries for Executive Directors (audited)
Miles Roberts
Adrian Marsh
Salaries effective from
1 August 2019
(£)
1 August 2020
(£)
1 January 2021
(£)
1 August 2021
(£)
Earned in
2020/21
(£)
782,300
491,600
782,300
491,600
794,000
499,000
814,000
511,500
786,200
494,067
When reviewing salaries the Committee takes account of a number of factors, with particular focus on the general level of salary
increases awarded to employees throughout the Group. Where relevant, the Committee also considers external market data on salary
and total remuneration. When initially considering the Executive Directors’ salary increase for 2021, the Committee also looked at the
data for the peer group of FTSE 51-150 companies (excluding Financial Services companies). It chose that comparator group as one that
(in line with the remuneration policy) reflected a similar size and complexity of business and of geographical spread as well as the
domicile of the Executive Directors. The Committee applies judgement when considering such data.
In 2020 the outcome of the salary review for the UK workforce was on average an increase of 1.7%. In view of the economic uncertainty
caused by Covid-19, the Company took the decision not to go ahead with an ‘across the board’ review in the normal timeframe (which
varies by country and business area). This decision impacted all management roles and certain business areas where any collective pay
arrangements were not already in progress or in the pipeline. Consistent with the treatment of the rest of the management population,
the Executive Directors did not receive a salary increase in August 2020. At the end of 2020, due to the resilient performance of the
business in the second six months of 2020, this area was revisited and pay increases were awarded, with effect from 1 January 2021,
with an average pay increase of 1.7 % where given. Accordingly, the Committee felt that it was appropriate to treat the Executive
Directors in the same way, awarding them a 1.5% pay increase with effect from 1 January 2021. The usual review of executive
remuneration was held in April 2021 and it was agreed that a pay increase of 2.5% (in line with the average increase for the workforce as
a whole) would be implemented on 1 August 2021.
Fees for Non-Executive Directors and the Chairman (audited)
In addition to a base fee of £60,500, the Chairman of the Audit Committee and the Chairman of the Remuneration Committee each
receive a fee of £15,000 per annum and the Senior Independent Director receives a fee of £10,000 per annum. For the same reasons (as
set out above) that the Executive Directors did not receive a salary increase in August 2020, there was no increase in the Non-Executive
Director base fee or the additional role fees in August 2020. Nor was there an increase in January 2021. The fee for the Chairman with
effect from 3 January 2021 was set taking into account market rates for comparable positions and is fixed for three years. It was agreed
that an increase of 2.5% (in line with the average increase for the workforce as a whole) would be implemented in respect of the base
fee for Non-Executive Directors on 1 August 2021.
The rates for the Chairman’s and Non-Executive Directors’ fees are:
Geoff Drabble1
Gareth Davis2
Celia Baxter3
Chris Britton4
Alina Kessel5
David Robbie6
Louise Smalley
Rupert Soames7
Base fee effective from
1 August 2019
(£)
1 August 20208
(£)
1 August 2021
(£)
–
285,400
60,500
60,500
-
60,500
60,500
60,500
–
285,400
60,500
60,500
60,500
60,500
60,500
60,500
330,000
n/a
62,000
n/a
62,000
62,000
62,000
62,000
Earned in
2020/21
(£)
128,284
191,364
75,500
21,563
60,500
75,500
60,500
70,500
1. Geoff Drabble joined the Board with effect from 1 September 2020 and became Chairman with effect from 3 January 2021. His fee as a Non-Executive Director
was £60,500 per annum. His total fee as a Non-Executive Chairman is £330,000 per annum, which will not be reviewed for three years.
2. Gareth Davis stepped down from the Board with effect from 3 January 2021.
3. Celia Baxter joined the Board with effect from 9 October 2019.
4. Chris Britton stepped down from the Board with effect from 8 September 2020.
5. Alina Kessel joined the Board with effect from 1 May 2020.
6. David Robbie joined the Board with effect from 11 April 2019.
7. Rupert Soames joined the Board with effect from 1 March 2019.
8.
In line with the decision made for the Executive Directors above, a decision was taken not to go ahead with a fee review at the normal time on 1 August 2020 for
Non-Executive Directors .
Annual Report 2021 dssmith.com 95
GOVERNANCE
ANNUAL REPORT ON REMUNERATION CONTINUED
Variable pay
The Committee believes it is important that a significant portion of the Executive Directors’ package is performance-related and that the
performance conditions support the delivery of the Group’s strategy and its long-term sustainable success. The remuneration policy
encourages long-term performance by setting challenging targets linked to sustainable growth for the variable pay, which consists of
the annual bonus and the longer-term PSP. The Remuneration Committee has discretion to adjust retrospectively the targets, for
example after a substantial restructuring, and would normally discuss this with its larger shareholders. Alternatively adjustments to
published outturns may be appropriate for significant events or changes in the asset base that were not envisaged when the targets
were originally set, to ensure that the performance conditions achieve their original purpose. Full disclosure of this would be given in the
Remuneration Report. The Remuneration Committee has the discretion to override formulaic outcomes in order to ensure that outcomes
reflect true underlying business performance. When considering that discretion in relation to the annual bonus for 2021/22 the
Committee will also take into account various ESG matters (as described on page 97).
Performance measures
An explanation of the performance measures for the annual bonus (assessed on a constant currency basis) and PSP (assessed on an
actual currency basis without adjustments for exchange rate movements) is set out below. The strategic rationale for the choice of these
performance measures is to focus on the key financial measures both over the longer performance period for the PSP of three years and
the shorter performance period for the annual bonus of one year.
Adjusted earnings per share (EPS) applicable to the PSP
Adjusted EPS is disclosed in the Annual Report and is the portion of the Group’s adjusted after tax profit allocated to each outstanding
share. Adjusted EPS is an indicator of the underlying performance of the Group.
Adjusted return on average capital employed (ROACE) applicable to the PSP
ROACE is disclosed in the Annual Report. It is defined as earnings before interest, tax, amortisation and adjusting items as a percentage
of average capital employed, including goodwill. This is a measure of the efficiency and profitability of the assets and investments.
Total shareholder return (TSR) applicable to the PSP
TSR is the increase (or decrease) in the value of a notional investment in a share in the Company and each of the companies in the
Industrial Goods and Services Supersector within the FTSE 350 Index over the three-year PSP performance period, taking account of
share price movement and the value of dividends (which are deemed to be re-invested) over that period. This is a measure that takes
into account the experience of shareholders over the applicable period.
Adjusted earnings before tax and amortisation (EBTA) applicable to annual bonus
EBTA is adjusted earnings before taxation, amortisation and income from associates. This measure gives a snapshot of the performance
of the Group in the short term of a single financial year.
Free cash flow applicable to annual bonus
Free cash flow is the net movement on debt before cash outflow for adjusting items, dividends paid, acquisition and disposal of
subsidiary businesses (including borrowings acquired), and proceeds from issue of share capital, adjusted for the effects of changes in
factoring balances. This measure focuses on liquidity, a key area in an uncertain economic environment.
Annual bonus
Bonus in 2020/21
The Executive Directors’ targets for the 2020/21 bonus were based on the financial targets set out in the tables on the next page, with
annual bonus payments determined by reference to performance over the financial year ended 30 April 2021. Achievement is calculated
on a straight-line basis between threshold and target and between target and maximum. Adjusted EBTA and free cash flow have equal
weighting as annual bonus performance measures.
96
Threshold
0% of maximum
Target
50% of maximum
£359m
£276m
£394m
£295m
Targets and outcomes (audited)
Financial measure
Adjusted EBTA
Free cash flow
Outcomes (audited)
Adjusted EBTA (as a proportion of the maximum opportunity)
Free cash flow (as a proportion of the maximum opportunity)
Total (as a proportion of the maximum opportunity)
Maximum bonus opportunity as a % of salary
Value of bonus paid in cash
Value of bonus deferred into shares
Overall award level
Maximum
£429m
£316m
Miles Roberts
48/50
50/50
98/100
200%
£770,476
£770,476
£1,540,952
Achieved
£426m
£490m
Adrian Marsh
48/50
50/50
98/100
150%
£363,139
£363,139
£726,278
Performance is assessed on a constant currency basis and therefore the actual published results are restated for bonus purposes using
budgeted exchange rates.
Bonus awards are measured against the achievement of the Group’s objectives. Maximum bonus opportunity for 2020/21 for Miles
Roberts was 200% of salary and for Adrian Marsh was 150% and was between 65% and 110% for the other senior executives.
When deciding the level of variable pay, including the annual bonus, the Committee considered the experience of the Group’s
stakeholders during the 2020/21 financial year (as summarised on page 85) and the Committee concluded that the outcome of the
annual bonus in respect of 2020/21 appropriately reflected the Company’s performance in 2020/21 and was commensurate with the
broader stakeholder experience in that period. It was therefore not felt necessary to apply any discretion to amend the outcome of the
overall award level.
Implementation for 2021/22
The annual bonus for 2021/22 will remain in line with the remuneration policy and with a maximum opportunity of 200% of salary for
the Group Chief Executive and 150% for the Group Finance Director.
For 2021/22 it will be based on EBTA and free cash flow, each with equal weighting. In the event of an unbudgeted acquisition or disposal
in the year, the Committee will assess how the financial performance of the acquired or disposed of company should be treated.
In the opinion of the Committee, the annual bonus measures and targets for 2021/22 are commercially sensitive and accordingly are not
disclosed prospectively. These will be disclosed next year in the Directors’ remuneration report, so that achievement against those
targets will be visible, in retrospect.
When considering the application of discretion to override the formulaic outcome for the 2021/22 annual bonus, the Committee will take
into account and report on the following factors:
• The Company committing to using longer-term science-based targets for carbon reduction in the business
• The maintenance of high health and safety standards
• The continued work with our communities.
Introducing an ESG underpin in this way acknowledges the importance of ESG which is integral to the DS Smith strategy, and in particular
our strategic goal to lead the way in sustainability.
Performance Share Plan (PSP)
Overview of the Performance Share Plan
The PSP operates as a long-term incentive plan for approximately the top 150 senior managers in the Group, with awards vesting after
three years, and held for a further two years by the Executive Directors.
The awards have three performance measures: adjusted EPS, adjusted ROACE and relative TSR. These have equal weighting.
The Committee’s policy is that no adjustments for exchange rate movements are made to EPS and ROACE over the three-year
performance period as these are of a long-term nature and fluctuations are more likely to average out over the period.
The relative TSR vesting scale is median to upper quartile performance, with no vesting below median performance. 25% of the award
vests for achieving threshold performance, increasing on a straight-line basis to full vesting for maximum performance.
The TSR comparator group for the 2018/19, 2019/20 and 2020/21 awards is the FTSE 350 Industrial Goods and Services Supersector.
Annual Report 2021 dssmith.com 97
GOVERNANCE
ANNUAL REPORT ON REMUNERATION CONTINUED
2018/19 awards vesting in 2021/22 based on performance in the three-year period to 2020/21
Unfortunately, the PSP award granted on 22 June 2018 which was due to vest in June 2021 based on the 3 year average EPS and ROACE
performance between 2018/19 and 2020/21 and the 3 year cumulative relative TSR performance (each equally weighted), did not meet
the threshold targets for the two financial measures and fell below median for the relative TSR measure. The financial targets (in the
table below) were set in 2018 in the context of the expectation of a stable economy, but the negative impact of the pandemic on the
2020/21 results made those targets unachievable.
EPS, ROACE and TSR performance targets for 2018/19 awards based on performance in the three-year
period to 2020-21 (audited)
Three-year average EPS
Three-year average ROACE
Relative TSR1
Weighting
One third
One third
One third
Threshold
(25% vests)
35.7p
12.3%
Median
Maximum
(100% vests)
40.8p
13.5%
Upper quartile
Outcome
30.5p
10.8%
Below median
1. Measured against the FTSE 350 Industrial Goods and Services Supersector.
25% of the PSP award vests for achieving threshold performance, increasing on a straight-line basis to full vesting for maximum
performance.
Deferred share bonus plan (DSBP) awards vesting in 2021
The DSBP award vesting in 2021 relates to the deferral into shares of half of the bonus paid in June 2018 in relation to the financial year
2017/18. The number of shares vesting in 2021 under the DSBP award granted on 22 June 2018 when adjusted for the rights issue is
132,849 for Miles Roberts and 62,603 for Adrian Marsh. Details of those awards and the single total figure of remuneration that included
them were set out in the remuneration report for 2017/18. Dividend equivalents for the DSBP award also accrued during the three-year
vesting period. Those dividend equivalents will be paid in shares (10,588 for Miles Roberts and 4,989 for Adrian Marsh) shortly after the
award vests on 22 June 2021, the third anniversary of grant of the award.
PSP awards granted in 2020 vesting in 2023/24 and DSBP awards in 2020 (audited)
The PSP awards made in 2020 in respect of 2020/21 were in line with the current remuneration policy and, as reported in last year’s
remuneration report, were:
• 225% of salary for the Group Chief Executive and 175% of salary for the Group Finance Director
• Any shares that vest under the PSP awards granted in 2020/21 must be retained for a further two years before they can be sold (a
total of five years from original grant) and they are also subject to a post-employment holding condition, meaning that any shares that
vest will be held in a nominee arrangement for the appropriate period. For any PSP awards which vest following departure that have
been granted good leaver treatment, the Committee will reduce the two year post-vesting holding period so that it does not extend
beyond the second anniversary of departure, provided that the three year vesting period has been completed.
• The PSP awards were granted as nil-cost options and are subject to three performance measures: adjusted EPS, adjusted ROACE and
relative TSR, with equal weighting on each element.
Executive Director
Miles Roberts
Adrian Marsh
Award
PSP
PSP
Number of options
granted under award
on 14 July 2020
Face value of award at
time of grant
(£)
647,123
316,286
1,760,175
860,298
The PSP awards were made on 14 July 2020. The face value in the above table is calculated using 272p which was the average price of
a DS Smith share for the three trading days preceding the grant of the award and the price used in the calculation of the number of
options awarded.
98
The targets for the 2020/21 PSP award are set out below:
% vesting as a proportion
100%
Between 25% and 100%
25%
Adjusted EPS
One third1
36.5p
34.2-36.5p
34.2p
Adjusted ROACE
One third1
Relative TSR
One third2
12.5%
Upper quartile
11.0%-12.5% Between median and upper quartile
Median
11.0%
Awards vest on a straight-line basis between threshold and maximum performance. The performance measurement period for the adjusted EPS and adjusted ROACE
targets is the 2022/23 financial year and for the relative TSR target is the three years to 30 April 2023.
1. The 2019/20 baseline results are 33.2p for adjusted EPS and 10.6% for adjusted ROACE.
2. The comparator group for measurement of relative TSR is the FTSE 350 Industrial Goods and Services Supersector, as it was in 2018/19 and 2019/20.
No DSBP awards were granted to Executive Directors in 2020, because no annual bonus in respect of the 2019/20 financial year
was paid.
PSP awards to be granted in 2021 vesting in 2024/25
The PSP awards to be made in 2021 in respect of 2021/22 will remain in line with the remuneration policy. For the Group Chief Executive
this will remain at the same level as the award level in 2020/21, namely 225% of salary. In recognition of the progression that the Group
Finance Director has made in his role with regard to his personal performance and the increased complexity of the business in recent
years, the award level for the Group Finance Director will increase from 175% of salary to 200% of salary which serves to close the gap
to the market position for the role. The opportunity is only able to be realised if the corporate targets are met and five years after the
awards have been granted. At the same time, the shareholding requirement for the Group Finance Director will increase from 175% to
200%. As a matter of best practice, before finalising the PSP award levels, the Committee considered the movements in the share price
since the beginning of the 2020/21 financial year. As the share price had increased over the period and continues to trade strongly, it
was felt appropriate to grant the PSP awards based on the normal percentage of salary.
The performance measures and their weighting for the award will remain the same as in 2020/21. The targets for the 2021/22 PSP
award will be:
% vesting as a proportion
100%
Between 25% and 100%
25%
Adjusted EPS
One third
40.0p
35.2-40.0p
35.2p
Adjusted ROACE
One third
Relative TSR
One third1
13.1%
Upper quartile
11.2-13.1% Between median and upper quartile
Median
11.2%
Awards vest on a straight-line basis between threshold and maximum performance. The performance measurement period for the adjusted EPS and adjusted ROACE
targets is the 2023/24 financial year and for the relative TSR target is the three years to 30 April 2024.
1. The comparator group for measurement of relative TSR will be the FTSE 350 Industrial Goods and Services Supersector, as it was in 2020/21 and 2019/20.
The Committee’s aim, as always, has been to set robust targets with a strong degree of stretch. In setting the target ranges the
Committee took into account a number of factors which included the broker forecast consensus for DS Smith performance and a
recognition that the 2020/21 results provided too low a starting point on which to base the three year targets. So for the PSP targets for
the 2021 awards we have instead built growth into the PSP targets set for last year’s awards. Our desire continues to be to set targets
which balance stretch with the ability to at least achieve the threshold level so that awards remain motivating and meaningful to the
c.150 plan participants. The Committee will, as a matter of good practice, take a step back when determining the vesting outturn in three
years’ time to consider whether any discretion should be applied to the formulaic outturn.
DSBP awards in 2021
As set out on page 97, half of the value of the bonus to be paid in 2021 in respect of the performance over the financial year ended
30 April 2021, will be deferred into shares, which will not vest until 2024.
Annual Report 2021 dssmith.com 99
GOVERNANCE
ANNUAL REPORT ON REMUNERATION CONTINUED
Outstanding PSP and DSBP share awards during 2020/21 and as at 30 April 2021 (audited)
The table below sets out details of Executive Directors’ outstanding share awards, both under the PSP and the DSBP, during the year
under review. Unvested awards will vest in future years subject to performance and/or continued service. Vested awards will expire if
not exercised before the relevant expiry date.
Awards held
at 30 April
2020
Award date
Granted
Dividend
equivalents
Exercised/
vested1
Lapsed/
forfeited
Grant price
for award (p)2
Market price
on date of
exercise (p)
Awards held
at 30 April
2021
Vesting date
(if any
performance
conditions
applicable
are met)
Expiry date
Miles Roberts
1 Jul 16
PSP
18 Jul 17
PSP
22 Jun 18
PSP
15 Jul 19
PSP
14 Jul 20
PSP
256,822
360,117
341,748
481,039
–
–
–
–
– 647,123
DSBP 1 Jul 16
DSBP 18 Jul 17
DSBP 22 Jun 18
DSBP 15 Jul 19
156,676
72,022
132,849
157,055
–
–
–
–
Adrian Marsh
PSP
PSP
PSP
PSP
18 Jul 17
22 Jun 18
15 Jul 19
14 Jul 20
175,977
167,015
235,098
–
–
–
– 316,286
DSBP 18 Jul 17
DSBP 22 Jun 18
DSBP 15 Jul 19
33,937
62,603
74,015
–
–
–
–
12,929
–
–
–
–
7,346
–
–
6,318
–
–
–
3,461
–
–
–
–
126,761 233,356
–
–
–
–
–
–
–
72,022
–
–
–
–
–
–
379.80
484.70
523.47
357.00
272.00
379.80
484.70
523.47
357.00
–
–
–
–
–
1 Jul 19
256,822
1 Jul 26
139,690 18 Jul 20 18 Jul 27
341,748 22 Jun 21 22 Jun 28
481,039
15 Jul 22 15 Jul 29
647,123
14 Jul 23 14 Jul 30
156,676
1 Jul 26
1 Jul 19
–
79,368 18 Jul 20 18 Jul 27
–
132,849 22 Jun 21 22 Jun 28
–
157,055
–
15 Jul 22 15 Jul 29
2,392,370
68,261 114,034
–
–
–
–
–
–
484.70
523.47
357.00
272.00
383 .00
–
–
–
0 18 Jul 20 18 Jul 27
167,015 22 Jun 21 22 Jun 28
235,098
15 Jul 22 15 Jul 29
316,286
14 Jul 23 14 Jul 30
37,398
–
–
–
–
–
484.70
523.47
357.00
383.00
–
–
0 18 Jul 20 18 Jul 27
62,603 22 Jun 21 22 Jun 28
74,015
15 Jul 22 15 Jul 29
855,017
1. This includes the awards granted in 2017 which vested during 2020/21 and, in the case of Adrian Marsh, dividend equivalent shares and vested awards which
were exercised during 2020/21. Adrian Marsh as at 30 April 2021 did not hold any vested but unexercised awards. Miles Roberts as at 30 April 2021 held awards
granted on 1 July 2016 and 18 July 2017 which have now vested but have not been exercised.
2. The figure in this column is the average price of a DS Smith share for the three trading days preceding the award and is the price used in the calculation of the
number of options originally awarded. The number of options originally awarded was subsequently adjusted for the rights issue in 2018 as described in the Annual
Report for 2019.
The target ranges for the 2018/19 PSP awards are set out on page 98. The target ranges for the 2020/21 awards are set out on page 99.
The relative TSR target for the 2019/20 award is the same as it was for the 2018/19 award. For the 2019/20 awards the target ranges
for EPS and ROACE are set out in the audited table below.
PSP plan
2019/20
EPS range
ROACE range
37.4p-42.0p
12.4%-13.6%
It is currently intended that any ordinary shares required to fulfil entitlements under the DSBP will be provided by Computershare
Trustees (Jersey) Limited in its capacity as trustee of the employee benefit trust (the Trust), which buys shares to do so. The Trust
may also be used to fulfil certain entitlements under the PSP and the employee sharesave plans or those may be fulfilled by newly-
issued shares.
100
Sharesave – employee share plans (audited)
Our sharesave (SAYE) plans align our employees’ interests with those of our long-term shareholders. Our commitment is to deliver an
opportunity for our employees to be engaged with the strategic direction of DS Smith and to share in its financial success. Executive
Directors are eligible to participate in the SAYE on the same terms as all other UK-based employees of the Company and participating
subsidiaries of the Group. Options are granted under the SAYE, which, in the UK, is an HMRC tax-advantaged plan. Participants contract
to save up to the equivalent of £250 per month over a period of three years (two years in the US). The current maximum permitted
monthly saving of the equivalent of £250 is set by the Company. Under the applicable plan rules (and the remuneration policy) the
monthly maximum could be increased in the future to up to the equivalent of £500 per month. The option price is discounted by up to
20% (15% in the US) of the average closing mid-market price of the Company’s shares on the three dealing days prior to invitation
(20-day average to the day before grant in France and the higher of the mid-market average price on the day before invitation and the
mid-market average on the day before grant in the US). In common with most plans of this type, there are no performance conditions
applicable to options granted under the SAYE.
Name of Director
Miles Roberts
Miles Roberts
Adrian Marsh
Adrian Marsh
Options
held at
30 April 2020
Options
granted during
the year
Options
exercised
during the year
Options lapsed
during the year
Market price on
date of exercise
(p)
Options held at
30 April 2021
2,899
-
2,899
-
-
2,769
-
2,769
–
–
–
–
2,899
–
2,899
–
–
–
–
–
–
2,769
–
2,769
Exercise price
(p)
310.351
325.00
310.351
325.00
Date
from which
exercisable
1 Apr 20
1 Apr 24
1 Apr 20
1 Apr 24
Expiry date
30 Sep 20
30 Sep 24
30 Sep 20
30 Sep 24
1. Exercise price after adjusted for rights issue
Share ownership guidelines
Executive Directors are required to build a significant shareholding in the Company within five years from the date of their appointment.
Executive Directors’ shareholdings (including those of their connected persons) are summarised in the following audited table.
Name of Director
Executive Directors
Miles Roberts
Adrian Marsh
Total
shareholding as at
30 April 2020
Total
shareholding as at
30 April 2021
Unvested only
subject to continued
employment1
Vested awards
(not exercised)2
Shareholding
required
(% salary)
Shareholding at
30 April 2021
(% salary)3
Requirement
met
1,989,927
521,996
1,989,927
577,889
159,261
75,052
335,255
0
225%
175%
1,317%
551%
Yes
Yes
1.
Includes the deferred bonus shares awards granted in 2018 and 2019. A reduction to the gross award levels of 47% has been applied for the expected level of tax
and social security deductions that will ultimately be due on these shares.
2. The awards granted on 1 July 2016 and 18 July 2017 which have now vested but have not been exercised by Miles Roberts. A reduction to the gross award levels of
47% has been applied for the expected level of tax and social security deductions that will ultimately be due on these shares.
3. Based on the salary as at 30 April 2021 and a share price of 420.8p (being the closing price on 30 April 2021) multiplied by the current year shareholding and
interests in shares which count towards the shareholding requirement.
The PSP awards granted in 2019 and 2020 are unvested and remain subject to performance conditions so are not included in the above
table as they do not count towards the shareholding requirement. Nil-cost options which have vested but have yet to be exercised are
considered to count towards the shareholding requirement, other than any such shares that correspond to the estimated tax and
national insurance contributions. Adrian Marsh as at 30 April 2021 did not hold any such vested but unexercised awards; but Miles
Roberts did.
Failure to meet the minimum shareholding requirement is taken into account when determining eligibility for share-based incentive
awards for Executive Directors. There have been no changes to the shareholdings set out above between the financial year-end and the
date of this report.
Annual Report 2021 dssmith.com 101
GOVERNANCE
ANNUAL REPORT ON REMUNERATION CONTINUED
Non-Executive Directors are required to build up a holding of 50% of their fees in shares within two years of their date of appointment.
Non-Executive Directors’ shareholdings (including those of their connected persons) are summarised in the following audited table:
Name of Director
Non-Executive Directors
Geoff Drabble2
Gareth Davis3
Celia Baxter4
Chris Britton5
Alina Kessel6
David Robbie
Louise Smalley
Rupert Soames
Total
shareholding as at
30 April 2020
Total
shareholding as at
30 April 2021
Shareholding required
(% fee)
Shareholding at
30 April 2021
(% fee)1
Requirement
met
–
60,000
136,054 not applicable
10,993
not applicable
7,000
20,000
18,600
28,800
10,993
13,427
–
20,000
18,600
28,800
50%
not applicable
50%
not applicable
50%
50%
50%
50%
77%
–
61%
–
Yes2
–
Yes4
–
49% not yet applicable6
Yes
111%
Yes
129%
Yes
172%
1. Based on the fee as at 30 April 2021 and a share price of 420.8p (being the closing price on 30 April 2021) multiplied by the current year shareholding and interests
in shares which count towards the shareholding requirement.
2. Geoff Drabble joined the Board with effect from 1 September 2020 and became Chairman with effect from 3 January 2021. He has not yet been on the Board for
two years.
3. Gareth Davis stepped down from the Board with effect from 3 January 2021. At that date his shareholding was 136,054 shares.
4. Celia Baxter joined the Board with effect from 9 October 2019. She has not yet been on the Board for two years.
5. Chris Britton stepped down from the Board with effect from 8 September 2021. At that date his shareholding was 13,427 shares.
6. Alina Kessel joined the Board with effect from 1 May 2020. She has not yet been on the Board for two years.
External appointments
The Board supports Executive Directors taking up appointments outside the Company to broaden their knowledge and experience. Each
Executive Director is permitted to accept one non-executive appointment (or in exceptional circumstances two appointments) from
which they may retain any fee. Any external appointment must not conflict with a Director’s duties and commitments to DS Smith.
Miles Roberts is a non-executive director of Aggreko plc and retained fees of £61,000 for the year ended 30 April 2021 (£61,000 for the
year ended 30 April 2020). Adrian Marsh is a non-executive director of John Wood Group PLC and retained fees of £61,975 for the year
ended 30 April 2021 (£56,557 for the year ended 30 April 2020).
Directors’ contracts and notice periods
Geoff Drabble
Miles Roberts
Adrian Marsh
Celia Baxter
Alina Kessel
David Robbie
Louise Smalley
Rupert Soames
Chairman
Group Chief Executive
Group Finance Director
Chairman of Remuneration Committee
Chairman of Audit Committee
Senior Independent Director
Date of contract/date of
initial appointment to the Board
Expiry date of current term
for Non-Executive Directors
1 September 2020
4 May 2010
24 September 2013
9 October 2019
1 May 2020
11 April 2019
23 June 2014
1 March 2019
31 August 2023
not applicable
not applicable
8 October 2022
30 April 2023
10 April 2022
22 June 2022
28 February 2022
Miles Roberts and Adrian Marsh each have a notice period of 12 months exercisable by either the Company or the individual. Non-
Executive Directors have letters of appointment for an initial term of three years whereupon they are normally renewed. The current
terms of the Non-Executive Directors are set out in the table above. The notice period is one month exercisable by either the Company or
the Non-Executive Director. Non-Executive Directors are not eligible for payments on termination. In line with the UK Corporate
Governance Code, all Directors (including Non-Executive Directors) are subject to annual re-election by shareholders at the AGM. Their
letters of appointment detail the time commitment expected of each Non-Executive Director. Both these and the Executive Directors’
service contracts are available for inspection at the registered office during normal business hours and at each AGM.
Payments to past Directors or for loss of office (audited)
No payments were made to past Executive Directors during the year ended 30 April 2021 (2019/20: Nil). No payments were made in
respect of loss of office during the year ended 30 April 2021 (2019/20: Nil).
102
Relative importance of spend on pay
The table below shows the expenditure and percentage change in overall spend on employee remuneration and dividends.
Overall expenditure on employee pay1
Dividend paid during the year
2020/21
£m
1,363
0
2019/20
£m
Percentage
change
1,312
222
3.9%
n/a
1. Total remuneration reflects overall employee costs and includes some exchange rate fluctuation. See consolidated financial statements note 6 for further
information.
Remuneration of the Group Chief Executive
The table below shows the total remuneration figure for the Group Chief Executive for each of the last ten financial years. The total
remuneration figure includes the annual bonus and long-term incentive awards which vested, based on performance in those years. The
annual bonus and long-term incentive awards percentages show the payout for each year as a percentage of the maximum available for
the financial year.
2011/12
2012/13
2013/14
2014/15
2015/16
2016/17
2017/18
2018/19
2019/201
2020/21
Total
remuneration
(£’000)
Annual bonus
Long-term
incentive
vesting
2,170
100%
6,057
82%
3,696
85%
5,527
88%
4,447
79%
4,861
45%
4,220
88%
3,065
74%
1,422
0%
2,525
98%
100%
100%
98%
92%
94%
100%
93%
52%
35%
0%
1. The 2019/20 figure has been restated to include the actual share price on the next working day following the date of vesting on Saturday 18 July 2020 for the
options vesting under the 2017/18 PSP award now that this is known.
Total shareholder return
500
400
300
200
100
0
+311%
11
12
13
14
15
16
17
18
19
20
21
DS Smith
FTSE 100
FTSE 250
Review of past performance — total shareholder return graph
The graph above illustrates the Company’s TSR performance since 1 May 2011 (the period required by the applicable regulations),
relative to the FTSE 100 Index as well as the FTSE 250 Index. In December 2017 the Company joined the FTSE 100 Index from the FTSE
250 Index. Therefore, both indices are considered appropriate comparator indices for the Company. As at 30 April 2021 DS Smith ranked
87 by market capitalisation. This graph looks at the value, over the ten years to 30 April 2021, of an initial investment of £100 in DS Smith
shares compared with that of £100 invested in both the FTSE 100 and FTSE 250 Index. The other points plotted are the values at
intervening financial year ends.
Annual Report 2021 dssmith.com 103
GOVERNANCE
ANNUAL REPORT ON REMUNERATION CONTINUED
Group Chief Executive pay ratio disclosures (audited)
2018/19
2019/20
2020/21
25th percentile
Total pay ratio
Median
Total pay ratio
75th percentile
Total pay ratio
100:1
52:1
90:1
91:1
44:1
71:1
72:1
35:1
60:1
The table above sets out how the single total figure of remuneration (STFR) for the Group Chief Executive compares to the STFR of the
UK employees at the 25th percentile, median and 75th percentile. In last year’s Annual Report the ratios for 2019/20 were calculated
using the average share price in the last three months of the financial year as an estimate for the value of the 2017/18 PSP. Those
figures have been restated to include the actual share price on the next working day following the date of vesting for the 2017/18 PSP
on Saturday 18 July 2020 now that this is known. All STFRs for the 2020/21 financial year have been based on full-time equivalent values
and annualised where necessary. The table below sets out the split between total remuneration (fixed and variable pay and benefits)
and the salary component of that total for UK employees used in the above total pay ratio calculations.
Remuneration used to calculate the Group Chief Executive pay ratio disclosures
25th percentile pay ratio
Median pay ratio
75th percentile pay ratio
Total remuneration (£)
Base salary (£)
Total remuneration (£)
Base salary (£)
Total remuneration (£)
Base salary (£)
2018/19
2019/20
2020/21
30,744
27,244
28,042
26,608
26,647
25,729
33,804
32,342
35,384
32,051
31,479
33,566
42,277
40,349
42,142
31,622
36,202
39,756
DS Smith has chosen to use methodology B (as defined in the applicable regulations) which is to use the 2020 UK gender pay gap data to
identify the relevant comparator employee falling at the relevant percentile and to calculate the annual total remuneration relating to
2020/21 for the three identified employees on the same basis as the Group Chief Executive’s annual total remuneration for the same
period in the single figure table. In 2020/21, there were multiple bonus plans in place across the UK which are not payable in some cases
in advance of the Directors’ remuneration report being approved by the Board. It was therefore not practical to collate the bonus
amounts relating to performance during 2020/21 for every UK employee in advance of the report being approved. We are confident that
the three employee STFR figures (which include applicable bonus) used in the pay ratio reporting are as representative of the respective
percentiles as would have been the case if the 2020/21 STFR had been calculated for all UK employees. (The data reference date was
12 May 2021.)
The increase in the ratio since last year is driven by the higher level of vesting overall for the Group Chief Executive in 2020/21 (annual
bonus of 98% and PSP of 0%) compared with 2019/20 (annual bonus of 0% and PSP of 35%). As a result of the large proportion of
variable pay in the Group Chief Executive’s total reward, the ratio will be subject to a high degree of volatility from one year to the next.
We will continue to report on trends in these figures, which are expected to fluctuate as variable pay outcomes fluctuate for the Group
Chief Executive. The Company does believe that the median pay ratio for 2020/21 is consistent with the pay, reward and progression
policies for UK employees taken as a whole.
104
Annual percentage change in remuneration of Executive and Non-Executive Directors and employees
The table below shows the percentage change in three aspects of remuneration (salary or fee, benefits and bonus) for the Group Chief
Executive, the Group Finance Director and the Non-Executive Directors who were Directors at 30 April 2021 compared to full-time
equivalent employees of the Company. (The format of the table is prescribed by regulation. Benefits and bonus are not applicable to
Non-Executive Directors. The increase in fees for certain Non-Executive Directors relates to their change of role in the applicable period,
as noted below.) The column headed ’% change 2020/21’ sets out the change from financial year 2019/20 to financial year 2020/21.
The normal date for any implementation of a pay review is 1 August, not the start of the financial year. However, as explained on page
95, for Directors (unlike employees in the wider Group) there was not a pay or fee increase in August 2020, but there was a pay increase
with effect from 1 January 2021 for Executive Directors and Company employees.
Miles Roberts
Adrian Marsh
Geoff Drabble1
Celia Baxter 2
Alina Kessel1
David Robbie3
Rupert Soames3
Louise Smalley
Company employees
Salary/Fee
Benefits
Bonus
% change
2020/21
1.1
1.1
n/a
0
n/a
8.1
5.9
0.6
2.0
% change
2020/21
(1.2)4
(2.3)4
n/a
n/a
n/a
n/a
n/a
n/a
1.34
% change
2020/21
n/a5
n/a5
n/a
n/a
n/a
n/a
n/a
n/a
n/a5
1. Geoff Drabble joined the Board on 1 September 2020 and became Chairman with effect from 3 January 2021, and Alina Kessel joined the Board on 1 May 2020 so
they have no prior year to compare 2020/21 with.
2. Celia Baxter joined the Board on 9 October 2019 (part way through 2019/20), so to provide a meaningful comparison her fees received for 2019/20 have
been annualised.
3. Rupert Soames became Senior Independent Director and David Robbie became Audit Committee Chairman on 3 September 2019 (part way through 2019/20),
hence the increase in their fees due to the change in their roles, part way through the prior comparison year.
4. Minor changes in health cover and gym membership accounted for the change in taxable benefits .
5. Miles Roberts and Adrian Marsh and Company employees (unlike some employees in the wider Group) did not receive a bonus in 2019/20.
Voting on the remuneration policy and report at the 2020 AGM
At the AGM held in 2020 votes cast by proxy and at the meeting were as follows:
In respect of the remuneration policy
In respect of the Directors’ remuneration report
916,656,836 (93.13%)
956,409,527 (94.86%)
67,569,543 (6.87%)
51,858,006 (5.14%)
There were 24,228,039 votes withheld on the remuneration policy resolution and 186,885 votes withheld on the Directors’
remuneration report resolution. Votes withheld are votes that are not recognised as a vote in law.
Votes in favour
Votes against
Annual Report 2021 dssmith.com 105
GOVERNANCE
ANNUAL REPORT ON REMUNERATION CONTINUED
Remuneration Committee governance
The Board is ultimately accountable for executive remuneration and delegates this responsibility to the Remuneration Committee. The
Committee’s principal function is to support the Group’s strategy by ensuring that its delivery is underpinned by the Company’s overall
remuneration policy, as described earlier in this report. It also determines the specific remuneration package, including service contracts
and pension arrangements, for each Executive Director and our most senior executives, as well as the fees paid to the Chairman. The
Remuneration Committee’s Terms of Reference can be found at www.dssmith.com/investors/corporate-governance/committees/
Key responsibilities of the
Remuneration Committee
• Designing the remuneration policy
• Implementing the remuneration policy
• Ensuring the competitiveness of reward, within an
appropriate governance framework
• Designing the incentive plans
• Setting incentive targets and determining award levels
• Overseeing all share awards across the Group.
Each of these responsibilities impacts the other. The
Committee is very conscious of the importance of the
wider context in which it operates in discharging these
responsibilities.
Members
Celia Baxter (Chairman since October 2019)
Geoff Drabble
Alina Kessel
David Robbie
Louise Smalley
Rupert Soames
Since
2019
2020
2020
2019
2014
2019
Chris Britton retired from the Board and its Committees on 8
September 2020. Gareth Davis retired from the Board and its
Committees on 3 January 2021. Geoff Drabble joined the
Committee on his appointment to the Board on 1 September 2020.
Details of individual Directors’ attendance can be found on page
70. The Group General Counsel and Company Secretary acts as
Secretary to the Committee.
All members of the Committee are independent Non-Executive Directors. This is fundamental to ensuring Executive Directors’ and senior
executives’ remuneration is set by people who are independent and have no personal financial interest, other than as shareholders, in
the matters discussed. There are no potential conflicts of interest arising from cross-directorships and there is no day-to-day
involvement in running the business. The Committee consults with the Group Chief Executive, who may attend meetings of the
Committee, although he is not involved in deciding his own remuneration. The Committee is assisted by the Group Head of Reward, the
Deputy Company Secretary, the Group General Counsel and Company Secretary and the Group Human Resources Director. No-one is
allowed to participate in any matter directly concerning the details of their own remuneration or conditions of service.
As described earlier in the report, the Company has discussed with the EWC Executive matters relating to Executive Directors’
remuneration. When considering matters relating to the remuneration of the Executive Directors, the Committee takes into account the
overall approach to reward for, and the pay and employment conditions of, other employees in the Group.
To differentiate our employee value proposition and reinforce our strong DS Smith culture, the Group has developed the DS Smith
reward principles (set out on page 89) which are endorsed by the Committee and were last reviewed by the Committee in 2021. Current
policies and future decision making are matched against these to drive continuous improvement in this area.
106
Topics considered as part of regular annual decision-making cycle of Remuneration Committee
• How the business has performed
• Forecasts for the year to come
• Feedback from both the employee survey and pulse surveys on how employees feel about the quality of the Group’s leadership. This
includes whether the leadership team continues to demonstrate living our values, how we measure employee performance and
whether employees believe we have the right approach to reward
• Review of guidance from the government and investor bodies
• Holistic view of market practices
• Assessing whether our remuneration framework is appropriately aligned with our culture and continues to motivate our leaders to
achieve the Group’s strategic objectives and does not inadvertently motivate inappropriate behaviour giving rise to environmental,
social, governance or other risks
• Consideration of remuneration and related policies across the Group
• Discussion of the relevant aspects of this year’s Board effectiveness review.
In January 2021, following a thorough tender process, Korn Ferry were appointed as the Committee’s advisers. During the financial year
of 2020/21 the Committee was advised by Korn Ferry in relation to various aspects of the remuneration of Executive Directors for which
they were paid £8,250, partly on a fixed fee basis and partly on a time and materials basis. Korn Ferry in the financial year 2020/21 has
also provided executive search and talent assessment services to the Group. The teams providing this advice are separate from the
Remuneration Committee advisers and there was no conflict of interest. During the financial year of 2020/21 the Committee was also
advised by PricewaterhouseCoopers LLP (PwC) on the remuneration of Executive Directors and other senior executives. PwC had been
appointed by the Committee as its advisers in January 2018. The total fees in respect of PwC’s services to the Remuneration Committee
during the year were £4,000. These fees were incurred on a time and materials basis. PwC provided advice to the Company in connection
with the accounting charge for the Company’s share-based incentive plans and to different parts of the Group on tax and other advisory
and consultancy matters. The teams providing this advice are separate from the Remuneration Committee advisers and there was no
conflict of interest. The Committee is satisfied that the advice it receives from its advisers is objective and independent. Korn Ferry and
PwC are both members of the Remuneration Consultants Group and adhere to the Code of Conduct for Remuneration Consultants (which
can be found at www.remunerationconsultantsgroup.com).
This report has been prepared in accordance with applicable legislation and regulatory requirements, including those of the Large and
Medium-Sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013 (Regulations). The Regulations require
the Auditor to report to shareholders on the audited information within this report and to state whether, in their opinion, the relevant
sections have been prepared in accordance with the Companies Act 2006. The Auditor’s opinion is set out in the Independent Auditor’s
report and we have clearly marked the audited sections of this annual report on remuneration.
On behalf of the Board
Celia Baxter
Chairman of the Remuneration Committee
21 June 2021
Annual Report 2021 dssmith.com 107
GOVERNANCE Additional information
Acquisitions and disposals
Acquisitions and disposals in the year ended 30 April 2021 are
described in note 30 to the consolidated financial statements.
Events after the reporting date
There are no subsequent events after the reporting date which
require disclosure.
Political donations
No political donations were made during the year ended
30 April 2021 (2019/20: nil). DS Smith has a policy of not
making donations to political organisations or independent
election candidates or incurring political expenditure, as defined
in the Political Parties, Elections and Referendums Act 2000,
anywhere in the world.
Share capital
Details of the issued share capital and the rights and restrictions
attached to the shares, together with details of movements in the
Company’s issued share capital during the year, are shown in note
24 to the consolidated financial statements. Pursuant to the
Company’s employee share option schemes, 808,816 ordinary
shares of 10 pence each were issued during the year. Between
1 May and 21 June 2021 inclusive, 165,155 shares were issued
pursuant to the Company’s employee share option schemes. The
Company has not utilised its authority to make market purchases
of 137,273,253 shares granted to it at the 2020 annual general
meeting (AGM) but, in line with market practice, will be seeking to
renew such authority at this year’s AGM.
The trustee of the employee benefit trust, which is used to
purchase shares on behalf of the Company as described in note 24
to the consolidated financial statements, has the power to vote or
not vote, at its absolute discretion, in respect of any shares in the
Company held unallocated in that trust. However, in accordance
with good practice, the trustee adopts a policy of not voting in
respect of such shares. The trustee has a dividend waiver in place
in respect of shares which are the beneficial property of the trust.
Dividends
An interim dividend for 2020/21 of 4.0 pence per ordinary share
was paid on 4 May 2021 and the Directors recommend a final
dividend of 8.1 pence per ordinary share, which together with the
interim dividend, increases the total dividend for the year to
12.1 pence per ordinary share (2019/20: nil). Subject to approval of
shareholders at the AGM to be held on 7 September 2021, the final
dividend will be paid on 1 November 2021 to shareholders on the
register at the close of business on 8 October 2021.
Directors’ and officers’ liability insurance
The Company has purchased and maintains appropriate insurance
cover in respect of Directors’ and officers’ liabilities. The Company
has also entered into qualifying third-party indemnity
arrangements for the benefit of all its Directors and qualifying
third-party indemnity arrangements have been entered into by a
subsidiary of the Company for the benefit of certain directors of
companies within the Group, all in a form and scope which comply
with the requirements of the Companies Act 2006 (the Act). These
indemnities were in force throughout the year and up to the date
of this Annual Report.
Additional employee disclosures
In our Strategic Report on pages 24 to 29 we set out some of the
ways in which we realise the potential of our people, including how
we engage with our workforce. As part of creating a modern,
diverse and inclusive culture all companies within the Group strive
to operate fairly at all times and this includes not permitting
discrimination against any employee, applicant for employment or
contingent worker on the basis of race, religion or belief, colour,
gender, disability, national origin, age, military service, veteran
status, sexual orientation, gender reassignment, marital status or
any other characteristic protected by local law. This also includes
giving full and fair consideration to suitable applications for
employment from disabled persons, making reasonable
adjustments in the hiring process to ensure fairness and equity in
the selection process. For existing employees who develop a
disability we will make all reasonable adjustments to support their
continued employment, in their same job or, if this is not
practicable, making every effort to find suitable alternative
employment and to provide relevant training and career
development opportunity.
Through the Group’s engagement survey, via our European Works
Council which brings together employee representatives from the
different European countries where we operate, as well as
through site and team meetings and briefing newsletters, the
Group provides employees with various opportunities to obtain
information on matters of concern to them, to improve their
awareness of the financial and economic factors that affect the
performance of the Group and to provide their feedback.
108
Substantial shareholdings
Information provided to the Company pursuant to the Financial Conduct Authority’s Disclosure Guidance and Transparency Rules
(DTRs) is published on a Regulatory Information Service and on the Company’s website. The following information has been received,
in accordance with DTR 5, from holders of notifiable interests in the Company’s issued share capital.
As at 30 April 2021
As at 21 June 2021
Nature of holding
7.96%
5.44%
Below 5%
4.98%
4.981%
3.994585%
2.985%
6.79%
5.44%
Below 5%
4.98%
4.981%
4.034428%
2.985%
Direct & indirect
Indirect
Indirect
Direct
Direct & indirect
Direct & Indirect
Direct & indirect
The Strategic Report on pages 1 to 61 and the governance report
and Directors’ Remuneration Report on pages 62 to 109 together
represent the management report for the purpose of compliance
with DTR 4.1.8R.
The Directors’ report was approved by the Board of Directors on
21 June 2021 and is signed on its behalf by:
Iain Simm
Group General Counsel and Company Secretary
21 June 2021
Aviva plc and its subsidiaries
Standard Life Aberdeen
BlackRock, Inc.
Norges Bank
Ameriprise Financial, Inc. and its group
Black Creek Investment Management Inc.
Merpas (UK) Limited
Auditor
Each of the persons who is a Director at the date of the approval of
this Annual Report confirms that:
• so far as the Director is aware, there is no relevant audit
information of which the Company’s Auditor is unaware; and
• the Director has taken all the steps he/she ought to have taken
as a Director in order to make him/herself aware of any relevant
audit information and to establish that the Company’s Auditor is
aware of that information.
This confirmation is given and should be interpreted in accordance
with the provisions of section 418 of the Companies Act 2006.
A resolution to reappoint Deloitte LLP as Auditor will be proposed
at the forthcoming AGM.
Other disclosures
Certain information is included in our Strategic Report (pages 1 to
61) or financial statements that would otherwise be required to be
disclosed in this section of the report. This is as follows:
Subject matter
Likely future developments in the business
Research and development
Use of financial instruments
Greenhouse gas emissions
Page
6 to 13
16
45
33
As is customary, our principal financing facilities incorporate
market standard change of control clauses.
A complete list of the Group’s subsidiaries is set out in note 33 to
the consolidated financial statements to comply with s409 of the
Act. Companies within the Group have branches in Hungary,
Norway, Poland, Ireland and Slovakia.
The information that fulfils the requirements of the corporate
governance statement for the purposes of DTR 7 can be found on
pages 62 to 83, and that governance report also forms part of the
Directors’ report.
Annual Report 2021 dssmith.com 109
GOVERNANCE
Directors’ responsibilities
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the financial statements comply with the Companies Act 2006.
They are also responsible for safeguarding the assets of the
Company and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of
the corporate and financial information included on the Company’s
website. Legislation in the UK governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
Directors’ responsibility statement
We confirm that to the best of our knowledge:
• the financial statements, prepared in accordance with the
relevant financial reporting framework, give a true and fair view
of the assets, liabilities, financial position and profit or loss of the
Company and the undertakings included in the consolidation
taken as a whole;
• the Strategic Report includes a fair review of the development
and performance of the business and the position of the
Company and the undertakings included in the consolidation
taken as a whole, together with a description of the principal
risks and uncertainties that they face; and
• the Annual Report and financial statements, taken as a whole,
are fair, balanced and understandable and provide the
information necessary for shareholders to assess the Company’s
position, performance, business model and strategy.
This responsibility statement was approved by the Board of
Directors on 21 June 2021 and is signed on its behalf by:
Miles Roberts
Group Chief Executive
Adrian Marsh
Group Finance Director
21 June 2021
21 June 2021
The Directors are responsible for preparing the Annual Report and
the financial statements in accordance with applicable law and
regulations.
Company law requires the Directors to prepare such financial
statements for each financial year. Under that law the Directors
are required to prepare the Group financial statements in
accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006 and
International Financial Reporting Standards (IFRSs) adopted
pursuant to Regulation (EC) No 1606/2002 as it applies in the
European Union. The Group financial statements also comply with
International Financial Reporting Standards as issued by the
International Accounting Standards Board ( IASB). The Directors
have also chosen to prepare the parent Company financial
statements in accordance with Financial Reporting Standard 101
Reduced Disclosure Framework. Under company law the Directors
must not approve the financial statements unless they are
satisfied that they give a true and fair view of the state of affairs
of the Company and of the profit or loss of the Company for that
period.
In preparing the parent Company financial statements, the
Directors are required to:
• select suitable accounting policies and then apply them
consistently;
• make judgements and accounting estimates that are reasonable
and prudent;
• state whether Financial Reporting Standard 101 Reduced
Disclosure Framework has been followed, subject to any
material departures disclosed and explained in the financial
statements; and
• prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
In preparing the Group financial statements, International
Accounting Standard 1 requires that Directors:
• properly select and apply accounting policies;
• present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
• provide additional disclosures when compliance with the
specific requirements in IFRSs is insufficient to enable users to
understand the impact of particular transactions, other events
and conditions on the entity’s financial position and financial
performance; and
• make an assessment of the Company’s ability to continue as a
going concern.
110
FINANCIAL STATEMENTS
Independent Auditor’s report to the members of DS Smith Plc
Report on the audit of the financial statements
1. Opinion
In our opinion:
• the financial statements of DS Smith Plc (the ‘parent Company’) and its subsidiaries (the ‘Group’) give a true and fair view of the state of the
Group’s and of the parent Company’s affairs as at 30 April 2021 and of the Group’s profit for the year then ended;
• the Group financial statements have been properly prepared in accordance with international accounting standards in conformity with the
requirements of the Companies Act 2006, International Financial Reporting Standards (IFRSs) as adopted by the European Union and IFRSs
as issued by the International Accounting Standards Board (IASB);
• the parent Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting
Practice, including Financial Reporting Standard 101 Reduced Disclosure Framework; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements which comprise :
• the consolidated income statement;
• the consolidated statement of comprehensive income;
• the consolidated and parent Company balance sheets;
• the consolidated and parent Company statements of changes in equity;
• the consolidated cash flow statement;
• the related notes 1 to 34 to the consolidated financial statements; and
• the related notes 1 to 16 to the parent Company financial statements.
The financial reporting framework that has been applied in the preparation of the Group financial statements is applicable law, international
accounting standards in conformity with the requirements of the Companies Act 2006 and IFRSs as adopted by the European Union and IFRSs
as issued by the International Accounting Standards Board (IASB). The financial reporting framework that has been applied in the preparation
of the parent Company financial statements is applicable law and United Kingdom Accounting Standards, including FRS 101Reduced
Disclosure Framework (United Kingdom Generally Accepted Accounting Practice).
2. Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under
those standards are further described in the auditor’s responsibilities for the audit of the financial statements section of our report.
We are independent of the Group and the parent Company in accordance with the ethical requirements that are relevant to our audit of the
financial statements in the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard as applied to listed public interest
entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. The non-audit services provided to the
Group and parent Company for the year are disclosed in note 3 to the financial statements. We confirm that the non-audit services prohibited
by the FRC’s Ethical Standard were not provided to the Group or the parent Company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
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FINANCIAL STATEMENTS
Independent Auditor’s report to the members of DS Smith Plc (continued)
3. Summary of our audit approach
Key audit
matters
The key audit matters that we identified in the current and previous year were:
• Classification and presentation of adjusting items; and
• Valuation of uncertain tax position provisions
Within this report, key audit matters are identified as follows:
Newly identified
Increased level of risk
Similar level of risk
Decreased level of risk
Materiality
The materiality that we used for the Group financial statements was £20m (2020: £23m) which was determined on
the basis of 0.33% of revenue (2020: 5% of profit before tax and adjusting items).
We have revised our approach to materiality basis from the prior year due to increased volatility in profit in the current
year resulting from the impact of the Covid-19 pandemic on the Group’s operations and consumer demand in the
markets in which the Group operates.
Scoping
Our full scope audits and specified audit procedures resulted in coverage of 73% (2020: 71%) of the Group’s revenue
and 83% (2020: 81%) of the Group’s profit before tax and adjusting items.
Significant
changes in
our approach
As at the date of issuance of the 2020 annual report and financial statements, the impact that the Covid-19 pandemic
could have on the Group’s results was relatively unknown. This had an impact on going concern and as a result, going
concern was identified as a key audit matter in the previous year. For the 2021 audit, the Group’s financial position and
performance have warranted a decrease in the significance of the risk related to the going concern assumption and
therefore we no longer consider going concern to represent a key audit matter.
112
112
Independent Auditor’s report to the members of DS Smith Plc (continued)
3. Summary of our audit approach
Key audit
matters
The key audit matters that we identified in the current and previous year were:
• Classification and presentation of adjusting items; and
• Valuation of uncertain tax position provisions
Within this report, key audit matters are identified as follows:
Newly identified
Increased level of risk
Similar level of risk
Decreased level of risk
Materiality
The materiality that we used for the Group financial statements was £20m (2020: £23m) which was determined on
the basis of 0.33% of revenue (2020: 5% of profit before tax and adjusting items).
We have revised our approach to materiality basis from the prior year due to increased volatility in profit in the current
year resulting from the impact of the Covid-19 pandemic on the Group’s operations and consumer demand in the
markets in which the Group operates.
Scoping
Our full scope audits and specified audit procedures resulted in coverage of 73% (2020: 71%) of the Group’s revenue
and 83% (2020: 81%) of the Group’s profit before tax and adjusting items.
Significant
changes in
our approach
As at the date of issuance of the 2020 annual report and financial statements, the impact that the Covid-19 pandemic
could have on the Group’s results was relatively unknown. This had an impact on going concern and as a result, going
concern was identified as a key audit matter in the previous year. For the 2021 audit, the Group’s financial position and
performance have warranted a decrease in the significance of the risk related to the going concern assumption and
therefore we no longer consider going concern to represent a key audit matter.
FINANCIAL STATEMENTS
4. Conclusions relating to going concern
In auditing the financial statements, we have concluded that the Directors’ use of the going concern basis of accounting in the preparation of
the financial statements is appropriate.
Our evaluation of the Directors’ assessment of the Group’s and parent Company’s ability to continue to adopt the going concern basis of
accounting included:
• assessing the Group’s financing facilities including nature of facilities, repayment terms, covenants and available undrawn committed facilities;
• considering the reasonableness of the projections and the appropriateness of the sensitivities performed by management;
• evaluating the key assumptions used in the forecasts;
• recalculating the amount of headroom in the forecasts (cash and covenants);
• performing additional sensitivity scenario analysis;
• assessing the historical accuracy of forecasts prepared by management;
• assessing the mathematical accuracy of the model itself; and
• assessing the disclosures relating to going concern.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or
collectively, may cast significant doubt on the Group's and parent Company’s ability to continue as a going concern for a period of at least
twelve months from when the financial statements are authorised for issue.
In relation to the reporting on how the Group has applied the UK Corporate Governance Code, we have nothing material to add or draw
attention to in relation to the Directors’ statement in the financial statements about whether the Directors considered it appropriate to adopt
the going concern basis of accounting.
Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant sections of this report.
5. Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of
the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified.
These matters included those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and
directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters.
5.1. Classification and presentation of adjusting items
Key audit
matter
description
The classification and presentation of costs and income within adjusting items in the income statement is a key
determinant in assessing the quality of the Group’s earnings and also presents the opportunity for management bias
in the presentation of results. Management judgement is required in determining the accounting policy for identifying
if an item is adjusting based on the size, nature and incidence of the item. Additionally, this is an area that attracts
greater scrutiny from the financial reporting regulator.
For the year ended 30 April 2021, the Group recognised net adjusting items before taxation in continuing operations
of £56m (2020: £69m) and net adjusting income in discontinued operations of £12m (2020: £227m).
Refer to note 4 for details of adjusting items in the year and note 1(x) for management’s policy for identifying
adjusting items and note 1(aa) where adjusting items are identified as a critical accounting judgement.
The classification and presentation of adjusting items is also considered to be a significant matter for the
Audit Committee (page 81).
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FINANCIAL STATEMENTS
Independent Auditor’s report to the members of DS Smith Plc (continued)
How the scope
of our audit
responded to
the key audit
matter
As a response to the identified key audit matter, we performed the following audit procedures:
• We obtained an understanding of relevant controls in respect of the classification and presentation of
adjusting items;
• We considered and challenged the appropriateness and classification of the items which are included within
adjusting items by testing a sample and agreeing them back to relevant supporting documentation;
• We tested and considered items within underlying results which may be adjusting by nature but not
separately identified;
• We assessed the appropriateness of the adjusting items recorded in accordance with management’s policy and the
latest guidance from the FRC; and
• We assessed the related disclosure in the Group financial statements for consistency with the prior period and
current market best practice.
Key
observations
We are satisfied that the amounts classified as adjusting items are in accordance with the Group’s accounting policy
and the related disclosure of these items in the financial statements is appropriate.
5.2. Valuation of uncertain tax position provisions
Key audit
matter
description
The value of the tax provisions against a number of uncertain tax positions requires judgement in relation to the likely
outcome of negotiations with various tax authorities. Areas of particular focus included transfer pricing provisioning
and other uncertain tax positions in the UK and overseas.
Refer to note 1(w) for management’s process for estimating and recording tax provisions and note 1(z) for further
detail in respect of the range of possible outcomes with regards to those uncertain tax positions. Taxation is also
identified in note 1(z) as a key source of estimation uncertainty and to be a significant matter for the Audit Committee
(page 81).
How the scope
of our audit
responded to
the key audit
matter
We obtained an understanding of relevant controls in respect of the provisioning for uncertain tax positions.
We involved our tax specialists, including those in local jurisdictions as required, to challenge the estimates and
judgements made by management when calculating the income tax payable in each territory and the associated
provisions held in relation to tax exposures. This included consideration of tax exposures relating to transfer pricing
and consideration of specific provisions made in relation to UK tax risks. Specifically, we have reviewed the
correspondence with the taxation authorities in significant locations and the supporting evidence or opinions
received from external counsel or other advisors where management has utilised such opinions to estimate the likely
outcome of technical tax treatments in order to assess the reasonableness of the provisions made.
Key
observations
We are satisfied that the estimates and judgements made by management used in calculating the tax charge and
recording the associated tax provisions are reasonable.
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114
Independent Auditor’s report to the members of DS Smith Plc (continued)
How the scope
As a response to the identified key audit matter, we performed the following audit procedures:
• We obtained an understanding of relevant controls in respect of the classification and presentation of
of our audit
responded to
the key audit
matter
adjusting items;
• We considered and challenged the appropriateness and classification of the items which are included within
adjusting items by testing a sample and agreeing them back to relevant supporting documentation;
• We tested and considered items within underlying results which may be adjusting by nature but not
separately identified;
latest guidance from the FRC; and
current market best practice.
• We assessed the appropriateness of the adjusting items recorded in accordance with management’s policy and the
• We assessed the related disclosure in the Group financial statements for consistency with the prior period and
Key
We are satisfied that the amounts classified as adjusting items are in accordance with the Group’s accounting policy
observations
and the related disclosure of these items in the financial statements is appropriate.
5.2. Valuation of uncertain tax position provisions
Key audit
matter
description
The value of the tax provisions against a number of uncertain tax positions requires judgement in relation to the likely
outcome of negotiations with various tax authorities. Areas of particular focus included transfer pricing provisioning
and other uncertain tax positions in the UK and overseas.
Refer to note 1(w) for management’s process for estimating and recording tax provisions and note 1(z) for further
detail in respect of the range of possible outcomes with regards to those uncertain tax positions. Taxation is also
identified in note 1(z) as a key source of estimation uncertainty and to be a significant matter for the Audit Committee
(page 81).
How the scope
We obtained an understanding of relevant controls in respect of the provisioning for uncertain tax positions.
of our audit
responded to
the key audit
matter
We involved our tax specialists, including those in local jurisdictions as required, to challenge the estimates and
judgements made by management when calculating the income tax payable in each territory and the associated
provisions held in relation to tax exposures. This included consideration of tax exposures relating to transfer pricing
and consideration of specific provisions made in relation to UK tax risks. Specifically, we have reviewed the
correspondence with the taxation authorities in significant locations and the supporting evidence or opinions
received from external counsel or other advisors where management has utilised such opinions to estimate the likely
outcome of technical tax treatments in order to assess the reasonableness of the provisions made.
Key
We are satisfied that the estimates and judgements made by management used in calculating the tax charge and
observations
recording the associated tax provisions are reasonable.
FINANCIAL STATEMENTS
6. Our application of materiality
6.1. Materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a
reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and in
evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group financial statements
Parent Company financial statements
Materiality
£20m (2020: £23m)
£10.0m (2020: £8m)
Basis for
determining
materiality
We have used revenue as the benchmark in determining
materiality (2020: profit before tax and adjusting items) and the
materiality equates to 0.33% of revenue (2020: approximately
5% of profit before tax and adjusting items).
Parent Company materiality equates to less than 1%
(2020: less than 1%) of net assets, and is capped at
50% (2020: less than 50%) of Group materiality.
Rationale for
the benchmark
applied
The materiality equates to less than 1% (2020: less than 1%) of
net assets. It also equates to approximately 7.0% of statutory
profit before tax and adjusting items (2020: 5.3%).
In light of the impact of Covid-19 on the Group we consider
revenue to be a more stable benchmark for the business this
year given the Group has not significantly changed in size and
scale during the current year. The profit-related benchmarks for
the Group are impacted by Covid-19 and are volatile from one
period to the next, and therefore they are not representative of
the overall size of the business in the current year.
Net assets is typically considered an appropriate
benchmark for materiality as the parent Company is
the holding company, but given the quantum of net
assets on the parent Company balance sheet, we
have limited materiality to 40% of Group materiality.
Adjusted profit £474.5m
Adjusted profit
Group materiality
Group materiality
£20m
Component materiality
not more than £6.5m
Audit Committee
reporting threshold £1.0m
6.2. Performance materiality
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and undetected
misstatements exceed the materiality for the financial statements as a whole.
Performance
materiality
Basis and
rationale for
determining
performance
materiality
Group financial statements
Parent Company financial statements
65% (2020: 70%) of Group materiality
65% (2020: 70%) of parent Company materiality
We have determined performance materiality as 65% (2020 – 70%) of Group materiality to reflect a tolerable error
due to Covid-19 and factoring in the risk of uncertainty due to the pandemic, we have also considered the basis of
our risk assessment, our assessment of the Group’s control environment, the low number and quantum of corrected
and uncorrected misstatements identified and management’s willingness to correct misstatements that may be
identified. Accordingly, we set performance materiality for the Group at £13.0m (2020: £16m) and Parent Company
at £6.5m (2020 - £5.6m).
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FINANCIAL STATEMENTS
Independent Auditor’s report to the members of DS Smith Plc (continued)
6.3. Error reporting threshold
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £1m (2020: £1m), as well as
differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit Committee on
disclosure matters that we identified when assessing the overall presentation of the financial statements.
7. An overview of the scope of our audit
7.1. Identification and scoping of components
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including Group-wide controls, and assessing
the risks of material misstatement at the Group level.
The Group operates in four geographic segments, three in Europe (Northern Europe, Eastern Europe and Southern Europe) and one in
North America.
Based on that assessment, we focused our Group audit scope primarily on the audit work at eleven components (2020: twelve) located in the
United Kingdom, Spain, France, Germany, North America, Italy and Sweden. These eleven components represent the principal business units
within the Group’s key reportable segments and accordingly provide an appropriate basis for undertaking audit work to address the risks of
material misstatement. In addition to the components we have primarily focussed on during the year as outlined above, and reflecting
changes to the composition of the Group, a full scope audit has also been performed at the largest components located in Poland, Denmark,
Hungary and the Netherlands. Component materiality was capped at £6.5m (2020: £8m). In total, these components accounted for 73%
(2020: 71%) of revenue and 83% (2020: 81%) of profit before tax and adjusting items.
The Group audit team takes an active part in the conduct of the audits at these components. For each component, we included the
component audit team in our team briefings held over video conference call facilities to discuss the Group risk assessment and audit
instructions, to confirm their understanding of the business, and to discuss their local risk assessment. Throughout the audit, we maintained
regular contact in order to support, challenge and direct their audit approach. We also remotely attended local audit close meetings with local
management, performed remote reviews of their working papers, and reviewed their reporting to us of the findings from their work.
At the head office level, we also tested the consolidation process and carried out analytical procedures to verify our conclusion that there
were no significant risks of material misstatement of the aggregated financial information of the remaining components not subject to audit.
Revenue
Profit before tax
27%
Full audit scope
Analytical reviews
17%
Full audit scope
Analytical reviews
73%
83%
7.2. Our consideration of the control environment
Our approach to controls testing across the Group reflects the geographical spread of the Group, its decentralised nature and the complex
systems landscape. We do not take a centralised approach to controls testing and controls reliance across the Group. A number of component
audit teams took a controls reliance approach in respect of some business process cycles (e.g. revenue) whilst other components do not.
The ability to take controls reliance is impacted by the effectiveness of IT controls in place. We involved IT specialists in performing the tests
related to IT controls.
No significant deficiencies have been noted in respect of the controls testing across the Group.
116
116
6.3. Error reporting threshold
8. Other information
FINANCIAL STATEMENTS
The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report
thereon. The Directors are responsible for the other information contained within the annual report. Our opinion on the financial statements
does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of
assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the
financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a
material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material
misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
9. Responsibilities of Directors
As explained more fully in the Directors’ responsibilities statement, the Directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary to
enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group’s and the parent Company’s ability to continue as a
going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors
either intend to liquidate the Group or the parent Company or to cease operations, or have no realistic alternative but to do so.
10. Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but
is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected
to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
11. Extent to which the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our
procedures are capable of detecting irregularities, including fraud is detailed below.
Independent Auditor’s report to the members of DS Smith Plc (continued)
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £1m (2020: £1m), as well as
differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit Committee on
disclosure matters that we identified when assessing the overall presentation of the financial statements.
7. An overview of the scope of our audit
7.1. Identification and scoping of components
the risks of material misstatement at the Group level.
North America.
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including Group-wide controls, and assessing
The Group operates in four geographic segments, three in Europe (Northern Europe, Eastern Europe and Southern Europe) and one in
Based on that assessment, we focused our Group audit scope primarily on the audit work at eleven components (2020: twelve) located in the
United Kingdom, Spain, France, Germany, North America, Italy and Sweden. These eleven components represent the principal business units
within the Group’s key reportable segments and accordingly provide an appropriate basis for undertaking audit work to address the risks of
material misstatement. In addition to the components we have primarily focussed on during the year as outlined above, and reflecting
changes to the composition of the Group, a full scope audit has also been performed at the largest components located in Poland, Denmark,
Hungary and the Netherlands. Component materiality was capped at £6.5m (2020: £8m). In total, these components accounted for 73%
(2020: 71%) of revenue and 83% (2020: 81%) of profit before tax and adjusting items.
The Group audit team takes an active part in the conduct of the audits at these components. For each component, we included the
component audit team in our team briefings held over video conference call facilities to discuss the Group risk assessment and audit
instructions, to confirm their understanding of the business, and to discuss their local risk assessment. Throughout the audit, we maintained
regular contact in order to support, challenge and direct their audit approach. We also remotely attended local audit close meetings with local
management, performed remote reviews of their working papers, and reviewed their reporting to us of the findings from their work.
At the head office level, we also tested the consolidation process and carried out analytical procedures to verify our conclusion that there
were no significant risks of material misstatement of the aggregated financial information of the remaining components not subject to audit.
Revenue
Profit before tax
7.2. Our consideration of the control environment
Our approach to controls testing across the Group reflects the geographical spread of the Group, its decentralised nature and the complex
systems landscape. We do not take a centralised approach to controls testing and controls reliance across the Group. A number of component
audit teams took a controls reliance approach in respect of some business process cycles (e.g. revenue) whilst other components do not.
The ability to take controls reliance is impacted by the effectiveness of IT controls in place. We involved IT specialists in performing the tests
related to IT controls.
No significant deficiencies have been noted in respect of the controls testing across the Group.
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FINANCIAL STATEMENTS
Independent Auditor’s report to the members of DS Smith Plc (continued)
11.1 Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and
regulations, we considered the following:
• the nature of the industry and sector, control environment and business performance including the design of the Group’s remuneration
policies, key drivers for Directors’ remuneration, bonus levels and performance targets;
• results of our enquiries of management, internal audit, and the audit committee about their own identification and assessment of the risks
of irregularities;
• any matters we identified having obtained and reviewed the Group’s documentation of their policies and procedures relating to:
– identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-compliance;
– detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud;
– the internal controls established to mitigate risks of fraud or non-compliance with laws and regulations;
• the matters discussed among the audit engagement team including significant component audit teams and relevant internal specialists,
including tax, valuations, pensions and IT specialists regarding how and where fraud might occur in the financial statements and any
potential indicators of fraud.
As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation for fraud and identified
the greatest potential for fraud related to the classification and presentation of adjusting items. In common with all audits under ISAs (UK),
we are also required to perform specific procedures to respond to the risk of management override.
We also obtained an understanding of the legal and regulatory frameworks that the Group operates in, focusing on provisions of those laws
and regulations that had a direct effect on the determination of material amounts and disclosures in the financial statements. The key laws
and regulations we considered in this context included the UK Companies Act, Listing Rules, pensions legislation and tax legislation.
In addition, we considered provisions of other laws and regulations that do not have a direct effect on the financial statements but compliance
with which may be fundamental to the Group’s ability to operate or to avoid a material penalty. These included the regulatory solvency
requirements and environmental regulations.
11.2 Audit response to risks identified
As a result of performing the above, we identified classification and presentation of adjusting items as a key audit matter. The key audit
matters section of our report explains the matter in more detail and also describes the specific procedures we performed in response to that
key audit matter.
In addition to the above, our procedures to respond to risks identified included the following:
• reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with provisions of relevant
laws and regulations described as having a direct effect on the financial statements;
• enquiring of management, the audit committee and in-house legal counsel concerning actual and potential litigation and claims;
• performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatement due
to fraud;
• reading minutes of meetings of those charged with governance, reviewing internal audit reports and reviewing correspondence with;
• understanding safeguards management have in place, such as whistleblower hotlines, and making enquiries of internal audit as to the
nature of matters reported; and
• in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other
adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and evaluating the
business rationale of any significant transactions that are unusual or outside the normal course of business.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members including internal
specialists and significant component audit teams, and remained alert to any indications of fraud or non-compliance with laws and regulations
throughout the audit.
118
118
Independent Auditor’s report to the members of DS Smith Plc (continued)
11.1 Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-compliance with laws and
regulations, we considered the following:
• the nature of the industry and sector, control environment and business performance including the design of the Group’s remuneration
policies, key drivers for Directors’ remuneration, bonus levels and performance targets;
• results of our enquiries of management, internal audit, and the audit committee about their own identification and assessment of the risks
of irregularities;
• any matters we identified having obtained and reviewed the Group’s documentation of their policies and procedures relating to:
– identifying, evaluating and complying with laws and regulations and whether they were aware of any instances of non-compliance;
– detecting and responding to the risks of fraud and whether they have knowledge of any actual, suspected or alleged fraud;
– the internal controls established to mitigate risks of fraud or non-compliance with laws and regulations;
• the matters discussed among the audit engagement team including significant component audit teams and relevant internal specialists,
including tax, valuations, pensions and IT specialists regarding how and where fraud might occur in the financial statements and any
potential indicators of fraud.
As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation for fraud and identified
the greatest potential for fraud related to the classification and presentation of adjusting items. In common with all audits under ISAs (UK),
we are also required to perform specific procedures to respond to the risk of management override.
We also obtained an understanding of the legal and regulatory frameworks that the Group operates in, focusing on provisions of those laws
and regulations that had a direct effect on the determination of material amounts and disclosures in the financial statements. The key laws
and regulations we considered in this context included the UK Companies Act, Listing Rules, pensions legislation and tax legislation.
In addition, we considered provisions of other laws and regulations that do not have a direct effect on the financial statements but compliance
with which may be fundamental to the Group’s ability to operate or to avoid a material penalty. These included the regulatory solvency
requirements and environmental regulations.
11.2 Audit response to risks identified
key audit matter.
In addition to the above, our procedures to respond to risks identified included the following:
• reviewing the financial statement disclosures and testing to supporting documentation to assess compliance with provisions of relevant
laws and regulations described as having a direct effect on the financial statements;
• enquiring of management, the audit committee and in-house legal counsel concerning actual and potential litigation and claims;
• performing analytical procedures to identify any unusual or unexpected relationships that may indicate risks of material misstatement due
to fraud;
• reading minutes of meetings of those charged with governance, reviewing internal audit reports and reviewing correspondence with;
• understanding safeguards management have in place, such as whistleblower hotlines, and making enquiries of internal audit as to the
nature of matters reported; and
• in addressing the risk of fraud through management override of controls, testing the appropriateness of journal entries and other
adjustments; assessing whether the judgements made in making accounting estimates are indicative of a potential bias; and evaluating the
business rationale of any significant transactions that are unusual or outside the normal course of business.
We also communicated relevant identified laws and regulations and potential fraud risks to all engagement team members including internal
specialists and significant component audit teams, and remained alert to any indications of fraud or non-compliance with laws and regulations
throughout the audit.
FINANCIAL STATEMENTS
Report on other legal and regulatory requirements
12. Opinions on other matters prescribed by the Companies Act 2006
In our opinion the part of the Directors’ remuneration report to be audited has been properly prepared in accordance with the
Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
• the information given in the strategic report and the Directors’ report for the financial year for which the financial statements are prepared
is consistent with the financial statements; and
• the strategic report and the Directors’ report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the Group and the parent Company and their environment obtained in the course of the
audit, we have not identified any material misstatements in the strategic report or the Directors’ report.
13. Corporate Governance Statement
The Listing Rules require us to review the Directors' statement in relation to going concern, longer-term viability and that part of the Corporate
Governance Statement relating to the Group’s compliance with the provisions of the UK Corporate Governance Code specified for our review.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance
Statement is materially consistent with the financial statements and our knowledge obtained during the audit:
• the Directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and any material
uncertainties identified set out on page 51;
• the Directors’ explanation as to its assessment of the Group’s prospects, the period this assessment covers and why the period is
appropriate set out on page 49;
• the Directors' statement on fair, balanced and understandable set out on page 110;
• the Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 76;
• the section of the annual report that describes the review of effectiveness of risk management and internal control systems set out on
As a result of performing the above, we identified classification and presentation of adjusting items as a key audit matter. The key audit
matters section of our report explains the matter in more detail and also describes the specific procedures we performed in response to that
page 76; and
• the section describing the work of the audit committee set out on page 78.
14. Matters on which we are required to report by exception
14.1. Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the parent Company, or returns adequate for our audit have not been received from
branches not visited by us; or
• the parent Company financial statements are not in agreement with the accounting records and returns.
We have nothing to report in respect of these matters.
14.2. Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of Directors’ remuneration have not been
made or the part of the Directors’ remuneration report to be audited is not in agreement with the accounting records and returns.
We have nothing to report in respect of these matters.
118
Annual Report 2021 dssmith.com 119
Annual Report 2021 dssmith.com 119
FINANCIAL STATEMENTS
Independent Auditor’s report to the members of DS Smith Plc (continued)
15. Other matters which we are required to address
15.1. Auditor tenure
Following the recommendation of the audit committee, we were appointed by the shareholders on 13 October 2006 to audit the financial
statements for the year ended 30 April 2007 and subsequent financial periods. Following a competitive tender process, we were reappointed
as auditor for the year ended 30 April 2014 and subsequent financial years. The period of total uninterrupted engagement including previous
renewals and reappointments of the firm is 15 years, covering the years ended 30 April 2007 to 30 April 2021.
15.2. Consistency of the audit report with the additional report to the audit committee
Our audit opinion is consistent with the additional report to the audit committee we are required to provide in accordance with ISAs (UK).
16. Use of our report
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit
work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s
report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the
Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Nicola Mitchell
(Senior Statutory Auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
21 June 2021
120
120
Independent Auditor’s report to the members of DS Smith Plc (continued)
Consolidated income statement
Year ended 30 April 2021
15. Other matters which we are required to address
15.1. Auditor tenure
Following the recommendation of the audit committee, we were appointed by the shareholders on 13 October 2006 to audit the financial
statements for the year ended 30 April 2007 and subsequent financial periods. Following a competitive tender process, we were reappointed
as auditor for the year ended 30 April 2014 and subsequent financial years. The period of total uninterrupted engagement including previous
renewals and reappointments of the firm is 15 years, covering the years ended 30 April 2007 to 30 April 2021.
15.2. Consistency of the audit report with the additional report to the audit committee
Our audit opinion is consistent with the additional report to the audit committee we are required to provide in accordance with ISAs (UK).
16. Use of our report
This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit
work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s
report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the
Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Nicola Mitchell
(Senior Statutory Auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
21 June 2021
Continuing operations
Revenue
Operating costs
Operating profit before amortisation,
acquisitions and divestments
Amortisation of intangible assets;
acquisitions and divestments
Operating profit
Finance income
Finance costs
Employment benefit net finance expense
Net financing costs
Profit after financing costs
Share of profit of equity accounted investments,
net of tax
Profit before income tax
Income tax (expense)/credit
Profit for the year from continuing operations
Discontinued operations
Profit for the year from discontinued operations,
net of tax
Profit for the year
Note
2
3,4
2
10, 4
4
5
5, 4
25
13
7, 4
30(b)
Profit for the year attributable to:
Owners of the parent
Non-controlling interests
Earnings per share
Earnings per share from continuing and discontinued operations
Basic
Diluted
Earnings per share from continuing operations
Basic
Diluted
Adjusted earnings per share from continuing operations
Basic
Diluted
8, 33
8
8
8
8
8
FINANCIAL STATEMENTS
Before
adjusting
items
2021
£m
5,976
(5,474)
Adjusting
items
2021
(note 4)
£m
–
(44)
After
adjusting
items
2021
£m
5,976
(5,518)
Before
adjusting
items
2020
£m
6,043
(5,383)
Adjusting
items
2020
(note 4)
£m
–
(58)
After
adjusting
items
2020
£m
6,043
(5,441)
502
(44)
458
660
(58)
602
(142)
360
1
(76)
(3)
(78)
282
5
287
(65)
222
–
222
222
–
(5)
(49)
–
(7)
–
(7)
(56)
–
(56)
16
(40)
12
(28)
(28)
–
(147)
311
1
(83)
(3)
(85)
226
5
231
(49)
182
12
194
194
–
14.2p
14.1p
13.3p
13.2p
(143)
517
4
(88)
(3)
(87)
430
7
437
(92)
345
10
355
355
–
(4)
(62)
–
(7)
–
(7)
(69)
–
(69)
14
(55)
227
172
172
–
(147)
455
4
(95)
(3)
(94)
361
7
368
(78)
290
237
527
527
–
38.5p
38.2p
21.2p
21.0p
24.2p
24.1p
33.2p
33.0p
120
Annual Report 2021 dssmith.com 121
Annual Report 2021 dssmith.com 121
FINANCIAL STATEMENTS
Consolidated statement of comprehensive income
Year ended 30 April 2021
Profit for the year
Items which will not be reclassified subsequently to profit or loss
Actuarial loss on employee benefits
Equity interest at FVTOCI – net change in fair value
Income tax on items which will not be reclassified subsequently to profit or loss
Items which may be reclassified subsequently to profit or loss
Foreign currency translation differences
Reclassification from translation reserve to income statement arising on divestment
Cash flow hedges fair value changes
Reclassification from cash flow hedge reserve to income statement
Movement in net investment hedge
Income tax on items which may be reclassified subsequently to profit or loss
Other comprehensive expense for the year, net of tax
Total comprehensive income for the year
Total comprehensive income attributable to:
Owners of the parent
Non-controlling interests
Note
25
7
7
2021
£m
194
(5)
(3)
(5)
(95)
–
103
9
(2)
(21)
(19)
2020
£m
527
(46)
–
15
39
(30)
(31)
(1)
(23)
11
(66)
175
461
175
–
461
–
122
122
Consolidated statement of comprehensive income
Year ended 30 April 2021
Consolidated statement of financial position
At 30 April 2021
Profit for the year
Items which will not be reclassified subsequently to profit or loss
Actuarial loss on employee benefits
Equity interest at FVTOCI – net change in fair value
Income tax on items which will not be reclassified subsequently to profit or loss
Items which may be reclassified subsequently to profit or loss
Foreign currency translation differences
Reclassification from translation reserve to income statement arising on divestment
Cash flow hedges fair value changes
Reclassification from cash flow hedge reserve to income statement
Movement in net investment hedge
Income tax on items which may be reclassified subsequently to profit or loss
Other comprehensive expense for the year, net of tax
Total comprehensive income for the year
Total comprehensive income attributable to:
Owners of the parent
Non-controlling interests
Note
25
7
7
2021
£m
194
(5)
(3)
(5)
(95)
–
103
9
(2)
(21)
(19)
2020
£m
527
(46)
–
15
39
(30)
(31)
(1)
(23)
11
(66)
175
461
175
–
461
–
Assets
Non-current assets
Intangible assets
Biological assets
Property, plant and equipment
Right-of-use assets
Equity accounted investments
Other investments
Deferred tax assets
Other receivables
Derivative financial instruments
Total non-current assets
Current assets
Inventories
Biological assets
Income tax receivable
Trade and other receivables
Cash and cash equivalents
Derivative financial instruments
Assets classified as held for sale
Total current assets
Total assets
Liabilities
Non-current liabilities
Borrowings
Employee benefits
Other payables
Provisions
Lease liabilities
Deferred tax liabilities
Derivative financial instruments
Total non-current liabilities
Current liabilities
Bank overdrafts
Borrowings
Trade and other payables
Income tax liabilities
Provisions
Lease liabilities
Derivative financial instruments
Total current liabilities
Total liabilities
Net assets
Equity
Issued capital
Share premium
Reserves
Total equity attributable to owners of the parent
Non-controlling interests
Total equity
Approved by the Board of Directors of DS Smith Plc on 21 June 2021 and signed on its behalf by:
M W Roberts
Director
A R T Marsh
Director
The accompanying notes are an integral part of these consolidated financial statements.
FINANCIAL STATEMENTS
Note
2021
£m
2020
£m
10
11
12
13
14
22
16
21
15
16
19
21
20
25
17
23
12
22
21
19
20
17
23
12
21
24
24
2,995
9
3,050
226
38
13
37
1
35
6,404
537
6
41
818
813
80
1
2,296
8,700
(2,066)
(175)
(15)
(8)
(159)
(271)
(15)
(2,709)
(94)
(235)
(1,834)
(133)
(48)
(71)
(41)
(2,456)
(5,165)
3,535
137
2,241
1,155
3,533
2
3,535
3,197
9
3,042
256
35
12
77
19
27
6,674
518
6
42
753
595
34
3
1,951
8,625
(2,300)
(199)
(15)
(12)
(182)
(305)
(41)
(3,054)
(90)
(98)
(1,708)
(149)
(58)
(73)
(44)
(2,220)
(5,274)
3,351
137
2,238
975
3,350
1
3,351
122
Annual Report 2021 dssmith.com 123
Annual Report 2021 dssmith.com 123
FINANCIAL STATEMENTS
Consolidated statement of changes in equity
Year ended 30 April 2021
Note
25
30(a)
21(c)
9
At 1 May 2019
Profit for the year
Actuarial loss on employee benefits
Foreign currency translation differences
Reclassification from translation reserve to
income statement arising on divestment
Cash flow hedges fair value changes
Reclassification from cash flow hedge
reserve to income statement
Movement in net investment hedge
Income tax on other comprehensive income
Total comprehensive (expense)/ income
Issue of share capital
Employee share trust
Share-based payment expense
(net of tax)
Dividends paid
Other changes in equity in the year
At 30 April 2020
Profit for the year
Actuarial loss on employee benefits
Equity interest at FVTOCI – change in fair
value
Foreign currency translation differences
Cash flow hedges fair value changes
Reclassification from cash flow hedge
reserve to income statement
Movement in net investment hedge
Income tax on other comprehensive income
Total comprehensive income/(expense)
Issue of share capital
Employee share trust
Share-based payment expense
(net of tax)
Transactions with non-controlling interests
Other changes in equity in the year
At 30 April 2021
Share
capital
£m
Share
premium
£m
137 2,236
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2
–
–
–
–
–
–
2
137 2,238
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3
–
–
–
–
–
–
3
137 2,241
Hedging
reserve
£m
(13)
–
–
–
Translation
reserve
£m
23
–
–
39
Own
shares
£m
(1)
–
–
–
Retained
earnings
1£m
729
527
(46)
–
Total equity
attributable
to owners
of the
parent
£m
3,111
527
(46)
39
Non-
controlling
interests
£m
1
–
–
–
–
(31)
(1)
–
6
(26)
–
–
–
–
–
(39)
–
–
–
–
103
9
–
(20)
92
–
–
–
–
–
53
(30)
–
–
(23)
5
(9)
–
–
–
–
–
14
–
–
–
(95)
–
–
(2)
(1)
(98)
–
–
–
–
–
(84)
–
–
–
–
–
–
–
(2)
–
–
–
–
15
496
–
(2)
(30)
(31)
(1)
(23)
26
461
2
(4)
2
–
(222)
–
(2)
(222)
(3) 1,003
194
(5)
–
–
2
(222)
(222)
3,350
194
(5)
–
–
–
–
–
–
–
–
–
(3)
–
–
–
–
(5)
181
–
(2)
(3)
(95)
103
9
(2)
(26)
175
3
(2)
–
–
–
10
(3)
5
(3) 1,189
10
(3)
8
3,533
–
–
–
–
–
–
–
–
–
–
–
1
–
–
–
–
–
–
–
–
–
–
–
–
1
1
2
Total
equity
£m
3,112
527
(46)
39
(30)
(31)
(1)
(23)
26
461
2
(4)
2
(222)
(222)
3,351
194
(5)
(3)
(95)
103
9
(2)
(26)
175
3
(2)
10
(2)
9
3,535
1. Retained earnings include a reserve related to merger relief (note 24).
124
124
Consolidated statement of changes in equity
Year ended 30 April 2021
Share
capital
£m
Share
Hedging
Translation
premium
reserve
reserve
Own
shares
Retained
earnings
Note
£m
137 2,236
£m
(13)
£m
23
£m
(1)
Total equity
attributable
to owners
Non-
of the
controlling
parent
interests
£m
£m
3,111
Total
equity
£m
3,112
21(c)
9
At 1 May 2019
Profit for the year
Actuarial loss on employee benefits
25
Foreign currency translation differences
Reclassification from translation reserve to
income statement arising on divestment
30(a)
Cash flow hedges fair value changes
Reclassification from cash flow hedge
reserve to income statement
Movement in net investment hedge
Income tax on other comprehensive income
Total comprehensive (expense)/ income
Issue of share capital
Employee share trust
Share-based payment expense
(net of tax)
Dividends paid
Other changes in equity in the year
At 30 April 2020
Profit for the year
Actuarial loss on employee benefits
Equity interest at FVTOCI – change in fair
value
Foreign currency translation differences
Cash flow hedges fair value changes
Reclassification from cash flow hedge
reserve to income statement
Movement in net investment hedge
Income tax on other comprehensive income
Total comprehensive income/(expense)
Issue of share capital
Employee share trust
Share-based payment expense
(net of tax)
Transactions with non-controlling interests
Other changes in equity in the year
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2
–
–
–
2
–
–
–
–
–
–
–
–
–
3
–
–
–
3
39
(30)
(23)
5
(9)
(31)
(1)
–
6
(26)
103
(20)
92
(95)
(2)
(1)
(98)
–
–
–
–
–
–
–
–
–
–
–
–
–
9
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1£m
729
527
(46)
–
–
–
–
–
15
496
–
(2)
2
194
(5)
(3)
–
–
–
–
(5)
181
–
(2)
10
(3)
5
(2)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
527
(46)
39
(30)
(31)
(1)
(23)
26
461
2
(4)
2
194
(5)
(3)
(95)
103
9
(2)
(26)
175
3
(2)
10
(3)
8
1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1
1
2
527
(46)
39
(30)
(31)
(1)
(23)
26
461
2
(4)
2
(222)
(222)
194
(5)
(3)
(95)
103
9
(2)
(26)
175
3
(2)
10
(2)
9
137 2,238
(39)
14
(3) 1,003
3,350
1
3,351
(222)
(222)
(222)
(222)
(2)
At 30 April 2021
137 2,241
53
(84)
(3) 1,189
3,533
3,535
1. Retained earnings include a reserve related to merger relief (note 24).
Consolidated statement of cash flows
Year ended 30 April 2021
Continuing operations
Operating activities
Cash generated from operations
Interest received
Interest paid
Tax paid
Cash flows from operating activities
Investing activities
Acquisition of subsidiary businesses, net of cash and cash equivalents
Divestment of discontinued operation, net of cash and cash equivalents
Divestment of subsidiary businesses, net of cash and cash equivalents
Capital expenditure
Proceeds from sale of property, plant and equipment and intangible assets
Cash flows from restricted cash and other deposits
Other investing activities
Cash flows (used in)/from investing activities
Financing activities
Proceeds from issue of share capital
Repayment of borrowings
Proceeds from borrowings
Payments in respect of derivative financial instruments
Repayment of principal on lease liabilities
Dividends paid to Group shareholders
Other
Cash flows used in financing activities
Increase in cash and cash equivalents from continuing operations
Discontinued operation
Cash flows used in discontinued operation
Increase in cash and cash equivalents
Net cash and cash equivalents at beginning of the year
Exchange losses on cash and cash equivalents
Net cash and cash equivalents at end of the year
FINANCIAL STATEMENTS
Note
27
30
30
30
9
30(b)
19
2021
£m
895
1
(69)
(66)
761
(90)
–
16
(331)
8
4
2
(391)
3
(1,213)
1,157
(16)
(73)
–
–
(142)
228
(10)
218
505
(4)
719
2020
£m
836
2
(79)
(94)
665
(4)
422
62
(376)
12
56
6
178
2
(3,497)
3,235
(5)
(71)
(222)
(4)
(562)
281
(29)
252
253
–
505
124
Annual Report 2021 dssmith.com 125
Annual Report 2021 dssmith.com 125
FINANCIAL STATEMENTS
Notes to the consolidated financial statements
1. Significant accounting policies
(a) Basis of preparation
(i) Consolidated financial statements
These financial statements are the consolidated financial statements
for the Group consisting of DS Smith Plc, a company registered in
England and Wales, and all its subsidiaries. The consolidated financial
statements have been prepared and approved by the Directors in
accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006 and International
Financial Reporting Standards adopted pursuant to Regulation (EC)
No 1606/2002 as it applies in the European Union. The consolidated
financial statements have also been prepared in accordance with
International Financial Reporting Standards as issued by the
International Accounting Standards Board (IASB).
On 31 December 2020 EU-adopted IFRS was brought into UK law and
became UK adopted international accounting standards, with future
changes to IFRS being subject to endorsement by the UK
Endorsement Board. The Groups’ Consolidated Financial Statements
will transition to UK adopted international accounting standards for
financial periods beginning 1 January 2021 onwards.
The consolidated financial statements are prepared on the historical
cost basis with the exception of biological assets, other investments,
assets and liabilities of certain financial instruments and employee
benefit plans that are stated at their fair value and share-based
payments that are stated at their grant date fair value.
The consolidated financial statements have been prepared on a going
concern basis as set out on pages 50-51 of the Directors’ report. The
Directors consider that adequate resources exist for the Company to
continue in operational existence for the foreseeable future.
The preparation of consolidated financial statements requires
management to make judgements, estimates and assumptions
that affect whether and how policies are applied, and the reported
amounts of assets and liabilities, income and expenses. Estimates
with a significant risk of material adjustment and the critical
accounting judgement are discussed in accounting policies 1(z)
and 1(aa).
(ii) Discontinued operations
The Group classifies non-current assets and disposal groups as held
for sale if their carrying amounts will be recovered principally through
a sale transaction rather than through continuing use. Non-current
assets and disposal groups classified as held for sale are measured
at the lower of their carrying amount and fair value less costs to sell.
Costs to sell are the incremental costs directly attributable to the
disposal of an asset or disposal group, excluding finance costs and
income tax expense.
The criteria for held for sale classification is regarded as met only
when the sale is highly probable and the asset or disposal group is
available for immediate sale in its present condition. Actions required
to complete the sale should indicate that it is unlikely that significant
changes to the sale will be made or that the decision to sell will be
withdrawn. Management must be committed to the plan to sell the
asset and the sale is expected to be completed within one year from
the date of the classification.
Assets and liabilities classified as held for sale are presented
separately as current items in the statement of financial position.
Discontinued operations are excluded from the results of continuing
operations and are presented as a single amount as profit or loss after
tax from discontinued operations in the income statement. Cash
flows generated from discontinued operations are presented as a
single item in the statement of cash flows.
All other notes to the financial statements include amounts for
continuing operations.
(iii) New accounting standards adopted
The following new accounting standards, amendments or
interpretations have been adopted by the Group as of 1 May 2020:
• Amendments to IFRS 3 Business Combinations;
• Reform Amendments to IAS 1 and IAS 8 Definition of Material ; and
• Amendments to The Conceptual Framework for Financial
Reporting.
The adoption of the new accounting standards, amendments and
interpretations has not had a material effect on the results for the
year or the financial position at the year end.
The accounting policies set out above have been applied consistently
in all periods presented in these consolidated financial statements.
The accounting policies have been applied consistently by all
Group entities.
(iv) Changes to accounting standards not yet adopted
Interest Rate Benchmark Reform
Benchmark interest rates such as the London Inter-bank Offered
Rates (LIBOR) and other inter- bank offered rates have been
prioritised for reform and replacement with Risk Free Rates (RFR) by
global regulators. Reform of LIBOR rates is expected to be largely
completed by the end of 2021. To prepare for this reform, the Group
established an IBOR Reform project towards the end of 2020 to
determine the impact of a change in benchmark rates on the Group,
with particular focus on treasury, tax, accounting, systems,
commercial contracts and other agreements.
The Group has no hedge accounting relationships that reference
LIBOR and did not adopt the Phase 1 amendments to IFRS 9, IAS 39
and IFRS 7, which provided relief from hedge accounting
requirements for hedge relationships affected by IBOR reform.
126
126
Notes to the consolidated financial statements
1. Significant accounting policies
(a) Basis of preparation
(i) Consolidated financial statements
These financial statements are the consolidated financial statements
for the Group consisting of DS Smith Plc, a company registered in
England and Wales, and all its subsidiaries. The consolidated financial
statements have been prepared and approved by the Directors in
accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006 and International
Financial Reporting Standards adopted pursuant to Regulation (EC)
No 1606/2002 as it applies in the European Union. The consolidated
financial statements have also been prepared in accordance with
International Financial Reporting Standards as issued by the
International Accounting Standards Board (IASB).
On 31 December 2020 EU-adopted IFRS was brought into UK law and
became UK adopted international accounting standards, with future
changes to IFRS being subject to endorsement by the UK
Endorsement Board. The Groups’ Consolidated Financial Statements
will transition to UK adopted international accounting standards for
financial periods beginning 1 January 2021 onwards.
The consolidated financial statements are prepared on the historical
cost basis with the exception of biological assets, other investments,
assets and liabilities of certain financial instruments and employee
benefit plans that are stated at their fair value and share-based
payments that are stated at their grant date fair value.
The consolidated financial statements have been prepared on a going
concern basis as set out on pages 50-51 of the Directors’ report. The
Directors consider that adequate resources exist for the Company to
continue in operational existence for the foreseeable future.
The preparation of consolidated financial statements requires
management to make judgements, estimates and assumptions
that affect whether and how policies are applied, and the reported
amounts of assets and liabilities, income and expenses. Estimates
with a significant risk of material adjustment and the critical
accounting judgement are discussed in accounting policies 1(z)
and 1(aa).
(ii) Discontinued operations
The Group classifies non-current assets and disposal groups as held
for sale if their carrying amounts will be recovered principally through
a sale transaction rather than through continuing use. Non-current
assets and disposal groups classified as held for sale are measured
at the lower of their carrying amount and fair value less costs to sell.
Costs to sell are the incremental costs directly attributable to the
disposal of an asset or disposal group, excluding finance costs and
income tax expense.
The criteria for held for sale classification is regarded as met only
when the sale is highly probable and the asset or disposal group is
available for immediate sale in its present condition. Actions required
to complete the sale should indicate that it is unlikely that significant
changes to the sale will be made or that the decision to sell will be
withdrawn. Management must be committed to the plan to sell the
asset and the sale is expected to be completed within one year from
the date of the classification.
Assets and liabilities classified as held for sale are presented
separately as current items in the statement of financial position.
Discontinued operations are excluded from the results of continuing
operations and are presented as a single amount as profit or loss after
tax from discontinued operations in the income statement. Cash
flows generated from discontinued operations are presented as a
single item in the statement of cash flows.
All other notes to the financial statements include amounts for
continuing operations.
(iii) New accounting standards adopted
The following new accounting standards, amendments or
interpretations have been adopted by the Group as of 1 May 2020:
• Amendments to IFRS 3 Business Combinations;
• Reform Amendments to IAS 1 and IAS 8 Definition of Material ; and
• Amendments to The Conceptual Framework for Financial
Reporting.
The adoption of the new accounting standards, amendments and
interpretations has not had a material effect on the results for the
year or the financial position at the year end.
The accounting policies set out above have been applied consistently
in all periods presented in these consolidated financial statements.
The accounting policies have been applied consistently by all
Group entities.
(iv) Changes to accounting standards not yet adopted
Interest Rate Benchmark Reform
Benchmark interest rates such as the London Inter-bank Offered
Rates (LIBOR) and other inter- bank offered rates have been
prioritised for reform and replacement with Risk Free Rates (RFR) by
global regulators. Reform of LIBOR rates is expected to be largely
completed by the end of 2021. To prepare for this reform, the Group
established an IBOR Reform project towards the end of 2020 to
determine the impact of a change in benchmark rates on the Group,
with particular focus on treasury, tax, accounting, systems,
commercial contracts and other agreements.
The Group has no hedge accounting relationships that reference
LIBOR and did not adopt the Phase 1 amendments to IFRS 9, IAS 39
and IFRS 7, which provided relief from hedge accounting
requirements for hedge relationships affected by IBOR reform.
126
FINANCIAL STATEMENTS
1. Significant accounting policies continued
(a) Basis of preparation continued
The Group’s borrowings are substantially fixed rate. The Group has a
floating-rate revolving credit facility which references, amongst
others, the GBP and USD LIBOR rates. The most significant impact
from IBOR reform is expected to be with regard to this facility. It is
intended that the Sterling Overnight Index Average rate (SONIA) will
form the basis of a replacement for GBP LIBOR and the Secured
Overnight Financing Rate (SOFR) will be the replacement for USD
LIBOR for GBP and USD borrowings under the revolving credit facility.
These RFR indices plus a credit adjustment spread are expected to be
economically equivalent to the existing currency LIBOR rates. The
drafting of an amendment agreement with the banking group, as a
direct consequence of rate reform, is at an advanced stage. The
Group will adopt Interest Rate Benchmark reform Phase 2
(Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16) in the
next financial year. No material impact on the results of the Group is
expected as a consequence of IBOR reform.
(b) Basis of consolidation
(i) Subsidiaries
The financial statements of subsidiaries are included in the
consolidated financial statements from the date that control
commences until the date that control ceases. Control is achieved
when the Group is exposed to, or has rights to, variable returns from
its involvement with the entity and has the ability to affect those
returns through its power over the entity. Intra-group balances and
any unrealised gains and losses or income and expenses arising from
intra-group transactions are eliminated in preparing the consolidated
financial statements.
(ii) Interests in equity accounted investments
The Group’s interests in equity accounted investments comprise
interests in associates and joint ventures. An associate is an entity
over which the Group has significant influence, but not control or joint
control, over the financial and operating policy decisions of the
investment. A joint venture is an entity in which the Group has joint
control, whereby the Group has rights to the net assets of the entity,
rather than rights to its assets and obligations for its liabilities.
Interests in associates and joint ventures are accounted for using the
equity method. They are recognised initially at cost, which includes
transaction costs. Subsequent to initial recognition the consolidated
financial statements include the Group’s share of the profit or loss
and other comprehensive income of equity accounted investments,
until the date on which significant influence or joint control ceases.
(iii) Non-controlling interests
Non-controlling interests are shown as a component of equity in
the consolidated statement of financial position net of the value
of options over interests held by non-controlling interests in the
Group’s subsidiaries.
(iv) Business combinations
The acquisition method is used to account for the acquisition of
subsidiaries. Identifiable net assets acquired (including intangibles)
in a business combination are measured initially at their fair values
at the acquisition date.
Where the measurement of the fair value of identifiable net assets
acquired is incomplete at the end of the reporting period in which the
combination occurs, the Group will report provisional fair values. Final
fair values are determined within a year of the acquisition date and
applied retrospectively.
The excess of the consideration transferred and the amount of any
non-controlling interest over the fair value of the identifiable assets
(including intangibles), liabilities and contingent liabilities acquired is
recorded as goodwill.
The consideration transferred is measured as the fair value of
the assets given, equity instruments issued (if any), and liabilities
assumed or incurred at the date of acquisition.
Acquisition related costs are expensed as incurred.
The results of the subsidiaries acquired are included in the
consolidated financial statements from the acquisition date.
(c) Revenue
The Group is in the business of providing sustainable packaging
solutions, sustainable paper products, recycling and waste
management services. The Group has concluded that it is the principal
in its revenue arrangements.
Revenue comprises the fair value of the sale of goods and services,
net of value added tax and other sales taxes, rebates and discounts
and after eliminating sales within the Group. Revenue from contracts
with customers is recognised when control of the goods or services
is transferred to the customer at an amount that reflects the
consideration to which the Group expects to be entitled in exchange
for those goods or services and the fulfilment of the related
performance obligations. Generally this occurs when the goods are
loaded into the collection vehicle if the buyer is collecting them, or
when the goods are unloaded at the delivery address if the Group
is responsible for delivery.
The transaction price is the contractual price with the customer
adjusted for rebates and discounts. Rebates and discounts are
estimated using historical data and experiences with the customers.
Revenue is recognised to the extent that it is highly probable that
a significant reversal will not occur. Returns from customers are
negligible. No element of financing is deemed present as typical
sales contracts with customers are usually shorter than 12 months.
A receivable is recognised when the goods are delivered or services
provided at a point in time that consideration is unconditional
because only the passage of time is required before the payment
is due.
Revenue by function is not provided in the Group’s disclosures as
the year-on-year variability in the degree of integration would be
misrepresentative of the level of activity.
(d) Supplier rebates
The Group receives income from its suppliers, mainly in the form
of volume based rebates and early settlement discounts. These are
recognised as a reduction in operating costs in the year to which they
relate. At the period end, where appropriate, the Group estimates
supplier income due from annual agreements for volume rebates.
Annual Report 2021 dssmith.com 127
Annual Report 2021 dssmith.com 127
FINANCIAL STATEMENTS
Notes to the consolidated financial statements (continued)
tested annually for impairment, or more frequently if an impairment is
indicated.
On disposal of a subsidiary or a jointly controlled entity, the
attributable amount of goodwill is included in the determination of
the profit or loss recognised in the consolidated income statement.
(ii) Intellectual property
Intellectual property is stated at cost less accumulated amortisation
and impairment.
(iii) Computer software
Computer software that is integral to a related item of hardware is
included within property, plant and equipment. All other computer
software is treated as an intangible asset.
(iv) Customer related
Customer relationships, acquired as part of a business combination,
are capitalised separately from goodwill and are carried at cost less
accumulated amortisation and impairment.
(v) Other intangible assets
Other intangible assets that are acquired by the Group are carried at
cost less accumulated amortisation and impairment.
(vi) Amortisation
Amortisation of intangible assets (excluding goodwill) is charged to
the income statement on a straight-line basis over the estimated
useful lives of intangible assets, unless such lives are indefinite.
Intangible assets (other than goodwill) are amortised from the
date they are available for use.
The estimated useful lives are as follows:
Intellectual property
Computer software
Customer relationships
Up to 20 years
3–5 years
5–15 years
(i) Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated
depreciation and impairment.
Depreciation is charged to the income statement on a straight-line
basis over the estimated useful lives of each item of property, plant
and equipment, and major components that are accounted for
separately (or in the case of leased assets, the lease period, if
shorter). Land is not depreciated.
The estimated useful lives are as follows:
Freehold and long leasehold properties
Plant and equipment – motor vehicles
Plant and equipment – other, fixtures and fittings
(including IT hardware)
10–50 years
3–5 years
2–30 years
1. Significant accounting policies continued
(e) Government grants
Government grants are recognised in the statement of financial
position initially as deferred income when there is reasonable
assurance that they will be received and that the Group will comply
with the conditions attached to them. Grants that compensate the
Group for expenses incurred are offset against the expenses in the
same periods in which the expenses are incurred. Grants relating to
assets are released to the income statement over the expected
useful life of the asset to which they relate on a basis consistent
with the depreciation policy. Depreciation is provided on the full
cost of the assets before deducting grants.
(f) Dividends
Dividends attributable to the equity holders of the Company paid
during the year are recognised directly in equity.
(g) Foreign currency translation
The consolidated financial statements are presented in sterling,
which is the Group’s presentational currency. Transactions in foreign
currencies are translated into the respective functional currencies of
Group companies at the foreign exchange rates ruling at the dates
of the transactions. Monetary assets and liabilities denominated
in foreign currencies at the reporting date are translated into the
functional currency at the foreign exchange rates ruling at that date.
Foreign exchange differences arising on translation of monetary
assets and liabilities are recognised in the consolidated income
statement. Non-monetary assets and liabilities that are measured
at historical cost in a foreign currency are translated using the
exchange rates at the dates of the transactions.
The assets and liabilities of all the Group entities that have a
functional currency other than sterling are translated at the closing
exchange rate at the reporting date. Income and expenses for each
income statement are translated at average exchange rates (unless
this average is not a reasonable approximation of the cumulative
effect of the rates prevailing on the transaction dates, in which case
income and expenses are translated at the date of the transactions).
On consolidation, exchange differences arising from the translation
of the net investment in foreign entities, borrowings, and other
financial instruments designated as hedges of such investments,
are recognised in the translation reserve. On the disposal of foreign
currency entities, the cumulative exchange difference recorded in the
translation reserve is taken to the consolidated income statement as
part of the gain or loss on disposal.
(h) Intangible assets
(i) Goodwill
The recognition of business combinations requires the excess of the
purchase price of acquisitions over the net book value of identifiable
assets acquired to be allocated to the assets and liabilities of the
acquired entity. The Group makes judgements and estimates in
relation to the fair value allocation of the purchase price.
Goodwill is stated at cost less accumulated impairment losses.
The useful life of goodwill is considered to be indefinite. Goodwill is
allocated to the cash generating units (CGUs), or groups of CGUs, that
are expected to benefit from the synergies of the combination and is
128
128
1. Significant accounting policies continued
tested annually for impairment, or more frequently if an impairment is
1. Significant accounting policies continued
(iii) Reversals of impairment
FINANCIAL STATEMENTS
(i) Property, plant and equipment continued
Gains or losses arising on the sale of surplus property assets are
recorded through operating profit before adjusting items.
(j) Other investments
Other investments primarily consist of investments in unquoted
equity securities and restricted cash. Equity securities are measured
at fair value. On initial recognition, the Group makes an irrevocable
election (on an instrument-by-instrument basis) to designate
investments in equity instruments as at fair value through other
comprehensive income (FVTOCI). Designation at FVTOCI is not
permitted if the equity investment is held for trading or if it is
contingent consideration recognised by an acquirer in a business
combination. Investment in equity instruments at FVTOCI are initially
measured at fair value plus transaction costs. Subsequently, they are
measured at fair value with gains and losses arising from changes in
fair value recognised in other comprehensive income and accumulated
in the investment revaluation reserve. The cumulative gain or loss
is not reclassified to profit or loss on divestment of the equity
investments; instead, it is transferred to retained earnings. The Group
has designated all investments in equity that are not held for trading
as at FVTOCI.
Restricted cash is carried at amortised cost less any impairment.
(k) Impairment
The carrying amounts of the Group’s assets, including tangible and
intangible non-current assets, are reviewed at each reporting date
to determine whether there are any indicators of impairment. If any
such indicators exist, the asset’s recoverable amount is estimated.
Goodwill is tested for impairment annually at the same time,
regardless of the presence of an impairment indicator. An
impairment loss is recognised whenever the carrying amount of
an asset, collection of assets or its CGU exceeds its recoverable
amount. Impairment losses are recognised in the consolidated income
statement.
(i) Cash generating units
For the purposes of property, plant and equipment and other
intangibles impairment testing, each operating segment, split by
process (e.g. Packaging, Paper, Recycling), is a separate individual
CGU. Goodwill impairment testing is carried out based on regional
groupings of CGUs as set out in note 10, as this is the lowest level at
which goodwill is monitored for internal management purposes.
(ii) Calculation of recoverable amount
The recoverable amount of the Group’s assets is calculated as the
value-in-use of the CGU to which the assets are attributed or the
net selling price, if greater. Value-in-use is calculated by discounting
the cash flows expected to be generated by the CGU/group of CGUs
being tested for evidence of impairment. This is done using a pre-tax
discount rate that reflects the current assessment of the time value
of money, and the country-specific risks for which the cash flows
have not been adjusted. For an asset that does not generate largely
independent cash flows, the recoverable amount is determined for
the CGU to which the asset belongs.
Impairment losses in respect of goodwill are not reversed. In respect
of other assets, an impairment loss is reversed if there has been a
change in the estimates used to determine the recoverable amount.
An impairment loss is reversed only to the extent that the asset’s
carrying amount does not exceed the carrying amount that would
have been determined, net of depreciation or amortisation, if no
impairment loss had been recognised.
(l) Derivative financial instruments
The Group uses derivative financial instruments, primarily currency
and commodity swaps, to manage currency and commodity risks
associated with the Group’s underlying business activities and the
financing of these activities. The Group has a policy not to, and does
not, undertake any speculative activity in these instruments.
Such derivative financial instruments are initially recognised at fair
value on the date on which a derivative contract is entered into and
are subsequently remeasured at fair value. Derivatives are carried as
assets when the fair value is positive and as liabilities when the fair
value is negative.
The Group has elected to continue to apply the hedge accounting
requirements of IAS 39, as allowed under IFRS 9.
Derivative financial instruments are accounted for as hedges when
designated as hedges at the inception of the contract and when
the financial instruments provide an effective hedge of the
underlying risk.
For the purpose of hedge accounting, hedges are classified as:
• cash flow hedges when hedging exposure to variability in cash
flows that is attributable to a particular risk associated with either a
statement of financial position item or a highly probable forecast
transaction; or
• hedges of the net investment in a foreign entity.
The treatment of gains and losses arising from revaluing derivatives
designated as hedging instruments depends on the nature of the
hedging relationship as follows:
Cash flow hedges: the effective portion of the gain or loss on
the hedging instrument is recognised directly in equity, while the
ineffective portion is recognised in the income statement. Amounts
taken to equity are transferred to the income statement in the same
period during which the hedged transaction affects profit or loss,
such as when a forecast sale or purchase occurs. Where the hedged
item is the cost of a non-financial asset or liability, the amounts taken
to equity are transferred to the initial carrying amount of the non-
financial asset or liability.
If the hedging instrument expires or is sold, terminated or exercised
without replacement or roll-over, the hedged transaction ceases
to be highly probable, or if its designation as a hedge is revoked,
amounts previously recognised in equity remain in equity until
the forecast transaction occurs and are transferred to the income
statement or to the initial carrying amount of a non-financial asset
or liability as above. If a forecast transaction is no longer expected
to occur, amounts previously recognised in equity are transferred
to the income statement.
Annual Report 2021 dssmith.com 129
Annual Report 2021 dssmith.com 129
Group companies at the foreign exchange rates ruling at the dates
cost less accumulated amortisation and impairment.
Notes to the consolidated financial statements (continued)
with the conditions attached to them. Grants that compensate the
(ii) Intellectual property
indicated.
On disposal of a subsidiary or a jointly controlled entity, the
attributable amount of goodwill is included in the determination of
the profit or loss recognised in the consolidated income statement.
Intellectual property is stated at cost less accumulated amortisation
and impairment.
(iii) Computer software
Computer software that is integral to a related item of hardware is
included within property, plant and equipment. All other computer
software is treated as an intangible asset.
(iv) Customer related
Customer relationships, acquired as part of a business combination,
are capitalised separately from goodwill and are carried at cost less
accumulated amortisation and impairment.
(v) Other intangible assets
Other intangible assets that are acquired by the Group are carried at
(vi) Amortisation
Amortisation of intangible assets (excluding goodwill) is charged to
the income statement on a straight-line basis over the estimated
useful lives of intangible assets, unless such lives are indefinite.
Intangible assets (other than goodwill) are amortised from the
date they are available for use.
The estimated useful lives are as follows:
Intellectual property
Computer software
Customer relationships
Up to 20 years
3–5 years
5–15 years
(i) Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated
depreciation and impairment.
Depreciation is charged to the income statement on a straight-line
basis over the estimated useful lives of each item of property, plant
and equipment, and major components that are accounted for
separately (or in the case of leased assets, the lease period, if
shorter). Land is not depreciated.
The estimated useful lives are as follows:
Freehold and long leasehold properties
Plant and equipment – motor vehicles
Plant and equipment – other, fixtures and fittings
10–50 years
3–5 years
2–30 years
(e) Government grants
Government grants are recognised in the statement of financial
position initially as deferred income when there is reasonable
assurance that they will be received and that the Group will comply
Group for expenses incurred are offset against the expenses in the
same periods in which the expenses are incurred. Grants relating to
assets are released to the income statement over the expected
useful life of the asset to which they relate on a basis consistent
with the depreciation policy. Depreciation is provided on the full
cost of the assets before deducting grants.
(f) Dividends
Dividends attributable to the equity holders of the Company paid
during the year are recognised directly in equity.
(g) Foreign currency translation
The consolidated financial statements are presented in sterling,
which is the Group’s presentational currency. Transactions in foreign
currencies are translated into the respective functional currencies of
of the transactions. Monetary assets and liabilities denominated
in foreign currencies at the reporting date are translated into the
functional currency at the foreign exchange rates ruling at that date.
Foreign exchange differences arising on translation of monetary
assets and liabilities are recognised in the consolidated income
statement. Non-monetary assets and liabilities that are measured
at historical cost in a foreign currency are translated using the
exchange rates at the dates of the transactions.
The assets and liabilities of all the Group entities that have a
functional currency other than sterling are translated at the closing
exchange rate at the reporting date. Income and expenses for each
income statement are translated at average exchange rates (unless
this average is not a reasonable approximation of the cumulative
effect of the rates prevailing on the transaction dates, in which case
income and expenses are translated at the date of the transactions).
On consolidation, exchange differences arising from the translation
of the net investment in foreign entities, borrowings, and other
financial instruments designated as hedges of such investments,
are recognised in the translation reserve. On the disposal of foreign
currency entities, the cumulative exchange difference recorded in the
translation reserve is taken to the consolidated income statement as
part of the gain or loss on disposal.
(h) Intangible assets
(i) Goodwill
purchase price of acquisitions over the net book value of identifiable
assets acquired to be allocated to the assets and liabilities of the
acquired entity. The Group makes judgements and estimates in
relation to the fair value allocation of the purchase price.
Goodwill is stated at cost less accumulated impairment losses.
The useful life of goodwill is considered to be indefinite. Goodwill is
allocated to the cash generating units (CGUs), or groups of CGUs, that
are expected to benefit from the synergies of the combination and is
128
The recognition of business combinations requires the excess of the
(including IT hardware)
FINANCIAL STATEMENTS
Notes to the consolidated financial statements (continued)
1. Significant accounting policies continued
(r) Borrowings
(l) Derivative financial instruments continued
Hedges of net investment in a foreign entity: the effective portion
of the gain or loss on the hedging instrument is recognised directly
in equity, while the ineffective portion is recognised in the income
statement. Amounts taken to equity are transferred to the income
statement when the foreign entity is sold.
Any gains or losses arising from changes in the fair value of all other
derivatives are taken to the income statement. These may arise from
derivatives for which hedge accounting is not applied because they
are not effective as hedging instruments.
The net present value of the expected future payments under
options over interests held by non-controlling interests in the Group’s
subsidiaries is shown as a financial liability. At the end of each period,
the valuation of the liability is reassessed with any changes
recognised in profit or loss for the period.
(m) Treasury shares
When share capital recognised as equity is repurchased, the amount
of the consideration paid, including directly attributable costs, is
recognised as a change in equity. Repurchased shares are classified
as treasury shares and are presented as a deduction from total equity.
(n) Trade and other receivables
Trade and other receivables are recognised initially at fair value less
expected credit loss allowance and subsequently held at amortised
cost. The Group utilises the simplified approach to provide for losses
on receivables under IFRS 9.
(o) Inventories
Inventories are stated at the lower of cost and net realisable value.
Net realisable value is the estimated selling price in the ordinary
course of business, less the estimated costs of completion and selling
expenses. The cost of inventories is based on a weighted average
cost and includes expenditure incurred in acquiring the inventories
and bringing them to their existing location and condition. In the case
of manufactured inventories and work in progress, cost includes an
appropriate share of overheads based on normal operating capacity.
(p) Biological assets
Biological assets consist of standing timber, measured at fair
value less cost to sell. Any change in fair value resulting from both
net growth and change in the market value of standing timber is
presented in the income statement. The revenue from the sale
of standing timber is presented within revenue.
(q) Cash and cash equivalents and restricted cash
Cash and cash equivalents comprise cash balances and call deposits.
Bank overdrafts that are repayable on demand and form an integral
part of the Group’s cash management are included as a component
of cash and cash equivalents for the purpose of the statement of
cash flows. Cash and cash equivalents are stated at amortised cost.
Cash subject to contractual restrictions on use by the Group is
excluded from cash and cash equivalents in the consolidated
financial statements and is presented within other investments in the
consolidated statement of financial position. Restricted cash is stated
at amortised cost.
130
130
Borrowings are recognised initially at fair value, less attributable
transaction costs. Subsequent to initial recognition, interest-bearing
borrowings are stated at amortised cost unless designated in a fair
value hedge relationship, with borrowing costs being accounted for
on an accruals basis in the income statement using the effective
interest method.
At the reporting date, interest payable is recorded separately from
the associated borrowings, within trade and other payables.
(s) Employee benefits
(i) Defined contribution schemes
Contributions to defined contribution pension schemes are
recognised as an employee benefit expense within personnel
expenses in the income statement, as incurred.
(ii) Defined benefit schemes
The Group’s net obligation in respect of defined benefit pension
schemes is calculated separately for each scheme by estimating
the amount of future benefit that employees have earned in return
for their service in the current and prior periods; that benefit is
discounted to its present value amount and recognised in the income
statement within personnel expenses; a corresponding liability for all
future benefits is established on the statement of financial position
and the fair value of any scheme assets is deducted.
The discount rate is the yield at the reporting date on AA credit rated
bonds that have maturity dates approximating to the duration of the
schemes’ obligations. The calculation is performed by a qualified
actuary using the projected unit method. Actuarial gains and losses are
recognised immediately in the statement of comprehensive income.
(iii) Share-based payment transactions
The Group operates equity-settled share-based compensation plans.
The fair value of the employee services received in exchange for the
grant of the options is recognised within personnel expenses, with a
corresponding increase in equity, over the period that the employees
unconditionally become entitled to the awards. The fair value of the
options granted is measured using a stochastic model, taking into
account the terms and conditions upon which the options were
granted. The total amount to be expensed over the vesting period
is determined by reference to the fair value of the options granted,
excluding the impact of any non-market vesting conditions.
At each reporting date, the entity revises its estimates of the number
of options that are expected to become exercisable. It recognises the
impact of the revision of original estimates, if any, in the income
statement, and a corresponding adjustment to equity.
(t) Provisions
A provision is recognised in the statement of financial position when
the Group has a present legal or constructive obligation as a result
of a past event, a reliable estimate can be made of the amount of the
obligation and it is probable that an outflow of economic benefits will
be required to settle the obligation. Provisions are discounted to
present value where the effect is material.
Notes to the consolidated financial statements (continued)
1. Significant accounting policies continued
(r) Borrowings
(l) Derivative financial instruments continued
Hedges of net investment in a foreign entity: the effective portion
of the gain or loss on the hedging instrument is recognised directly
in equity, while the ineffective portion is recognised in the income
statement. Amounts taken to equity are transferred to the income
statement when the foreign entity is sold.
Any gains or losses arising from changes in the fair value of all other
derivatives are taken to the income statement. These may arise from
Borrowings are recognised initially at fair value, less attributable
transaction costs. Subsequent to initial recognition, interest-bearing
borrowings are stated at amortised cost unless designated in a fair
value hedge relationship, with borrowing costs being accounted for
on an accruals basis in the income statement using the effective
interest method.
At the reporting date, interest payable is recorded separately from
the associated borrowings, within trade and other payables.
derivatives for which hedge accounting is not applied because they
(s) Employee benefits
are not effective as hedging instruments.
The net present value of the expected future payments under
options over interests held by non-controlling interests in the Group’s
subsidiaries is shown as a financial liability. At the end of each period,
the valuation of the liability is reassessed with any changes
(i) Defined contribution schemes
Contributions to defined contribution pension schemes are
recognised as an employee benefit expense within personnel
expenses in the income statement, as incurred.
recognised in profit or loss for the period.
(ii) Defined benefit schemes
(m) Treasury shares
When share capital recognised as equity is repurchased, the amount
of the consideration paid, including directly attributable costs, is
recognised as a change in equity. Repurchased shares are classified
as treasury shares and are presented as a deduction from total equity.
(n) Trade and other receivables
Trade and other receivables are recognised initially at fair value less
The Group’s net obligation in respect of defined benefit pension
schemes is calculated separately for each scheme by estimating
the amount of future benefit that employees have earned in return
for their service in the current and prior periods; that benefit is
discounted to its present value amount and recognised in the income
statement within personnel expenses; a corresponding liability for all
future benefits is established on the statement of financial position
and the fair value of any scheme assets is deducted.
expected credit loss allowance and subsequently held at amortised
The discount rate is the yield at the reporting date on AA credit rated
cost. The Group utilises the simplified approach to provide for losses
bonds that have maturity dates approximating to the duration of the
on receivables under IFRS 9.
(o) Inventories
schemes’ obligations. The calculation is performed by a qualified
actuary using the projected unit method. Actuarial gains and losses are
recognised immediately in the statement of comprehensive income.
Inventories are stated at the lower of cost and net realisable value.
Net realisable value is the estimated selling price in the ordinary
(iii) Share-based payment transactions
course of business, less the estimated costs of completion and selling
The Group operates equity-settled share-based compensation plans.
expenses. The cost of inventories is based on a weighted average
The fair value of the employee services received in exchange for the
cost and includes expenditure incurred in acquiring the inventories
grant of the options is recognised within personnel expenses, with a
and bringing them to their existing location and condition. In the case
corresponding increase in equity, over the period that the employees
of manufactured inventories and work in progress, cost includes an
unconditionally become entitled to the awards. The fair value of the
appropriate share of overheads based on normal operating capacity.
options granted is measured using a stochastic model, taking into
(p) Biological assets
Biological assets consist of standing timber, measured at fair
value less cost to sell. Any change in fair value resulting from both
net growth and change in the market value of standing timber is
presented in the income statement. The revenue from the sale
of standing timber is presented within revenue.
account the terms and conditions upon which the options were
granted. The total amount to be expensed over the vesting period
is determined by reference to the fair value of the options granted,
excluding the impact of any non-market vesting conditions.
At each reporting date, the entity revises its estimates of the number
of options that are expected to become exercisable. It recognises the
impact of the revision of original estimates, if any, in the income
(q) Cash and cash equivalents and restricted cash
statement, and a corresponding adjustment to equity.
Cash and cash equivalents comprise cash balances and call deposits.
Bank overdrafts that are repayable on demand and form an integral
part of the Group’s cash management are included as a component
of cash and cash equivalents for the purpose of the statement of
cash flows. Cash and cash equivalents are stated at amortised cost.
Cash subject to contractual restrictions on use by the Group is
excluded from cash and cash equivalents in the consolidated
financial statements and is presented within other investments in the
consolidated statement of financial position. Restricted cash is stated
at amortised cost.
130
(t) Provisions
A provision is recognised in the statement of financial position when
the Group has a present legal or constructive obligation as a result
of a past event, a reliable estimate can be made of the amount of the
obligation and it is probable that an outflow of economic benefits will
be required to settle the obligation. Provisions are discounted to
present value where the effect is material.
1. Significant accounting policies continued
(u) Trade and other payables
Trade and other payables are initially measured at fair value, net
of directly attributable transaction costs and are subsequently
measured at amortised cost using the effective interest method.
(v) Leases
The Group recognises a right-of-use asset and a lease liability at the
lease commencement date.
The right-of-use asset is initially measured at cost, being the initial
amount of the lease liability adjusted for any lease payments made at
or before commencement date, plus any initial direct costs incurred
and an estimate of end of lease dismantling or restoration costs,
less any incentives received and related provisions.
Lease liabilities are recorded at the present value of lease payments,
which include:
• Fixed lease payments;
• Variable payments that depend on an index or rate, initially
measured using the commencement date index or rate;
• Any amounts expected to be payable under residual value
guarantees; and
• The exercise price of purchase options, if it is reasonably certain
they will be exercised.
The interest rate implicit in the lease is used to discount lease
payments, or, if that rate cannot be determined, the Group’s
incremental borrowing rate is used, being the rate that the Group
would have to pay to borrow the funds necessary to obtain an asset
of similar value in a similar economic environment with similar terms
and conditions.
Right-of-use assets are depreciated on a straight-line basis over the
lease term, or the useful life if shorter.
Interest is recognised on the lease liability, resulting in a higher
finance cost in the earlier years of the lease term.
Lease payments relating to low value assets or to short-term leases
are recognised as an expense on a straight-line basis over the lease
term. Short-term leases are those with 12 or less months duration.
(w) Taxation
Income tax on the profit or loss for the year comprises current and
deferred tax. Income tax is recognised in profit or loss except to the
extent that it relates to items recognised directly in equity or in other
comprehensive income.
Current tax is the expected tax payable on the taxable income for
the year, using tax rates enacted in each jurisdiction at the reporting
date, and any adjustment to tax payable in respect of previous years.
The Group is subject to corporate taxes in a number of different
jurisdictions and judgement is required in determining the
appropriate provision for transactions where the ultimate tax
determination is uncertain. In such circumstances, the Group
recognises liabilities for anticipated taxes based on the best
information available and where the anticipated liability is both
probable and can be estimated. Any interest and penalties accrued
are included in income taxes in both the consolidated income
FINANCIAL STATEMENTS
statement and the consolidated statement of financial position.
Where the final outcome of such matters differs from the amount
recorded, any differences may impact the income tax and deferred
tax provisions in the period in which the final determination is made.
Deferred tax is provided for using the balance sheet liability method,
providing for temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and the
amounts used for taxation purposes. The tax effect of certain
temporary differences is not recognised, principally with respect to
goodwill; temporary differences arising on the initial recognition
of assets or liabilities (other than those arising in a business
combination or in a manner that initially impacts accounting or
taxable profit); and temporary differences relating to investment in
subsidiaries and equity accounted investees to the extent that they
will probably not reverse in the foreseeable future and the Group
is able to control the reversal of such temporary differences. The
amount of deferred tax provided is based on the expected manner
of realisation or settlement of the carrying amount of assets and
liabilities, using tax rates enacted or substantively enacted at the
reporting date.
A deferred tax asset is recognised only to the extent that it is probable
that future taxable profits will be available against which the asset
can be utilised. Deferred tax assets are reduced to the extent that it is
no longer probable that the related tax benefit will be realised.
(x) Adjusting items
Items of income or expenditure that are significant by their nature,
size or incidence, and for which separate presentation would assist
in the understanding of the trading and financial results of the Group,
are classified and disclosed as adjusting items.
Such items include business disposals, restructuring and optimisation,
acquisition related and integration costs, and impairments.
(y) Non-GAAP performance measures
In the reporting of financial information, the Group has adopted
certain non-GAAP measures of historical or future financial
performance, position or cash flows other than those defined or
specified under International Financial Reporting Standards (IFRSs).
Non-GAAP measures are either not defined by IFRS or are adjusted
IFRS figures, and therefore may not be directly comparable with other
companies’ reported non-GAAP measures, including those in the
Group’s industry.
Non-GAAP measures should be considered in addition to, and are not
intended to be a substitute for, or superior to, IFRS measures.
Details of the Group’s non-GAAP performance measures, including
reasons for their use and reconciliations to IFRS figures are included
as appropriate in note 32.
Annual Report 2021 dssmith.com 131
Annual Report 2021 dssmith.com 131
FINANCIAL STATEMENTS
Notes to the consolidated financial statements (continued)
1. Significant accounting policies continued
(z) Key sources of estimation uncertainty
The application of the Group’s accounting policies requires
management to make estimates and assumptions. These estimates
and assumptions affect the reported assets and liabilities and
financial results of the Group. Actual outcomes could differ from
the estimates and assumptions used.
The Group’s key sources of estimation uncertainty are as
detailed below:
(i) Taxation
The Group’s tax payable on profits is determined based on tax laws
and regulations that apply in each of the numerous jurisdictions
in which the Group operates. The Group is required to exercise
judgement in determining income tax provisions, along with the
recognition of deferred tax assets/liabilities. While the Group aims
to ensure that estimates recorded are accurate, the actual amounts
could be different from those expected. See note 7 for additional
information.
(ii) Employee benefits
IAS 19 Employee Benefits requires the Group to make assumptions
including, but not limited to, rates of inflation, discount rates and life
expectancies. The use of different assumptions, in any of the above
calculations, could have a material effect on the accounting values
of the relevant statement of financial position assets and liabilities
which could also result in a change to the cost of such liabilities
as recognised in profit or loss over time. These assumptions are
subject to periodic review. See note 25 for additional information.
(aa) Critical accounting judgement
(i) Adjusting items
The Group is required to exercise judgement in applying the adjusting
items accounting policy to items of income and expenditure, taking
account of their origination, as well as considering similar items in
prior years to ensure consistency and appropriate presentation.
See note 4 for additional information.
(ab) IFRS standards and interpretations endorsed but not
yet effective
The International Accounting Standards Board (IASB) and
International Financial Reporting Interpretations Committee (IFRIC)
have issued new standards and interpretations with an effective date
after the date of these financial statements.
International Financial Reporting Standards
(IFRS/IAS)
Interest Rate Benchmark Reform — Phase 2
(Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4
and IFRS 16)
Covid-19-Related Rent Concessions
(Amendment to IFRS 16)
Effective date –
financial year
ending
30 April 2022
30 April 2022
The Group does not anticipate that the adoption of the standards and
interpretations that are effective for the year ending 30 April 2022
will have a material effect on its financial statements.
Of the standards listed above, all have been endorsed by the EU.
(ac) IFRS standards that have been issued but are not yet
endorsed are as follows:
• Amendments to IFRS 16 (Covid related rent concessions beyond 30
June 2021);
• Amendments to IAS 16 ( Property, Plant and Equipment — Proceeds
before Intended Use );
• Annual Improvements to IFRS standards 2018-2020 (May 2020);
• Amendments to IFRS 3 (Reference to the Conceptual Framework);
• Amendments to IAS 37 (Onerous Contracts – Cost of Fulfilling a
Contract);
• IFRS 17 Insurance Contracts;
• Amendments to IAS 1 (Classification of liabilities as current or non-
current);
• Amendments to IFRS 4 (Extension of the Temporary Exemption
from applying IFRS 9);
• Amendments to IAS 1 and IFRS Practice Statement 2 (Disclosure of
Accounting Policies);
• Amendments to IAS 12 (Deferred tax related to Assets and
Liabilities arising from a single transaction); and
• Amendments to IAS 8 (Definition of accounting estimates).
The Group does not anticipate that the adoption of these accounting
standards will have a material effect on its financial statements.
132
132
Notes to the consolidated financial statements (continued)
1. Significant accounting policies continued
(ab) IFRS standards and interpretations endorsed but not
(z) Key sources of estimation uncertainty
The application of the Group’s accounting policies requires
management to make estimates and assumptions. These estimates
and assumptions affect the reported assets and liabilities and
financial results of the Group. Actual outcomes could differ from
the estimates and assumptions used.
The Group’s key sources of estimation uncertainty are as
detailed below:
(i) Taxation
The Group’s tax payable on profits is determined based on tax laws
and regulations that apply in each of the numerous jurisdictions
in which the Group operates. The Group is required to exercise
judgement in determining income tax provisions, along with the
recognition of deferred tax assets/liabilities. While the Group aims
to ensure that estimates recorded are accurate, the actual amounts
could be different from those expected. See note 7 for additional
information.
(ii) Employee benefits
yet effective
The International Accounting Standards Board (IASB) and
International Financial Reporting Interpretations Committee (IFRIC)
have issued new standards and interpretations with an effective date
after the date of these financial statements.
International Financial Reporting Standards
(IFRS/IAS)
Interest Rate Benchmark Reform — Phase 2
(Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4
and IFRS 16)
Covid-19-Related Rent Concessions
(Amendment to IFRS 16)
Effective date –
financial year
ending
30 April 2022
30 April 2022
The Group does not anticipate that the adoption of the standards and
interpretations that are effective for the year ending 30 April 2022
will have a material effect on its financial statements.
Of the standards listed above, all have been endorsed by the EU.
(ac) IFRS standards that have been issued but are not yet
endorsed are as follows:
IAS 19 Employee Benefits requires the Group to make assumptions
• Amendments to IFRS 16 (Covid related rent concessions beyond 30
including, but not limited to, rates of inflation, discount rates and life
June 2021);
expectancies. The use of different assumptions, in any of the above
calculations, could have a material effect on the accounting values
of the relevant statement of financial position assets and liabilities
which could also result in a change to the cost of such liabilities
as recognised in profit or loss over time. These assumptions are
subject to periodic review. See note 25 for additional information.
• Amendments to IAS 16 ( Property, Plant and Equipment — Proceeds
before Intended Use );
• Annual Improvements to IFRS standards 2018-2020 (May 2020);
• Amendments to IFRS 3 (Reference to the Conceptual Framework);
• Amendments to IAS 37 (Onerous Contracts – Cost of Fulfilling a
(aa) Critical accounting judgement
(i) Adjusting items
The Group is required to exercise judgement in applying the adjusting
items accounting policy to items of income and expenditure, taking
account of their origination, as well as considering similar items in
prior years to ensure consistency and appropriate presentation.
• IFRS 17 Insurance Contracts;
Contract);
current);
See note 4 for additional information.
from applying IFRS 9);
• Amendments to IAS 1 (Classification of liabilities as current or non-
• Amendments to IFRS 4 (Extension of the Temporary Exemption
• Amendments to IAS 1 and IFRS Practice Statement 2 (Disclosure of
Accounting Policies);
• Amendments to IAS 12 (Deferred tax related to Assets and
Liabilities arising from a single transaction); and
• Amendments to IAS 8 (Definition of accounting estimates).
The Group does not anticipate that the adoption of these accounting
standards will have a material effect on its financial statements.
132
FINANCIAL STATEMENTS
2. Segment reporting
Operating segments
IFRS 8 Operating Segments requires operating segments to be identified on the same basis as is used internally for the review of performance
and allocation of resources by the Group Chief Executive (who is the Chief Operating Decision Maker as defined by IFRS 8).
The Group’s continuing operations are organised into segments which cover geographical regions with integrated packaging and paper
businesses. These comprise the Group’s reportable segments and their results are regularly reviewed by the Group Chief Executive. The
measure of profitability reported to the Group Chief Executive for the purposes of resource allocation and assessment of performance is
adjusted operating profit, which is a non-GAAP performance measure, about which further information is provided in note 32.
Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Central
administration costs are allocated to the individual segments on a consistent basis year-on-year. All assets and liabilities have been analysed by
segment, except for items of a financing nature, taxation balances, employee benefit liabilities and current and non-current asset investments.
Debt and associated interest are managed at a Group level and therefore have not been allocated across the segments.
Year ended 30 April 2021
External revenue
Adjusted EBITDA1
Depreciation
Adjusted operating profit1
Unallocated items:
Amortisation
Adjusting items in operating profit
Total operating profit (continuing operations)
Unallocated items:
Net financing costs
Share of profit of equity accounted investments, net of tax
Profit before income tax
Income tax expense
Profit for the year (continuing operations)
Analysis of total assets and total liabilities
Segment assets
Unallocated items:
Equity accounted investments and other investments
Derivative financial instruments
Cash and cash equivalents
Tax
Assets classified as held for sale
Total assets
Segment liabilities
Unallocated items:
Borrowings, overdrafts and interest payable
Derivative financial instruments
Tax
Employee benefits
Total liabilities
Capital expenditure
1. Adjusted to exclude amortisation and adjusting items.
Northern
Europe
£m
2,370
257
(119)
138
Southern
Europe
£m
2,156
333
(110)
223
Eastern
Europe
£m
909
119
(41)
78
North
America
£m
541
97
(34)
63
Note
10
4
Total
continuing
operations
£m
5,976
806
(304)
502
(142)
(49)
311
(85)
5
231
(49)
182
2,079
3,344
1,015
1,204
7,642
51
115
813
78
1
8,700
(1,028)
(743)
(223)
(117)
(2,111)
(2,419)
(56)
(404)
(175)
(5,165)
93
147
56
35
331
Annual Report 2021 dssmith.com 133
Annual Report 2021 dssmith.com 133
FINANCIAL STATEMENTS
Notes to the consolidated financial statements (continued)
Note
10
4
2. Segment reporting continued
Year ended 30 April 2020
External revenue
Adjusted EBITDA1
Depreciation
Adjusted operating profit1
Unallocated items:
Amortisation
Adjusting items in operating profit
Total operating profit (continuing operations)
Unallocated items:
Net financing costs
Share of profit of equity accounted investment, net of tax
Profit before income tax
Income tax expense
Profit for the year (continuing operations)
Analysis of total assets and total liabilities
Segment assets
Unallocated items:
Equity accounted investment and other investments
Derivative financial instruments
Cash and cash equivalents
Tax
Assets classified as held for sale
Total assets
Segment liabilities
Unallocated items:
Borrowings, overdrafts and interest payable
Derivative financial instruments
Tax
Employee benefits
Total liabilities
Capital expenditure
1. Adjusted to exclude amortisation and adjusting items.
Northern
Europe
£m
2,333
335
(116)
219
Southern
Europe
£m
2,214
422
(108)
314
Eastern
Europe
£m
892
127
(39)
88
North
America
£m
604
72
(33)
39
Total
continuing
operations
£m
6,043
956
(296)
660
(143)
(62)
455
(94)
7
368
(78)
290
2,107
3,302
1,005
1,386
7,800
47
61
595
119
3
8,625
(948)
(687)
(235)
(141)
(2,011)
(2,525)
(85)
(454)
(199)
(5,274)
103
135
53
85
376
134
134
Notes to the consolidated financial statements (continued)
2. Segment reporting continued
Year ended 30 April 2020
External revenue
Adjusted EBITDA1
Depreciation
Adjusted operating profit1
Unallocated items:
Amortisation
Adjusting items in operating profit
Total operating profit (continuing operations)
Unallocated items:
Net financing costs
Share of profit of equity accounted investment, net of tax
Profit before income tax
Income tax expense
Profit for the year (continuing operations)
Analysis of total assets and total liabilities
Equity accounted investment and other investments
Segment assets
Unallocated items:
Derivative financial instruments
Cash and cash equivalents
Tax
Assets classified as held for sale
Total assets
Borrowings, overdrafts and interest payable
Derivative financial instruments
Segment liabilities
Unallocated items:
Tax
Employee benefits
Total liabilities
Capital expenditure
1. Adjusted to exclude amortisation and adjusting items.
Northern
Europe
£m
2,333
335
(116)
219
Southern
Europe
£m
2,214
422
(108)
314
Eastern
Europe
£m
892
127
(39)
88
North
America
£m
604
72
(33)
39
Note
10
4
2,107
3,302
1,005
1,386
7,800
Total
continuing
operations
£m
6,043
956
(296)
660
(143)
(62)
455
(94)
7
368
(78)
290
47
61
595
119
3
8,625
(2,525)
(85)
(454)
(199)
(5,274)
FINANCIAL STATEMENTS
2. Segment reporting continued
Geographical areas
In presenting information by geographical area, external revenue is based on the geographical location of customers. Non-current assets are
based on the geographical location of assets and exclude investments, deferred tax assets, derivative financial instruments and intangible
assets (which are monitored at the operating segment level, not at a country level).
External revenue
Non-current assets
Capital expenditure
Continuing operations
UK
France
Iberia
Germany
Italy
USA
Rest of the World
3. Operating profit
Continuing operations
Operating costs
Cost of sales
Other production costs
Distribution
Administrative expenses
2021
£m
947
897
654
599
599
551
1,729
5,976
2020
£m
828
844
704
587
563
569
1,948
6,043
2021
£m
467
438
610
402
289
338
742
3,286
2020
£m
479
430
607
395
264
409
742
3,326
2021
£m
26
55
57
32
35
35
91
331
2021
£m
2020
£m
47
59
49
37
27
85
72
376
2020
£m
2,816
1,190
482
1,030
5,518
2,812
1,167
470
992
5,441
(948)
(687)
(235)
(141)
(2,011)
Details of adjusting items included in operating profit are set out in note 4.
Operating profit is stated after charging/(crediting) the following:
During the year, the Group received £5.1m of government support linked to the Covid-19 pandemic. £2.4m was repaid to the UK government of
which £0.4m related to 2019/20. The resulting income of £2.7m has been netted off in operating costs . There are no unfulfilled conditions or
contingencies attached to these grants.
Continuing operations
Depreciation of owned assets
Depreciation of right-of-use assets
Amortisation of intangible assets
Loss/(profit) on sale of non-current assets
Research and development
2021
£m
230
74
142
2
8
2020
£m
222
74
143
(2)
10
103
135
53
85
376
134
Annual Report 2021 dssmith.com 135
Annual Report 2021 dssmith.com 135
FINANCIAL STATEMENTS
Notes to the consolidated financial statements (continued)
3. Operating profit continued
Auditor’s remuneration
Fees payable for audit of the Company’s annual financial statements
Fees payable for audit of the Company’s subsidiaries, pursuant to
legislation
Total audit fees
Fees payable to the Company’s Auditor and their associates for other
services:
Corporate finance services
Audit related assurance services
Total non-audit fees
Total Auditor’s remuneration
UK
£m
0.3
0.9
1.2
0.1
0.2
0.3
1.5
2021
Overseas
£m
–
2.9
2.9
–
0.1
0.1
3.0
Total
£m
0.3
3.8
4.1
0.1
0.3
0.4
4.5
2020
Overseas
£m
–
2.8
2.8
–
0.1
0.1
2.9
UK
£m
0.2
0.9
1.1
0.1
0.1
0.2
1.3
Total
£m
0.2
3.7
3.9
0.1
0.2
0.3
4.2
Non-audit fees in 2020/21 and 2019/20 primarily include reporting accounting services in respect of the Euro medium-term note (“EMTN”)
issues in the year and audit-related fees for the review of the interim results.
A description of the work of the Audit Committee is set out in the governance section and includes an explanation of how the external
Auditor’s objectivity and independence are safeguarded when non-audit services are provided by the external Auditor.
4. Adjusting items
Items are presented as adjusting in the financial statements where they are significant items of financial performance that the Directors
consider should be separately disclosed to assist in the understanding of the trading and financial results of the Group. Such items include
business disposals, restructuring and optimisation, acquisition related and integration costs, and impairments.
Continuing operations
Acquisition related costs
(Losses)/gains on acquisitions and divestments
Acquisitions and divestments
Integration costs
Other restructuring costs
Impairment of assets
Total pre-tax adjusting items (recognised in operating profit)
Finance costs adjusting items
Adjusting tax items
Current tax credit on adjusting items
Deferred tax credit on adjusting items
Total post-tax adjusting items
2021
£m
(2)
(3)
(5)
(17)
(27)
–
(49)
(7)
5
11
–
(40)
2020
£m
(10)
6
(4)
(30)
(24)
(4)
(62)
(7)
(1)
14
1
(55)
136
136
Notes to the consolidated financial statements (continued)
3. Operating profit continued
Auditor’s remuneration
Fees payable for audit of the Company’s annual financial statements
Fees payable for audit of the Company’s subsidiaries, pursuant to
Fees payable to the Company’s Auditor and their associates for other
legislation
Total audit fees
services:
Corporate finance services
Audit related assurance services
Total non-audit fees
Total Auditor’s remuneration
2021
Overseas
2020
Overseas
UK
£m
0.3
0.9
1.2
0.1
0.2
0.3
1.5
£m
–
2.9
2.9
–
0.1
0.1
3.0
Total
£m
0.3
3.8
4.1
0.1
0.3
0.4
4.5
UK
£m
0.2
0.9
1.1
0.1
0.1
0.2
1.3
Non-audit fees in 2020/21 and 2019/20 primarily include reporting accounting services in respect of the Euro medium-term note (“EMTN”)
issues in the year and audit-related fees for the review of the interim results.
4. Adjusting items
Items are presented as adjusting in the financial statements where they are significant items of financial performance that the Directors
consider should be separately disclosed to assist in the understanding of the trading and financial results of the Group. Such items include
business disposals, restructuring and optimisation, acquisition related and integration costs, and impairments.
(Losses)/gains on acquisitions and divestments
Continuing operations
Acquisition related costs
Acquisitions and divestments
Integration costs
Other restructuring costs
Impairment of assets
Finance costs adjusting items
Adjusting tax items
Current tax credit on adjusting items
Deferred tax credit on adjusting items
Total post-tax adjusting items
Total pre-tax adjusting items (recognised in operating profit)
£m
–
2.8
2.8
–
0.1
0.1
2.9
2021
£m
(2)
(3)
(5)
(17)
(27)
–
(49)
(7)
5
11
–
(40)
Total
£m
0.2
3.7
3.9
0.1
0.2
0.3
4.2
2020
£m
(10)
6
(4)
(30)
(24)
(4)
(62)
(7)
(1)
14
1
(55)
FINANCIAL STATEMENTS
4. Adjusting items continued
2020/21
Acquisition related costs of £2m were incurred predominantly relating to professional advisory, legal and consultancy fees and contractual
deferred consideration payments on prior year acquisitions.
The loss on divestment of £3m primarily relates to the disposal of a small sheet plant in North America.
Integration costs relate to integration projects underway, primarily to achieve cost synergies from the major acquisitions made in the previous
financial years (of which £14m relates to Europac and £3m relates to Interstate Resources). They include redundancies, professional fees,
IT costs and those directly attributable internal salary costs which would otherwise not be incurred. Integration cost activity in respect of
Europac and Interstate Resources has ceased with effect from 30 April 2021.
Within other restructuring costs of £27m, £23m relates to a material restructuring in Germany and a structured review of the underlying
indirect cost base of the European Packaging business, focusing predominantly on reduction of these indirect costs.
Finance costs adjusting items of £7m relate to the unwind of the discount on the redemption liability related to the purchase of Interstate
Resources.
Adjusting tax items – 2020/21
A description of the work of the Audit Committee is set out in the governance section and includes an explanation of how the external
Auditor’s objectivity and independence are safeguarded when non-audit services are provided by the external Auditor.
The current tax credit on adjusting items of £11m in the year ended 30 April 2021 is the tax effect at the local applicable tax rate of adjusting
items that are subject to tax. This excludes non-tax -deductible deal related advisory fees in relation to acquisitions and divestments.
The adjusting tax item of £5m includes a net decrease in the State Aid provision of £2m primarily in relation to the estimate of interest on
overdue tax following agreement reached with HM Revenue & Customs (“HMRC”) (see note 7) and the release of a US tax provision of £3m
relating to the Plastics business that is no longer due.
2019/20
Acquisition related costs of £10m relate to professional advisory, legal and consultancy fees for review of potential deals, deferred
consideration and retention bonuses.
Gains on acquisition and divestments relate primarily to the remedy disposal of legacy Group sites required as part of the Europac acquisition.
The profit on disposal of the Plastics business is classified under discontinued operations (see note 30(b)).
Integration costs relate to integration projects underway, primarily to achieve cost synergies from the major acquisitions made in the previous
financial years (of which £19m relates to Europac and £11m relates to Interstate Resources). They include redundancies, professional fees,
IT costs and those directly attributable internal salary costs which would otherwise not be incurred.
Other restructuring costs of £24m primarily comprise a reorganisation and restructuring project across the Packaging business, focusing
predominantly on reduction of indirect costs.
Impairment of assets comprises impairment, primarily of property, plant and equipment, directly related to restructuring projects.
Finance costs adjusting items relate to the unwind of the discount on the redemption liability related to the purchase of Interstate Resources.
Adjusting items from discontinued operations are detailed in note 30(c).
Adjusting tax items – 2019/20
The current tax credit on adjusting items of £14m in the year ended 30 April 2020 is the tax effect at the local applicable tax rate of adjusting
items that are subject to tax. This excludes non-tax -deductible deal related advisory fees in relation to acquisitions and divestments.
The adjusting tax item of £1m is an increase in the State Aid provision in relation to the estimate of interest on overdue tax covering the year to
30 April 2020.
136
Annual Report 2021 dssmith.com 137
Annual Report 2021 dssmith.com 137
FINANCIAL STATEMENTS
Notes to the consolidated financial statements (continued)
5. Finance income and costs
Continuing operations
Interest income from financial assets
Other
Finance income
Interest on borrowings and overdrafts
Interest on lease liabilities
Other
Finance costs before adjusting items
Finance costs adjusting items (note 4)
Finance costs
6. Personnel expenses
Continuing operations
Wages and salaries
Social security costs
Contributions to defined contribution pension plans
Service costs for defined benefit schemes (note 25)
Share-based payment expense (note 26)
Personnel expenses
Average number of employees
Northern Europe
Southern Europe
Eastern Europe
North America
Rest of the World
Average number of employees
7. Income tax expense
Current tax expense
Current year
Adjustment in respect of prior years
Deferred tax (charge)/ credit
Origination and reversal of temporary differences
Change in tax rates
Recognition of previously unrecognised deferred tax assets
Adjustment in respect of prior years
Total income tax expense before adjusting items
Adjusting tax items (note 4)
Current tax credit on adjusting items (note 4)
Deferred tax credit on adjusting items (note 4)
Total income tax expense in the income statement from continuing operations
Total income tax expense in the income statement from discontinued operations (note 30(b))
Total income tax expense in the income statement – total Group
The tax credit on amortisation was £32m (2019/20: £33m).
138
138
2021
£m
(1)
–
(1)
55
12
9
76
7
83
2021
£m
1,085
213
51
5
9
1,363
2021
Number
10,995
8,923
7,366
1,847
178
29,309
2021
£m
(61)
(3)
(64)
(28)
–
18
9
(1)
(65)
5
11
–
(49)
9
(40)
2020
£m
(2)
(2)
(4)
62
12
14
88
7
95
2020
£m
1,044
206
50
7
5
1,312
2020
Number
11,443
8,816
7,173
1,879
86
29,397
2020
£m
(86)
(16)
(102)
–
(3)
18
(5)
10
(92)
(1)
14
1
(78)
(11)
(89)
Notes to the consolidated financial statements (continued)
5. Finance income and costs
Continuing operations
Interest income from financial assets
Other
Finance income
Interest on borrowings and overdrafts
Interest on lease liabilities
Other
Finance costs before adjusting items
Finance costs adjusting items (note 4)
Finance costs
6. Personnel expenses
Continuing operations
Wages and salaries
Social security costs
Contributions to defined contribution pension plans
Service costs for defined benefit schemes (note 25)
Share-based payment expense (note 26)
Personnel expenses
Average number of employees
Northern Europe
Southern Europe
Eastern Europe
North America
Rest of the World
Average number of employees
7. Income tax expense
Current tax expense
Current year
Adjustment in respect of prior years
Deferred tax (charge)/ credit
Origination and reversal of temporary differences
Change in tax rates
Recognition of previously unrecognised deferred tax assets
Adjustment in respect of prior years
Total income tax expense before adjusting items
Adjusting tax items (note 4)
Current tax credit on adjusting items (note 4)
Deferred tax credit on adjusting items (note 4)
Total income tax expense in the income statement from continuing operations
Total income tax expense in the income statement from discontinued operations (note 30(b))
Total income tax expense in the income statement – total Group
The tax credit on amortisation was £32m (2019/20: £33m).
1,363
1,312
29,309
29,397
2021
£m
(1)
–
(1)
55
12
9
76
7
83
2021
£m
1,085
213
51
5
9
2021
Number
10,995
8,923
7,366
1,847
178
2021
£m
(61)
(3)
(64)
(28)
–
18
9
(1)
(65)
5
11
–
(49)
9
(40)
2020
£m
(2)
(2)
(4)
62
12
14
88
7
95
2020
£m
1,044
206
50
7
5
2020
Number
11,443
8,816
7,173
1,879
86
2020
£m
(86)
(16)
(102)
–
(3)
18
(5)
10
(92)
(1)
14
1
(78)
(11)
(89)
7. Income tax expense continued
The reconciliation of the actual tax charge to the domestic corporation tax rate is as follows:
Profit before income tax on continuing operations
Profit before income tax on discontinued operations (note 30(b))
Share of profit of equity accounted investments, net of tax
Profit before tax and share of profit of equity accounted investments, net of tax
Income tax at the domestic corporation tax rate of 19.00% (2019/20: 19.00%)
Effect of additional taxes and tax rates in overseas jurisdictions
Additional items deductible for tax purposes
Non-deductible expenses
Non-taxable gain on disposal of business
Recognition of previously unrecognised deferred tax assets
Deferred tax not recognised
Adjustment in respect of prior years1
Effect of change in corporation tax rates
Income tax expense – total Group
FINANCIAL STATEMENTS
2021
£m
231
3
(5)
229
(44)
(23)
16
(22)
–
27
(5)
11
–
(40)
2020
£m
368
248
(7)
609
(116)
(41)
19
(20)
77
18
(2)
(21)
(3)
(89)
1. Included within the adjustments in respect of prior years is £5m which relates to adjusting items in the current year.
The Group’s effective tax rate, excluding amortisation, adjusting items and share of result from equity accounted investments, was 23.0 %
(2019/20: 22.0%).
In the March 2021 Budget, the UK Government announced that legislation will be introduced in the Finance Bill 2021 to increase the main rate
of UK corporation tax from 19% to 25%, effective 1 April 2023.
Uncertain tax positions
The Group operates in a complex multinational tax environment and is subject to uncertain tax positions and changes in legislation in the
jurisdictions in which it operates. The Group’s uncertain tax positions principally include pricing of cross-border transactions and a limited
number of specific transaction related tax risks.
The assessment of uncertain tax positions is based on management’s expectation of the likely outcome of settlements with tax authorities or
litigation. The quantification of the risks at any one point in time, especially with respect to transfer pricing, requires a degree of judgement and
estimation by management.
Within the consolidated balance sheet at 30 April 2021 for continuing operations are current tax liabilities of £133m (30 April 2020: £149m)
which include a provision of £116m (30 April 2020: £138m) relating to uncertain tax positions. It is possible that amounts paid will be different
from the amounts provided and the Group estimates the range of reasonably possible outcomes relating to uncertain tax positions to be from
£25m to £199m.
Following the EU Commission’s decision in April 2019 which concluded that up until 31 December 2018, the UK Controlled Foreign Company
legislation partially represented State Aid, the Group recognised a provision in the year ended 30 April 2019 through adjusting items for the
maximum potential exposure of £33m, which included an estimate of £2m for interest on overdue tax. During the year, the Group received a
charging notice from HMRC under The Taxation (Post Transition Period) Bill for the full exposure. After the offset of deferred tax assets the
cash tax liability was reduced to £18m (including interest), which was paid after the end of the accounting period. An amount of £2m is credited
to adjusting items in the year being the difference between the provision and the final assessment liability (including the utilisation of deferred
tax assets).
The Group has filed an application with the General Court of the European Court of Justice for the EU Commission’s decision in respect of State
Aid to be annulled. An appeal against the charging notice received from HMRC following detailed analysis conducted supporting the Group’s
position has also been filed. The appeals are not expected to conclude in the next 12 months.
There are tax audits being conducted by the tax authorities in a number of countries. Whilst there is inherent uncertainty regarding the timing
of the resolution of these tax audits and the final tax liabilities to be assessed, the Group does not expect there to be a material change in the
provision for uncertain tax positions in the next 12 months.
Included within the current tax liabilities is an amount of £9m (30 April 2020: £11m) relating to interest and penalties on uncertain
tax positions.
138
Annual Report 2021 dssmith.com 139
Annual Report 2021 dssmith.com 139
FINANCIAL STATEMENTS
Notes to the consolidated financial statements (continued)
7. Income tax expense continued
Tax on other comprehensive income and equity
Actuarial loss on employee benefits
Equity interest at FVTOCI – change in fair value
Foreign currency translation differences
Reclassification from translation reserve to
income statement arising on divestment
Movements in cash flow hedges
Movement in net investment hedge
Other comprehensiveincome/(expense) for the year
Issue of share capital
Employee share trust
Share-based payment expense
Dividends paid to Group shareholders
Transactions with non-controlling interests
Other comprehensive income /(expense) and
changes in equity
8. Earnings per share
Gross
2021
£m
(5)
(3)
(95)
–
112
(2)
7
3
(2)
9
–
(2)
Tax credit/
(charge)
2021
£m
(5)
–
–
–
(20)
(1)
(26)
–
–
1
–
–
Net
2021
£m
(10)
(3)
(95)
–
92
(3)
(19)
3
(2)
10
–
(2)
Gross
2020
£m
(46)
–
39
(30)
(32)
(23)
(92)
2
(4)
5
(222)
–
15
(25)
(10)
(311)
Taxcredit/
(charge)
2020
£m
15
–
–
–
6
5
26
–
–
(3)
–
–
23
Net
2020
£m
(31)
–
39
(30)
(26)
(18)
(66)
2
(4)
2
(222)
–
(288)
Basic earnings per share from continuing operations
Profit from continuing operations attributable to ordinary shareholders
Weighted average number of ordinary shares
Basic earnings per share
Diluted earnings per share from continuing operations
Profit from continuing operations attributable to ordinary shareholders
Weighted average number of ordinary shares
Potentially dilutive shares issuable under share-based payment arrangements
Weighted average number of ordinary shares (diluted)
Diluted earnings per share
2021
2020
£182m £290m
1,371m 1,371m
21.2p
13.3p
2021
2020
£182m £290m
1,371m 1,371m
7m
1,377m 1,378m
21.0p
13.2p
6m
The number of shares excludes the weighted average number of the Company’s own shares held as treasury shares during the year of 1m
(2019/20: 1m).
Earnings per share from continuing operations
Earnings per share from discontinued operations (note 30(b))
Earnings per share from continuing and discontinued operations
2021
2020
Basic
pence per
share
13.3p
0.9p
14.2p
Diluted
pence per
share
13.2p
0.9p
14.1p
Basic
pence per
share
21.2p
17.3p
38.5p
Diluted
pence per
share
21.0p
17.2p
38.2p
140
140
FINANCIAL STATEMENTS
8. Earnings per share continued
Adjusted earnings per share from continuing operations
Adjusted earnings per share is a key performance measure for management long-term remuneration and is widely used by the Group’s
shareholders. Adjusted earnings is calculated by adding back the post-tax effects of both amortisation and adjusting items.
Further detail about the use of non-GAAP performance measures, including details of why amortisation is excluded, is given in note 32.
A reconciliation of basic to adjusted earnings per share is as follows:
Basic earnings
Add back:
Amortisation of intangible assets
Tax credit on amortisation
Adjusting items, before tax
Tax on adjusting items and adjusting tax items
Adjusted earnings
9. Dividends proposed and paid
2021
Basic
pence
per share
13.3p
10.3p
(2.3p)
4.1p
(1.2p)
24.2p
Diluted
pence
per share
13.2p
10.3p
(2.3p)
4.1p
(1.2p)
24.1p
£m
182
142
(32)
56
(16)
332
2020
Basic
pence
per share
21.2p
10.4p
(2.4p)
5.0p
(1.0p)
33.2p
£m
290
143
(33)
69
(14)
455
Diluted
pence
per share
21.0p
10.4p
(2.4p)
5.0p
(1.0p)
33.0p
(25)
(10)
(311)
23
(288)
2021
2020
2019/20 interim dividend – proposed and cancelled
2019/20 final dividend
2020/21 interim dividend – proposed
2020/21 final dividend – proposed
Paid during the year
The 2020/21 interim dividend of 4.0p was paid after the year end on 4 May 2021.
Pence
per share
–
–
4.0p
8.1p
£m
–
–
55
111
Pence
per share
5.4p
nil
–
–
2021
£m
–
£m
74
–
–
–
2020
£m
222
The 2018/19 interim and final dividends were paid during the 2019/20 financial year. The Group announced on 8 April 2020 that the interim
dividend in respect of 2019/20 of 5.4 pence per share (£74m), which was due to be paid after the year end on 1 May 2020, would no longer be
paid, as a prudent action to respond to the significant uncertainty in the global environment as a result of Covid-19.
Notes to the consolidated financial statements (continued)
7. Income tax expense continued
Tax on other comprehensive income and equity
Actuarial loss on employee benefits
Equity interest at FVTOCI – change in fair value
Foreign currency translation differences
Reclassification from translation reserve to
income statement arising on divestment
Movements in cash flow hedges
Movement in net investment hedge
Other comprehensiveincome/(expense) for the year
Issue of share capital
Employee share trust
Share-based payment expense
Dividends paid to Group shareholders
Transactions with non-controlling interests
Other comprehensive income /(expense) and
changes in equity
8. Earnings per share
Basic earnings per share from continuing operations
Profit from continuing operations attributable to ordinary shareholders
Weighted average number of ordinary shares
Basic earnings per share
Diluted earnings per share from continuing operations
Profit from continuing operations attributable to ordinary shareholders
Weighted average number of ordinary shares
Potentially dilutive shares issuable under share-based payment arrangements
Weighted average number of ordinary shares (diluted)
Diluted earnings per share
Tax credit/
(charge)
2021
£m
(5)
(20)
(1)
(26)
–
–
–
–
–
1
–
–
Gross
2021
£m
(5)
(3)
(95)
112
(2)
–
7
3
9
–
(2)
(2)
15
Net
2021
£m
(10)
(3)
(95)
–
92
(3)
(19)
3
(2)
10
–
(2)
Gross
2020
£m
(46)
–
39
(30)
(32)
(23)
(92)
2
(4)
5
(222)
–
Taxcredit/
(charge)
2020
£m
15
–
–
–
6
5
–
–
–
–
26
(3)
Net
2020
£m
(31)
–
39
(30)
(26)
(18)
(66)
(4)
2
2
–
(222)
2021
2020
£182m £290m
1,371m 1,371m
13.3p
21.2p
2021
2020
£182m £290m
1,371m 1,371m
6m
7m
1,377m 1,378m
13.2p
21.0p
The number of shares excludes the weighted average number of the Company’s own shares held as treasury shares during the year of 1m
(2019/20: 1m).
Earnings per share from continuing operations
Earnings per share from discontinued operations (note 30(b))
Earnings per share from continuing and discontinued operations
2021
2020
Basic
Diluted
Basic
pence per
pence per
pence per
share
13.3p
0.9p
14.2p
share
13.2p
0.9p
14.1p
share
21.2p
17.3p
38.5p
Diluted
pence per
share
21.0p
17.2p
38.2p
140
Annual Report 2021 dssmith.com 141
Annual Report 2021 dssmith.com 141
FINANCIAL STATEMENTS
Notes to the consolidated financial statements (continued)
10. Intangible assets
Cost
At 1 May 2020
Divestments
Additions
Disposals
Transfers
Reclassification
Currency translation
At 30 April 2021
Amortisation and impairment
At 1 May 2020
Divestments
Amortisation
Disposals
Currency translation
At 30 April 2021
Carrying amount
At 1 May 2020
At 30 April 2021
Cost
At 1 May 2019
Divestments
Fair value adjustments on acquisitions made in the prior year
Additions
Disposals
Transfers
Transfer to assets held for sale
Reclassification
Currency translation
At 30 April 2020
Amortisation and impairment
At 1 May 2019
Divestments
Amortisation
Disposals
Reclassification
Currency translation
At 30 April 2020
Carrying amount
At 1 May 2019
At 30 April 2020
Goodwill
£m
Software
£m
Intellectual
property
£m
Customer
related
£m
Other
£m
Total
£m
2,263
–
–
–
–
–
(64)
2,199
(17)
–
–
–
–
(17)
2,246
2,182
169
(1)
9
(12)
9
6
–
180
(92)
1
(23)
12
–
(102)
77
78
20
–
1
(2)
–
–
–
19
(12)
–
(2)
2
–
(12)
8
7
1,338
–
–
–
–
–
(28)
1,310
(495)
–
(115)
–
11
(599)
843
711
37
–
5
(2)
(9)
–
–
31
(14)
–
(2)
2
–
(14)
3,827
(1)
15
(16)
–
6
(92)
3,739
(630)
1
(142)
16
11
(744)
23
17
3,197
2,995
Goodwill
£m
Software
£m
Intellectual
property
£m
Customer
related
£m
Other
£m
Total
£m
2,223
–
7
–
–
–
–
–
33
2,263
(17)
–
–
–
–
–
(17)
2,206
2,246
99
(1)
–
5
(3)
12
–
56
1
169
(53)
1
(22)
3
(21)
–
(92)
46
77
19
–
–
1
(1)
1
–
–
–
20
(12)
–
(1)
1
–
–
(12)
7
8
1,329
–
–
–
–
–
(9)
–
18
1,338
(377)
–
(114)
–
–
(4)
(495)
952
843
91
–
–
19
(4)
(13)
–
(56)
–
37
(40)
8
(6)
3
21
–
(14)
51
23
3,761
(1)
7
25
(8)
–
(9)
–
52
3,827
(499)
9
(143)
7
–
(4)
(630)
3,262
3,197
Included within customer related intangibles at 30 April 2021 are amounts purchased as part of the acquisitions of Europac (carrying amount
£405m, remaining amortisation period 13 years), Interstate Resources (carrying amount £157m, remaining amortisation period six years) and
SCA Packaging (carrying amount £44m, remaining amortisation period one year).
142
142
Notes to the consolidated financial statements (continued)
10. Intangible assets
Goodwill
Software
property
£m
£m
related
£m
Other
£m
Total
£m
Intellectual
Customer
2,263
1,338
3,827
10. Intangible assets continued
Goodwill
The CGU groups below represent the lowest level at which goodwill is monitored for impairment indicators and internal management
purposes, and are not larger than the operating segments determined in accordance with IFRS 8 Operating Segments. The carrying values of
goodwill are split between the CGU groups as follows:
FINANCIAL STATEMENTS
Northern Europe
Southern Europe
Eastern Europe
North America
Total goodwill
2021
£m
402
1,053
159
568
2,182
2020
£m
403
1,054
158
631
2,246
Goodwill impairment tests – key assumptions and methodology
The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill may be impaired. The recoverable
amounts of the groups of CGUs are determined from value-in-use calculations.
Impairment tests were conducted over the segmental structures, with no indicators of impairment noted in the year ended 30 April 2021, as the
recoverable amount of the groups of CGUs, based upon value-in-use calculations, exceeded the carrying amounts.
The calculations of value-in-use are inherently judgemental and require management to make a series of estimates and assumptions. The key
assumptions in the value-in-use calculations are:
• the cash flow forecasts have been derived from the most recent budget presented to the Board for the year ending 30 April 2022. The cash
flows utilised are based upon forecast sales volumes and product mix, anticipated movements in paper prices and input costs and known
changes and expectations of current market conditions, taking into account the cyclical nature of the business;
• the sales volume and price assumptions underlying the cash flow forecasts are the Directors’ estimates of likely future changes based upon
historic performance and the current economic outlooks for the economies in which the Group operates. These are viewed as the key
operating assumptions as they determine the Directors’ approach to margin and cost maintenance;
• the cash flow forecasts for capital expenditure are based upon past experience and include the replacement capital expenditure required to
generate the terminal cash flows;
• cash flows beyond the year ended 30 April 2022 reflect the long-term growth rate specific to each of the CGU groups. Where a CGU consists
of multiple countries, country-specific rates are incorporated into a weighted average rate for that region. The rates applied are based upon
external sources such as the International Monetary Fund’s World Economic Outlook Database; and
• the pre-tax adjusted discount rate is derived from the weighted average cost of capital (‘WACC’) for the Group of 9.5% (2019/20: 9.5%).
The discount rate is a function of the cost of debt and equity. The cost of equity is largely based upon the risk-free rate for 30-year German
Bund yields (74% weighting), 30-year UK gilts (16% weighting) and 30-year US treasury yields (10%), adjusted for the relevant country
market risk premium, ranging from 4.7% to 11.0%, which reflects the increased risk of investing in country specific equities and the relative
volatilities of the equity of the Group compared to the market. This Group rate has been adjusted for the risks inherent in the countries in
which the CGU group operates that are not reflected in the cash flow projections.
Annual Report 2021 dssmith.com 143
Annual Report 2021 dssmith.com 143
Amortisation and impairment
180
19
1,310
31
3,739
(12)
(495)
(14)
(630)
(17)
(102)
(12)
(599)
(14)
(744)
Goodwill
Software
£m
£m
Intellectual
property
23
17
3,197
2,995
Other
£m
Total
£m
£m
20
(2)
–
1
–
–
–
(2)
–
2
–
8
7
£m
19
(1)
–
–
1
1
–
–
–
–
1
–
–
7
8
(12)
Customer
related
£m
1,329
–
–
–
–
–
(28)
(115)
–
–
11
843
711
(9)
–
18
–
–
–
–
–
–
–
–
(4)
(495)
952
843
37
–
5
(2)
(9)
–
–
(2)
–
2
–
91
–
–
19
(4)
(13)
(56)
–
–
8
(6)
3
21
–
(14)
51
23
(1)
15
(16)
–
6
(92)
(142)
1
16
11
3,761
(1)
7
25
(8)
(9)
–
–
52
(143)
9
7
–
(4)
(630)
3,262
3,197
169
20
1,338
37
3,827
(12)
(377)
(40)
(499)
(1)
(114)
–
–
–
–
–
–
–
–
–
–
7
–
–
–
–
–
–
–
–
–
–
(64)
2,199
(17)
2,246
2,182
2,223
33
2,263
(17)
(17)
2,206
2,246
169
(1)
9
(12)
9
6
–
(92)
1
(23)
12
–
77
78
99
(1)
–
5
(3)
12
56
–
1
(53)
(22)
(21)
1
3
–
(92)
46
77
Cost
At 1 May 2020
Divestments
Additions
Disposals
Transfers
Reclassification
Currency translation
At 30 April 2021
At 1 May 2020
Divestments
Amortisation
Disposals
Currency translation
At 30 April 2021
Carrying amount
At 1 May 2020
At 30 April 2021
Cost
At 1 May 2019
Divestments
Additions
Disposals
Transfers
Reclassification
Currency translation
At 30 April 2020
At 1 May 2019
Divestments
Amortisation
Disposals
Reclassification
Currency translation
At 30 April 2020
Carrying amount
At 1 May 2019
At 30 April 2020
142
Fair value adjustments on acquisitions made in the prior year
Transfer to assets held for sale
Amortisation and impairment
Included within customer related intangibles at 30 April 2021 are amounts purchased as part of the acquisitions of Europac (carrying amount
£405m, remaining amortisation period 13 years), Interstate Resources (carrying amount £157m, remaining amortisation period six years) and
SCA Packaging (carrying amount £44m, remaining amortisation period one year).
FINANCIAL STATEMENTS
Notes to the consolidated financial statements (continued)
10. Intangible assets continued
Key assumptions by CGU
Long-term growth rate at 30 April 2021
Long-term growth rate at 30 April 2020
Discount rate at 30 April 2021
Discount rate at 30 April 2020
Goodwill impairment tests – sensitivities
Northern
Europe
1.4%
1.6%
Southern
Europe
1.2%
1.4%
8.8% 10.3%
10.3%
8.8%
Eastern
North
Europe
America
2.9% 2.0%
2.0%
3.0%
10.4% 8.7%
8.6%
10.5%
The value-in-use is based upon anticipated discounted future cash flows. At 30 April 2021, the impairment tests concluded that there was
headroom across all CGU groups. Whilst the Directors believe the assumptions used are realistic, it is possible that a reduction in the headroom
would occur if any of the above key assumptions were adversely changed. Factors which could cause an impairment are:
• significant and prolonged underperformance relative to the forecast; and
• deteriorations in the economies in which the Group operates.
To support their assertions, the Directors have conducted sensitivity analyses to determine the impact that would result from the above
situations. Key sensitivities tested included reduction or delays in future growth and increased discount rates. In these cases, if estimates of
future recovery from the Covid-19 pandemic were delayed, or if the estimated discount rates applied to the cash flows were increased by
0.5%, there would still be adequate headroom to support the carrying value of the assets. Based on this analysis, the Directors believe that a
reasonably possible change in any of the key assumptions detailed above would not cause the carrying value of CGU groups to exceed their
recoverable amounts, although the headroom would decrease. Therefore, at 30 April 2021, no impairment charge is required against the
carrying value of goodwill.
11. Property, plant and equipment
Land and
buildings
£m
Plant and
equipment
£m
Fixtures
and fittings
£m
Under
construction
£m
1,055
(3)
10
(7)
23
(2)
–
(10)
1,066
(200)
2
(32)
(1)
3
1
5
(222)
3,278
(29)
67
(77)
159
7
3
(71)
3,337
(1,331)
20
(189)
3
72
1
41
(1,383)
855
844
1,947
1,954
87
(2)
4
(3)
7
3
–
(1)
95
(37)
1
(9)
(2)
3
–
–
(44)
50
51
Cost
At 1 May 2020
Divestments
Additions
Disposals
Transfers
Reclassification
Transfer from assets held for sale
Currency translation
At 30 April 2021
Depreciation and impairment
At 1 May 2020
Divestments
Depreciation charge
Transfers
Disposals
Reclassification
Currency translation
At 30 April 2021
Carrying amount
At 1 May 2020
At 30 April 2021
144
144
Total
£m
4,610
(34)
290
(87)
–
3
3
(86)
4,699
(1,568)
23
(230)
–
78
2
46
(1,649)
190
–
209
–
(189)
(5)
–
(4)
201
–
–
–
–
–
–
–
–
190
201
3,042
3,050
Notes to the consolidated financial statements (continued)
10. Intangible assets continued
Key assumptions by CGU
Long-term growth rate at 30 April 2021
Long-term growth rate at 30 April 2020
Discount rate at 30 April 2021
Discount rate at 30 April 2020
Goodwill impairment tests – sensitivities
Northern
Europe
Southern
Europe
Eastern
Europe
North
America
1.4%
1.6%
1.2%
1.4%
2.9% 2.0%
3.0%
2.0%
8.8% 10.3%
10.4% 8.7%
8.8%
10.3%
10.5%
8.6%
The value-in-use is based upon anticipated discounted future cash flows. At 30 April 2021, the impairment tests concluded that there was
headroom across all CGU groups. Whilst the Directors believe the assumptions used are realistic, it is possible that a reduction in the headroom
would occur if any of the above key assumptions were adversely changed. Factors which could cause an impairment are:
• significant and prolonged underperformance relative to the forecast; and
• deteriorations in the economies in which the Group operates.
To support their assertions, the Directors have conducted sensitivity analyses to determine the impact that would result from the above
situations. Key sensitivities tested included reduction or delays in future growth and increased discount rates. In these cases, if estimates of
future recovery from the Covid-19 pandemic were delayed, or if the estimated discount rates applied to the cash flows were increased by
0.5%, there would still be adequate headroom to support the carrying value of the assets. Based on this analysis, the Directors believe that a
reasonably possible change in any of the key assumptions detailed above would not cause the carrying value of CGU groups to exceed their
recoverable amounts, although the headroom would decrease. Therefore, at 30 April 2021, no impairment charge is required against the
carrying value of goodwill.
11. Property, plant and equipment
Land and
buildings
£m
Plant and
equipment
Fixtures
Under
and fittings
construction
1,055
3,278
£m
(29)
67
(77)
159
7
3
(71)
3,337
(1,331)
20
(189)
3
72
1
41
1,066
(3)
10
(7)
23
(2)
–
(10)
(200)
(32)
(1)
2
3
1
5
Total
£m
4,610
(34)
290
(87)
–
3
3
(86)
4,699
(1,568)
23
(230)
–
78
2
46
£m
190
209
–
–
(189)
(5)
–
(4)
201
–
–
–
–
–
–
–
–
£m
87
(2)
4
(3)
7
3
–
(1)
95
(37)
1
(9)
(2)
3
–
–
50
51
(222)
(1,383)
(44)
(1,649)
855
844
1,947
1,954
190
201
3,042
3,050
Transfer from assets held for sale
Depreciation and impairment
Cost
At 1 May 2020
Divestments
Additions
Disposals
Transfers
Reclassification
Currency translation
At 30 April 2021
At 1 May 2020
Divestments
Depreciation charge
Transfers
Disposals
Reclassification
Currency translation
At 30 April 2021
Carrying amount
At 1 May 2020
At 30 April 2021
144
FINANCIAL STATEMENTS
11. Property, plant and equipment continued
Cost
At 1 May 2019
Reclassified to right-of-use assets on adoption of IFRS 16
Divestments
Additions
Disposals
Transfers
Transfer to assets held for sale
Reclassification
Currency translation
At 30 April 2020
Depreciation and impairment
At 1 May 2019
Reclassification to right-of-use assets on adoption of IFRS 16
Divestments
Depreciation charge
Impairment
Disposals
Currency translation
At 30 April 2020
Carrying amount
At 1 May 2019
At 30 April 2020
Land and
buildings
£m
Plant and
equipment
£m
Fixtures
and fittings
£m
Under
construction
£m
1,027
–
(16)
7
(9)
36
–
–
10
1,055
(178)
–
7
(32)
(1)
6
(2)
(200)
2,981
(38)
(36)
116
(44)
253
–
11
35
3,278
(1,209)
23
25
(182)
(2)
38
(24)
(1,331)
849
855
1,772
1,947
91
(1)
(1)
3
(5)
(1)
–
–
1
87
(35)
–
1
(8)
–
5
–
(37)
56
50
Total
£m
4,356
(39)
(59)
353
(58)
–
(3)
11
49
4,610
(1,422)
23
33
(222)
(3)
49
(26)
(1,568)
257
–
(6)
227
–
(288)
(3)
–
3
190
–
–
–
–
–
–
–
–
257
190
2,934
3,042
Assets under construction mainly relate to production machines and site improvements being constructed at various sites across the Group.
Annual Report 2021 dssmith.com 145
Annual Report 2021 dssmith.com 145
FINANCIAL STATEMENTS
Notes to the consolidated financial statements (continued)
12. Right-of-use assets and lease liabilities
Right-of-use assets
Land and
buildings
£m
Plant and
equipment
£m
Fixtures
and fittings
£m
174
(3)
17
(6)
–
(5)
177
(28)
(31)
6
–
1
(52)
146
125
169
–
34
(16)
–
–
187
(61)
(43)
16
1
–
(87)
108
100
2
–
–
–
(1)
–
1
–
–
–
–
–
–
2
1
Land and
buildings
£m
Plant and
equipment
£m
Fixtures
and fittings
£m
–
135
–
–
40
(3)
2
174
–
–
–
(29)
(1)
2
(28)
–
146
–
103
38
(4)
37
(6)
1
169
–
(23)
2
(45)
–
5
(61)
–
108
–
1
1
–
–
–
–
2
–
–
–
–
–
–
–
–
2
Total
£m
345
(3)
51
(22)
(1)
(5)
365
(89)
(74)
22
1
1
(139)
256
226
Total
£m
–
239
39
(4)
77
(9)
3
345
–
(23)
2
(74)
(1)
7
(89)
–
256
Cost
At 1 May 2020
Divestments
Additions
Disposals
Reclassification
Currency translation
At 30 April 2021
Depreciation and impairment
At 1 May 2020
Depreciation charge
Disposals
Reclassification
Currency translation
At 30 April 2021
Carrying amount
At 1 May 2020
At 30 April 2021
Cost
At 1 May 2019
Recognised on adoption of IFRS 16
Reclassified from property, plant and equipment on adoption of IFRS 16 (note 11)
Divestments
Additions
Disposals
Currency translation
At 30 April 2020
Depreciation and impairment
At 1 May 2019
Reclassified from property, plant and equipment on adoption of IFRS 16 (note 11)
Divestments
Depreciation charge
Impairment
Disposals
At 30 April 2020
Carrying amount
At 1 May 2019
At 30 April 2020
146
146
Notes to the consolidated financial statements (continued)
12. Right-of-use assets and lease liabilities
Right-of-use assets
Land and
buildings
£m
Plant and
equipment
Fixtures
and fittings
£m
£m
12. Right-of-use assets and lease liabilities continued
Lease liabilities
The carrying amounts of lease liabilities and the movements during the year are as follows:
At beginning of the year
Recognised on adoption of IFRS 16
Divestments
Additions
Accretion of interest
Payments
Early termination
Currency translation
At end of the year
Current
Non-current
FINANCIAL STATEMENTS
2021
£m
255
–
(3)
51
12
(85)
1
(1)
230
71
159
230
2020
£m
10
242
(2)
77
12
(83)
(2)
1
255
73
182
255
The Group has maintained full operational status throughout the Covid-19 pandemic and as a result of this there has been no requirement for
the Group to enter into any alternative relationships with regard to its lease population.
The maturity analysis of lease liabilities is presented in note 20.
13. Equity accounted investments
At beginning of the year
Dividends
Share of profit of equity accounted investments, net of tax
Currency translation
At end of the year
Principal equity accounted investments
PrJSC ‘Rubezhnoye Cardboard and Package Mill’
Philcorr LLC
Philcorr Vineland LLC
Cartonajes Santander, S.L.
Cartonajes Cantabria S.L.
Euskocarton, S.L.
Industria Cartonera Asturiana S.L.
2021
£m
35
(1)
5
(1)
38
2020
£m
33
(6)
7
1
35
Nature of business
Paper and packaging
Packaging
Packaging
Packaging
Packaging
Packaging
Packaging
Principal country
of operation
Ukraine
USA
USA
Spain
Spain
Spain
Spain
Ownership interest
2021
49.6%
40.0%
40.0%
39.6%
39.6%
39.6%
39.6%
2020
49.6%
40.0%
40.0%
39.6%
39.6%
39.6%
39.6%
All the above associates are accounted for using the equity method because the Group has the ability to exercise significant influence over the
investments due to the Group’s equity holdings and board representation.
Summary of financial information of associates
The financial information below is for the Group’s associates on a 100% basis for the year ended 30April.
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Revenue
Profit after tax
Other comprehensive income/(expense)
2021
£m
52
79
(19)
(11)
174
20
16
2020
£m
57
70
(27)
(8)
209
16
(1)
Annual Report 2021 dssmith.com 147
Annual Report 2021 dssmith.com 147
174
(3)
17
(6)
–
(5)
177
(28)
(31)
6
–
1
(52)
146
125
135
40
(3)
2
174
–
–
–
–
–
–
(29)
(1)
2
(28)
–
146
169
–
34
(16)
–
–
187
(61)
(43)
16
1
–
(87)
108
100
–
103
38
(4)
37
(6)
1
169
(23)
(45)
–
2
–
5
(61)
–
108
Total
£m
345
(3)
51
(22)
(1)
(5)
365
(89)
(74)
22
1
1
(139)
256
226
Total
£m
–
239
39
(4)
77
(9)
3
345
(23)
–
2
(74)
(1)
7
(89)
–
256
(1)
2
–
–
–
–
1
–
–
–
–
–
–
2
1
–
1
1
–
–
–
–
2
–
–
–
–
–
–
–
–
2
Recognised on adoption of IFRS 16
Reclassified from property, plant and equipment on adoption of IFRS 16 (note 11)
Land and
buildings
£m
Plant and
equipment
£m
Fixtures
and fittings
£m
Reclassified from property, plant and equipment on adoption of IFRS 16 (note 11)
Depreciation and impairment
Cost
At 1 May 2020
Divestments
Additions
Disposals
Reclassification
Currency translation
At 30 April 2021
At 1 May 2020
Depreciation charge
Disposals
Reclassification
Currency translation
At 30 April 2021
Carrying amount
At 1 May 2020
At 30 April 2021
Cost
At 1 May 2019
Divestments
Additions
Disposals
Currency translation
At 30 April 2020
Depreciation and impairment
At 1 May 2019
Divestments
Depreciation charge
Impairment
Disposals
At 30 April 2020
Carrying amount
At 1 May 2019
At 30 April 2020
146
FINANCIAL STATEMENTS
Notes to the consolidated financial statements (continued)
14. Other investments
Other investments
Restricted cash
Total non-current investments
15. Inventories
Raw materials and consumables
Work in progress
Finished goods
2021
£m
10
3
13
2021
£m
325
22
190
537
2020
£m
9
3
12
2020
£m
304
22
192
518
Inventory provisions at 30 April 2021 were £50m (30 April 2020: £46m).
Inventories of £2,307m were recognised as an expense during the year ended 30 April 2021 (30 April 2020: £2,302m) and included within cost
of sales.
16. Trade and other receivables
Trade receivables
Loss allowance
Prepayments and accrued income
Other deposits
Other receivables
2021
2020
Non-
current
£m
–
–
–
–
1
1
Current
£m
677
(31)
65
29
78
818
Non-
current
£m
–
–
–
–
19
19
Current
£m
588
(36)
72
33
96
753
Other receivables comprise various items including indirect tax receivable, employee advances and interest receivable.
The Group has sold without recourse certain trade receivables and on realisation the receivable is de-recognised and proceeds are presented
within operating cash flows. Other deposits relate to these arrangements. Sold trade receivables under these arrangements amounted to
£407m (2019/20:£428m).
Total
£m
Current
(not past due)
£m
1 month
or less
£m
1–3
months
£m
3–6
months
£m
6–12
months
£m
More than
12 months
£m
Of which past due
677
–
(31)
588
–
(36)
629
0.6%
(4)
8
13%
(1)
8
–
–
2
–
–
2
50%
(1)
28
89%
(25)
516
0.8%
(4)
15
–
–
16
6%
(1)
7
14%
(1)
3
33%
(1)
31
94%
(29)
At 30 April 2021
Gross trade receivables
Weighted average loss rate
Loss allowance
At 30 April 2020
Gross trade receivables
Weighted average loss rate
Loss allowance
148
148
Notes to the consolidated financial statements (continued)
Inventory provisions at 30 April 2021 were £50m (30 April 2020: £46m).
Inventories of £2,307m were recognised as an expense during the year ended 30 April 2021 (30 April 2020: £2,302m) and included within cost
Other receivables comprise various items including indirect tax receivable, employee advances and interest receivable.
The Group has sold without recourse certain trade receivables and on realisation the receivable is de-recognised and proceeds are presented
within operating cash flows. Other deposits relate to these arrangements. Sold trade receivables under these arrangements amounted to
2021
£m
10
3
13
2021
£m
325
22
190
537
2020
£m
9
3
12
2020
£m
304
22
192
518
2021
Non-
current
£m
2020
Non-
current
£m
–
–
–
–
19
19
Current
£m
588
(36)
72
33
96
753
Current
£m
677
(31)
65
29
78
818
–
–
–
–
1
1
8
–
–
Current
Total
(not past due)
£m
£m
1 month
or less
£m
months
1–3
£m
3–6
months
£m
6–12
months
More than
12 months
£m
Of which past due
629
0.6%
(4)
8
13%
(1)
£m
2
50%
(1)
2
–
–
28
89%
(25)
516
0.8%
(4)
15
–
–
16
6%
(1)
7
14%
(1)
3
33%
(1)
31
94%
(29)
677
–
(31)
588
–
(36)
14. Other investments
Other investments
Restricted cash
15. Inventories
Total non-current investments
Raw materials and consumables
Work in progress
Finished goods
of sales.
16. Trade and other receivables
Trade receivables
Loss allowance
Other deposits
Other receivables
Prepayments and accrued income
£407m (2019/20:£428m).
At 30 April 2021
Gross trade receivables
Weighted average loss rate
Loss allowance
At 30 April 2020
Gross trade receivables
Weighted average loss rate
Loss allowance
148
16. Trade and other receivables continued
Movement in loss allowance
At beginning of the year
Amounts written off
Net remeasurement of loss allowance
At end of the year
FINANCIAL STATEMENTS
2021
£m
(36)
8
(3)
(31)
2020
£m
(34)
5
(7)
(36)
Concentrations of credit risk with respect to trade receivables are limited due to the Group’s customer base being large and diverse. The
majority of customers are credit insured and the Group has a history of low levels of losses in respect of trade receivables.
The loss allowance represents the Group’s expected credit losses on trade receivables as defined under IFRS 9 Financial Instruments. The
expected credit losses are estimated using a provision matrix by grouping trade receivables based on shared credit risk characteristics and the
days past due. Expected loss rates are calculated by reference to past default experience of the debtor and an analysis of the debtor’s current
financial position, adjusted for factors that are specific to the debtors, general economic conditions (including the impact of Covid-19) and an
assessment of both the current as well as the forecast direction of conditions at the reporting date. The accounting impact of credit insurance
is not considered integral to the consideration of the carrying value of the trade receivables.
17. Trade and other payables
Trade payables
Interest payable
Other non-trade payables and accrued expenses
2021
2020
Non-
current
£m
–
–
15
15
Current
£m
1,273
24
537
1,834
Non-
current
£m
–
–
15
15
Current
£m
1,044
37
627
1,708
In accordance with government initiatives to allow suppliers to receive payments earlier than contractual payment terms, the Group has
set up supply chain finance programmes through third parties, all of which are established and well capitalised financial institutions. The
objectives for the scheme are to support smaller suppliers, giving them earlier access to funding, and to manage the Group’s working capital.
These schemes allow suppliers to receive, if they choose, on an invoice by invoice basis, an earlier payment whilst the Group continues to pay
to the suppliers’ contractual terms. Suppliers are at liberty to use them or not and these arrangements have no cost to the Group and have no
effect on trade payable balances or operating cash flows. The Group does not participate in any rebates, does not receive any fees from the
providers nor does it provide any discounts or incentives for the suppliers to utilise these facilities. Additionally, they are not used to create
payment terms which are abnormal, atypical or extend statutory payment terms in the countries the Group operates in and no adjustments are
made by Standard and Poor’s in their assessment of Group adjusted net debt.
The Group assesses the supply chain finance programmes to ascertain whether liabilities to suppliers who have chosen to access an earlier
payment under the scheme continue to meet the definition of trade payables, or should be reclassified as borrowings. The Group has
concluded that the Group’s liability to the supplier remains unchanged for all such programmes and, as such, these balances remain in trade
payables and the cash flows associated with these programmes remain within operating cash flows.
Within non-trade payables and accrued expenses is the redemption liability arising on the acquisition of Interstate Resources and relating to
a put option held by the seller, as detailed further in note 30(c).
The liability for the final stake at 30 April 2021 is recorded at the discounted fair value of the estimated redemption amount, applying a
discount rate of 9%, based on the multiple based formula using the forecast results of the Interstate Resources business, as specified in the
contract, with a floor of the original purchase price.
Annual Report 2021 dssmith.com 149
Annual Report 2021 dssmith.com 149
FINANCIAL STATEMENTS
Notes to the consolidated financial statements (continued)
18. Net debt
The components of net debt and movement during the year is as follows:
Cash and cash equivalents
Overdrafts
Net cash and cash equivalents
Other investments – restricted cash
Other deposits
Borrowings – after one year
Borrowings – within one year
Lease liabilities
Derivative financial instruments
assets
liabilities
Net debt – reported basis
IFRS 16 lease liabilities
Net debt excluding IFRS 16 liabilities
Note
19
14
12
At 30 April
2020
£m
595
(90)
505
3
33
(2,300)
(98)
(255)
13
(2)
(2,606)
(2,101)
249
(1,852)
Continuing
operations
cash flow
£m
219
(5)
214
–
(4)
36
20
73
Discontinued
operation cash
flow
£m
(10)
–
(10)
–
–
–
–
–
Acquisitions
and
divestments
£m
14
–
14
–
–
–
–
3
Foreign
exchange, fair
value and
non-cash
movements
£m
(5)
1
(4)
–
–
198
(157)
(51)
(8)
24
141
355
–
–
–
(10)
–
–
3
17
(5)
(37)
(52)
(56)
At 30 April
2021
£m
813
(94)
719
3
29
(2,066)
(235)
(230)
–
(15)
(2,514)
(1,795)
227
(1,568)
Net debt is a non-GAAP measure not defined by IFRS. While the Group has included lease liabilities after transition to IFRS 16 Leases within
total lease liabilities (in addition to arrangements previously classified as finance leases under IAS 17), IFRS 16 liabilities are currently excluded
from the definition of net debt as set out in the Group’s banking covenant requirements.
Further detail on the use of non-GAAP measures and a reconciliation showing the calculation of adjusted net debt, as defined in the Group’s
banking covenants, is included in note 32.
Derivative financial instruments above relate to forward foreign exchange contracts and cross-currency swaps used to hedge the Group’s
borrowings and the net assets of foreign operations. The difference between the amounts shown above and the total derivative financial
instrument assets and liabilities in the consolidated statement of financial position relates to derivative financial instruments that hedge
forecast foreign currency transactions and the Group’s purchases of energy.
Non-cash movements relate to amortisation of fees incurred on debt issuance and new leases.
Other deposits are included, as these short-term receivables have the characteristics of net debt.
19. Cash and cash equivalents
Bank balances
Short-term deposits
Cash and cash equivalents (consolidated statement of financial position)
Bank overdrafts
Net cash and cash equivalents (consolidated statement of cash flows)
2021
£m
378
435
813
(94)
719
2020
£m
402
193
595
(90)
505
150
150
Notes to the consolidated financial statements (continued)
18. Net debt
The components of net debt and movement during the year is as follows:
20. Borrowings
Bank and other loans1
Commercial paper
Medium-term notes and other fixed-term debt
€60m term loan EURIBOR + 0.55% coupon November 20222
€59m private placement shelf facility 4.83% coupon August 2020
€150m term loan 0.6% coupon July 2021
$298m USD private placement 4.63% weighted average coupon
August 2021-20223
€500m medium-term note 2.25% coupon September 2022
€750m medium-term note 1.38% coupon July 2024
€39.6m term loan 1.4% coupon September 2025
€600m medium-term note 0.85% coupon September 2026
£250m medium-term note 2.88% coupon July 2029
1. Drawings under bank loans.
2. Term loan converted to a €60m revolving credit facility in June 2020.
3. Swapped to fixed rate £127m and fixed rate €129m using cross-currency swaps.
FINANCIAL STATEMENTS
2021
Non-
current
£m
–
–
–
–
–
Total
£m
(32)
(43)
–
–
(130)
(193)
(433)
(650)
(27)
(515)
(248)
(2,066)
(215)
(433)
(650)
(35)
(515)
(248)
(2,301)
Current
£m
(32)
(43)
–
–
(130)
(22)
–
–
(8)
–
–
(235)
2020
Current
£m
(14)
(21)
Non-current
£m
–
–
–
(51)
–
(8)
–
–
(4)
–
–
(98)
(52)
–
(130)
(238)
(433)
(650)
(34)
(515)
(248)
(2,300)
Total
£m
(14)
(21)
(52)
(51)
(130)
(246)
(433)
(650)
(38)
(515)
(248)
(2,398)
Borrowings are unsecured and measured at amortised cost. There have been no breaches of covenants during the year ended 30 April 2021 in
relation to the above borrowings.
Of the total borrowing facilities available to the Group, the undrawn committed facilities available at 30 April were as follows:
Expiring between two and five years
Expiring after five years
The £1,452m of undrawn facilities consist of the revolving credit facilities.
2021
£m
1,452
–
1,452
2020
£m
1,400
–
1,400
Cash and cash equivalents
Overdrafts
Net cash and cash equivalents
Other investments – restricted cash
Other deposits
Borrowings – after one year
Borrowings – within one year
Lease liabilities
Derivative financial instruments
assets
liabilities
Net debt – reported basis
IFRS 16 lease liabilities
Net debt excluding IFRS 16 liabilities
Discontinued
Acquisitions
Foreign
exchange, fair
value and
non-cash
divestments
movements
Continuing
operations
cash flow
At 30 April
operation cash
At 30 April
Note
19
14
12
2020
£m
595
(90)
505
3
33
(2,300)
(98)
(255)
13
(2)
(2,606)
(2,101)
249
(1,852)
£m
219
(5)
214
–
(4)
36
20
73
(8)
24
141
355
flow
£m
(10)
(10)
–
–
–
–
–
–
–
–
–
and
£m
14
–
14
–
–
–
–
3
–
–
3
(10)
17
198
(157)
(51)
(2,066)
(235)
(230)
£m
(5)
(4)
1
–
–
(5)
(37)
(52)
(56)
2021
£m
813
(94)
719
3
29
–
(15)
(2,514)
(1,795)
227
(1,568)
Net debt is a non-GAAP measure not defined by IFRS. While the Group has included lease liabilities after transition to IFRS 16 Leases within
total lease liabilities (in addition to arrangements previously classified as finance leases under IAS 17), IFRS 16 liabilities are currently excluded
from the definition of net debt as set out in the Group’s banking covenant requirements.
Further detail on the use of non-GAAP measures and a reconciliation showing the calculation of adjusted net debt, as defined in the Group’s
banking covenants, is included in note 32.
Derivative financial instruments above relate to forward foreign exchange contracts and cross-currency swaps used to hedge the Group’s
borrowings and the net assets of foreign operations. The difference between the amounts shown above and the total derivative financial
instrument assets and liabilities in the consolidated statement of financial position relates to derivative financial instruments that hedge
forecast foreign currency transactions and the Group’s purchases of energy.
Non-cash movements relate to amortisation of fees incurred on debt issuance and new leases.
Other deposits are included, as these short-term receivables have the characteristics of net debt.
19. Cash and cash equivalents
Bank balances
Short-term deposits
Bank overdrafts
Cash and cash equivalents (consolidated statement of financial position)
Net cash and cash equivalents (consolidated statement of cash flows)
2021
£m
378
435
813
(94)
719
2020
£m
402
193
595
(90)
505
150
Annual Report 2021 dssmith.com 151
Annual Report 2021 dssmith.com 151
FINANCIAL STATEMENTS
Notes to the consolidated financial statements (continued)
20. Borrowings continued
The repayment profile of the Group’s borrowings, after taking into account the effect of cross-currency swaps and forward foreign exchange
contracts, is as follows:
Borrowings
Fixed rate
Floating rate
Total borrowings
Borrowings
Fixed rate
Floating rate
Total borrowings
1 year
or less
£m
(204)
(31)
(235)
1 year
or less
£m
(85)
(13)
(98)
1–2
years
£m
(631)
(1)
(632)
1–2
years
£m
(28)
(54)
(82)
2021
2–5
years
£m
More than
5 years
£m
Total
£m
(664)
–
(664)
(770)
–
(770)
(2,269)
(32)
(2,301)
2020
2–5
years
£m
More than
5 years
£m
Total
£m
(1,446)
–
(1,446)
(772)
–
(772)
(2,331)
(67)
(2,398)
The Group’s borrowings, after taking into account the effect of cross-currency swaps and forward foreign exchange contracts are
denominated in the following currencies:
Borrowings
Fixed rate
Floating rate
Net cash and cash equivalents (including bank overdrafts)
Floating rate
Net borrowings at 30 April 2021
Borrowings
Fixed rate
Floating rate
Net cash and cash equivalents (including bank overdrafts)
Floating rate
Net borrowings at 30 April 2020
Sterling
£m
Euro
£m
(353)
–
(353)
(1,694)
(32)
(1,726)
288
(65)
315
(1,411)
Sterling
£m
Euro
£m
(450)
–
(450)
107
(343)
(1,682)
(67)
(1,749)
298
(1,451)
2021
US dollar
£m
(222)
–
(222)
20
(202)
2020
US dollar
£m
(199)
–
(199)
27
(172)
Other
£m
Total
£m
–
–
–
(2,269)
(32)
(2,301)
96
96
719
(1,582)
Other
£m
Total
£m
–
–
–
73
73
(2,331)
(67)
(2,398)
505
(1,893)
At 30 April 2021, 75% of the Group’s borrowings, after taking into account the effect of cross-currency swaps and forward foreign exchange
contracts, were denominated in euros in order to hedge the underlying assets of the Group’s European operations (30 April 2020: 73%).
Interest rates on floating rate borrowings are based on London Interbank Offered Rate (LIBOR), Euro Interbank Offered Rate (EURIBOR) or
base rates.
152
152
Notes to the consolidated financial statements (continued)
20. Borrowings continued
contracts, is as follows:
The repayment profile of the Group’s borrowings, after taking into account the effect of cross-currency swaps and forward foreign exchange
20. Borrowings continued
Maturity of lease liabilities
At 30 April 2020
At 30 April 2021
Denomination of lease liabilities
At 30 April 2020
At 30 April 2021
FINANCIAL STATEMENTS
1 year
or less
£m
(73)
(71)
1–2
years
£m
(56)
(51)
2–5
years
£m
(81)
(73)
More than
5 years
£m
(45)
(35)
Sterling
£m
(53)
(49)
Euro
£m
(126)
(114)
US dollar
£m
(46)
(36)
Other
£m
(30)
(31)
Total
£m
(255)
(230)
Total
£m
(255)
(230)
The Group’s borrowings, after taking into account the effect of cross-currency swaps and forward foreign exchange contracts are
denominated in the following currencies:
Changes in liabilities arising from financing activities
Bank and other loans, including commercial paper
Medium-term notes and other fixed-term debt
Lease liabilities
Derivative financial instruments related to hedging of
financial liabilities (note 18)
At 1 May
2020
£m
(35)
(2,363)
(255)
Financing
cash flows
£m
(42)
98
73
Acquisitions and
divestments
£m
–
–
3
New leases
£m
–
–
(51)
Movements
in fair value
£m
–
–
–
Other
£m
2
39
–
At 30 Apr
2021
£m
(75)
(2,226)
(230)
Sterling
£m
Euro
£m
Other
£m
Total
£m
2021
US dollar
£m
Assets
Liabilities
Total liabilities from financing activities
13
(2)
(2,642)
(8)
24
145
–
–
3
–
–
(51)
(5)
(37)
(42)
–
–
41
–
(15)
(2,546)
Net cash and cash equivalents (including bank overdrafts)
Floating rate
Net borrowings at 30 April 2021
Net cash and cash equivalents (including bank overdrafts)
Floating rate
Net borrowings at 30 April 2020
At 30 April 2021, 75% of the Group’s borrowings, after taking into account the effect of cross-currency swaps and forward foreign exchange
contracts, were denominated in euros in order to hedge the underlying assets of the Group’s European operations (30 April 2020: 73%).
Interest rates on floating rate borrowings are based on London Interbank Offered Rate (LIBOR), Euro Interbank Offered Rate (EURIBOR) or
base rates.
At 1 May
2019
£m
Adoption of
IFRS 16
£m
Financing
cash flows
£m
Acquisitions and
divestments
£m
New leases
£m
Movements in
fair value
£m
Bank and other loans, including
commercial paper
Medium-term notes and other fixed-term
debt
Lease liabilities
Derivative financial instruments related
to hedging of financial liabilities (note 18)
Assets
Liabilities
Total liabilities from financing activities
(596)
–
575
(2,019)
(10)
–
(242)
(313)
71
12
(9)
(2,622)
–
–
(242)
(53)
58
338
–
–
2
–
–
2
–
–
(77)
–
–
(77)
–
–
–
54
(51)
3
Other
£m
(14)
(31)
1
At 30 Apr
2020
£m
(35)
(2,363)
(255)
–
–
(44)
13
(2)
(2,642)
Other changes include foreign exchange movements and amortisation of capitalised borrowing costs.
Financing cash flows consist of the net amount of proceeds from borrowings, repayment of borrowings, repayment of lease obligations and
proceeds from settlement of derivative financial instruments in the consolidated statement of cash flows. Payments in respect of, and
proceeds from settlement of derivative financial instruments in the consolidated statement of cash flows relate solely to derivative financial
instruments used to hedge the Group’s borrowings and net assets of foreign operations. Operating cash flows include settlement of
commodity derivatives.
1 year
or less
£m
(204)
(31)
(235)
1 year
or less
£m
(85)
(13)
(98)
2021
1–2
years
£m
2–5
years
£m
More than
5 years
£m
Total
£m
(631)
(664)
(770)
(2,269)
(1)
–
–
(32)
(632)
(664)
(770)
(2,301)
1–2
years
£m
(28)
(54)
(82)
2020
2–5
years
£m
More than
5 years
£m
Total
£m
(1,446)
(772)
(2,331)
–
–
(67)
(1,446)
(772)
(2,398)
(353)
(1,694)
(222)
–
(32)
–
(353)
(1,726)
(222)
–
–
–
(2,269)
(32)
(2,301)
288
315
20
(65)
(1,411)
(202)
96
96
719
(1,582)
Sterling
£m
Euro
£m
Other
£m
Total
£m
2020
US dollar
£m
(450)
(1,682)
–
(67)
(450)
(1,749)
107
(343)
298
(1,451)
(199)
–
(199)
27
(172)
–
–
–
73
73
(2,331)
(67)
(2,398)
505
(1,893)
Annual Report 2021 dssmith.com 153
Annual Report 2021 dssmith.com 153
Borrowings
Fixed rate
Floating rate
Total borrowings
Borrowings
Fixed rate
Floating rate
Total borrowings
Borrowings
Fixed rate
Floating rate
Borrowings
Fixed rate
Floating rate
152
FINANCIAL STATEMENTS
Notes to the consolidated financial statements (continued)
21. Financial instruments
The Group’s activities expose the Group to a number of key risks which have the potential to affect its ability to achieve its business objectives.
A summary of the Group’s key financial risks and the policies and objectives in place to manage these risks is set out in the financial review and
principal risk sections of the Strategic Report.
The derivative financial instruments set out in this note have been entered into in line with the Group’s risk management objectives. The
Group’s treasury policy prohibits entering into speculative transactions.
(a) Carrying amounts and fair values of financial assets and liabilities
Set out below is the accounting classification of the carrying amounts and fair values of all of the Group’s financial assets and liabilities:
Financial assets
Cash and cash equivalents
Restricted cash
Other investments
Trade and other receivables
Derivative financial instruments
Total financial assets
Financial liabilities
Trade and other payables
Bank and other loans
Commercial paper
Medium-term notes and other
fixed-term debt
Lease liabilities
Bank overdrafts
Derivative financial instruments
Total financial liabilities
Category
Amortised cost
Amortised cost
Fair value through other comprehensive income
Amortised cost
Fair value – hedging instruments
Amortised cost, except as detailed below
Amortised cost
Amortised cost
Amortised cost
Amortised cost
Amortised cost
Fair value – hedging instruments
2021
Carrying
amount
£m
Fair value
£m
2020
Carrying
amount
£m
Fair value
£m
813
3
10
819
115
1,760
813
3
10
819
115
1,760
(1,849)
(32)
(43)
(1,849)
(32)
(43)
(2,226)
(230)
(94)
(56)
(4,530)
(2,323)
(230)
(94)
(56)
(4,627)
595
3
9
772
61
1,440
(1,723)
(14)
(21)
(2,363)
(255)
(90)
(85)
(4,551)
595
3
9
772
61
1,440
(1,723)
(14)
(21)
(2,376)
(255)
(90)
(85)
(4,564)
The fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. For financial instruments carried at fair value, market prices or rates are used to determine fair value
where an active market exists. The Group uses forward prices for valuing forward foreign exchange and commodity contracts and uses
valuation models with present value calculations based on market yield curves to value fixed rate borrowings and cross-currency swaps.
All derivative financial instruments are shown at fair value in the consolidated statement of financial position.
The Group’s medium-term notes and other fixed-term debt are in effective cash flow and net investment hedges. The fair values of financial
assets and liabilities which bear floating rates of interest or are short-term in nature are estimated to be equivalent to their carrying amounts.
The Group’s financial assets and financial liabilities are categorised within the fair value hierarchy that reflects the significance of the inputs
used in making the assessments. The majority of the Group’s financial instruments are Level 2 financial instruments in accordance with the fair
value hierarchy, meaning although the instruments are not traded in an active market, inputs to fair value are observable for the asset and
liability, either directly (i.e. quoted market prices) or indirectly (i.e. derived from prices). The Group’s medium-term notes are Level 1 financial
instruments, as the notes are listed on the Luxembourg Stock Exchange. Other investments and the redemption liability arising on the
acquisition of Interstate Resources (within trade and other payables) are Level 3 financial instruments. The fair value of other investments is
derived from fair value calculations based on their cash flows, and details of the valuation of the redemption liability are provided in note 17.
154
154
Notes to the consolidated financial statements (continued)
21. Financial instruments
The Group’s activities expose the Group to a number of key risks which have the potential to affect its ability to achieve its business objectives.
A summary of the Group’s key financial risks and the policies and objectives in place to manage these risks is set out in the financial review and
principal risk sections of the Strategic Report.
The derivative financial instruments set out in this note have been entered into in line with the Group’s risk management objectives. The
Group’s treasury policy prohibits entering into speculative transactions.
(a) Carrying amounts and fair values of financial assets and liabilities
Set out below is the accounting classification of the carrying amounts and fair values of all of the Group’s financial assets and liabilities:
Trade and other receivables
Amortised cost
Derivative financial instruments
Fair value – hedging instruments
Fair value through other comprehensive income
Financial assets
Cash and cash equivalents
Restricted cash
Other investments
Total financial assets
Financial liabilities
Bank and other loans
Commercial paper
Medium-term notes and other
fixed-term debt
Lease liabilities
Bank overdrafts
Total financial liabilities
Category
Amortised cost
Amortised cost
Amortised cost
Amortised cost
Amortised cost
Amortised cost
Amortised cost
Derivative financial instruments
Fair value – hedging instruments
2021
Carrying
amount
£m
Fair value
£m
2020
Carrying
amount
£m
Fair value
£m
813
3
10
819
115
813
3
10
819
115
595
3
9
772
61
595
3
9
772
61
1,760
1,760
1,440
1,440
(32)
(43)
(32)
(43)
(14)
(21)
(14)
(21)
(2,226)
(2,323)
(2,363)
(230)
(230)
(94)
(56)
(94)
(56)
(255)
(90)
(85)
(2,376)
(255)
(90)
(85)
(4,530)
(4,627)
(4,551)
(4,564)
Trade and other payables
Amortised cost, except as detailed below
(1,849)
(1,849)
(1,723)
(1,723)
The fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. For financial instruments carried at fair value, market prices or rates are used to determine fair value
where an active market exists. The Group uses forward prices for valuing forward foreign exchange and commodity contracts and uses
valuation models with present value calculations based on market yield curves to value fixed rate borrowings and cross-currency swaps.
All derivative financial instruments are shown at fair value in the consolidated statement of financial position.
The Group’s medium-term notes and other fixed-term debt are in effective cash flow and net investment hedges. The fair values of financial
assets and liabilities which bear floating rates of interest or are short-term in nature are estimated to be equivalent to their carrying amounts.
The Group’s financial assets and financial liabilities are categorised within the fair value hierarchy that reflects the significance of the inputs
used in making the assessments. The majority of the Group’s financial instruments are Level 2 financial instruments in accordance with the fair
value hierarchy, meaning although the instruments are not traded in an active market, inputs to fair value are observable for the asset and
liability, either directly (i.e. quoted market prices) or indirectly (i.e. derived from prices). The Group’s medium-term notes are Level 1 financial
instruments, as the notes are listed on the Luxembourg Stock Exchange. Other investments and the redemption liability arising on the
acquisition of Interstate Resources (within trade and other payables) are Level 3 financial instruments. The fair value of other investments is
derived from fair value calculations based on their cash flows, and details of the valuation of the redemption liability are provided in note 17.
FINANCIAL STATEMENTS
21. Financial instruments continued
(b) Derivative financial instruments
The Group enters into derivative financial instruments, primarily foreign exchange and commodity contracts, to manage the risks associated
with the Group’s underlying business activities and the financing of these activities. Derivatives designated as effective hedging instruments
are carried at their fair value.
The assets and liabilities of the Group at 30 April in respect of derivative financial instruments are as follows:
Assets
2021
£m
2020
£m
Liabilities
2021
£m
2020
£m
Net
2021
£m
2020
£m
Derivatives held to:
Manage the currency exposures on business activities, borrowings
and net investments
Derivative financial instruments included in net debt
Derivatives held to hedge future transactions:
Energy and carbon certificate costs
Total derivative financial instruments
Current
Non-current
–
–
115
115
80
35
115
13
13
48
61
34
27
61
(15)
(15)
(41)
(56)
(41)
(15)
(56)
(2)
(2)
(83)
(85)
(44)
(41)
(85)
(15)
(15)
74
59
39
20
59
(c) Cash flow and net investment hedges
(i) Hedge reserves
Set out below is the reconciliation of each component in the hedging reserve:
Balance at 1 May 2019
Gain/(loss) on designated cash flow hedges:
Cross-currency swaps
Forward foreign exchange contracts
Commodity contracts
Loss/(gain) reclassified from equity to the income statement:
Cross-currency swaps
Commodity contracts
Deferred tax
At 30 April 2020
Gain/(loss) on designated cash flow hedges:
Cross-currency swaps
Commodity contracts
Loss/(gain) reclassified from equity to the income statement:
Cross-currency swaps
Commodity contracts
Deferred tax
At 30 April 2021
Commodity
risk
£m
12
Foreign
exchange risk
£m
(25)
–
–
(56)
–
9
9
(26)
–
123
–
(18)
(20)
59
21
4
–
(10)
–
(3)
(13)
(20)
–
27
–
–
(6)
11
11
(35)
(24)
(10)
(14)
(24)
Total
£m
(13)
21
4
(56)
(10)
9
6
(39)
(20)
123
27
(18)
(20)
53
154
Annual Report 2021 dssmith.com 155
Annual Report 2021 dssmith.com 155
FINANCIAL STATEMENTS
Notes to the consolidated financial statements (continued)
21. Financial instruments continued
(c) Cash flow and net investment hedges continued
(i) Hedge reserves continued
The amounts reclassified to the income statement from the cash flow hedging reserve during the year are reflected in the following items in
the income statement:
Operating costs
Finance costs
Total pre-tax loss/(gain) reclassified from equity to the income statement during the year
2021
£m
(18)
27
9
2020
£m
9
(10)
(1)
There was £nil recognised ineffectiveness during the year ended 30 April 2021 (30 April 2020: £nil) in relation to the cross-currency swaps.
(ii) Hedges of net investments in foreign operations
The Group utilises foreign currency borrowings, cross-currency swaps and forward foreign exchange contracts as hedges of long-term
investments in foreign subsidiaries. The pre-tax losses on the hedges recognised in equity during the year was £2m (2019/20: gain of £23m).
This loss is matched by a similar gain in equity on the retranslation of the hedged foreign subsidiary net assets resulting in a net gain of £nil
(2019/20: net gain of £nil) treated as hedge ineffectiveness in the income statement.
(d) Risk identification and risk management
(i) Capital management
The Group defines its managed capital as the sum of equity, as presented in the consolidated statement of financial position, and net debt
(note 18).
Net debt
Total equity
Managed capital
2021
£m
1,795
3,535
5,330
2020
£m
2,101
3,351
5,452
There were no significant events leading to the change in managed capital levels during the year. The changes in the Group’s funding were the
repayment of private placement borrowings of €59m and $10m in August 2020 and the conversion of a €60m term loan with an original
maturity of November 2022 into a revolving credit facility with a maturity of June 2023, with a further two one-year extensions.
Managed capital is different from capital employed (defined as property, plant and equipment, right-of-use assets, goodwill and intangible
assets, working capital, capital debtors/creditors, provisions, biological assets and assets/liabilities held for sale). Managed capital relates to our
sources of funding, whereas adjusted return on average capital employed is our measure of the level of return being generated by the asset
base.
The Group funds its operations from the following sources of capital: operating cash flow, borrowings, shareholders’ equity and, where
appropriate, divestments of non-core businesses. The Group’s objective is to achieve a capital structure that results in an appropriate cost of
capital whilst providing flexibility in short and medium-term funding so as to accommodate significant investments or acquisitions. The Group
also aims to maintain a strong balance sheet and to provide continuity of financing by having borrowings with a range of maturities and from
a variety of sources.
The Group’s overall treasury objectives are to ensure sufficient funds are available for the Group to carry out its strategy and to manage certain
financial risks to which the Group is exposed, as described elsewhere in this note. The Group’s treasury strategy is controlled through the
Balance Sheet Committee which meets every two months and includes the Group Finance Director, the Group General Counsel and Company
Secretary, the Group Financial Controller and the Corporate Finance Director. The Group Treasury function operates in accordance with policies
and procedures approved by the Board and is controlled by the Corporate Finance Director. The function arranges funding for the Group,
provides a service to operations and implements strategies for financial risk management.
(ii) Market risk
Market risk is the risk that the fair value or future cash flows of a financial instrument fluctuate because of a change in market prices. The Group
is exposed to changes in interest rates, foreign currency exchange rates and commodity prices.
Interest rate risk
The Group is exposed to interest rate risk as borrowings are arranged at fixed interest rates, exposing it to fair value risk, and at floating
interest rates, exposing it to future cash flow risk. The risk is managed by maintaining a mix of fixed and floating rate borrowings. The Group’s
exposure to interest rates on financial assets and financial liabilities is detailed in the liquidity risk management section of this note.
156
156
Notes to the consolidated financial statements (continued)
The amounts reclassified to the income statement from the cash flow hedging reserve during the year are reflected in the following items in
21. Financial instruments continued
(c) Cash flow and net investment hedges continued
(i) Hedge reserves continued
the income statement:
Operating costs
Finance costs
21. Financial instruments continued
(d) Risk identification and risk management continued
(ii) Market risk continued
2021
£m
(18)
27
9
2020
£m
9
(10)
(1)
Interest rate sensitivity
At 30 April 2021, 99% of the Group’s borrowings were at fixed rates of interest (30 April 2020: 97%). The sensitivity analysis below shows the
impact on profit of a 100 basis points rise in market interest rates (representing management’s assessment of the reasonably possible change
in interest rates) in all currencies in which the Group had variable-rate borrowings at 30 April 2021.
To calculate the impact on the income statement for the year, the interest rates on all variable-rate external borrowings and cash deposits
have been increased by 100 basis points, and the resulting increase in the net interest charge has been adjusted for the effect of the Group’s
interest rate derivatives. The impact on equity is equal to the impact on profit.
There was £nil recognised ineffectiveness during the year ended 30 April 2021 (30 April 2020: £nil) in relation to the cross-currency swaps.
The results are presented before non-controlling interests and tax.
FINANCIAL STATEMENTS
Impact on profit of increase in market interest rates of 100 basis points
Foreign exchange risk
The Group’s exposure to foreign currency risk at the end of the reporting period, expressed in sterling, was as follows:
2021
£m
–
2020
£m
(5)
Trade receivables
Trade payables
Net borrowings1
2021
2020
EUR
£m
504
(1,177)
(1,411)
USD
£m
54
(174)
(202)
EUR
£m
389
(880)
(1,451)
USD
£m
43
(214)
(172)
1. After taking into account the effect of cross-currency swaps and forward foreign exchange contracts.
Foreign exchange risk on investments
The Group is exposed to foreign exchange risk arising from net investments in Group entities, the functional currencies of which differ from the
Group’s presentational currency, sterling. The Group partly hedges this exposure through borrowings denominated in foreign currencies and
through cross-currency swaps and forward foreign exchange contracts.
Gains and losses arising from hedges of net investments are recognised in equity.
Foreign exchange risk on borrowings
The Group is exposed to foreign exchange risk on borrowings denominated in foreign currencies. The Group hedges some of this exposure
through cross-currency swaps designated as cash flow hedges.
Foreign exchange risk on transactions
Foreign currency transaction risk arises where a business unit makes product sales or purchases in a currency other than its functional
currency. Part of this risk is hedged using forward foreign exchange contracts which are designated as cash flow hedges.
The Group only designates the forward rate of foreign currency forwards in hedge relationships.
For the hedges of highly probable forecast sales and purchases, as the critical terms (i.e. the notional amount, life and underlying terms) of
the foreign exchange forward contracts and their corresponding hedged items are the same, the Group performs a qualitative assessment of
effectiveness and it is expected that the value of the forward contracts and the value of the corresponding hedged items will systematically
change in opposite directions in response to movements in the underlying exchange rates.
The Group’s main currency exposures are to the euro and US dollar. The following significant exchange rates applied during the year:
Euro
US dollar
2021
2020
Average
1.122
1.320
Closing
1.151
1.391
Average
1.139
1.251
Closing
1.151
1.252
Annual Report 2021 dssmith.com 157
Annual Report 2021 dssmith.com 157
Total pre-tax loss/(gain) reclassified from equity to the income statement during the year
(ii) Hedges of net investments in foreign operations
The Group utilises foreign currency borrowings, cross-currency swaps and forward foreign exchange contracts as hedges of long-term
investments in foreign subsidiaries. The pre-tax losses on the hedges recognised in equity during the year was £2m (2019/20: gain of £23m).
This loss is matched by a similar gain in equity on the retranslation of the hedged foreign subsidiary net assets resulting in a net gain of £nil
(2019/20: net gain of £nil) treated as hedge ineffectiveness in the income statement.
(d) Risk identification and risk management
The Group defines its managed capital as the sum of equity, as presented in the consolidated statement of financial position, and net debt
(i) Capital management
(note 18).
Net debt
Total equity
Managed capital
2021
£m
1,795
3,535
5,330
2020
£m
2,101
3,351
5,452
There were no significant events leading to the change in managed capital levels during the year. The changes in the Group’s funding were the
repayment of private placement borrowings of €59m and $10m in August 2020 and the conversion of a €60m term loan with an original
maturity of November 2022 into a revolving credit facility with a maturity of June 2023, with a further two one-year extensions.
Managed capital is different from capital employed (defined as property, plant and equipment, right-of-use assets, goodwill and intangible
assets, working capital, capital debtors/creditors, provisions, biological assets and assets/liabilities held for sale). Managed capital relates to our
sources of funding, whereas adjusted return on average capital employed is our measure of the level of return being generated by the asset
The Group funds its operations from the following sources of capital: operating cash flow, borrowings, shareholders’ equity and, where
appropriate, divestments of non-core businesses. The Group’s objective is to achieve a capital structure that results in an appropriate cost of
capital whilst providing flexibility in short and medium-term funding so as to accommodate significant investments or acquisitions. The Group
also aims to maintain a strong balance sheet and to provide continuity of financing by having borrowings with a range of maturities and from
The Group’s overall treasury objectives are to ensure sufficient funds are available for the Group to carry out its strategy and to manage certain
financial risks to which the Group is exposed, as described elsewhere in this note. The Group’s treasury strategy is controlled through the
Balance Sheet Committee which meets every two months and includes the Group Finance Director, the Group General Counsel and Company
Secretary, the Group Financial Controller and the Corporate Finance Director. The Group Treasury function operates in accordance with policies
and procedures approved by the Board and is controlled by the Corporate Finance Director. The function arranges funding for the Group,
provides a service to operations and implements strategies for financial risk management.
Market risk is the risk that the fair value or future cash flows of a financial instrument fluctuate because of a change in market prices. The Group
is exposed to changes in interest rates, foreign currency exchange rates and commodity prices.
The Group is exposed to interest rate risk as borrowings are arranged at fixed interest rates, exposing it to fair value risk, and at floating
interest rates, exposing it to future cash flow risk. The risk is managed by maintaining a mix of fixed and floating rate borrowings. The Group’s
exposure to interest rates on financial assets and financial liabilities is detailed in the liquidity risk management section of this note.
base.
a variety of sources.
(ii) Market risk
Interest rate risk
156
FINANCIAL STATEMENTS
Notes to the consolidated financial statements (continued)
21. Financial instruments continued
(d) Risk identification and risk management continued
(ii) Market risk continued
Foreign exchange risk on transactions continued
The following sensitivity analysis shows the impact on the Group’s results of a 10% strengthening and weakening in the sterling exchange
rate against all other currencies representing management’s assessment of the reasonably possible change in foreign exchange rates. The
analysis is restricted to financial instruments denominated in a foreign currency and excludes the impact of financial instruments designated
as net investment hedges.
Net investment hedges are excluded as the impact of the foreign exchange movements on these are offset by equal and opposite movements
in the hedged items.
The results are presented before non-controlling interests and tax.
10% strengthening of sterling
10% weakening of sterling
2021
2020
Impact on
profit
£m
–
–
Impact on
total equity
£m
42
(51)
Impact on
profit
£m
–
–
Impact on
total equity
£m
31
(38)
Commodity risk
The Group’s main commodity exposures are to changes in gas and electricity prices. The Group also hedges its exposure to fluctuations in the
cost of carbon emission certificates. This commodity price risk is managed by a combination of physical supply agreements and derivative
instruments. At 30 April 2021, £59m of gains (2019/20: losses of £26m) are deferred in equity in respect of cash flow hedges in accordance
with IAS 39. Any gains or losses deferred in equity will be reclassified to the income statement in the period in which the hedged item also
affects the income statement, which will occur within three years.
The following table details the Group’s sensitivity to a 10% increase in these prices, which is management’s assessment of the reasonably
possible change, on average, over any given year. A decrease of 10% in these prices would produce an opposite effect on equity. As all of
the Group’s commodity financial instruments achieve hedge accounting under IAS 39, there is no impact on profit for either year.
The results are presented before non-controlling interests and tax.
10% increase in electricity prices
10% increase in gas prices
10% increase in carbon certificate prices
(iii) Credit risk
2021
2020
Impact on
profit
£m
–
–
–
Impact on
total equity
£m
3
22
7
Impact on
profit
£m
–
–
–
Impact on
total equity
£m
1
9
(6)
Credit risk is the risk that a customer or counterparty to a financial instrument will fail to perform or fail to pay amounts due, causing financial
loss to the Group. In the current economic environment, the Group has placed increased emphasis on the management of credit risk. The carrying
amount of financial assets at 30 April 2021 was £1,760m and is analysed in note 21(a). This represents the maximum credit risk exposure.
Credit risk on financial instruments held with financial institutions is assessed and managed by reference to the long-term credit ratings
assigned to that counterparty by Standard & Poor’s and Moody’s credit rating agencies. The short-term deposits are placed with seven financial
institutions with a minimum Standard & Poor’s credit rating of BBB. Amounts deposited with counterparties are subject to limits based on their
credit ratings. There are no significant concentrations of credit risk.
See note 16 for information on credit risk with respect to trade receivables.
158
158
FINANCIAL STATEMENTS
21. Financial instruments continued
(d) Risk identification and risk management continued
(iv) Liquidity risk
Liquidity risk is the risk that the Group, although solvent, will have difficulty in meeting its obligations associated with its financial liabilities as
they fall due.
The Group manages its liquidity risk by maintaining a sufficient level of undrawn committed borrowing facilities. At 30 April 2021, the Group
had £1,452m of undrawn committed borrowing facilities (30 April 2020: £1,400m), which comprises the revolving credit facilities. The Group
mitigates its refinancing risk by raising its debt requirements from a number of different sources with a range of maturities.
Net investment hedges are excluded as the impact of the foreign exchange movements on these are offset by equal and opposite movements
The following table is an analysis of the undiscounted contractual maturities of non-derivative financial liabilities.
At 30 April 2021
Non-derivative financial liabilities
Trade and other payables
Bank and other loans
Commercial paper
Medium-term notes and other fixed-term debt
Lease liabilities
Bank overdrafts
Interest payments on borrowings
Total non-derivative financial liabilities
At 30 April 2020
Non-derivative financial liabilities
Trade and other payables
Bank and other loans
Commercial paper
Medium-term notes and other fixed-term debt
Lease liabilities
Bank overdrafts
Interest payments on borrowings
Total non-derivative financial liabilities
Refer to note 29 for a summary of the Group’s capital commitments.
Contractual repayments
1 year
or less
£m
1–5
years
£m
More than
5 years
£m
1,834
32
43
160
74
94
39
2,276
15
4
–
1,305
144
–
85
1,553
Contractual repayments
–
–
–
771
58
–
33
862
1 year
or less
£m
1,708
14
21
63
74
90
45
2,015
1–5
years
£m
More than
5 years
£m
15
3
–
1,537
156
–
120
1,831
–
–
–
775
74
–
45
894
Total
£m
1,849
36
43
2,236
276
94
157
4,691
Total
£m
1,723
17
21
2,375
304
90
210
4,740
Notes to the consolidated financial statements (continued)
The following sensitivity analysis shows the impact on the Group’s results of a 10% strengthening and weakening in the sterling exchange
rate against all other currencies representing management’s assessment of the reasonably possible change in foreign exchange rates. The
analysis is restricted to financial instruments denominated in a foreign currency and excludes the impact of financial instruments designated
21. Financial instruments continued
(d) Risk identification and risk management continued
(ii) Market risk continued
Foreign exchange risk on transactions continued
as net investment hedges.
in the hedged items.
The results are presented before non-controlling interests and tax.
10% strengthening of sterling
10% weakening of sterling
Commodity risk
2021
2020
Impact on
Impact on
Impact on
profit
total equity
Impact on
total equity
£m
–
–
£m
42
(51)
profit
£m
–
–
£m
31
(38)
2021
2020
Impact on
Impact on
Impact on
profit
total equity
Impact on
total equity
£m
–
–
–
£m
3
22
7
profit
£m
–
–
–
£m
1
9
(6)
The Group’s main commodity exposures are to changes in gas and electricity prices. The Group also hedges its exposure to fluctuations in the
cost of carbon emission certificates. This commodity price risk is managed by a combination of physical supply agreements and derivative
instruments. At 30 April 2021, £59m of gains (2019/20: losses of £26m) are deferred in equity in respect of cash flow hedges in accordance
with IAS 39. Any gains or losses deferred in equity will be reclassified to the income statement in the period in which the hedged item also
affects the income statement, which will occur within three years.
The following table details the Group’s sensitivity to a 10% increase in these prices, which is management’s assessment of the reasonably
possible change, on average, over any given year. A decrease of 10% in these prices would produce an opposite effect on equity. As all of
the Group’s commodity financial instruments achieve hedge accounting under IAS 39, there is no impact on profit for either year.
The results are presented before non-controlling interests and tax.
10% increase in electricity prices
10% increase in gas prices
10% increase in carbon certificate prices
(iii) Credit risk
Credit risk is the risk that a customer or counterparty to a financial instrument will fail to perform or fail to pay amounts due, causing financial
loss to the Group. In the current economic environment, the Group has placed increased emphasis on the management of credit risk. The carrying
amount of financial assets at 30 April 2021 was £1,760m and is analysed in note 21(a). This represents the maximum credit risk exposure.
Credit risk on financial instruments held with financial institutions is assessed and managed by reference to the long-term credit ratings
assigned to that counterparty by Standard & Poor’s and Moody’s credit rating agencies. The short-term deposits are placed with seven financial
institutions with a minimum Standard & Poor’s credit rating of BBB. Amounts deposited with counterparties are subject to limits based on their
credit ratings. There are no significant concentrations of credit risk.
See note 16 for information on credit risk with respect to trade receivables.
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FINANCIAL STATEMENTS
Notes to the consolidated financial statements (continued)
21. Financial instruments continued
(d) Risk identification and risk management continued
(iv) Liquidity risk continued
The following table is an analysis of the undiscounted contractual maturities of derivative financial liabilities. Where the payable and receivable
legs of these derivatives are denominated in foreign currencies, the contractual payments or receipts have been calculated based on exchange
rates prevailing at the respective year ends. The disclosure shows net cash flow amounts for derivatives that are net cash-settled and gross
cash inflow and outflow amounts for derivatives that have simultaneous gross cash settlement.
Where applicable, interest and foreign exchange rates prevailing at the reporting date are assumed to remain constant over the future
contractual maturities.
At 30 April 2021
Derivative financial liabilities
Energy derivatives
Cross-currency swaps and forward foreign exchange contracts:
Payments
Receipts
Total derivative financial liabilities
At 30 April 2020
Derivative financial liabilities
Energy derivatives
Cross-currency swaps and forward foreign exchange contracts:
Payments
Receipts
Total derivative financial liabilities
Contractual payments/(receipts)
Total
£m
1 year
or less
£m
1–5
years
£m
More than
5 years
£m
41
39
2
583
(573)
51
269
(269)
39
314
(304)
12
–
–
–
–
Contractual payments/(receipts)
Total
£m
83
373
(376)
80
1 year
or less
£m
1–5
years
£m
More than
5 years
£m
43
40
266
(267)
42
107
(109)
38
–
–
–
–
160
160
Notes to the consolidated financial statements (continued)
21. Financial instruments continued
(d) Risk identification and risk management continued
(iv) Liquidity risk continued
The following table is an analysis of the undiscounted contractual maturities of derivative financial liabilities. Where the payable and receivable
legs of these derivatives are denominated in foreign currencies, the contractual payments or receipts have been calculated based on exchange
rates prevailing at the respective year ends. The disclosure shows net cash flow amounts for derivatives that are net cash-settled and gross
cash inflow and outflow amounts for derivatives that have simultaneous gross cash settlement.
Where applicable, interest and foreign exchange rates prevailing at the reporting date are assumed to remain constant over the future
contractual maturities.
At 30 April 2021
Derivative financial liabilities
Energy derivatives
Payments
Receipts
Total derivative financial liabilities
Cross-currency swaps and forward foreign exchange contracts:
At 30 April 2020
Derivative financial liabilities
Energy derivatives
Payments
Receipts
Total derivative financial liabilities
Cross-currency swaps and forward foreign exchange contracts:
Contractual payments/(receipts)
Total
£m
1 year
or less
£m
1–5
More than
years
£m
5 years
£m
41
39
2
583
(573)
51
269
(269)
39
314
(304)
12
Contractual payments/(receipts)
1 year
or less
£m
1–5
years
£m
More than
5 years
£m
Total
£m
83
373
(376)
80
43
40
266
(267)
42
107
(109)
38
–
–
–
–
–
–
–
–
FINANCIAL STATEMENTS
22. Deferred tax assets and liabilities
Analysis of movements in recognised deferred tax assets and liabilities during the year
At beginning of the year
Credit/(charge) for the year:
– continuing
– discontinued
Recognised directly in equity
Currency translation
At end of the year
Property, plant and
equipment and
intangible assets
Employee benefits
including pensions
Tax
losses
2021
£m
(352)
11
–
–
10
(331)
2020
£m
(353)
6
–
–
(5)
(352)
2021
£m
50
(1)
–
(4)
–
45
2020
£m
46
(9)
–
12
1
50
2021
£m
65
(12)
9
–
–
62
2020
£m
55
11
–
–
(1)
65
Other
Total
2021
£m
9
1
–
(20)
–
(10)
2020
£m
1
2
–
6
–
9
2021
£m
(228)
(1)
9
(24)
10
(234)
2020
£m
(251)
10
–
18
(5)
(228)
At 30 April 2021, deferred tax assets and liabilities were recognised for all taxable temporary differences:
• except where the deferred tax liability arises on goodwill;
• except on initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction,
affects neither the accounting profit nor the taxable profit or loss; and
• in respect of taxable temporary differences associated with investments in subsidiaries and associates, except where the timing of the
reversal of temporary differences can be controlled by the Group and it is probable that temporary differences will not reverse in the
foreseeable future.
At 30 April 2021, no deferred tax liability has been recognised in respect of unremitted earnings of subsidiaries and associates because the
Group is in a position to control the timing of the reversal of the temporary difference and it is probable that such differences will not reverse in
the foreseeable future. It is not practicable to estimate the amount of temporary differences in respect of these unremitted earnings.
As commented in note 7, in the March 2021 Budget the UK Government announced that legislation will be introduced in the Finance Bill 2021
to increase the main rate of UK corporation tax from 19% to 25%, effective 1 April 2023. As these changes had not been substantially enacted
at the balance sheet date, the UK deferred tax balances as at 30 April 2021 continue to be measured at a rate of 19%. If the 25% tax rate had
been used at the balance sheet date, the UK deferred tax asset would have been £7m higher.
Recognised deferred tax assets and liabilities
Deferred tax assets and liabilities are offset where the Group has a legally enforceable right to do so. The following is the analysis of the
deferred tax balances (after offset) for financial reporting purposes:
Deferred tax liabilities
Deferred tax assets
Net deferred tax
2021
£m
(271)
37
(234)
2020
£m
(305)
77
(228)
The deferred tax asset in respect of tax losses at 30 April 2021 includes an asset in the UK of £19m (30 April 2020: £26m). The asset has been
recognised based on net interest income that will arise in the UK from the financing of acquisitions. The asset is expected to be fully recovered
over the foreseeable future.
The deferred tax asset in respect of tax losses at 30 April 2021 also includes an asset in Luxembourg of £11m (30 April 2020: £13m) and an
asset in France of £14m (30 April 2020: £nil). The asset in Luxembourg is expected to be fully recovered in the next 12 months based on
interest income that will arise. The asset in France has been recognised this year based on the future forecast profitability of the French
business and is expected to be fully recovered over the next five years.
The Group has total unrecognised deferred tax assets relating to tax losses at 30 April 2021 of £10m (30 April 2020: £24m). These losses
include £8m (30 April 2020:£24m) which do not expire and £2m (30 April 2020: £nil) which expire between 2026 and 2028 under current tax
legislation. Deferred tax assets have not been recognised in respect of these items because it is not probable that future taxable profit will be
available against which the Group can utilise these benefits.
160
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FINANCIAL STATEMENTS
Notes to the consolidated financial statements (continued)
23. Provisions
At 1 May 2020
Charged to income
Credited to income
Utilised
At 30 April 2021
Non-current
Current
At 30 April 2021
Restructuring
£m
9
27
(1)
(28)
7
–
7
7
Other
£m
61
16
(3)
(25)
49
8
41
49
Total
£m
70
43
(4)
(53)
56
8
48
56
The restructuring provision includes amounts associated with the site closures and restructuring costs described in note 4. Other provisions
relate to environmental and restoration liabilities, carbon emission obligations, restructuring provisions, indemnities and estimated liabilities
arising from actual and potential litigation and disputes.The timing of the utilisation of these provisions is uncertain, except where the
associated costs are contractual, in which case the provision is utilised over the time period specified in the contract.
24. Capital and reserves
Share capital
Ordinary equity shares of 10 pence each:
Issued, allotted, called up and fully paid
Number of shares
2021
millions
2020
millions
2021
£m
1,373
1,372
137
2020
£m
137
During the year ended 30 April 2021, 808,816 ordinary shares were issued as a result of exercises of employee share options.
The net movements in share capital and share premium are disclosed in the consolidated statement of changes in equity.
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at
meetings of the Company.
Translation reserve
The translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign
operations and the translation of liabilities that hedge the Company’s net investment in a foreign subsidiary.
Hedging reserve
The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to
hedged transactions that have not yet occurred.
Share premium
The share premium account represents the difference between the issue price and the nominal value of shares issued.
Own shares
The reserve for the Company’s own shares comprises the cost of the Company’s shares held by the Group. The Group operates a General
Employee Benefit Trust, which acquires shares in the Company that can be used to satisfy the requirements of the Performance Share Plans.
At 30 April 2021, the Trust held 1.2m shares (30 April 2020: 1.5m shares). The market value of the shares at 30 April 2021 was £5.2m
(30 April 2020: £4.7m). Dividends receivable on the shares owned by the Trust have been waived.
Non-controlling interests
The Group has various put options in relation to subsidiaries with non-controlling interests. The Group records a liability at the net present
value of the expected future payments, with a corresponding entry against non-controlling interests in respect of the non-controlling
shareholders’ put option, measured at fair value. At the end of each period, the valuation of the liability is reassessed with any changes
recorded within finance costs through the income statement and then transferred out of retained earnings into non-controlling interests.
Retained earnings
Retained earnings includes a merger relief reserve related to the shares issued in consideration to the sellers of EcoPack/EcoPaper in 2017/18.
The closing balance of this reserve is £32m.
162
162
Notes to the consolidated financial statements (continued)
23. Provisions
At 1 May 2020
Charged to income
Credited to income
Utilised
At 30 April 2021
Non-current
Current
At 30 April 2021
24. Capital and reserves
Share capital
Ordinary equity shares of 10 pence each:
Issued, allotted, called up and fully paid
Restructuring
Other
Total
£m
9
27
(1)
(28)
7
–
7
7
£m
61
16
(3)
(25)
49
8
41
49
£m
70
43
(4)
(53)
56
8
48
56
Number of shares
2021
millions
2020
millions
2021
£m
1,373
1,372
137
2020
£m
137
The restructuring provision includes amounts associated with the site closures and restructuring costs described in note 4. Other provisions
relate to environmental and restoration liabilities, carbon emission obligations, restructuring provisions, indemnities and estimated liabilities
arising from actual and potential litigation and disputes.The timing of the utilisation of these provisions is uncertain, except where the
associated costs are contractual, in which case the provision is utilised over the time period specified in the contract.
During the year ended 30 April 2021, 808,816 ordinary shares were issued as a result of exercises of employee share options.
The net movements in share capital and share premium are disclosed in the consolidated statement of changes in equity.
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at
meetings of the Company.
Translation reserve
Hedging reserve
Share premium
Own shares
The translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign
operations and the translation of liabilities that hedge the Company’s net investment in a foreign subsidiary.
The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to
hedged transactions that have not yet occurred.
The share premium account represents the difference between the issue price and the nominal value of shares issued.
The reserve for the Company’s own shares comprises the cost of the Company’s shares held by the Group. The Group operates a General
Employee Benefit Trust, which acquires shares in the Company that can be used to satisfy the requirements of the Performance Share Plans.
At 30 April 2021, the Trust held 1.2m shares (30 April 2020: 1.5m shares). The market value of the shares at 30 April 2021 was £5.2m
(30 April 2020: £4.7m). Dividends receivable on the shares owned by the Trust have been waived.
Non-controlling interests
The Group has various put options in relation to subsidiaries with non-controlling interests. The Group records a liability at the net present
value of the expected future payments, with a corresponding entry against non-controlling interests in respect of the non-controlling
shareholders’ put option, measured at fair value. At the end of each period, the valuation of the liability is reassessed with any changes
recorded within finance costs through the income statement and then transferred out of retained earnings into non-controlling interests.
Retained earnings
The closing balance of this reserve is £32m.
Retained earnings includes a merger relief reserve related to the shares issued in consideration to the sellers of EcoPack/EcoPaper in 2017/18.
FINANCIAL STATEMENTS
25. Employee benefits
Balance sheet
Present value of post-retirement obligations
Total
UK
Overseas
2021
£m
(1,345)
2020
£m
(1,354)
2021
£m
(1,189)
2020
£m
(1,169)
2021
£m
(156)
Fair value of plan assets
Equities/multi-strategy
Debt instruments
Derivatives
Real estate
Cash and cash equivalents
Other
Net post-retirement plan deficit
Other employee benefit liabilities
Total employee benefit deficit
Related deferred tax asset
Net employee benefit deficit
Employee benefit schemes
14
553
465
1
7
138
1,178
(167)
(8)
(175)
40
(135)
14
301
744
1
57
47
1,164
(190)
(9)
(199)
45
(154)
–
526
465
–
7
122
1,120
(69)
–
(69)
13
(56)
–
270
743
–
57
28
1,098
(71)
–
(71)
14
(57)
14
27
–
1
–
16
58
(98)
(8)
(106)
27
(79)
2020
£m
(185)
14
31
1
1
–
19
66
(119)
(9)
(128)
31
(97)
At 30 April 2021, the Group operated a number of employee benefit arrangements for the benefit of its employees throughout the world. The
plans are provided through both defined benefit and defined contribution arrangements and their legal status and control vary depending on
the conditions and practices in the countries concerned.
Pension scheme trustees and representatives of the Group work with those managing the employee benefit arrangements to monitor the
effects on the arrangements of changes in financial markets and the impact of uncertainty in assumptions, and to develop strategies that
could mitigate the risks to which these employee benefit schemes expose the Group.
UK schemes
The DS Smith Group Pension Scheme (the ‘Group Scheme’) is a UK funded final salary defined benefit scheme providing pensions and lump sum
benefits to members and dependants. The Group Scheme closed to future accrual from 30 April 2011 with pensions calculated based on
pensionable salaries up to the point of closure (or the date of leaving the Group Scheme, if earlier). The Group Scheme has a normal retirement
age of 65 although some members are able to take their benefits earlier than this. Increases to pensions are affected by changes in the rate of
inflation for the majority of members.
The Group Scheme is governed by a Trustee Company (DS Smith Pension Trustees Limited), which is comprised of a Board of Trustee Directors
(the ‘Trustee Board’) and is independent of the Group. The Trustee Board is responsible for managing the operation, funding and investment
strategy of the Group Scheme.
UK legislation requires the Trustee Board to carry out actuarial funding valuations at least every three years and to target full funding over
an appropriate period of time, taking into account the current circumstances of the Group Scheme and the Group on a basis that prudently
reflects the risks to which the Group Scheme is exposed (the ‘Technical Provisions’ basis). The most recent funding valuation was carried out as
at 30 April 2019, following which a deficit recovery plan was agreed with the Trustee Board on 14 April 2020. The Group has agreed to
maintain the previous Schedule of Contributions. The contribution for the year ended 30 April 2021 under the plan is £19.4m. The recovery
plan is expected to be completed on or around September 2025.
162
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FINANCIAL STATEMENTS
Notes to the consolidated financial statements (continued)
25. Employee benefits continued
UK schemes continued
The Trustee Board and the Group have in place a secondary Long-Term Funding Target (the ‘LTFT’), in addition to the statutory funding
requirement, the purpose of which is to achieve material additional security for the Group Scheme’s members. The objective of the LTFT is
for the Group Scheme to be funded by 30 April 2035 to a level that does not expect to rely on future contributions from the Group. The LTFT
comprises actuarial assumptions to assess whether any additional contributions above the deficit recovery contributions are required, and
an investment strategy approach to be followed for de-risking the scheme’s assets. In recent valuations, the secondary funding assessment
has concluded that the deficit recovery plan contributions are sufficient and no additional contributions from the Group under the LTFT
are required.
In order to manage risk, the Group Scheme’s investment strategy is designed to closely align movements in the Group Scheme’s assets to
that of its liabilities, whilst maintaining an appropriate level of expected return. To help the Trustee Board to monitor, review and assess
investment matters, the Investment and Funding Committee (the ‘IFC’), which consists of representatives from the Trustee Board and
the Group, meets on a quarterly basis throughout the year.
The Group Scheme exposes the Group to risks, such as longevity risk, currency risk, inflation risk, interest rate risk and investment risk. As the
Group Scheme’s obligation is to provide lifetime pension benefits to members upon retirement, increases in life expectancy will result in an
increase in the Group Scheme’s liabilities. Other assumptions used to value the defined benefit obligation are also uncertain.
The Group Scheme deficit recovery plan agreed with the Trustee Board is considered a minimum funding requirement as described in IFRIC 14
IAS 19 – the Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction. The Group has an unconditional right to a
return of any surplus in a run-off scenario.
The assets in the Group Scheme (apart from the cash held) are nearly all Level 2 instruments under the fair value hierarchy. All Level 2 assets
are held in daily traded pooled funds for which daily bid prices are available, and the valuation process for these assets involves minimal
judgement and is agreed by reference to independent third parties. The Group Scheme does not hold any investment in DS Smith securities.
The largest defined contribution arrangement operated by the Group is in the UK. The UK defined contribution scheme is a trust-based
arrangement offering members a range of investments. All assets are held independently from the Group. The Group also operates a small
unfunded arrangement in the UK.
Overseas schemes
The countries where the Group operates the most significant defined benefit post-retirement arrangements are:
• France – various mandatory retirement indemnities, post-retirement medical plans and jubilee arrangements (benefits paid to
employees after completion of a certain number of years of service), the majority of which are determined by the applicable Collective
Bargaining Agreement;
• Belgium – liabilities with respect to non-contributory defined benefit and cash balance retirement plans, as well as unfunded jubilee
arrangements. The defined benefit plan is closed to new employees, although active members continue to accrue benefits;
• Switzerland – a contributory defined benefit pension scheme providing pensions and lump sum benefits to members and dependants;
• Italy – mandatory end-of-service lump sum benefits in respect of pre-2007 service;
• Portugal – defined benefit pensions plan with a fund that guarantees a payment of a pension supplement to all retired employees and
pensioners who were receiving pension benefit from the fund on 13 July 2007; and
• Germany – jubilee arrangements and non-contributory defined benefit pension schemes.
In general, local trustees or similar bodies manage the post-retirement and medical plans in accordance with local regulations.
During the year ended 30 April 2021, the US Interstate defined benefit scheme was terminated and settled and the main Netherlands post
retirement benefit scheme liability was settled in full .
Overseas schemes expose the Group to risks such as longevity risk, currency risk, inflation risk, interest rate risk, investment risk, life
expectancy risk and healthcare cost risk. Actions taken by the local regulator, or changes to legislation, could result in stronger local funding
requirements for pension schemes, which could affect the Group’s future cash flow.
164
164
Notes to the consolidated financial statements (continued)
25. Employee benefits continued
UK schemes continued
The Trustee Board and the Group have in place a secondary Long-Term Funding Target (the ‘LTFT’), in addition to the statutory funding
requirement, the purpose of which is to achieve material additional security for the Group Scheme’s members. The objective of the LTFT is
for the Group Scheme to be funded by 30 April 2035 to a level that does not expect to rely on future contributions from the Group. The LTFT
comprises actuarial assumptions to assess whether any additional contributions above the deficit recovery contributions are required, and
an investment strategy approach to be followed for de-risking the scheme’s assets. In recent valuations, the secondary funding assessment
has concluded that the deficit recovery plan contributions are sufficient and no additional contributions from the Group under the LTFT
are required.
In order to manage risk, the Group Scheme’s investment strategy is designed to closely align movements in the Group Scheme’s assets to
that of its liabilities, whilst maintaining an appropriate level of expected return. To help the Trustee Board to monitor, review and assess
investment matters, the Investment and Funding Committee (the ‘IFC’), which consists of representatives from the Trustee Board and
the Group, meets on a quarterly basis throughout the year.
The Group Scheme exposes the Group to risks, such as longevity risk, currency risk, inflation risk, interest rate risk and investment risk. As the
Group Scheme’s obligation is to provide lifetime pension benefits to members upon retirement, increases in life expectancy will result in an
increase in the Group Scheme’s liabilities. Other assumptions used to value the defined benefit obligation are also uncertain.
The Group Scheme deficit recovery plan agreed with the Trustee Board is considered a minimum funding requirement as described in IFRIC 14
IAS 19 – the Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction. The Group has an unconditional right to a
return of any surplus in a run-off scenario.
The assets in the Group Scheme (apart from the cash held) are nearly all Level 2 instruments under the fair value hierarchy. All Level 2 assets
are held in daily traded pooled funds for which daily bid prices are available, and the valuation process for these assets involves minimal
judgement and is agreed by reference to independent third parties. The Group Scheme does not hold any investment in DS Smith securities.
The largest defined contribution arrangement operated by the Group is in the UK. The UK defined contribution scheme is a trust-based
arrangement offering members a range of investments. All assets are held independently from the Group. The Group also operates a small
unfunded arrangement in the UK.
Overseas schemes
The countries where the Group operates the most significant defined benefit post-retirement arrangements are:
• France – various mandatory retirement indemnities, post-retirement medical plans and jubilee arrangements (benefits paid to
employees after completion of a certain number of years of service), the majority of which are determined by the applicable Collective
Bargaining Agreement;
• Belgium – liabilities with respect to non-contributory defined benefit and cash balance retirement plans, as well as unfunded jubilee
arrangements. The defined benefit plan is closed to new employees, although active members continue to accrue benefits;
• Switzerland – a contributory defined benefit pension scheme providing pensions and lump sum benefits to members and dependants;
• Italy – mandatory end-of-service lump sum benefits in respect of pre-2007 service;
• Portugal – defined benefit pensions plan with a fund that guarantees a payment of a pension supplement to all retired employees and
pensioners who were receiving pension benefit from the fund on 13 July 2007; and
• Germany – jubilee arrangements and non-contributory defined benefit pension schemes.
In general, local trustees or similar bodies manage the post-retirement and medical plans in accordance with local regulations.
During the year ended 30 April 2021, the US Interstate defined benefit scheme was terminated and settled and the main Netherlands post
retirement benefit scheme liability was settled in full .
Overseas schemes expose the Group to risks such as longevity risk, currency risk, inflation risk, interest rate risk, investment risk, life
expectancy risk and healthcare cost risk. Actions taken by the local regulator, or changes to legislation, could result in stronger local funding
requirements for pension schemes, which could affect the Group’s future cash flow.
FINANCIAL STATEMENTS
25. Employee benefits continued
Movements in the liability for employee benefit plans’ obligations recognised in the consolidated statement of
financial position
Schemes’ liabilities at beginning of the year
Divestments
Interest cost
Service cost recognised in the consolidated income statement
Member contributions
Settlement/curtailment
Pension payments
Unfunded benefits paid
Actuarial losses – financial assumptions
Actuarial gains/(losses) – experience
Actuarial (losses)/gains – demographic
Currency translation
Schemes’ liabilities at end of the year
2021
£m
(1,363)
–
(20)
(5)
(1)
13
50
10
(47)
13
(5)
2
(1,353)
Movements in the fair value of employee benefit plans’ assets recognised in the consolidated statement of
financial position
Schemes’ assets at beginning of the year
Acquisitions
Employer contributions
Member contributions
Interest income
Actuarial gains
Pension payments
Currency translation
Assets utilised in scheme settlement/curtailment
Schemes’ assets at end of the year
Durations and expected payment profile
2021
£m
1,164
–
20
1
18
34
(50)
(1)
(8)
1,178
2020
£m
(1,272)
2
(28)
(7)
(1)
–
53
6
(115)
21
(18)
(4)
(1,363)
2020
£m
1,102
–
20
1
26
66
(53)
2
–
1,164
The following table provides information on the distribution of the timing of expected benefit payments for the Group Scheme:
At 30 April 2021
Projected benefit payments
Within 5
years
£m
212
6 to 10
years
£m
239
11 to 20
years
£m
474
21 to 30
years
£m
353
31 to 40
years
£m
202
41 to 50
years
£m
73
Over 50
years
£m
14
The weighted average duration for the Group Scheme is 16 years.
The Group made agreed contributions of £19m to the Group Scheme in 2020/21 (2019/20: £19m). The Group’s current best estimate of
contributions expected to be made to the Group Scheme in the year ending 30 April 2022 is approximately £19m. A charge over four
UK Packaging properties has been made as security for the unfunded arrangement in the UK, the liability for which totals £7m.
164
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FINANCIAL STATEMENTS
Notes to the consolidated financial statements (continued)
25. Employee benefits continued
Significant actuarial assumptions
Principal actuarial assumptions for the Group Scheme are as follows:
Discount rate for scheme liabilities
Inflation
Pre-retirement pension increases
Future pension increases for pre 30 April 2005 service
Future pension increases for post 30 April 2005 service
2021
2.0%
2.7%
2.2%
2.7%
2.0%
2020
1.6%
1.8%
1.8%
1.9%
1.5%
For other overseas arrangements, the weighted average actuarial assumptions are a discount rate of 1.0% (30 April 2020: 1.0%) and an
inflation rate of 1.7% (30 April 2020: 1.6%).
During the year, the UKSA’s publication on the future of the RPI assumption base had the effect of lowering the RPI assumption by 1% per
annum in the short term and the post-2030 assumption is that the RPI/CPI gap falls to zero. Assumptions regarding future mortality
experience are set based on actuarial advice and in accordance with the relevant standard mortality tables in each country. For the Group
Scheme at 30 April,the mortality base table used is SAPS 3 (year of birth), with CMI 2019 projections with a 1.25% per annum long-term rate of
improvement used for future longevity improvement. At 30 April 2020 the mortality base table used was SAPS 3 (year of birth), with CMI 2019
projections with a 1.25% per annum long-term rate of improvement used for future longevity improvement. As part of the Group Scheme
actuarial valuation exercise the projected life expectancies were as follows:
Life expectancy at age 65
Member currently aged 65
Member currently aged 45
Sensitivity analysis
2021
2020
Male
Female
Male
Female
21.2
22.2
23.4
25.0
21.2
22.3
23.4
25.0
The sensitivity of the liabilities in the Group Scheme to each significant actuarial assumption is summarised in the following table, showing
the impact on the defined benefit obligation if each assumption is altered by the amount specified in isolation, whilst assuming that all other
variables remain the same. In practice, this approach is not necessarily realistic since some assumptions are related. This sensitivity analysis
applies to the defined benefit obligation only and not to the net defined benefit pension liability, the measurement of which depends on a
number of factors including the fair value of plan assets.
0.5% decrease in discount rate
0.5% increase in inflation
1 year increase in life expectancy
Expense recognised in the consolidated income statement
Post-retirement benefits current service cost
Total service cost
Net interest cost on net pension liability
Pension Protection Fund levy
Employment benefit net finance expense
Total expense recognised in the consolidated income statement
Items recognised in other comprehensive income
Remeasurement of defined benefit obligation
Return on plan assets excluding amounts included in employment benefit net finance expense
Total losses recognised in other comprehensive income
166
166
Increase in
pension liability
£m
(100)
(67)
(50)
Total
2021
£m
(5)
(5)
(2)
(1)
(3)
(8)
(39)
34
(5)
2020
£m
(7)
(7)
(2)
(1)
(3)
(10)
(112)
66
(46)
Notes to the consolidated financial statements (continued)
25. Employee benefits continued
Significant actuarial assumptions
Principal actuarial assumptions for the Group Scheme are as follows:
Discount rate for scheme liabilities
Inflation
Pre-retirement pension increases
Future pension increases for pre 30 April 2005 service
Future pension increases for post 30 April 2005 service
For other overseas arrangements, the weighted average actuarial assumptions are a discount rate of 1.0% (30 April 2020: 1.0%) and an
inflation rate of 1.7% (30 April 2020: 1.6%).
During the year, the UKSA’s publication on the future of the RPI assumption base had the effect of lowering the RPI assumption by 1% per
annum in the short term and the post-2030 assumption is that the RPI/CPI gap falls to zero. Assumptions regarding future mortality
experience are set based on actuarial advice and in accordance with the relevant standard mortality tables in each country. For the Group
Scheme at 30 April,the mortality base table used is SAPS 3 (year of birth), with CMI 2019 projections with a 1.25% per annum long-term rate of
improvement used for future longevity improvement. At 30 April 2020 the mortality base table used was SAPS 3 (year of birth), with CMI 2019
projections with a 1.25% per annum long-term rate of improvement used for future longevity improvement. As part of the Group Scheme
actuarial valuation exercise the projected life expectancies were as follows:
2021
2020
Male
Female
Male
Female
21.2
22.2
23.4
25.0
21.2
22.3
23.4
25.0
Life expectancy at age 65
Member currently aged 65
Member currently aged 45
Sensitivity analysis
The sensitivity of the liabilities in the Group Scheme to each significant actuarial assumption is summarised in the following table, showing
the impact on the defined benefit obligation if each assumption is altered by the amount specified in isolation, whilst assuming that all other
variables remain the same. In practice, this approach is not necessarily realistic since some assumptions are related. This sensitivity analysis
applies to the defined benefit obligation only and not to the net defined benefit pension liability, the measurement of which depends on a
number of factors including the fair value of plan assets.
0.5% decrease in discount rate
0.5% increase in inflation
1 year increase in life expectancy
Expense recognised in the consolidated income statement
Post-retirement benefits current service cost
Total service cost
Net interest cost on net pension liability
Pension Protection Fund levy
Employment benefit net finance expense
Total expense recognised in the consolidated income statement
Items recognised in other comprehensive income
Remeasurement of defined benefit obligation
Return on plan assets excluding amounts included in employment benefit net finance expense
Total losses recognised in other comprehensive income
2021
2.0%
2.7%
2.2%
2.7%
2.0%
2020
1.6%
1.8%
1.8%
1.9%
1.5%
Increase in
pension liability
£m
(100)
(67)
(50)
Total
2021
£m
(5)
(5)
(2)
(1)
(3)
(8)
(39)
34
(5)
2020
£m
(7)
(7)
(2)
(1)
(3)
(10)
(112)
66
(46)
FINANCIAL STATEMENTS
26. Share-based payment expense
The Group’s share-based payment arrangements are as follows:
(i) A Performance Share Plan (PSP). Awards under the PSP normally become exercisable after three years subject to remaining in service
and the satisfaction of performance conditions measured over the three financial years commencing with the year of grant. Awards have
been made under the PSP annually since 2008, originally based on the following performance measures, in the proportions shown below:
i.
the Company’s total shareholder return (TSR) compared to the constituents of the Industrial Goods and Services Supersector within
the FTSE 250;
ii. average adjusted earnings per share (EPS); and
iii. average adjusted return on average capital employed (ROACE).
Awards between 2013 and 2014 are subject to three performance measures:
i. 50% of each award based on a TSR component;
ii. 25% of each award based on average adjusted EPS; and
iii. 25% of each award based on average adjusted ROACE.
Awards made between 2015 and 2016 are subject to three performance measures:
i. 33.3% of each award based on a TSR component;
ii. 33.3% of each award based on average adjusted EPS; and
iii. 33.3% of each award based on average adjusted ROACE.
Awards made in 2017, 2018 and 2019, are subject to either two performance measures or to three performance measures:
(a) Two performance measures:
i. 50% of each award based on average adjusted EPS; and
ii. 50% of each award based on average adjusted ROACE.
(b) Three performance measures:
i. 33.3% of each award based on a TSR component;
ii. 33.3% of each award based on average adjusted EPS; and
iii. 33.3% of each award based on average adjusted ROACE.
Awards made in 2020 are subject to either two performance measures, or to three performance measures:
(a) Two performance measures:
i. 50% of each award based on adjusted EPS; and
ii. 50% of each award based on adjusted ROACE.
(b) Three performance measures:
i. 33.3% of each award based on a TSR component;
ii. 33.3% of each award based on adjusted EPS; and
iii. 33.3% of each award based on adjusted ROACE.
The awards granted in 2013, 2014,2016 and 2017 have vested but have not yet been fully exercised. The awards granted in 2012 and
2015 have vested and have been fully exercised.
(ii) A Deferred Share Bonus Plan (DSBP) is operated for Executive Directors and, from 2012/13, for senior executives. Shares awarded
under the Plan will vest automatically if the Director or senior executive is still employed by the Company three years after the grant
of the award.
The 2012, 2014, 2015, 2016 and 2017 awards have vested, but have not yet been fully exercised.
(iii) A long-term incentive plan (LTIP) is operated for selected senior managers with the first award made in 2013/14. The award will vest
after three years subject to remaining in service and the satisfaction of performance conditions measured over the three financial years
commencing with the year of grant. The performance conditions of the award are based 50% on average adjusted EPS and 50% on
average adjusted ROACE. The last award under this Plan was the 2016/17 award granted in July 2016.
166
Annual Report 2021 dssmith.com 167
Annual Report 2021 dssmith.com 167
FINANCIAL STATEMENTS
Notes to the consolidated financial statements (continued)
26. Share-based payment expense continued
(iv) An international Sharesave Plan was introduced in January 2014 with further invitations being made in January 2016, January 2017, January
2018, January 2019.and February 2021. All employees of the Company and participating subsidiaries were eligible to participate in this Plan
or an HMRC approved UK Sharesave Plan. Options are granted to participants who have contracted to save up to a maximum of £250 (or
local currency equivalent) across all open invitations per month over a period of three years, at a discount of up to 20% to the average
closing mid-market price of a DS Smith Plc ordinary share on the three dealing days prior to invitation. Options cannot normally be exercised
until a minimum of three years has elapsed. In common with most plans of this type there are no performance conditions applicable to
options granted under this Plan. The provisions of this Plan are subject to minor country specific variances. In France, the option price is
discounted by up to 20% of the 20-day average up to the day before grant date. A standard US Stock Purchase Plan, which received
shareholder approval at the 2014 AGM, was also introduced in January 2014 and subsequent invitations were made in 2016, 2017, 2018,
2019 and 2021. US employees of the Group are eligible to participate in this Plan. Options are granted to participants who have contracted
to save up to the local currency equivalent of £250 per month over a period of two years at a discount of up to 15% to the average closing
mid-market price of a DS Smith Plc ordinary share on the day before grant. Options cannot normally be exercised until a minimum of two
years has elapsed.
Further details of the awards described in (i), (ii), and (iv) are set out in the Remuneration Committee report.
Options outstanding and exercisable under share arrangements at 30 April 2021 were:
Performance Share Plan
Deferred Share Bonus Plan
Sharesave Plan
Options outstanding
Options exercisable
Number
of shares
8,826,470
4,662,568
10,266,779
Option price
range (p)
Nil
Nil
269–412
Weighted
average
remaining
contract life
(years)
1.7
0.8
0.8
Weighted
average
exercise
price (p)
Nil
Nil
306.9
Number
exercisable
610,320
302,930
877,890
Weighted
average
exercise
price (p)
Nil
Nil
411.6
The effect on earnings per share of potentially dilutive shares issuable under share-based payment arrangements is shown in note 8.
Movements in the number of share options outstanding and their related weighted average exercise prices are as follows:
Performance
Share Plan
Deferred Share
Bonus Plan
Sharesave
plan
Long-term
incentive plan
Weighted
average
exercise
price (p)
Nil
Nil
Nil
Nil
Nil
Nil
Weighted
average
exercise
price (p)
Nil
Nil
Nil
Nil
Nil
Nil
Options
(‘000s)
7,634
3,757
(525)
(2,040)
8,826
610
Weighted
average
exercise
price (p)
313.8
325.0
370.5
331.8
306.9
411.6
Options
(‘000s)
10,593
4,972
(808)
(4,490)
10,267
878
Weighted
average
exercise
price (p)
Nil
Nil
Nil
Nil
Nil
Nil
Options
(‘000s)
1,790
3,267
(151)
(243)
4,663
303
Options
(£‘000s)
–
–
–
–
–
–
Performance
Share Plan
Deferred Share
Bonus plan
Sharesave
plan
Long-term
incentive plan
Weighted
average
exercise
price (p)
Nil
Nil
Nil
Nil
Nil
Nil
Weighted
average
exercise
price (p)
Nil
Nil
Nil
Nil
Nil
Nil
Options
(‘000s)
6,456
3,269
(790)
(1,301)
7,634
430
Weighted
average
exercise
price (p)
314.3
348.6
303.7
325.3
313.8
333.0
Options
(‘000s)
12,841
1
(866)
(1,383)
10,593
3,905
Weighted
average
exercise
price (p)
Nil
Nil
Nil
Nil
Nil
Nil
Options
(‘000s)
1,286
785
(251)
(30)
1,790
297
Options
(£‘000s)
1,554
–
(952)
(602)
–
–
2021
At 1 May 2020
Granted
Exercised
Lapsed
At 30 April 2021
Exercisable at 30 April 2021
2020
At 1 May 2019
Granted
Exercised
Lapsed
At 30 April 2020
Exercisable at 30 April 2020
168
168
26. Share-based payment expense continued
26. Share-based payment expense continued
The average share price of the Company during the financial year was 337.7 pence (2019/20: 344.5 pence).
The fair value of awards granted in the period relates to the PSP and DSBP schemes.
The fair value of the PSP award granted during the year, determined using the stochastic (Monte Carlo) valuation model, was £8.3m. The
significant inputs into the model were: a share price of 273.0p for the PSP at the grant date; the exercise prices shown above; an expected
volatility of the share price of 32.6%; the scheme life disclosed above; a risk-free interest rate of -0.10% and an expected dividend yield of nil.
The volatility of share price returns is calculated over the period of time commensurate with the remainder of the performance period
immediately prior to the date of grant.
The total charge for the year relating to share-based payments recognised as personnel expenses was £9m (2019/20: £5m).
FINANCIAL STATEMENTS
27. Cash generated from operations
Continuing operations
Profit for the year
Adjustments for:
Pre-tax integration costs and other adjusting items
Amortisation of intangible assets; acquisitions and divestments
Cash outflow for adjusting items
Depreciation
Loss/(profit) on sale of non-current assets
Share of profit of equity accounted investments, net of tax
Employment benefit net finance expense
Share-based payment expense
Finance income
Finance costs
Other non-cash items
Income tax expense
Change in provisions
Change in employee benefits
Cash generation before working capital movement
Changes in:
Inventories
Trade and other receivables
Trade and other payables
Working capital movement
Cash generated from continuing operations
2021
£m
182
44
147
(48)
304
2
(5)
3
9
(1)
83
(6)
49
(9)
(32)
722
(28)
(75)
276
173
895
2020
£m
290
58
147
(53)
296
(2)
(7)
3
5
(4)
95
–
78
(21)
(19)
866
45
86
(161)
(30)
836
Annual Report 2021 dssmith.com 169
Annual Report 2021 dssmith.com 169
Notes to the consolidated financial statements (continued)
(iv) An international Sharesave Plan was introduced in January 2014 with further invitations being made in January 2016, January 2017, January
2018, January 2019.and February 2021. All employees of the Company and participating subsidiaries were eligible to participate in this Plan
or an HMRC approved UK Sharesave Plan. Options are granted to participants who have contracted to save up to a maximum of £250 (or
local currency equivalent) across all open invitations per month over a period of three years, at a discount of up to 20% to the average
closing mid-market price of a DS Smith Plc ordinary share on the three dealing days prior to invitation. Options cannot normally be exercised
until a minimum of three years has elapsed. In common with most plans of this type there are no performance conditions applicable to
options granted under this Plan. The provisions of this Plan are subject to minor country specific variances. In France, the option price is
discounted by up to 20% of the 20-day average up to the day before grant date. A standard US Stock Purchase Plan, which received
shareholder approval at the 2014 AGM, was also introduced in January 2014 and subsequent invitations were made in 2016, 2017, 2018,
2019 and 2021. US employees of the Group are eligible to participate in this Plan. Options are granted to participants who have contracted
to save up to the local currency equivalent of £250 per month over a period of two years at a discount of up to 15% to the average closing
mid-market price of a DS Smith Plc ordinary share on the day before grant. Options cannot normally be exercised until a minimum of two
years has elapsed.
Further details of the awards described in (i), (ii), and (iv) are set out in the Remuneration Committee report.
Options outstanding and exercisable under share arrangements at 30 April 2021 were:
Options outstanding
Options exercisable
Weighted
average
remaining
Number
of shares
Option price
contract life
range (p)
(years)
8,826,470
4,662,568
10,266,779
Nil
Nil
269–412
1.7
0.8
0.8
Weighted
average
exercise
price (p)
Nil
Nil
306.9
Number
exercisable
610,320
302,930
877,890
Weighted
average
exercise
price (p)
Nil
Nil
411.6
The effect on earnings per share of potentially dilutive shares issuable under share-based payment arrangements is shown in note 8.
Movements in the number of share options outstanding and their related weighted average exercise prices are as follows:
Performance
Share Plan
Deferred Share
Bonus Plan
Sharesave
plan
Long-term
incentive plan
Weighted
average
exercise
price (p)
Weighted
average
exercise
price (p)
Options
(‘000s)
7,634
3,757
(525)
(2,040)
8,826
610
Options
(‘000s)
6,456
3,269
(790)
(1,301)
7,634
430
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Weighted
average
exercise
price (p)
313.8
325.0
370.5
331.8
306.9
411.6
Options
(‘000s)
1,790
3,267
(151)
(243)
4,663
303
Options
(‘000s)
10,593
4,972
(808)
(4,490)
10,267
878
Weighted
average
exercise
price (p)
314.3
348.6
303.7
325.3
313.8
333.0
Options
(‘000s)
1,286
785
(251)
(30)
1,790
297
Options
(‘000s)
12,841
1
(866)
(1,383)
10,593
3,905
Weighted
average
exercise
price (p)
Options
(£‘000s)
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Weighted
average
exercise
price (p)
–
–
–
–
–
–
–
–
–
Options
(£‘000s)
1,554
(952)
(602)
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Performance
Share Plan
Deferred Share
Bonus plan
Sharesave
plan
Long-term
incentive plan
Weighted
average
exercise
price (p)
Weighted
average
exercise
price (p)
Performance Share Plan
Deferred Share Bonus Plan
Sharesave Plan
2021
At 1 May 2020
Granted
Exercised
Lapsed
At 30 April 2021
Exercisable at 30 April 2021
2020
At 1 May 2019
Granted
Exercised
Lapsed
At 30 April 2020
Exercisable at 30 April 2020
168
FINANCIAL STATEMENTS
Notes to the consolidated financial statements (continued)
28. Reconciliation of net cash flow to movement in net debt
Profit for the year
Income tax expense
Share of profit of equity accounted investments, net of tax
Net financing costs
Amortisation of intangible assets; acquisitions and divestments
Pre-tax integration costs and other adjusting items
Adjusted operating profit
Depreciation
Adjusted EBITDA
Working capital movement
Change in provisions
Change in employee benefits
Other
Cash generated from operations before adjusting cash items
Capital expenditure
Proceeds from sale of property, plant and equipment and other investments
Tax paid
Net interest paid
Free cash flow
Cash outflow for adjusting items
Dividends paid
Acquisition of subsidiary businesses, net of cash and cash equivalents
Divestment of discontinued operation, net of cash and cash equivalents
Divestment of subsidiary businesses, net of cash and cash equivalents
Other
Net cash flow
Proceeds from issue of share capital
Borrowings and lease liabilities divested
Net movement on debt
Foreign exchange, fair value and other non-cash movements (note 18)
Net debt movement – continuing operations
Net debt movement – discontinued operation (note 30(b))
Opening net debt
Transition to IFRS 16
Closing net debt – reported basis
2021
£m
182
49
(5)
85
147
44
502
304
806
173
(9)
(32)
5
943
(331)
8
(66)
(68)
486
(48)
–
(90)
–
16
2
366
3
3
372
(56)
316
(10)
(2,101)
–
(1,795)
2020
£m
290
78
(7)
94
147
58
660
296
956
(30)
(21)
(19)
3
889
(376)
12
(94)
(77)
354
(53)
(222)
(4)
422
62
2
561
2
2
565
(118)
447
(29)
(2,277)
(242)
(2,101)
Adjusted operating profit, adjusted EBITDA, free cash flow, and net debt are non-GAAP measures not defined by IFRS. Further detail on the use
of non-GAAP measures is included in note 32.
29. Capital commitments and contingencies
At 30 April 2021, the Group had committed to incur capital expenditure of £61m (30 April 2020: £67m).
The Group is not subject to material litigation, but has a number of contingent liabilities that arise in the ordinary course of business on
behalf of trading subsidiaries including, inter alia, intellectual property disputes and regulatory enquiries in areas such as health and safety,
environmental, and anti-trust. No losses are anticipated to arise on these contingent liabilities.
170
170
FINANCIAL STATEMENTS
30. Acquisitions and divestments
(a) 2020/21
On 26 June 2020, the purchase of a further 10% stake in Interstate Resources was completed after the exercise of a portion of the put option
held by the sellers. Of the £106m consideration, £82m was paid in cash, with, by agreement, the remainder deferred to October 2021. The
final 10% stake remains subject to the put option. As a substantial shareholder of the Group, the seller met the definition of a related party
(note 17).
In total, during the year ended 30 April 2021, cash consideration for acquisition of subsidiary businesses, net of cash and cash equivalents, was
£90m, and borrowings acquired, including deposits, were £nil. Apart from the acquisition of the 10% stake in Interstate Resources, the
remaining acquisitions are not material to the Group individually or in aggregate.
On 11 December 2020, the Group sold the New England sheets business in North America. Cash consideration, net of cash and cash
equivalents, was £16m, and leases divested were £3m.
A deferred tax asset of £9m arose in respect of tax losses on the disposal of the Plastics business and has been recognised in
discontinued operations.
(b) Plastics division
On 27 February 2020, the sale of the Group’s Plastics division to Olympus Partners and its affiliate Liqui-Box Holdings was completed.
Plastics principally comprised flexible packaging and dispensing solutions, extruded and injection moulded products and foam products.
The Plastics segment has been classified as a discontinued operation as disclosed in note 1(a)(ii). The consolidated income statement presents the
Plastics segment as a discontinued operation with a single line amount of profit from discontinued operation, net of tax. The consolidated
statement of cash flows presents a single amount of net cash flow from discontinued operations.
Consolidated income statement – discontinued operations
Revenue
Operating costs
Operating profit before amortisation and adjusting items
Amortisation of intangible assets
Profit on disposal before tax
Other pre-tax adjusting items
Net finance cost
Profit before income tax
Income tax credit/(expense)
Profit for the year from discontinued operations
Year ended
30 April 2021
£m
–
–
–
–
3
–
–
3
9
12
Year ended
30 April 2020
£m
281
(259)
22
(2)
232
(3)
(1)
248
(11)
237
2021
£m
182
49
(5)
85
147
44
502
304
806
173
(9)
(32)
5
943
(331)
8
(66)
(68)
486
(48)
(90)
–
–
3
3
16
2
366
372
(56)
316
(10)
2020
£m
290
78
(7)
94
147
58
660
296
956
(30)
(21)
(19)
3
889
(376)
12
(94)
(77)
354
(53)
(222)
(4)
422
62
2
561
2
2
565
(118)
447
(29)
Adjusted operating profit, adjusted EBITDA, free cash flow, and net debt are non-GAAP measures not defined by IFRS. Further detail on the use
Basic earnings per share from discontinued operations
(2,101)
–
(1,795)
(2,277)
(242)
(2,101)
A deferred tax asset of £9m in respect of tax losses arising on the disposal of the Plastics business and £9m has been recognised in
discontinued operations. The income tax credit/(expense) is net of a tax credit on adjusting items of £nil (30 April 2020: £2m) arising on the sale of the
discontinued operation.
At 30 April 2021, the Group had committed to incur capital expenditure of £61m (30 April 2020: £67m).
The Group is not subject to material litigation, but has a number of contingent liabilities that arise in the ordinary course of business on
behalf of trading subsidiaries including, inter alia, intellectual property disputes and regulatory enquiries in areas such as health and safety,
environmental, and anti-trust. No losses are anticipated to arise on these contingent liabilities.
Profit from discontinued operations attributable to ordinary shareholders
Weighted average number of ordinary shares
Basic earnings per share
Diluted earnings per share from discontinued operations
Profit from discontinued operations attributable to ordinary shareholders
Weighted average number of ordinary shares
Potentially dilutive shares issuable under share-based payment arrangement
Weighted average number of ordinary shares (diluted)
Diluted earnings per share
2021
£12m
1,371m
0.9p
2021
£12m
1,371m
6m
1,377m
0.9p
2020
£237m
1,371m
17.3p
2020
£237m
1,371m
7m
1,378m
17.2p
The number of shares excludes the weighted average number of the Company’s own shares held as treasury shares during the year of 1m (2019/20: 1m).
Annual Report 2021 dssmith.com 171
Annual Report 2021 dssmith.com 171
Notes to the consolidated financial statements (continued)
28. Reconciliation of net cash flow to movement in net debt
Profit for the year
Income tax expense
Net financing costs
Share of profit of equity accounted investments, net of tax
Amortisation of intangible assets; acquisitions and divestments
Pre-tax integration costs and other adjusting items
Adjusted operating profit
Depreciation
Adjusted EBITDA
Working capital movement
Change in provisions
Change in employee benefits
Other
Capital expenditure
Tax paid
Net interest paid
Free cash flow
Cash outflow for adjusting items
Dividends paid
Cash generated from operations before adjusting cash items
Proceeds from sale of property, plant and equipment and other investments
Acquisition of subsidiary businesses, net of cash and cash equivalents
Divestment of discontinued operation, net of cash and cash equivalents
Divestment of subsidiary businesses, net of cash and cash equivalents
Other
Net cash flow
Proceeds from issue of share capital
Borrowings and lease liabilities divested
Net movement on debt
Foreign exchange, fair value and other non-cash movements (note 18)
Net debt movement – continuing operations
Net debt movement – discontinued operation (note 30(b))
Opening net debt
Transition to IFRS 16
Closing net debt – reported basis
of non-GAAP measures is included in note 32.
29. Capital commitments and contingencies
170
FINANCIAL STATEMENTS
Notes to the consolidated financial statements (continued)
30. Acquisitions and divestments continued
(b) Plastics division (continued)
Adjusted earnings per share from discontinued operations
Further detail about the use of non-GAAP performance measures is given in note 32.
A reconciliation of basic to adjusted earnings per share from discontinued operations is as follows:
Basic earnings from discontinued operations
Add back:
Amortisation of intangible assets, before tax of £nil
Adjusting items, before tax
Tax on adjusting items and adjusting tax items
Adjusted earnings from discontinued operations
Cash flows used in discontinued operations
Net cash used in operating activities
Net cash used in investing activities
Net cash flows for the year
Effect of disposal on the financial position of the Group
2021
Basic –
pence
per share
0.9p
–
(0.2p)
(0.7p)
–
Diluted –
pence
per share
0.9p
–
(0.2p)
(0.7p)
–
£m
12
–
(3)
(9)
–
2020
Basic –
pence
per share
17.3p
0.1p
(16.6p)
0.1p
0.9p
£m
237
2
(229)
2
12
Diluted –
pence
per share
17.2p
0.1p
(16.6p)
0.1p
0.8p
Year ended
30 April 2021
£m
–
(10)
(10)
Year ended
30 April 2020
£m
(18)
(11)
(29)
Intangible assets
Property, plant and equipment
Right-of-use assets
Deferred tax assets
Inventories
Income tax receivable
Trade and other receivables
Cash and cash equivalents
Employee benefits
Trade and other payables
Lease liabilities
Deferred tax liabilities
Income tax liabilities
Net assets disposed
Consideration received, satisfied in cash
Reclassification from translation reserve to income statement arising on divestment
Transaction and separation costs
Profit on disposal before tax
Tax charge on profit on disposal
Profit on disposal after tax
Cash inflow on disposal
Consideration received, satisfied in cash
Cash and cash equivalents divested
Transaction costs paid
Net cash inflow
172
172
2020
£m
68
74
18
4
33
2
91
6
(2)
(81)
(18)
(5)
(15)
175
436
30
(59)
232
(2)
230
2020
£m
436
(6)
(8)
422
Notes to the consolidated financial statements (continued)
30. Acquisitions and divestments continued
(b) Plastics division (continued)
Adjusted earnings per share from discontinued operations
Further detail about the use of non-GAAP performance measures is given in note 32.
A reconciliation of basic to adjusted earnings per share from discontinued operations is as follows:
Basic earnings from discontinued operations
Add back:
Amortisation of intangible assets, before tax of £nil
Adjusting items, before tax
Tax on adjusting items and adjusting tax items
Adjusted earnings from discontinued operations
Cash flows used in discontinued operations
Net cash used in operating activities
Net cash used in investing activities
Net cash flows for the year
Effect of disposal on the financial position of the Group
2021
Basic –
pence
per share
0.9p
Diluted –
pence
per share
0.9p
(0.2p)
(0.7p)
(0.2p)
(0.7p)
–
–
–
–
£m
12
(3)
(9)
–
–
2020
Basic –
pence
per share
17.3p
0.1p
0.1p
0.9p
£m
237
2
2
12
Diluted –
pence
per share
17.2p
0.1p
0.1p
0.8p
(229)
(16.6p)
(16.6p)
Year ended
Year ended
30 April 2021
30 April 2020
£m
–
(10)
(10)
Consideration received, satisfied in cash
Reclassification from translation reserve to income statement arising on divestment
Intangible assets
Property, plant and equipment
Right-of-use assets
Deferred tax assets
Inventories
Income tax receivable
Trade and other receivables
Cash and cash equivalents
Employee benefits
Trade and other payables
Lease liabilities
Deferred tax liabilities
Income tax liabilities
Net assets disposed
Transaction and separation costs
Profit on disposal before tax
Tax charge on profit on disposal
Profit on disposal after tax
Cash inflow on disposal
Consideration received, satisfied in cash
Cash and cash equivalents divested
Transaction costs paid
Net cash inflow
172
£m
(18)
(11)
(29)
2020
£m
68
74
18
4
33
2
91
6
(2)
(81)
(18)
(5)
(15)
175
436
30
(59)
232
(2)
230
2020
£m
436
(6)
(8)
422
FINANCIAL STATEMENTS
30. Acquisitions and divestments continued
(c) Other 2019/20 acquisitions and divestments
In the year ended 30 April 2020, half of the put option was exercised by the sellers of Interstate Resources, for a further 10% stake in
Interstate Resources for £106m.
In June 2019, the Group completed the remedy disposals required as part of the acquisition of Europac for €73m. Cash consideration received,
net of transaction costs, was £62m, and including net debt disposed of, the total impact on net debt from disposals was £64m. Acquisition of
subsidiary businesses, net of cash and cash equivalents of £4m in the statement of cash flows relates to completion accounts adjustments on
prior year acquisitions. Neither the disposals or the acquisition adjustments were material to the Group individually or in aggregate.
(c) Acquisition related costs
The Group incurred acquisition related costs of £2m (2019/20: £10m), primarily related to professional advisory, legal and consultancy fees and
contractual deferred consideration payments on prior year acquisitions.
31. Related parties
Identity of related parties
In the normal course of business, the Group undertakes a wide variety of transactions between its subsidiaries and equity accounted
investments.
The key management personnel of the Company comprise the Chairman, Executive Directors and non-Executive Directors. The compensation
of key management personnel can be found in the single total figure remuneration table in the Remuneration Committee report. Certain key
management personnel also participate in the Group’s share-based incentive programme (note 26). Included within the share-based payment
expense, and detailed in the Remuneration Committee report, is a charge of £1m (2019/20: £1m) relating to key management personnel.
Transactions with pension trustees are disclosed in note 25.
Other related party transactions
Sales to equity accounted investees
Sales to other investees
Purchases from equity accounted investees
Purchases from other investees
2021
£m
16
6
18
5
2020
£m
6
4
4
8
32. Non-GAAP performance measures
The Group presents reported and adjusted financial information in order to provide shareholders with additional information to further
understand the Group’s operational performance and financial position.
The principal adjustments to financial information are made to exclude the effects of adjusting items (refer to note 4) and amortisation.
Total reported financial information represents the Group’s overall performance and financial position, but can contain significant unusual
or non-operational items that may obscure understanding of the key trends and position. These unusual or non-operational items include
business disposals, restructuring and optimisation project costs, acquisition-related and integration costs, and impairments. Restructuring
and optimisation items treated as adjusting items are major programmes usually spanning more than one year, with uneven impact on the
profit and loss for those years affected. Other adjusting items, such as business disposals, impairments, integration and acquisition costs,
are by nature either highly variable or can also have a similar distorting effect. Therefore, the Directors consider that presenting non-GAAP
measures which exclude adjusting items enables comparability of the recurring core business, complementing the IFRS measures presented.
Amortisation relates primarily to customer contracts and relationships and infrastructure optimisation projects arising from or as a result of
business combinations. Significant costs are incurred in maintaining, developing and increasing the value of such intangibles, costs which are
charged in determining adjusted profit. Exclusion of amortisation remedies this double count as well as, in the case of customer contracts and
relationships, providing comparability over the accounting treatment of customer contracts and relationships arising from the acquisition of
businesses and those generated internally.
The Group’s key non-GAAP measures are used both internally and externally to evaluate business performance against the Group’s KPIs
and banking and debt covenants, as a key constituent of the Group’s planning process, as well as comprising targets against which
compensation is determined.
Certain non-GAAP performance measures can be, and are, reconciled to information presented in the financial statements. Other financial
key performance measures are calculated using information which is not presented in the financial statements and is based on, for example,
average 12-month balances or average exchange rates.
Annual Report 2021 dssmith.com 173
Annual Report 2021 dssmith.com 173
FINANCIAL STATEMENTS
Notes to the consolidated financial statements (continued)
32. Non-GAAP performance measures continued
Unlike other of the Group’s non-GAAP performance measures, net debt and net debt/EBITDA remain calculated under the previous standard,
IAS 17 Leases, because they are calculated in accordance with the Group’s banking covenant requirements which remain on the previous GAAP
basis. As such, for net debt and net debt/EBITDA, the reconciliation for the non-GAAP performance measure below has been expanded
to show the calculation to return the non-GAAP performance measure to the IAS 17 basis.
Key non-GAAP performance measures
The key non-GAAP performance measures used by the Group and their calculation methods are as follows:
Adjusted operating profit
Adjusted operating profit is operating profit excluding the pre-tax effects of both amortisation and adjusting items. Adjusting items include
business divestment gains and losses, restructuring and optimisation costs, acquisition related and integration costs and impairments.
A reconciliation between reported and adjusted operating profit is set out on the face of the consolidated income statement.
Operating profit before adjusting items
A reconciliation between operating profit and operating profit before adjusting items is set out on the face of the consolidated
income statement.
Other similar profit measures before adjusting items are quoted, such as profit before income tax and adjusting items, and are directly derived
from the consolidated income statement, from which they can be directly reconciled.
Adjusted EBITDA
Earnings before interest, tax, depreciation and amortisation (Adjusted EBITDA) is adjusted operating profit excluding depreciation. A reconciliation
from adjusted operating profit to adjusted EBITDA is provided in note 28.
Adjusted earnings per share
Adjusted earnings per share is basic earnings per share adjusted to exclude the post-tax effects of adjusting items and amortisation. Adjusted
earnings per share is a key performance measure for management long-term remuneration and is widely used by the Group’s shareholders.
A reconciliation between basic and adjusted earnings per share is provided in note 8.
Return on sales
Return on sales is adjusted operating profit measured as a percentage of revenue. Return on sales is used to measure the value we deliver to
customers and the Group’s ability to charge for that value.
Adjusted operating profit
Revenue
Return on sales
2021
2020
£m
£m
502
660
5,976
6,043
8.4% 10.9%
Adjusted return on average capital employed (ROACE)
ROACE is the last 12 months’ adjusted operating profit as a percentage of the average monthly capital employed over the previous 12 month
period. Capital employed is the sum of property, plant and equipment, right-of-use assets, goodwill and intangible assets, working capital,
capital debtors/creditors, provisions, biological assets and assets/liabilities held for sale. Assets and liabilities relating to discontinued
operations are excluded.
Capital employed at 30 April
Currency, inter-month and acquisition/divestment movements
Last 12 months’ average capital employed
Last 12 months’ adjusted operating profit
Adjusted return on average capital employed
2021
£m
5,728
394
6,122
502
2020
£m
6,010
244
6,254
660
8.2% 10.6%
174
174
Notes to the consolidated financial statements (continued)
32. Non-GAAP performance measures continued
Unlike other of the Group’s non-GAAP performance measures, net debt and net debt/EBITDA remain calculated under the previous standard,
IAS 17 Leases, because they are calculated in accordance with the Group’s banking covenant requirements which remain on the previous GAAP
basis. As such, for net debt and net debt/EBITDA, the reconciliation for the non-GAAP performance measure below has been expanded
to show the calculation to return the non-GAAP performance measure to the IAS 17 basis.
The key non-GAAP performance measures used by the Group and their calculation methods are as follows:
Key non-GAAP performance measures
Adjusted operating profit
Adjusted operating profit is operating profit excluding the pre-tax effects of both amortisation and adjusting items. Adjusting items include
business divestment gains and losses, restructuring and optimisation costs, acquisition related and integration costs and impairments.
A reconciliation between reported and adjusted operating profit is set out on the face of the consolidated income statement.
Operating profit before adjusting items
A reconciliation between operating profit and operating profit before adjusting items is set out on the face of the consolidated
Other similar profit measures before adjusting items are quoted, such as profit before income tax and adjusting items, and are directly derived
from the consolidated income statement, from which they can be directly reconciled.
Earnings before interest, tax, depreciation and amortisation (Adjusted EBITDA) is adjusted operating profit excluding depreciation. A reconciliation
from adjusted operating profit to adjusted EBITDA is provided in note 28.
Adjusted earnings per share is basic earnings per share adjusted to exclude the post-tax effects of adjusting items and amortisation. Adjusted
earnings per share is a key performance measure for management long-term remuneration and is widely used by the Group’s shareholders.
A reconciliation between basic and adjusted earnings per share is provided in note 8.
Return on sales
Return on sales is adjusted operating profit measured as a percentage of revenue. Return on sales is used to measure the value we deliver to
customers and the Group’s ability to charge for that value.
income statement.
Adjusted EBITDA
Adjusted earnings per share
Adjusted operating profit
Revenue
Return on sales
Adjusted return on average capital employed (ROACE)
ROACE is the last 12 months’ adjusted operating profit as a percentage of the average monthly capital employed over the previous 12 month
period. Capital employed is the sum of property, plant and equipment, right-of-use assets, goodwill and intangible assets, working capital,
capital debtors/creditors, provisions, biological assets and assets/liabilities held for sale. Assets and liabilities relating to discontinued
operations are excluded.
2021
£m
502
2020
£m
660
5,976
6,043
8.4% 10.9%
2021
£m
5,728
394
6,122
502
2020
£m
6,010
244
6,254
660
8.2% 10.6%
Capital employed at 30 April
Currency, inter-month and acquisition/divestment movements
Last 12 months’ average capital employed
Last 12 months’ adjusted operating profit
Adjusted return on average capital employed
FINANCIAL STATEMENTS
32. Non-GAAP performance measures continued
Net debt and net debt/EBITDA
Net debt is the measure by which the Group assesses its level of overall indebtedness within its financial position. The components of net debt
as they reconcile to the primary financial statements and notes to the accounts are disclosed in note 18.
Net debt/EBITDA is the ratio of net debt to adjusted EBITDA, calculated in accordance with the Group’s banking covenant requirements.
Net debt/EBITDA is considered a key measure of balance sheet strength and financial stability by which the Group assesses its
financial position.
The Group’s banking covenant requirements currently exclude IFRS 16 liabilities from the definition of net debt, as well as requiring that
EBITDA is calculated before the effects of IFRS 16, so an adjustment to the previous IAS 17 basis is made in the calculation.
In calculating the ratio, net debt is stated at average rates as opposed to closing rates, and adjusted EBITDA is adjusted operating profit before
depreciation from the previous 12 month period adjusted for the full year effect of acquisitions and divestments in the period, and to adjust to
an IAS 17 basis.
Net debt – reported basis (see note 18)
IFRS 16 lease liabilities (see note 18)
Adjustment to average rate
Net debt – adjusted basis
Adjusted EBITDA – last 12 months’ reported basis (continuing operations)
Adjust to IAS 17 basis
Acquisition and divestment effects
Adjusted EBITDA – banking covenant basis
Net debt/EBITDA
Free cash flow
2021
£m
1,795
(227)
38
1,606
806
(82)
2
726
2.2x
2020
£m
2,101
(249)
17
1,869
956
(80)
(2)
874
2.1x
Free cash flow is the net movement on debt before cash outflow for adjusting items, dividends paid, acquisition and divestment of subsidiary
businesses (including borrowings acquired), and proceeds from issue of share capital.
A reconciliation from Adjusted EBITDA to free cash flow is set out in note 28.
Cash conversion
Cash conversion is free cash flow, as defined above, adjusted to exclude tax, net interest, growth capital expenditure and pension payments as
a percentage of adjusted operating profit and can be derived directly from note 28, other than growth capital expenditure, which is capital
expenditure necessary for the development or expansion of the business as follows:
Growth capital expenditure
Non-growth capital expenditure
Total capital expenditure (note 28)
Free cash flow (note 28)
Tax paid (note 28)
Net interest paid (note 28)
Growth capital expenditure
Change in employee benefits (note 28)
Adjusted free cash flow
Adjusted operating profit
Cash conversion
2021
£m
100
231
331
486
66
68
100
32
752
502
150%
2020
£m
137
239
376
354
94
77
137
19
681
660
103%
174
Annual Report 2021 dssmith.com 175
Annual Report 2021 dssmith.com 175
FINANCIAL STATEMENTS
Notes to the consolidated financial statements (continued)
32. Non-GAAP performance measures continued
Average working capital to sales
Average working capital to sales measures the level of investment the Group makes in working capital to conduct its operations. It is measured
by comparing the monthly working capital balances for the previous 12 months as a percentage of revenue over the same period. Working
capital is the sum of inventories, trade and other receivables, and trade and other payables, excluding capital and acquisition and divestment
related debtors and creditors.
Inventories (note 15)
Trade and other receivables
Trade and other payables
Inter-month movements and exclusion of capital and acquisition and divestment related items
Last 12 months’ average working capital
Last 12 months’ revenue
Average working capital to sales
Constant currency and organic growth
2021
£m
537
786
(1,669)
236
(110)
5,976
(1.8%)
2020
£m
518
736
(1,419)
195
30
6,043
0.5%
The Group presents commentary on both reported and constant currency revenue and adjusted operating profit comparatives in order
to explain the impact of exchange rates on the Group’s key income statement items. Constant currency comparatives recalculate the prior year
revenue and adjusted operating profit as if they had been generated using the current year exchange rates. In addition, the Group then
separates the incremental effects of acquisitions and disposals made in the current year, and the incremental effects of acquisitions and
disposals made in the previous year, to determine underlying organic growth. The table below shows the calculations:
Reported basis – comparative year ended 30 April 2020
Currency effects
Constant currency basis – comparative year ended 30 April 2020
Prior year acquisitions
Synergies
Organic growth
Reported basis – year ended 30 April 2021
Dividend cover
Dividend cover is adjusted earnings per share divided by the total dividend for the year.
Adjusted earnings per share
Total dividend
Dividend cover
Adjusted
operating
profit
£m
660
4
664
(1)
663
21
(182)
502
Revenue
£m
6,043
20
6,063
(13)
6,050
–
(74)
5,976
2021
24.2p
12.1p
2.0x
2020
33.2p
n/a
n/a
176
176
Notes to the consolidated financial statements (continued)
32. Non-GAAP performance measures continued
Average working capital to sales
33. DS Smith Group companies
The Group’s ultimate parent Company is DS Smith Plc.
Average working capital to sales measures the level of investment the Group makes in working capital to conduct its operations. It is measured
by comparing the monthly working capital balances for the previous 12 months as a percentage of revenue over the same period. Working
capital is the sum of inventories, trade and other receivables, and trade and other payables, excluding capital and acquisition and divestment
Group companies are grouped by the countries in which they are incorporated or registered. Unless otherwise noted, the undertakings below
are wholly-owned and consolidated by DS Smith and the share capital held comprises ordinary or common shares which are held by Group
subsidiaries. Principal companies are identified in orange.
FINANCIAL STATEMENTS
related debtors and creditors.
Inventories (note 15)
Trade and other receivables
Trade and other payables
Last 12 months’ average working capital
Last 12 months’ revenue
Average working capital to sales
Constant currency and organic growth
Inter-month movements and exclusion of capital and acquisition and divestment related items
The Group presents commentary on both reported and constant currency revenue and adjusted operating profit comparatives in order
to explain the impact of exchange rates on the Group’s key income statement items. Constant currency comparatives recalculate the prior year
revenue and adjusted operating profit as if they had been generated using the current year exchange rates. In addition, the Group then
separates the incremental effects of acquisitions and disposals made in the current year, and the incremental effects of acquisitions and
disposals made in the previous year, to determine underlying organic growth. The table below shows the calculations:
Reported basis – comparative year ended 30 April 2020
Constant currency basis – comparative year ended 30 April 2020
Reported basis – year ended 30 April 2021
Currency effects
Prior year acquisitions
Synergies
Organic growth
Dividend cover
Adjusted earnings per share
Total dividend
Dividend cover
Dividend cover is adjusted earnings per share divided by the total dividend for the year.
(1,669)
(1,419)
2021
£m
537
786
236
(110)
5,976
(1.8%)
2020
£m
518
736
195
30
6,043
0.5%
Adjusted
operating
profit
£m
660
4
664
(1)
663
21
(182)
502
Revenue
£m
6,043
20
6,063
(13)
6,050
–
(74)
5,976
2021
24.2p
12.1p
2.0x
2020
33.2p
n/a
n/a
176
Fully owned subsidiaries
Notes
Argentina
Total Marketing Support Argentina SA
Australia
Total Marketing Support Pacific Pty Ltd
Austria
DS Smith Austria Holdings GmbH
DS Smith Packaging Austria
Beteiligungsverwaltungs GmbH
DS Smith Packaging Austria GmbH
DS Smith Packaging South East GmbH
Belgium
DS Smith Packaging Belgium N.V.
DS Smith Packaging Marketing N.V.
Bolivia
Total MarketingSupport Bolivia S.A.
Bosnia & Herzegovina
DS Smith Packaging BH d.o.o. Sarajevo
DS Smith Recycling Bosnia d.o.o.
Brazil
Total Marketing Support Brazil Ltda
Bulgaria
DS Smith Bulgaria S.A.
Canada
TMS Canada 360 Inc.
Chile
Total Marketing Support Chile SpA
China
DS Smith Shanghai Trading Ltd
TMS Shanghai Trading Ltd
Colombia
Total Marketing Support Colombia S A S
Croatia
Bilokalnik-IPA d.d.
DS Smith Belišće Croatia d.o.o.
DS Smith Unijapapir Croatia d.o.o.
Czech Republic
DS Smith Packaging Czech Republic
s.r.o.
DS Smith Triss s.r.o.
Denmark
DS Smith Packaging Denmark A/S
Ecuador
Total Marketing Support Ecuador TM-EC C.L.
Egypt
TMS Egypt LLC
Estonia
DS Smith Packaging Estonia AS
AR1
AU1
AT1
AT1
AT2
AT1
BE1
BE2
BO1
BA1
BA2
BR1
BG1
CA1
CL1
CN1
CN2
CO1
h, HR1
HR2
HR3
CZ1
CZ2
DK1
EC1
EG1
EE1
Finland
DS Smith Packaging Baltic Holding Oy
DS Smith Packaging Finland Oy
DS Smith Packaging Pakkausjaloste Oy
Eastpac Oy
France
DS Smith France
DS Smith Hêtre Blanc
DS Smith Packaging Ales
DS Smith Packaging Anjou
DS Smith Packaging Atlantique
DS Smith Packaging Bretagne
DS Smith Packaging C.E.R.A.
DS Smith Packaging Consumer
DS Smith Packaging Contoire-Hamel
DS Smith Packaging Display and Services
DS Smith Packaging DPF
DS Smith Packaging Durtal
DS Smith Packaging Fegersheim
DS Smith Packaging France
DS Smith Packaging Kaypac
DS Smith Packaging Larousse
DS Smith Packaging Mehun-CIM
DS Smith Packaging Nord Est
DS Smith Packaging Premium
DS Smith Packaging Savoie
DS Smith Packaging Seine Normandie
DS Smith Packaging Sud Est
DS Smith Packaging Sud Ouest
DS Smith Packaging Systems
DS Smith Packaging Velin
DS Smith Packaging Vervins
DS Smith Paper Coullons
DS Smith Paper Kaysersberg
DS Smith Paper Rouen
DS Smith Recycling France
Rowlandson France
Tecnicartón France
Germany
Bretschneider Verpackungen GmbH
Delta Packaging Services GmbH
DS Smith Hamburg Display GmbH
DS Smith Packaging Arenshausen
Mivepa GmbH
DS Smith Packaging Arnstadt GmbH
DS Smith Packaging Beteiligungen GmbH
DS Smith Packaging Deutschland Stiftung
DS Smith Packaging Deutschland Stiftung &
Co KG
DS Smith Paper Deutschland GmbH
Notes
FI1
FI1
FI2
FI1
FR1
FR2
FR3
FR2
FR2
FR4
FR5
FR2
FR6
FR2
FR7
FR8
FR9
FR2
FR10
FR11
FR12
FR1
FR13
FR14
FR15
FR16
FR13
FR17
FR18
FR2
FR19
FR20
FR15
FR21
FR1
FR22
i, DE2
DE6
DE8
DE3
DE1
DE9
DE5
DE9
DE7
DS Smith Recycling Deutschland GmbH
DS Smith Stange B.V. & Co. KG
DS Smith Transport Services GmbH
Gibraltar
DS Smith Finco (IRE) Limited
Greece
DS Smith Cretan Hellas S.A.
DS Smith Hellas S.A.
Guatemala
TMS Global Guatemala, Sociedad Anonima
Honduras
Total Marketing Support Honduras, S.A.
Hong Kong
The Less Packaging Company (Asia) Limited
Hungary
DS Smith Packaging Hungary Kft.
Merpas Hungary Kft.
India
DS Smith Products & Services India
Private Limited
The Less Packaging Company (India)
Private Limited
Total Marketing Support India Private
Limited
Indonesia
PT Total Marketing Support Indonesia
Ireland
David S. Smith (Ireland) Unlimited Company
DS Smith Packaging Ireland Limited
Italy
DS Smith Holding Italia SpA
DS Smith Packaging Italia SpA
DS Smith Paper Italia Srl
DS Smith Recycling Italia Srl
Toscana Ondulati SpA
Japan
Total Marketing Support Japan Ltd
Kazakhstan
Total Marketing Support Kazakhstan
Latvia
SIA DS Smith Packaging Latvia
Lithuania
UAB DS Smith Packaging Lithuania
Luxembourg
DS Smith (Luxembourg) S.à r.l.
DS Smith Perch Luxembourg S.à r.l.
DS Smith Re S.A.
Malaysia
Total Marketing Support (360) Malaysia
Sdn. Bhd.
Notes
DE4
DE9
DE7
GI1
GR1
GR2
GT1
HN1
HK1
HU2
j, HU1
IN1
IN2
IN3
ID1
IE1
IE1
IT3
IT3
IT3
IT2
IT1
JP1
KZ1
LV1
LT1
LU1
LU1
LU1
MY1
Annual Report 2021 dssmith.com 177
Annual Report 2021 dssmith.com 177
FINANCIAL STATEMENTS
Notes to the consolidated financial statements (continued)
33. DS Smith Group companies continued
Fully owned subsidiaries continued
Notes
Mexico
Total Marketing Support 360 Mexico S.A de C.V
Morocco
Tecnicartón Tánger S.a.r.l. AU
Netherlands
David S. Smith (Netherlands) B.V.
DS Smith (Holdings) B.V.
DS Smith Baars B.V.
DS Smith De Hoop B.V.
DS Smith De Hoop Holding B.V.
DS Smith Finance B.V.
DS Smith Hellas Netherlands B.V.
DS Smith Italy B.V.
DS Smith Packaging Almelo B.V.
DS Smith Packaging Barneveld B.V.
DS Smith Packaging Belita B.V.
DS Smith Packaging Holding B.V.
DS Smith Packaging International B.V.
DS Smith Packaging Netherlands B.V.
DS Smith Packaging Tilburg B.V.
DS Smith Recycling Benelux B.V.
DS Smith Recycling Holding B.V.
DS Smith Salm B.V.
DS Smith Toppositie B.V.
Nicaragua
Total Marketing Support Nicaragua, Sociedad
Anonima
Nigeria
Total Marketing Support 360 Nigeria Limited
North Macedonia
DS Smith AD Skopje
Pakistan
TMS Pakistan (Private) Limited
Philippines
Total Marketing Support Philippines, Inc
Poland
DS Smith Packaging sp. z o.o.
DS Smith Polska sp. z o.o.
Portugal
DS Smith Displays P&I, S.A.
DS Smith Energia Viana, S.A.
DS Smith Packaging Madeira, Lda
DS Smith Packaging Portugal, S.A.
DS Smith Paper Viana, S.A.
DS Smith Portugal, SGPS, S.A.
DS Smith Recycling Portugal, S.A.
Lepe – Empresa Portuguesa de Embalagens,
S.A.
Nova DS Smith Embalagem, S.A.
Tecnicartón Portugal Unipessoal Lda
MX1
MA1
NL3
NL3
DE9
NL3
NL3
NL3
NL3
NL3
NL1
NL4
NL3
NL3
NL3
NL2
NL6
NL2
NL2
NL3
NL3
NI1
NG1
f, MK1
PK1
PH1
PL1
PL1
PT3
PT8
PT6
PT4
PT8
PT8
PT9
PT2
PT7
PT1
Romania
DS Smith Packaging Ghimbav S.R.L.
DS Smith Packaging Romania S.R.L.
DS Smith Paper Zarnesti. S.R.L.
Russia
Total Marketing Support Moscow
Serbia
DS Smith Inos Papir Servis d.o.o.
DS Smith Packaging d.o.o. Kruševac
Papir Servis DP d.o.o.
Slovakia
DS Smith Packaging Slovakia s.r.o.
DS Smith Turpak Obaly a.s.
Slovenia
DS Smith Slovenija d.o.o.
South Africa
TMS 360 SA (PTY) Ltd
Spain
Bertako S.L.U.
DS Smith Andorra S.A.
DS Smith Business Services S.L.U.
DS Smith Forestal Spain, S.L.U.
DS Smith Packaging Alcala S.L.U.
DS Smith Packaging Cartogal S.A.
DS Smith Packaging Dicesa S.A.
DS Smith Packaging Galicia S.A.
DS Smith Packaging Holding S.L.U.
DS Smith Packaging Lucena, S.L.
DS Smith Packaging Madrid S.L.
DS Smith Packaging Penedes S.A.U.
DS Smith Recycling Spain S.A.
DS Smith Spain, S.A.
DS Smith TCT S.A.
Tecnicartón, S.L.
Sweden
DS Smith Packaging Sweden AB
DS Smith Packaging Sweden Holding AB
Switzerland
DS Smith Packaging Switzerland AG
Turkey
DS Smith Ambalaj A.Ş.
Total Marketing Support Turkey Baskı
Yönetimi Hizmetleri A.Ş.
Ukraine
Total Marketing Support Ukraine
United Arab Emirates
Total Marketing Support Middle East DMCC
UK
Abbey Corrugated Limited
Ashton Corrugated
Ashton Corrugated (Southern) Limited
Avonbank Paper Disposal Limited
Notes
c, RO1
RO3
b, RO2
RU1
RS1
RS2
RS2
SK1
d, SK2
SI1
ZA1
ES9
ES3
ES3
ES4
ES6
ES10
g, ES5
ES11
ES3
ES7
ES3
ES5
ES2
ES4
ES3
ES8
SE1
SE1
CH1
TR1
TR2
UA1
AE1
ER
ER
ER
ER
Biber Paper Converting Limited
Calara Holding Limited
Conew Limited
Corrugated Products Limited
David S. Smith Nominees Limited
D.W. Plastics (UK) Limited
DS Smith (UK) Limited
DS Smith America (UK) LLP
DS Smith Business Services Limited
DS Smith Corrugated
Packaging Limited
DS Smith Display Holding Limited
DS Smith Dormant Five Limited
DS Smith Euro Finance Limited
DS Smith Europe Limited
DS Smith Finco Limited
DS Smith Haddox Limited
DS Smith Holdings Limited
DS Smith International Limited
DS Smith Italy Limited
DS Smith Logistics Limited
DS Smith Packaging Limited
DS Smith Paper Limited
DS Smith Pension Trustees Limited
DS Smith Perch Limited
DS Smith Recycling UK Limited
DS Smith Roma Limited
DS Smith Sudbrook Limited
DS Smith Supplementary Life Cover
Scheme Limited
DS Smith Ukraine Limited
DSS Eastern Europe Limited
DSS Poznan Limited
DSSH No. 1 Limited
Grovehurst Energy Limited
JDS Holding
Miljoint Limited
Multigraphics Holdings Limited
Multigraphics Limited
Multigraphics Services Limited
Priory Packaging Limited
Reed & Smith Limited
St. Regis International Limited
St. Regis Kemsley Limited
St. Regis Paper Company Limited
The Brand Compliance Company Limited
The Less Packaging Company Limited
TheBannerPeople.Com Limited
TMS Global UK Limited
Total Marketing Support Global Limited
Total Marketing Support Limited
Treforest Mill plc
TRM Packaging Limited
United Shopper Marketing Limited
Notes
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
a, ER
ER
a, ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
178
178
Notes
Notes
Fully owned subsidiaries continued
Notes
Associate entities
Notes
Ownership interest at 30 April 2021
33. DS Smith Group companies continued
FINANCIAL STATEMENTS
Directly held by DS Smith Plc
99.927% ownership interest
99.285% ownership interest
98.89% ownership interest
90% ownership interest
81.39% ownership interest
80% ownership interest
69.788% ownership interest
51% ownership interest
50% ownership interest
49.597% ownership interest
40% ownership interest
a
b
c
d
e
f
g
h
i
j
k
l
m 37.5% ownership interest
n
o
39.58% ownership interest
30% ownership interest
Netherlands
Industriewater Eerbeek B.V.
Stort Doonweg B.V.
Portugal
Companhia Termica Do Serrado A.c.e.
Serbia
Papir Pet d.o.o.
Spain
Cartonajes Cantabria, S.L.
Cartonajes Santander, S.L.
Euskocarton, S.L.
Industria Cartonera Asturiana, S.A.
Ukraine
Private Joint Stock Company “Rubizhanskiy
Kartonno-Tarniy Kombinat”
USA
Philcorr LLC
PhilCorr Vineland LLC
m, NL5
j, NL5
o, PT5
j, RS3
n, ES1
n, ES1
n, ES1
n, ES12
k, UA2
l, US2
l, US2
UK continued
W. Rowlandson & Company Limited
Waddington & Duval Limited
USA
Carolina Graphic Services LLC
Cedarpak LLC
CEMT Holdings Group LLC
Corrugated Container Corporation
Corrugated Container Corporation of
Shenandoah Valley
Corrugated Container Corporation of
Tennessee
Corrugated Supply, LLC
Corrugated Supply, L.P.
DS Smith Creative Solutions Inc.
DS Smith Holdings, Inc.
DS Smith Management Resources, Inc.
DS Smith North America Recycling, LLC
DS Smith North America Shared
Services,LLC
DS Smith Packaging-Holly Springs, LLC
DS Smith Packaging-Lebanon, LLC
DS Smith Packaging-Stream, LLC
Evergreen Community Power LLC
Interstate Container Columbia LLC
Interstate Container New Castle LLC
Interstate Container Reading LLC
Interstate Corrpack LLC
Interstate Holding, Inc.
Interstate Mechanical Packaging LLC
Interstate Paper LLC
Interstate Realty Hialeah LLC
Interstate Resources, Inc.
Interstate Southern Packaging LLC
Newport Timber LLC
Phoenix Technology Holdings USA, Inc.
RB Lumber Company LLC
RFC Container LLC
SouthCorr L.L.C.
St. George Timberland Holdings, Inc.
TMS America LLC
United Corrstack LLC
Uruguay
Kozery S.A.
ER
ER
US1
US3
US4
US13
US14
US15
US4
US4
US16
US3
e,US3
US3
US3
US18
US17
US3
US3
US6
US7
US8
US5
US3
US6
US9
US3
US3
US10
US9
US3
US9
US4
US11
US3
US19
US12
UY1
Notes to the consolidated financial statements (continued)
33. DS Smith Group companies continued
Fully owned subsidiaries continued
Notes
Mexico
Morocco
Total Marketing Support 360 Mexico S.A de C.V
MX1
DS Smith Packaging Ghimbav S.R.L.
c, RO1
Calara Holding Limited
Romania
Biber Paper Converting Limited
Tecnicartón Tánger S.a.r.l. AU
MA1
DS Smith Paper Zarnesti. S.R.L.
b, RO2
Corrugated Products Limited
DS Smith Packaging Romania S.R.L.
RO3
Conew Limited
Total Marketing Support Moscow
RU1
D.W. Plastics (UK) Limited
Netherlands
David S. Smith (Netherlands) B.V.
DS Smith (Holdings) B.V.
DS Smith Baars B.V.
DS Smith De Hoop B.V.
DS Smith De Hoop Holding B.V.
DS Smith Finance B.V.
DS Smith Hellas Netherlands B.V.
DS Smith Italy B.V.
DS Smith Packaging Almelo B.V.
DS Smith Packaging Barneveld B.V.
DS Smith Packaging Belita B.V.
DS Smith Packaging Holding B.V.
DS Smith Packaging International B.V.
DS Smith Packaging Netherlands B.V.
DS Smith Packaging Tilburg B.V.
DS Smith Recycling Benelux B.V.
DS Smith Recycling Holding B.V.
DS Smith Salm B.V.
DS Smith Toppositie B.V.
Nicaragua
Total Marketing Support Nicaragua, Sociedad
NI1
Total Marketing Support 360 Nigeria Limited
NG1
Anonima
Nigeria
North Macedonia
DS Smith AD Skopje
Pakistan
Philippines
Poland
DS Smith Packaging sp. z o.o.
DS Smith Polska sp. z o.o.
Portugal
DS Smith Displays P&I, S.A.
DS Smith Energia Viana, S.A.
DS Smith Packaging Madeira, Lda
DS Smith Packaging Portugal, S.A.
DS Smith Paper Viana, S.A.
DS Smith Portugal, SGPS, S.A.
DS Smith Recycling Portugal, S.A.
S.A.
Nova DS Smith Embalagem, S.A.
Tecnicartón Portugal Unipessoal Lda
NL3
NL3
DE9
NL3
NL3
NL3
NL3
NL3
NL1
NL4
NL3
NL3
NL3
NL2
NL6
NL2
NL2
NL3
NL3
PL1
PL1
PT3
PT8
PT6
PT4
PT8
PT8
PT9
PT2
PT7
PT1
Russia
Serbia
DS Smith Inos Papir Servis d.o.o.
DS Smith Packaging d.o.o. Kruševac
Papir Servis DP d.o.o.
Slovakia
DS Smith Packaging Slovakia s.r.o.
DS Smith Turpak Obaly a.s.
Slovenia
DS Smith Slovenija d.o.o.
South Africa
TMS 360 SA (PTY) Ltd
Spain
Bertako S.L.U.
DS Smith Andorra S.A.
DS Smith Business Services S.L.U.
DS Smith Forestal Spain, S.L.U.
DS Smith Packaging Alcala S.L.U.
DS Smith Packaging Cartogal S.A.
DS Smith Packaging Dicesa S.A.
DS Smith Packaging Galicia S.A.
DS Smith Packaging Holding S.L.U.
DS Smith Packaging Lucena, S.L.
DS Smith Packaging Madrid S.L.
DS Smith Packaging Sweden AB
DS Smith Packaging Sweden Holding AB
Switzerland
DS Smith Packaging Switzerland AG
Turkey
DS Smith Ambalaj A.Ş.
Total Marketing Support Turkey Baskı
Yönetimi Hizmetleri A.Ş.
Ukraine
Total Marketing Support Ukraine
United Arab Emirates
UK
Abbey Corrugated Limited
Ashton Corrugated
Ashton Corrugated (Southern) Limited
Avonbank Paper Disposal Limited
TMS Pakistan (Private) Limited
PK1
Total Marketing Support Philippines, Inc
PH1
Sweden
DS Smith Packaging Penedes S.A.U.
f, MK1
DS Smith Recycling Spain S.A.
DS Smith Spain, S.A.
DS Smith TCT S.A.
Tecnicartón, S.L.
David S. Smith Nominees Limited
RS1
RS2
RS2
SK1
d, SK2
DS Smith (UK) Limited
DS Smith America (UK) LLP
DS Smith Business Services Limited
DS Smith Corrugated
Packaging Limited
DS Smith Display Holding Limited
DS Smith Dormant Five Limited
DS Smith Euro Finance Limited
SI1
DS Smith Europe Limited
ES10
g, ES5
ES11
ZA1
ES9
ES3
ES3
ES4
ES6
ES3
ES7
ES3
ES5
ES2
ES4
ES3
ES8
SE1
SE1
CH1
TR1
TR2
UA1
ER
ER
ER
ER
DS Smith Finco Limited
DS Smith Haddox Limited
DS Smith Holdings Limited
DS Smith International Limited
DS Smith Italy Limited
DS Smith Logistics Limited
DS Smith Packaging Limited
DS Smith Paper Limited
DS Smith Pension Trustees Limited
DS Smith Perch Limited
DS Smith Recycling UK Limited
DS Smith Roma Limited
DS Smith Sudbrook Limited
DS Smith Supplementary Life Cover
Scheme Limited
DS Smith Ukraine Limited
DSS Eastern Europe Limited
DSS Poznan Limited
DSSH No. 1 Limited
Grovehurst Energy Limited
JDS Holding
Miljoint Limited
Multigraphics Holdings Limited
Multigraphics Limited
Multigraphics Services Limited
Priory Packaging Limited
Reed & Smith Limited
St. Regis International Limited
St. Regis Kemsley Limited
St. Regis Paper Company Limited
The Brand Compliance Company Limited
TheBannerPeople.Com Limited
TMS Global UK Limited
Total Marketing Support Global Limited
Total Marketing Support Limited
Treforest Mill plc
TRM Packaging Limited
United Shopper Marketing Limited
Lepe – Empresa Portuguesa de Embalagens,
Total Marketing Support Middle East DMCC
AE1
The Less Packaging Company Limited
a, ER
ER
a, ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
ER
178
Annual Report 2021 dssmith.com 179
Annual Report 2021 dssmith.com 179
FINANCIAL STATEMENTS
Notes to the consolidated financial statements (continued)
33. DS Smith Group companies continued
Registered offices
350 Euston Road, London, NW1 3AX, UK
ER
AR1 Avenida Eduardo Madero 1020, 5th floor, Office “B”, The City of Buenos Aires,
Argentina
AU1 Vistra Australia Pty Ltd, Suite 902 Level 9, 146 Arthur Street, North Sydney
NSW 2060, Australia
AT1 Friedrichstraße 10, 1010, Wien, Austria
AT2 Heidestrasse 15, 2433 Margarethen am Moos, Austria
BE1 New Orleansstraat 100, 9000 Gent, Belgium
BE2 Leonardo da Vincilaan 2, Corporate Village – Gebouw Gent 1831 Machelen-
Diegem, Belgium
BO1 Santa Cruz de la Sierra – Calle Dr. Mariano Zambrana No 700 UV: S/N MZNO:
S/N Zona: Oeste, Bolivia
Igmanska bb, Sarajevo, Vogošća, Bosnia and Herzegovina
Jovana Dučića br 25 A, Banja Luka, Bosnia and Herzegovina
BA1
BA2
BR1 Avenida Paulista no. 807, conjunto 810, Bela Vista, Cidade de Sao Paulo,
Estado de Sao Paulo, CEP 01311-100, Brazil
BG1 Glavinitsa, 4400 Pazardzhik, Bulgaria
CA1 215-1673 Carling Avenue, Ottowa ON K2A 1C4, Canada
CL1 Santa Beatriz, 111. Of 1104. Providencia, Santiago de Chile, Chile
CN1 Room 05C, 3/F, No. 2 Building, Hongqiao Vanke Center, 988 Shenchang
Road, Minhang district, 201107, Shanghai, China
CN2 R919, 9/F, No. 1788 West Nan Jin Rd, Jing An District, Shanghai,
200040, China
CO1 Calle 72 , 10-07 Oficina 401, Edificio Liberty Seguros, Bogotá, Colombia
HR1 Dravska ulica 19, Koprivnica (Grad Koprivnica), Croatia
HR2 Vijenac Salamona Henricha Gutmanna 30, Belišće, Croatia
HR3 Lastovska 5, Zagreb, Croatia
CZ1 Teplická 109, Martiněves, 405 02 Jílové , Czech Republic
CZ2 Zirovnicka 3124, 10600 Praha 10, Czech Republic
DK1 Åstrupvej 30, 8500 Grenaa, Denmark
EC1 Av. Republica de El Salvador N36-140, Edif. Mansion Blanca, Quito,
PBX:4007828, Ecuador
PL 426, 33101 Tampere, Finland
Virranniementie 3, 70420 Kuopio, Finland
11 route Industrielle, F-68320, Kunheim, France
EG1 Nile City Towers, North Tower, 22nd Floor, Cornish EI Nil, Cairo, 11624, Egypt
EE1 Pae 24, 11415 Tallinn, Estonia
FI1
FI2
FR1
FR2 1 Terrasse Bellini, 92800, Puteaux, France
FR3 345 Impasse de Saint-Alban Avenue de Croupillac, 30100 Ales, France
FR4 Zone Industrielle de Kevoasdoue, 29270, Carhaix, France
FR5 6-8 Boulevard Monge, 69330, Meyzieu, Lyon, France
FR6 Contoire Hamel, 80500, Montdidier, France
FR7 350 Zone Artisanale des Trois Fontaines, 38140 Rives, France
FR8 Z.a Lafontaine, 49430 Durtal, France
FR9 146 Route de Lyon, 67640, Fegersheim, France
FR10 Zone Industrielle, Voiveselles Croisette, 88800, B.P. 37, Vittel, France
FR11 Rue de la Deviniere, B.P. 7, 45510 FR, Tigy, France
FR12 Route de Marmagne, 18500, Mehun sur Yevre, France
FR13 Zone Industrielle de Châteaubernard, 16100, Cognac, France
FR14 Avenue Robert Franck, 73110, La Rochette, France
FR15 Rue Desire Granet, 76800 St. Etienne du Rouvray, France
FR16 Zone Industrielle du Pré de la Barre, 38440, St-Jean de Bournay, France
FR17 12 rue Gay Lussac ZI Dijon Chenove, 21300, Chenove, France
FR18 Zone Industrielle de la Plaine, 88510 Eloyes, France
FR19 Usine de La Fosse, B.P. No 8, 45720, Coullons, France
FR20 77 Route de Lapoutroie, 68240, Kaysersberg, France
FR21 2 Rue Paul Cezanne, 93360, Neuilly Plaisance, France
FR22 27 Rue du Tennis, 25110, Baume les Dames, France
180
180
DE1 Bierweg 11, 99310 Arnstadt, Germany
DE2 Bretschneiderstr. 5, D-08309 Eibenstock, Germany
DE3 Hauptstrasse 80, 37318 Arenshausen, Germany
DE4 Kufsteiner Strasse 27, 83064 Raubling, Germany
DE5 Rollnerstrasse 14, D-90408 Nürnberg, Germany
DE6 Siemensstrasse 8, 50259 Pulheim, Germany
DE7 Weichertstrasse 7, D-63741 Aschaffenburg, Germany
DE8 Wilhelm-Bergner, Str.11 e, 21509 Glinde, Germany
DE9 Zum Fliegerhorst 1312 – 1318, 63526 Erlensee, Germany
GI1
GR1 PO Box 90, GR-72200 Ierapetra, Kriti, Greece
GR2 PO Box 1010, 57022 Sindos Industrial Area, Thessaloniki, Greece
GT1
5-9 Main Street, Gibraltar
15 Calle 1-04 Zona 10, Centrica Plaza, Torre I, Oficina 301, Guatemala,
01010, Guatemala
HN1 Avenida La Paz, No. 2702, Tegucigalpa, M.D.C., PO Box 2735, Honduras
HK1 Units 1607-8, 16th Floor, Citicorp Centre, 18 Whitfield Road,
Causeway Bay, Hong Kong
HU1 Váci út 1-3., “A” Tower, 6th floor, 1062 Budapest, Hungary
HU2 Záhony u. 7, HU-1031 Budapest, Hungary
IN1
IN2
409, Dalamal Chambers, , New Marine Lines, Mumbai – 400 020, India
A-5/30, Basement, Behind Oriental Bank of Commerce, Paschim Vihar, New
Delhi, 110063 , India
G-56 Green Park (main), New Delhi – 110016, India
25/28 North Wall Quay, Dublin 1, Ireland
Tempo Scan Tower Lantai 32, Jalan H.r. Rasuna Said Kav 3-4, Kel. Kuningan
Timur, Kec.Setiabudi, Kota Adm. Jakarta Selatan, Prov. DKI Jakarta, Indonesia
Capannori (Lu) Via del Fanuccio, 126 Cap, 55014 Frazione Marlia, Italy
Strada Lanzo 237, cap 10148, Torino (TO), Italy
Via Torri Bianche, n. 24, 20871 Vimercate (MB), Italy
Oak Minami-Azabu Building 2F, 3-19-23 Minami-Azabu, Minato-ku, Tokyo,
106-0047, Japan
IN3
IE1
ID1
IT1
IT2
IT3
JP1
KZ1 Abay Ave. 52, 8 floor, 802-6 office “Innova Tower” BC, 050008,
Almaty, Kazakhstan
LV1 Hospitāļu iela 23-102, Rīga LV-1013, Latvia
LT1
Savanoriu ave. 183, 02300 Vilnius, Lithuania
LU1 8-10 Avenue de la Gare, L-1610 Luxembourg
MY1 Unit C-12-4, Level 12, Block C, Megan Avenue II, No. 12 Jalan Yap Kwan Seng,
50450 Kuala Lumpur, Wilayah Persekutuan, Malaysia
MX1 Av. Paseo de las Palmas No. 800, Int. 2501, Col. Lomas de Chapultepec III
Sección, Delegación Miguel Hidalgo,Ciudad de México, C.P. 11000, Mexico
MA1 Tanger, Zone Franche d’Exportation, ILot 11, Lot 5, Morocco
NL1 Bedrijvenpark Twente 90, NL-7602 KD Almelo, Netherlands
NL2 Coldenhovenseweg 130, 6961 EH, Eerbeek, Netherlands
NL3 Harderwijkerweg 41, 6961 GH, Eerbeek, Netherlands
NL4 Hermesweg 2, 3771 ND, Barneveld, Netherlands
NL5 Kanaalweg 8 A, 6961 LW, Eerbeek, Netherlands
NL6 Wegastraat 2, 5015 BS, Tilburg, Netherlands
NI1
NG1 3, Ijora – Causeway, Ijora, Lagos, Nigeria
MK1 Str. 1632 no. 1, Skopje 1000, North Macedonia
PK1 H. No. 193, SQ Margalla Road, SCHS, E-11/2. Islamabad Capital Territory (I.C.T.)
Car Building, 3rd Floor, Highway to Masaya, Managua, Nicaragua
44000. Pakistan
PH1 24/F Philam Life Tower, 8767 Paseo de Roxas Avenue, Bel-Air, City of Makati,
Fourth District, NCR, 1226, Philippines
Notes to the consolidated financial statements (continued)
33. DS Smith Group companies continued
Registered offices
ER
350 Euston Road, London, NW1 3AX, UK
DE1 Bierweg 11, 99310 Arnstadt, Germany
AR1 Avenida Eduardo Madero 1020, 5th floor, Office “B”, The City of Buenos Aires,
DE2 Bretschneiderstr. 5, D-08309 Eibenstock, Germany
AU1 Vistra Australia Pty Ltd, Suite 902 Level 9, 146 Arthur Street, North Sydney
DE4 Kufsteiner Strasse 27, 83064 Raubling, Germany
Argentina
NSW 2060, Australia
AT1 Friedrichstraße 10, 1010, Wien, Austria
AT2 Heidestrasse 15, 2433 Margarethen am Moos, Austria
BE1 New Orleansstraat 100, 9000 Gent, Belgium
BE2 Leonardo da Vincilaan 2, Corporate Village – Gebouw Gent 1831 Machelen-
BO1 Santa Cruz de la Sierra – Calle Dr. Mariano Zambrana No 700 UV: S/N MZNO:
Diegem, Belgium
S/N Zona: Oeste, Bolivia
BA1
Igmanska bb, Sarajevo, Vogošća, Bosnia and Herzegovina
BA2
Jovana Dučića br 25 A, Banja Luka, Bosnia and Herzegovina
BR1 Avenida Paulista no. 807, conjunto 810, Bela Vista, Cidade de Sao Paulo,
Estado de Sao Paulo, CEP 01311-100, Brazil
BG1 Glavinitsa, 4400 Pazardzhik, Bulgaria
CA1 215-1673 Carling Avenue, Ottowa ON K2A 1C4, Canada
CL1 Santa Beatriz, 111. Of 1104. Providencia, Santiago de Chile, Chile
CN1 Room 05C, 3/F, No. 2 Building, Hongqiao Vanke Center, 988 Shenchang
Road, Minhang district, 201107, Shanghai, China
CN2 R919, 9/F, No. 1788 West Nan Jin Rd, Jing An District, Shanghai,
200040, China
CO1 Calle 72 , 10-07 Oficina 401, Edificio Liberty Seguros, Bogotá, Colombia
HR1 Dravska ulica 19, Koprivnica (Grad Koprivnica), Croatia
HR2 Vijenac Salamona Henricha Gutmanna 30, Belišće, Croatia
HR3 Lastovska 5, Zagreb, Croatia
CZ1 Teplická 109, Martiněves, 405 02 Jílové , Czech Republic
CZ2 Zirovnicka 3124, 10600 Praha 10, Czech Republic
DK1 Åstrupvej 30, 8500 Grenaa, Denmark
DE3 Hauptstrasse 80, 37318 Arenshausen, Germany
DE5 Rollnerstrasse 14, D-90408 Nürnberg, Germany
DE6 Siemensstrasse 8, 50259 Pulheim, Germany
DE7 Weichertstrasse 7, D-63741 Aschaffenburg, Germany
DE8 Wilhelm-Bergner, Str.11 e, 21509 Glinde, Germany
DE9 Zum Fliegerhorst 1312 – 1318, 63526 Erlensee, Germany
GI1
5-9 Main Street, Gibraltar
GR1 PO Box 90, GR-72200 Ierapetra, Kriti, Greece
GR2 PO Box 1010, 57022 Sindos Industrial Area, Thessaloniki, Greece
GT1
15 Calle 1-04 Zona 10, Centrica Plaza, Torre I, Oficina 301, Guatemala,
01010, Guatemala
HN1 Avenida La Paz, No. 2702, Tegucigalpa, M.D.C., PO Box 2735, Honduras
HK1 Units 1607-8, 16th Floor, Citicorp Centre, 18 Whitfield Road,
Causeway Bay, Hong Kong
HU1 Váci út 1-3., “A” Tower, 6th floor, 1062 Budapest, Hungary
HU2 Záhony u. 7, HU-1031 Budapest, Hungary
409, Dalamal Chambers, , New Marine Lines, Mumbai – 400 020, India
A-5/30, Basement, Behind Oriental Bank of Commerce, Paschim Vihar, New
Delhi, 110063 , India
G-56 Green Park (main), New Delhi – 110016, India
25/28 North Wall Quay, Dublin 1, Ireland
Tempo Scan Tower Lantai 32, Jalan H.r. Rasuna Said Kav 3-4, Kel. Kuningan
Timur, Kec.Setiabudi, Kota Adm. Jakarta Selatan, Prov. DKI Jakarta, Indonesia
Capannori (Lu) Via del Fanuccio, 126 Cap, 55014 Frazione Marlia, Italy
Strada Lanzo 237, cap 10148, Torino (TO), Italy
Via Torri Bianche, n. 24, 20871 Vimercate (MB), Italy
Oak Minami-Azabu Building 2F, 3-19-23 Minami-Azabu, Minato-ku, Tokyo,
IN1
IN2
IN3
IE1
ID1
IT1
IT2
IT3
JP1
EC1 Av. Republica de El Salvador N36-140, Edif. Mansion Blanca, Quito,
106-0047, Japan
PBX:4007828, Ecuador
EG1 Nile City Towers, North Tower, 22nd Floor, Cornish EI Nil, Cairo, 11624, Egypt
Almaty, Kazakhstan
KZ1 Abay Ave. 52, 8 floor, 802-6 office “Innova Tower” BC, 050008,
EE1 Pae 24, 11415 Tallinn, Estonia
PL 426, 33101 Tampere, Finland
FI1
FI2
Virranniementie 3, 70420 Kuopio, Finland
FR1
11 route Industrielle, F-68320, Kunheim, France
FR2 1 Terrasse Bellini, 92800, Puteaux, France
LV1 Hospitāļu iela 23-102, Rīga LV-1013, Latvia
LT1
Savanoriu ave. 183, 02300 Vilnius, Lithuania
LU1 8-10 Avenue de la Gare, L-1610 Luxembourg
MY1 Unit C-12-4, Level 12, Block C, Megan Avenue II, No. 12 Jalan Yap Kwan Seng,
50450 Kuala Lumpur, Wilayah Persekutuan, Malaysia
FR3 345 Impasse de Saint-Alban Avenue de Croupillac, 30100 Ales, France
MX1 Av. Paseo de las Palmas No. 800, Int. 2501, Col. Lomas de Chapultepec III
FR4 Zone Industrielle de Kevoasdoue, 29270, Carhaix, France
Sección, Delegación Miguel Hidalgo,Ciudad de México, C.P. 11000, Mexico
FR5 6-8 Boulevard Monge, 69330, Meyzieu, Lyon, France
MA1 Tanger, Zone Franche d’Exportation, ILot 11, Lot 5, Morocco
FR6 Contoire Hamel, 80500, Montdidier, France
NL1 Bedrijvenpark Twente 90, NL-7602 KD Almelo, Netherlands
FR7 350 Zone Artisanale des Trois Fontaines, 38140 Rives, France
NL2 Coldenhovenseweg 130, 6961 EH, Eerbeek, Netherlands
FR8 Z.a Lafontaine, 49430 Durtal, France
FR9 146 Route de Lyon, 67640, Fegersheim, France
NL3 Harderwijkerweg 41, 6961 GH, Eerbeek, Netherlands
NL4 Hermesweg 2, 3771 ND, Barneveld, Netherlands
FR10 Zone Industrielle, Voiveselles Croisette, 88800, B.P. 37, Vittel, France
NL5 Kanaalweg 8 A, 6961 LW, Eerbeek, Netherlands
FR11 Rue de la Deviniere, B.P. 7, 45510 FR, Tigy, France
NL6 Wegastraat 2, 5015 BS, Tilburg, Netherlands
FR12 Route de Marmagne, 18500, Mehun sur Yevre, France
NI1
Car Building, 3rd Floor, Highway to Masaya, Managua, Nicaragua
FR13 Zone Industrielle de Châteaubernard, 16100, Cognac, France
NG1 3, Ijora – Causeway, Ijora, Lagos, Nigeria
FR14 Avenue Robert Franck, 73110, La Rochette, France
MK1 Str. 1632 no. 1, Skopje 1000, North Macedonia
FR15 Rue Desire Granet, 76800 St. Etienne du Rouvray, France
PK1 H. No. 193, SQ Margalla Road, SCHS, E-11/2. Islamabad Capital Territory (I.C.T.)
FR16 Zone Industrielle du Pré de la Barre, 38440, St-Jean de Bournay, France
44000. Pakistan
FR17 12 rue Gay Lussac ZI Dijon Chenove, 21300, Chenove, France
PH1 24/F Philam Life Tower, 8767 Paseo de Roxas Avenue, Bel-Air, City of Makati,
Fourth District, NCR, 1226, Philippines
FR18 Zone Industrielle de la Plaine, 88510 Eloyes, France
FR19 Usine de La Fosse, B.P. No 8, 45720, Coullons, France
FR20 77 Route de Lapoutroie, 68240, Kaysersberg, France
FR21 2 Rue Paul Cezanne, 93360, Neuilly Plaisance, France
FR22 27 Rue du Tennis, 25110, Baume les Dames, France
180
FINANCIAL STATEMENTS
ES9 Polígono Industrial Areta nº 1, parcela 348, calle Altzutzate, nº 46, 31620
Huarte, Navarra, Spain
ES10 Polígono Industrial A Tomada, parcela 28-33, A Pobra do Caramiñal , 15949 A
Coruña, Spain
ES11 Polígono Industrial O Pousadoiro 4, Parcela 1, 36617 Vilagarcía de Arousa,
Pontevedra (Galicia), Spain
Box 504, 331 25 Varnamo, Sweden
Industriestrasse 11, 4665 Oftringen, Switzerland
ES12 Poligono Industrial San Claudio, 33191, Oviedo, Spain
SE1
CH1
TR1 Araptepe Selimpaşa Mah. 5007. Sk. No. 4 Silivri, Istanbul, Turkey
TR2 Goztepe Merdivenkoy Mah. Bora Sk. No.1 Nida Kule Is Merkezi, Kat 7, Kadikoy,
Istanbul, 34732, Turkey
UA1 4-5 Floors, 25B,Sagaydachnogo str., Kiev, 04070, Ukraine
UA2 67 Mendeleev str., Rubizhne, Lugansk Region, 93006, Ukraine
AE1 Unit No: I5-PF-39, Detached Retail I5, Plot No: JLT-PH1-RET-I5,
Jumeirah Lakes Towers, Dubai, United Arab Emirates
US1 4328 Federal Drive, STE 105, Greensboro, NC 27410, United States
US2 2317 Almond Road, Route 55 Industrial Park, Vineland, NJ 08360, United States
US3 600 Peachtree Street , Suite 4200, Atlanta GA 30308, United States
US4 2066 South East Avenue, Vineland, NJ 08360, United States
US5 903 Woods Road, Cambridge, MD 21613, United States
US6 128 Crews Drive, Columbia, SC 29210, United States
US7 792 Commerce Avenue, New Castle, PA 16101, United States
US8 100 Grace Street, Reading, PA 19611, United States
US9 2366 Interstate Paper Road, Riceboro, GA 31323, United States
US10 120 T Elmer Cox Road Greeneville, TN 37743, United States
US11 3021 Taylor Drive, Asheboro, NC 27203, United States
US12 720 Laurel Street, Reading PA 19602, United States
US13 6405 Commonwealth Drive SW, Roanoke, Virginia, 24018, United States
US14 100 Development Ln., Winchester VA 22602, United States
US15 128 Corrugated Ln, Piney Flats TN 37686, United States
US16 70 Outwater Ln., Floor 4, Garfield, NJ 07026, United States
US17 800 Edwards Drive, Lebanon IN 46052, United States
US18 301 Thomas Mill Road, Holly Springs NC 27540, United States
US19 340 W. Butterfield Road, Suite 2A, Elmhurst IL 60126, United States
UY1 Plaza Independencia 811 PB, Montevideo, Uruguay
33. DS Smith Group companies continued
Registered offices continued
PL1 Komitetu Obrony Robotników 45D, 02-146 Warsaw, Poland
PT1 Águeda (Aveiro), Raso de Paredes 3754-209, Portugal
PT2 Av. Jose Gregorio 114, 2430-275 Marinha Grande, Portugal
PT3 Edificio Opcao Actual, Parque Industrial de Oliveirinha, 3430-414 Carregal do
Sal, Portugal
PT4 Rua Mestra Cecília do Simão, n.º 378 , 3885-593 Esmoriz, Ovar, Portugal
PT5 Lugar do Espido, Via Norte, Distrito: Porto Concelho: Maia Freguesia: Cidade da
Maia, 4470 177 MAIA, Portugal
PT6 Parque Industrial da Cancela, 3125-042, Canico, Portugal
PT7 Rua do Monte Grande, n. o3,, 4485-255 Guilhabreu, Portugal
PT8 Estrada 23 de Fevereiro, 372, 4905-261, Deocriste, Portugal
PT9 Rua Pedro Jose Ferreira, 329/335, 4420-612, Gondomar, Portugal
RO1 No. 46 Fagarasului Street, Ghimbav, Brasov County, Romania
RO2 No. 18, 13 Decembrie Street, Zarnesti, Brasov County, Romania
RO3 Calea Torontalului, DN6 kM. 7, Timisoara, Romania
RU1 Building 2, Floor 7, Room 21 , Skakovaya st. 17, 125040, Moscow, Russian
Federation
11000 Beograd, Milorada Jovanovića 14, Serbia
RS1
RS2 Kruševac, Balkanska 72, Serbia
RS3 44 Bulevar Vojvode Stepe, Novi Sad, Serbia
SK1 Námestie baníkov 8/31, 048 01 Roznava, Slovakia
SK2 Robotnícka 1, Martin, 036 80, Slovakia
SI1
ZA1 Central Office Park No 4, 257 Jean Avenue, Centurion, Gauteng,
Cesta prvih borcev 51, 8280 Brestanica, Slovenia
0157, South Africa
ES1 Poligono Industrial Heras, 239-242, 39792, Medio Cudeyo, Spain
ES2 Avenida el Norte de Castilla, 20, 47008 Valladolid (Valladolid), Spain
ES3 Avd. Del Sol 13, Torrejón de Ardoz, 28850 – Madrid, Spain
ES4 Carretera A-62, Burgos a Portugal, 34210, Duenas (Palencia), Spain
ES5 Carretera B.P. 2151 confluencia carretera C15, Sant Pere de Riudevitlles, 08776,
Barcelona, Spain
ES6 Carretera de Daganzo Km 3,450 – Poligono Industrial La Peña, Naves F1 a F8,
28806, Alcala de Henares (Madrid), Spain
ES7 Carretera Nacional 331 (Carretera de Malaga), Km.66,28, 14900, Lucena
(Cordoba), Spain
ES8 Parque Industrial Juan Carlos I, C/ Canal Crespo, 13 Almussafes 46440
(Valencia), Spain
34. Subsequent events
There are no other subsequent events after the reporting date which require disclosure.
Annual Report 2021 dssmith.com 181
Annual Report 2021 dssmith.com 181
FINANCIAL STATEMENTS
Parent Company statement of financial position
At 30 April 2021
Assets
Non-current assets
Intangible assets
Property, plant and equipment and right-of-use assets
Investments in subsidiaries
Deferred tax assets
Other receivables
Lease receivable
Derivative financial instruments
Total non-current assets
Current assets
Trade and other receivables
Lease receivable
Cash and cash equivalents
Derivative financial instruments
Total current assets
Total assets
Liabilities
Non-current liabilities
Borrowings
Employee benefits
Other payables
Lease liabilities
Provisions
Derivative financial instruments
Total non-current liabilities
Current liabilities
Borrowings
Trade and other payables
Income tax liabilities
Lease liabilities
Derivative financial instruments
Total current liabilities
Total liabilities
Net assets
Equity
Issued capital
Share premium account
Reserves
Shareholders’ equity
Note
2021
£m
2020
£m
3
4
5
6
10
6
10
8
11
7
9
10
8
7
9
10
12
12
12
34
7
4,577
30
4,664
–
35
9,347
550
–
437
80
1,067
10,414
(2,062)
(30)
(3,870)
(4)
(5)
(15)
(5,986)
(65)
(223)
–
(1)
(41)
(330)
(6,316)
4,098
137
2,241
1,720
4,098
44
7
4,559
50
645
6
27
5,338
1,013
6
185
34
1,238
6,576
(2,166)
(31)
(199)
(11)
(7)
(41)
(2,455)
(121)
(202)
(4)
(7)
(44)
(378)
(2,833)
3,743
137
2,238
1,368
3,743
The Company made a profit for the year of £258m (2019/20: profit of £130m) including the recognition of intra-group dividends.
Approved by the Board of Directors of DS Smith Plc (company registered number 1377658) on 21 June 2021 and signed on its behalf by:
M W Roberts
Director
A R T Marsh
Director
The accompanying notes are an integral part of these financial statements.
182
182
Parent Company statement of financial position
At 30 April 2021
Parent Company statement of changes in equity
At 30 April 2021
FINANCIAL STATEMENTS
At 30 April 2019
Profit for the year
Actuarial loss on employee benefits
Cash flow hedges fair value changes
Reclassification from cash flow hedge
reserve to income statement
Income tax on other comprehensive income
Total comprehensive (expense)/income
Issue of share capital
Employee share trust
Share-based payment expense (net of tax)
Dividends paid1
Other changes in equity in the year
At 30 April 2020
Profit for the year
Actuarial loss on employee benefits
Cash flow hedges fair value changes
Reclassification from cash flow hedge
reserve to income statement
Income tax on other comprehensive income
Total comprehensive (expense)/income
Issue of share capital
Employee share trust
Share-based payment expense (net of tax)
Other changes in equity in the year
At 30 April 2021
Share
capital
£m
137
–
–
–
Share
premium
£m
2,236
–
–
–
Hedging
reserve
£m
(13)
–
–
(31)
Own
shares
£m
(1)
–
–
–
Merger
relief
reserve
£m
32
–
–
–
Retained
earnings
£m
1,473
130
(16)
–
–
–
–
–
–
–
–
–
137
–
–
–
–
–
–
–
–
–
–
137
–
–
–
2
–
–
–
2
2,238
–
–
–
–
–
–
3
–
–
3
2,241
(1)
6
(26)
–
–
–
–
–
(39)
–
–
103
9
(20)
92
–
–
–
–
53
–
–
–
–
(2)
–
–
(2)
(3)
–
–
–
–
–
–
–
–
–
–
(3)
–
–
–
–
–
–
–
–
32
–
–
–
–
–
–
–
–
–
–
32
–
13
127
–
(2)
2
(222)
(222)
1,378
258
(6)
–
–
–
252
–
(2)
10
8
1,638
Total
equity
£m
3,864
130
(16)
(31)
(1)
19
101
2
(4)
2
(222)
(222)
3,743
258
(6)
103
9
(20)
344
3
(2)
10
11
4,098
Note
2021
£m
2020
£m
4,577
4,559
9,347
5,338
3
4
5
6
10
6
10
8
11
7
9
10
8
7
9
10
12
12
12
34
7
30
–
35
4,664
550
–
437
80
1,067
10,414
(30)
(3,870)
(4)
(5)
(15)
(65)
(223)
–
(1)
(41)
(330)
(6,316)
4,098
137
2,241
1,720
4,098
44
7
50
645
6
27
1,013
6
185
34
1,238
6,576
(31)
(199)
(11)
(7)
(41)
(121)
(202)
(4)
(7)
(44)
(378)
(2,833)
3,743
137
2,238
1,368
3,743
(2,062)
(2,166)
(5,986)
(2,455)
The Company made a profit for the year of £258m (2019/20: profit of £130m) including the recognition of intra-group dividends.
Approved by the Board of Directors of DS Smith Plc (company registered number 1377658) on 21 June 2021 and signed on its behalf by:
M W Roberts
Director
A R T Marsh
Director
The accompanying notes are an integral part of these financial statements.
Annual Report 2021 dssmith.com 183
Annual Report 2021 dssmith.com 183
Property, plant and equipment and right-of-use assets
Assets
Non-current assets
Intangible assets
Investments in subsidiaries
Deferred tax assets
Other receivables
Lease receivable
Derivative financial instruments
Total non-current assets
Current assets
Trade and other receivables
Lease receivable
Cash and cash equivalents
Derivative financial instruments
Total current assets
Total assets
Liabilities
Non-current liabilities
Borrowings
Employee benefits
Other payables
Lease liabilities
Provisions
Derivative financial instruments
Total non-current liabilities
Current liabilities
Borrowings
Trade and other payables
Income tax liabilities
Lease liabilities
Derivative financial instruments
Total current liabilities
Total liabilities
Net assets
Equity
Issued capital
Share premium account
Reserves
Shareholders’ equity
182
FINANCIAL STATEMENTS
Notes to the parent Company financial statements
1. Principal accounting policies
(a) Basis of preparation
These financial statements of DS Smith Plc (the ‘Company’) have
been prepared on the going concern basis and in accordance with
Financial Reporting Standard 101 Reduced Disclosure Framework
(FRS 101) and the UK Companies Act.
The accounts are prepared under the historical cost convention with
the exception of certain financial instruments and employee benefit
plans that are stated at their fair value and share-based payments
that are stated at their grant date fair value.
Under section 408 of the Companies Act 2006 the Company is
exempt from the requirement to present its own income statement
or statement of comprehensive income.
In these financial statements, the Company has applied the
exemptions available under FRS 101 in respect of the
following disclosures:
• statement of cash flows and related notes;
• a comparative period reconciliation for share capital;
• disclosures in respect of transactions with wholly-owned
subsidiaries;
• comparative period reconciliations for tangible fixed assets and
intangible assets;
• disclosures in respect of capital management;
• the effects of new but not yet effective IFRSs; and
• disclosures in respect of Key Management Personnel.
As the Group financial statements include the equivalent disclosures,
the Company has also taken advantage of the exemptions under FRS
101 available in respect of the following disclosures:
• IAS 24 Related Party Disclosure in respect of transactions entered
with wholly-owned subsidiaries;
• IFRS 2 Share-based Payment in respect of Group settled share-
based payments; and
translated into sterling at the rates of exchange at the date of the
transaction, and retranslated at the rate of exchange ruling at the
balance sheet date. Exchange differences arising on translation are
taken to the income statement.
(c) Intangible assets
Intangible assets are stated at cost less accumulated amortisation
and impairment losses. Amortisation is charged to the income
statement on a straight-line basis over the estimated useful lives
of each item, which range between three and five years.
(d) Property, plant and equipment
Property, plant and equipment is stated at cost less accumulated
depreciation and impairment losses. Depreciation is charged to the
income statement on a straight-line basis over the estimated useful
lives of each item of property, plant and equipment. Estimated useful
lives of plant and equipment are between two and 30 years, and for
leasehold improvements are over the period of the lease.
(e) Leases
The Company recognises a right-of-use asset and a lease liability at
the lease commencement date.
The right-of-use asset is initially measured at cost, being the initial
amount of the lease liability adjusted for any lease payments made at
or before commencement date, plus any initial direct costs incurred
and an estimate of end of lease dismantling or restoration costs,
less any incentives received and related provisions.
Lease liabilities are recorded at the present value of lease payments.
The interest rate implicit in the lease is used to discount lease
payments, or, if that rate cannot be determined, the Group’s
incremental borrowing rate is used, being the rate that the Group
would have to pay to borrow the funds necessary to obtain an asset
of similar value in a similar economic environment with similar terms
and conditions.
Right-of-use assets are depreciated on a straight-line basis over the
lease term, or the useful life if shorter.
• IFRS 13 Fair Value Measurement and the disclosures required by
IFRS 7 Financial Instruments.
Interest is recognised on the lease liability, resulting in a higher
finance cost in the earlier years of the lease term.
Lease payments relating to low value assets or to short-term leases
are recognised as an expense on a straight-line basis over the lease
term. Short-term leases are those with 12 months or less duration.
When the Company enters into a back-to-back lease arrangement
on behalf of a subsidiary, corresponding lease receivables
are recognised.
The Company adopted the following new accounting standards,
amendments or interpretations as of 1 May 2020:
• Amendments to IFRS 3 Business Combinations;
• Amendments to IAS 1 and IAS 8 Definition of Material, and
• Amendments to The Conceptual Framework for
Financial Reporting.
The adoption of the standards, interpretations and amendments has
not had a material effect on the results for the year.
The accounting policies set out below have, unless otherwise
stated, been applied consistently to all periods presented in
these financial statements.
(b) Foreign currencies
The Company’s financial statements are presented in sterling, which
is the Company’s functional currency and presentation currency.
Monetary assets and liabilities denominated in foreign currencies are
184
184
Notes to the parent Company financial statements
1. Principal accounting policies
(a) Basis of preparation
translated into sterling at the rates of exchange at the date of the
transaction, and retranslated at the rate of exchange ruling at the
balance sheet date. Exchange differences arising on translation are
These financial statements of DS Smith Plc (the ‘Company’) have
taken to the income statement.
been prepared on the going concern basis and in accordance with
Financial Reporting Standard 101 Reduced Disclosure Framework
(c) Intangible assets
(FRS 101) and the UK Companies Act.
The accounts are prepared under the historical cost convention with
the exception of certain financial instruments and employee benefit
plans that are stated at their fair value and share-based payments
Intangible assets are stated at cost less accumulated amortisation
and impairment losses. Amortisation is charged to the income
statement on a straight-line basis over the estimated useful lives
of each item, which range between three and five years.
that are stated at their grant date fair value.
(d) Property, plant and equipment
Under section 408 of the Companies Act 2006 the Company is
exempt from the requirement to present its own income statement
or statement of comprehensive income.
In these financial statements, the Company has applied the
exemptions available under FRS 101 in respect of the
following disclosures:
• statement of cash flows and related notes;
• a comparative period reconciliation for share capital;
• disclosures in respect of transactions with wholly-owned
subsidiaries;
intangible assets;
• comparative period reconciliations for tangible fixed assets and
• disclosures in respect of capital management;
• the effects of new but not yet effective IFRSs; and
• disclosures in respect of Key Management Personnel.
As the Group financial statements include the equivalent disclosures,
the Company has also taken advantage of the exemptions under FRS
101 available in respect of the following disclosures:
Property, plant and equipment is stated at cost less accumulated
depreciation and impairment losses. Depreciation is charged to the
income statement on a straight-line basis over the estimated useful
lives of each item of property, plant and equipment. Estimated useful
lives of plant and equipment are between two and 30 years, and for
leasehold improvements are over the period of the lease.
(e) Leases
The Company recognises a right-of-use asset and a lease liability at
the lease commencement date.
The right-of-use asset is initially measured at cost, being the initial
amount of the lease liability adjusted for any lease payments made at
or before commencement date, plus any initial direct costs incurred
and an estimate of end of lease dismantling or restoration costs,
less any incentives received and related provisions.
Lease liabilities are recorded at the present value of lease payments.
The interest rate implicit in the lease is used to discount lease
payments, or, if that rate cannot be determined, the Group’s
incremental borrowing rate is used, being the rate that the Group
would have to pay to borrow the funds necessary to obtain an asset
of similar value in a similar economic environment with similar terms
• IAS 24 Related Party Disclosure in respect of transactions entered
with wholly-owned subsidiaries;
and conditions.
• IFRS 2 Share-based Payment in respect of Group settled share-
based payments; and
Right-of-use assets are depreciated on a straight-line basis over the
lease term, or the useful life if shorter.
• IFRS 13 Fair Value Measurement and the disclosures required by
IFRS 7 Financial Instruments.
Interest is recognised on the lease liability, resulting in a higher
finance cost in the earlier years of the lease term.
The Company adopted the following new accounting standards,
amendments or interpretations as of 1 May 2020:
• Amendments to IFRS 3 Business Combinations;
• Amendments to IAS 1 and IAS 8 Definition of Material, and
Lease payments relating to low value assets or to short-term leases
are recognised as an expense on a straight-line basis over the lease
term. Short-term leases are those with 12 months or less duration.
When the Company enters into a back-to-back lease arrangement
on behalf of a subsidiary, corresponding lease receivables
• Amendments to The Conceptual Framework for
are recognised.
Financial Reporting.
The adoption of the standards, interpretations and amendments has
not had a material effect on the results for the year.
The accounting policies set out below have, unless otherwise
stated, been applied consistently to all periods presented in
these financial statements.
(b) Foreign currencies
The Company’s financial statements are presented in sterling, which
is the Company’s functional currency and presentation currency.
Monetary assets and liabilities denominated in foreign currencies are
184
1. Principal accounting policies continued
(f) Investments in subsidiaries
Investments in subsidiaries are valued at cost less provisions
for impairment.
Impairment testing is performed annually for investment in
subsidiaries by comparing the carrying amount of each investment
with the relevant subsidiary’s consolidated balance sheet. Where the
net assets are lower than the investment value, a discounted cash
flow is utilised to calculate the present value of the investment to
confirm whether any impairment is required.
(g) Deferred taxation
Deferred tax is provided for using the balance sheet liability method,
providing for temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and the
amounts used for taxation purposes. The amount of deferred
tax provided is based on the expected manner of realisation or
settlement of the carrying amount of assets and liabilities, using
tax rates enacted or substantively enacted at the reporting date.
A deferred tax asset is recognised only to the extent that it is
probable that future taxable profits will be available against which
the asset can be utilised. Deferred tax assets are reduced to the
extent that it is no longer probable that the related tax benefit
will be realised.
(h) Employee benefits
(i) Defined benefit schemes
The Company is the sponsoring employer for a UK funded,
defined benefit scheme, the DS Smith Group Pension scheme
(the ‘Group Scheme’).
The Group has in place a stated policy for allocating the net
defined benefit cost relating to the Group Scheme to participating
Group entities.
Accordingly, both the Company’s statement of financial position and
income statement reflect the Company’s share of the net defined
benefit liability and net defined benefit cost in respect of the Group
scheme, allocated per the stated policy. Actuarial gains and losses are
recognised immediately in the statement of comprehensive income.
(ii) Share-based payment transactions
The Company operates an equity-settled, share-based
compensation plan. The fair value of the employee services received
in exchange for the grant of the options is recognised as an expense.
The fair value of the options granted is measured using a stochastic
model, taking into account the terms and conditions upon which the
options were granted. The total amount to be expensed over the
vesting period is determined by reference to the fair value of the
options granted, excluding the impact of any non-market vesting
conditions. Non-market vesting conditions are included in
assumptions about the number of options that are expected to
become exercisable.
FINANCIAL STATEMENTS
At each reporting date, the Company revises its estimate of the
number of options that are expected to become exercisable. It
recognises the impact of the revision of original estimates, if any, in
the income statement, and a corresponding adjustment to equity.
Where applicable, the fair value of employee services received by
subsidiary undertakings within the DS Smith Plc Group in exchange
for options granted by the Company is recognised as an expense in
the financial statements of the subsidiary by means of a recharge
from the Company.
(i) Shares held by employee share trust
The cost of shares held in the employee share trust is deducted from
equity. All differences between the purchase price of the shares held
to satisfy options granted and the proceeds received for the shares,
whether on exercise or lapse, are charged to retained earnings.
(j) Financial instruments
The Company uses derivative financial instruments, primarily
currency and commodity swaps, to manage interest rate, currency
and commodity risks associated with the Group’s underlying business
activities and the financing of these activities. The Group has a policy
not to, and does not, undertake any speculative activity in these
instruments. Such derivative financial instruments are initially
recognised at fair value on the date on which a derivative contract
is entered into and are subsequently remeasured at fair value.
Derivatives are carried as assets when the fair value is positive
and as liabilities when the fair value is negative.
Derivative financial instruments are accounted for as hedges when
designated as hedges at the inception of the contract and when the
financial instruments provide an effective hedge of the underlying
risk. Any gains or losses arising from the hedging instruments are
offset against the hedged items.
For the purpose of hedge accounting, hedges are classified as cash
flow hedges due to hedging exposure to variability in cash flows that
is either attributable to a particular risk associated with a recognised
asset or liability or a highly probable forecast transaction.
(k) Dividend income
Dividend income from subsidiary undertakings is recognised in the
income statement when paid.
(l) Accounting judgements and key sources of estimation
uncertainty
There are no significant accounting judgements and estimates
applied in preparing the Company’s accounts.
Annual Report 2021 dssmith.com 185
Annual Report 2021 dssmith.com 185
FINANCIAL STATEMENTS
Notes to the parent Company financial statements (continued)
2. Employee information
The average number of employees employed by the Company during the year was 278 (2019/20: 272).
Wages and salaries
Social security costs
Pension costs
Total
2021
£m
31
3
2
36
Note 26 to the consolidated financial statements sets out the disclosure information required for the Company’s share-based payments.
2020
£m
31
3
2
36
Total
£m
82
3
–
85
(38)
(13)
(51)
44
34
Other
intangibles
£m
Intangible
assets under
construction
£m
Software
£m
68
–
4
72
(38)
(13)
(51)
30
21
7
–
–
7
–
–
–
7
7
7
3
(4)
6
–
–
–
7
6
Right-of-use
assets
£m
Leasehold
improvements
£m
Plant and
equipment
£m
Assets under
construction
£m
Total
property,
plant and
equipment
£m
6
–
6
(1)
(1)
(2)
5
4
3
–
3
(1)
–
(1)
2
2
2
–
2
(2)
–
(2)
–
–
–
1
1
–
–
–
–
1
11
1
12
(4)
(1)
(5)
7
7
3. Intangible assets
Cost
At 1 May 2020
Additions
Reclassifications
At 30 April 2021
Amortisation
At 1 May 2020
Amortisation charge
At 30 April 2021
Carrying amount
At 1 May 2020
At 30 April 2021
4. Property, plant and equipment and right-of-use assets
Cost
At 1 May 2020
Additions
At 30 April 2021
Depreciation
At 1 May 2020
Depreciation charge
At 30 April 2021
Carrying amount
At 1 May 2020
At 30 April 2021
Right-of-use assets relate to land and buildings.
186
186
Notes to the parent Company financial statements (continued)
2. Employee information
The average number of employees employed by the Company during the year was 278 (2019/20: 272).
5. Investments in subsidiaries
At 1 May 2020
Additions
At 30 April 2021
FINANCIAL STATEMENTS
Shares in Group
undertakings
£m
4,559
18
4,577
Note 26 to the consolidated financial statements sets out the disclosure information required for the Company’s share-based payments.
The Company’s principal trading subsidiary undertakings at 30 April 2021 are shown in note 33 to the consolidated financial statements.
Additions in the year ended 30 April 2021 are a result of intergroup restructuring transactions.
6. Trade and other receivables
Amounts owed by subsidiary undertakings
Other receivables
Prepayments and accrued income
2021
2020
Non-
current
£m
4,664
–
–
4,664
Current
£m
537
1
12
550
Non-
current
£m
645
–
–
645
Current
£m
997
3
13
1,013
When measuring the potential impairment of receivables from subsidiary undertakings, forward looking information based on assumptions for
the future movement of different economic drivers are considered.
During the year the Company revised its loan structure with subsidiaries resulting in reclassification of loans between the current and non-
current categories.
4. Property, plant and equipment and right-of-use assets
Right-of-use
Leasehold
Plant and
Assets under
assets
improvements
equipment
construction
equipment
£m
£m
£m
£m
Total
property,
plant and
2021
£m
31
3
2
36
7
3
(4)
6
–
–
–
7
6
–
1
1
–
–
–
–
1
2020
£m
31
3
2
36
Total
£m
82
3
–
85
(38)
(13)
(51)
44
34
£m
11
1
12
(4)
(1)
(5)
7
7
Intangible
Other
assets under
Software
intangibles
construction
£m
£m
£m
68
–
4
72
(38)
(13)
(51)
30
21
3
–
3
(1)
–
(1)
2
2
7
–
–
7
–
–
–
7
7
2
–
2
(2)
–
(2)
–
–
6
–
6
(1)
(1)
(2)
5
4
Annual Report 2021 dssmith.com 187
Annual Report 2021 dssmith.com 187
Wages and salaries
Social security costs
Pension costs
Total
3. Intangible assets
Cost
At 1 May 2020
Additions
Reclassifications
At 30 April 2021
Amortisation
At 1 May 2020
Amortisation charge
At 30 April 2021
Carrying amount
At 1 May 2020
At 30 April 2021
Cost
At 1 May 2020
Additions
At 30 April 2021
Depreciation
At 1 May 2020
Depreciation charge
At 30 April 2021
Carrying amount
At 1 May 2020
At 30 April 2021
186
Right-of-use assets relate to land and buildings.
FINANCIAL STATEMENTS
Notes to the parent Company financial statements (continued)
7. Trade and other payables
Trade payables
Amounts owed to subsidiary undertakings
Other tax and social security payables
Non-trade payables, accruals and deferred income
2021
2020
Non-
current
£m
–
3,870
–
–
3,870
Current
£m
15
164
10
34
223
Non-
current
£m
–
199
–
–
199
Current
£m
17
130
10
45
202
Non-current amounts owed to subsidiaries are subject to interest at rates based on LIBOR or EURIBOR, are unsecured, and are repayable
between 2023 and 2026.
During the year the Company revised its loan structure with subsidiaries resulting in reclassification of loans between the current and non-
current categories.
8. Borrowings
Bank loans and overdrafts
Medium-term notes and other fixed-term debt
2021
2020
Non-
current
£m
–
2,062
2,062
Current
£m
35
30
65
Non-
current
£m
–
2,166
2,166
Current
£m
58
63
121
Disclosures in respect of the Group’s borrowings are provided in note 20 to the consolidated financial statements.
9. Lease liabilities
The carrying amounts of lease liabilities and the movements during the year are as follows:
2021
£m
2020
£m
18
–
(12)
(1)
5
1
4
5
–
18
–
–
18
7
11
18
1 year
or less
£m
(7)
(1)
1–2
years
£m
(2)
(1)
2–5
years
£m
(7)
(2)
More than
5 years
£m
(2)
(1)
Total
£m
(18)
(5)
Cost
At beginning of the year
Recognised on adoption of IFRS 16
Disposals
Payments
At end of the year
Current
Non-current
Maturity of lease liabilities
At 30 April 2020
At 30 April 2021
188
188
7. Trade and other payables
10. Derivative financial instruments
FINANCIAL STATEMENTS
The assets and liabilities of the Company at 30 April in respect of derivative financial instruments are
as follows:
Derivatives held to:
Manage the currency exposures on business activities, borrowings
and net investments
Derivative financial instruments included in net debt
Derivatives held to hedge future transactions:
Energy and carbon certificate costs
Total derivative financial instruments
Current
Non-current
Assets
2021
£m
2020
£m
Liabilities
2021
£m
2020
£m
Net
2021
£m
2020
£m
–
–
115
115
80
35
115
13
13
48
61
34
27
61
(15)
(15)
(41)
(56)
(41)
(15)
(56)
(2)
(2)
(83)
(85)
(44)
(41)
(85)
(15)
(15)
74
59
39
20
59
11
11
(35)
(24)
(10)
(14)
(24)
Disclosures in respect of the Group’s derivative financial instruments are provided in note 21 to the consolidated financial statements.
11. Employee benefits
The Company participates in all of the Group’s UK pension schemes. The accounting valuation is consistent with the Group valuation, as
described in note 25 to the consolidated financial statements, where full disclosures relating to these schemes are given.
Present value of funded obligations
Present value of unfunded obligations
Fair value of scheme assets
Total IAS 19 deficit, net
Allocated to other participating employers
Company’s share of IAS 19 deficit, net
2021
£m
(1,182)
(7)
1,120
(69)
39
(30)
2020
£m
(1,162)
(7)
1,098
(71)
40
(31)
12. Share capital and reserves
Details of the Company’s share capital and merger relief reserve are provided in note 24 to the consolidated financial statements. Movements
in shareholders’ equity are shown in the parent Company statement of changes in equity.
The closing merger relief reserve of £32m relates to the shares issued in consideration to the sellers of EcoPack/EcoPaper.
The reserve for the Company’s own shares comprises the cost of the Company’s shares held by the Group. The Group operates a General
Employee Benefit Trust, which acquires shares in the Company that can be used to satisfy the requirements of the Performance Share Plan. At
30 April 2021, the Trust held 1.2m shares (30 April 2020: 1.5m shares). The market value of the shares at 30 April 2021 was £5.2m
(30 April 2020: £4.7m). Dividends receivable on the shares owned by the Trust have been waived.
As at 30 April 2021, the Company had distributable reserves of £1,688m (30 April 2020: £1,336m).
Annual Report 2021 dssmith.com 189
Annual Report 2021 dssmith.com 189
Notes to the parent Company financial statements (continued)
Trade payables
Amounts owed to subsidiary undertakings
Other tax and social security payables
Non-trade payables, accruals and deferred income
Non-current amounts owed to subsidiaries are subject to interest at rates based on LIBOR or EURIBOR, are unsecured, and are repayable
During the year the Company revised its loan structure with subsidiaries resulting in reclassification of loans between the current and non-
between 2023 and 2026.
current categories.
8. Borrowings
Bank loans and overdrafts
Medium-term notes and other fixed-term debt
Disclosures in respect of the Group’s borrowings are provided in note 20 to the consolidated financial statements.
9. Lease liabilities
The carrying amounts of lease liabilities and the movements during the year are as follows:
Current
Current
2021
Non-
current
£m
3,870
–
–
–
3,870
£m
15
164
10
34
223
2020
Non-
current
£m
199
–
–
–
199
£m
17
130
10
45
202
2021
2020
Non-
current
£m
–
2,062
2,062
Current
£m
35
30
65
Non-
current
£m
–
2,166
2,166
Current
£m
58
63
121
2021
£m
2020
£m
18
–
(12)
(1)
5
1
4
5
18
–
–
–
18
7
11
18
1 year
or less
£m
(7)
(1)
1–2
years
£m
(2)
(1)
2–5
years
£m
(7)
(2)
More than
5 years
£m
(2)
(1)
Total
£m
(18)
(5)
Cost
At beginning of the year
Recognised on adoption of IFRS 16
Disposals
Payments
At end of the year
Current
Non-current
Maturity of lease liabilities
At 30 April 2020
At 30 April 2021
188
FINANCIAL STATEMENTS
Notes to the parent Company financial statements (continued)
13. Cash and cash equivalents
Included within cash and cash equivalents is £nil (30 April 2020: £nil) restricted for use by the Company.
14. Contingent liabilities
Where the Company enters into financial guarantee contracts to guarantee the indebtedness of other companies within the Group, the
Company considers these to be insurance arrangements and accounts for them as such. In this respect, the Company treats the guarantee
contract as a contingent liability until such time as it becomes probable that the Company will be required to make a payment under the
guarantee. At 30 April 2021, these guarantees amounted to £5m (30 April 2020: £5m).
15. Related party disclosure
The Company has identified the Directors of the Company, its key management personnel and the UK pension scheme as related parties.
Details of the relevant relationships with these related parties are disclosed in the Remuneration Committee report, and note 31 to the
consolidated financial statements respectively.
16. Auditor’s remuneration
Auditor’s remuneration in respect of the Company is detailed in note 3 to the consolidated financial statements.
190
190
Notes to the parent Company financial statements (continued)
Included within cash and cash equivalents is £nil (30 April 2020: £nil) restricted for use by the Company.
13. Cash and cash equivalents
14. Contingent liabilities
Where the Company enters into financial guarantee contracts to guarantee the indebtedness of other companies within the Group, the
Company considers these to be insurance arrangements and accounts for them as such. In this respect, the Company treats the guarantee
contract as a contingent liability until such time as it becomes probable that the Company will be required to make a payment under the
guarantee. At 30 April 2021, these guarantees amounted to £5m (30 April 2020: £5m).
The Company has identified the Directors of the Company, its key management personnel and the UK pension scheme as related parties.
Details of the relevant relationships with these related parties are disclosed in the Remuneration Committee report, and note 31 to the
15. Related party disclosure
consolidated financial statements respectively.
16. Auditor’s remuneration
Auditor’s remuneration in respect of the Company is detailed in note 3 to the consolidated financial statements.
Five-year financial summary
Unaudited
Continuing operations
Revenue
Operating profit1
Amortisation
Share of profit of equity-accounted investments
before adjusting items, net of tax
Net financing costs before adjusting items
Profit before taxation and adjusting items
Acquisitions and divestments
Other adjusting items
Profit before income tax
Adjusted earnings per share1
Dividends per share
Return on sales2
Adjusted return on average capital employed1,2,3
FINANCIAL STATEMENTS
2017
£m
4,540
405
(63)
3
(56)
289
(7)
(55)
227
2018
£m
5,518
492
(90)
5
(62)
345
(28)
(57)
260
2019
£m
6,171
631
(114)
9
(71)
455
(32)
(73)
350
2020
£m
6,043
660
(143)
2021
£m
5,976
502
(142)
7
(87)
437
(4)
(65)
368
5
(78)
287
(5)
(51)
231
27.3p
14.1p
30.7p
14.4p
33.3p
16.2p
33.2p
n/a
24.2p
12.1p
8.9%
14.3%
8.9%
13.7%
10.2%
13.6%
10.9%
10.6%
8.4%
8.2%
1. Before amortisation and adjusting items.
2. Adjusted return on average capital employed is defined as operating profit before amortisation and adjusting items divided by average capital employed.
3. Average capital employed is the average monthly capital employed for the last 12 months. Capital employed is made up of property, plant and equipment, right-
of-use assets, goodwill and intangible assets, working capital, capital debtors/creditors, provisions, biological assets and assets/liabilities held for sale. Assets
and liabilities relating to discontinued operations are excluded. The definition of capital employed is different from the definition of managed capital as defined
in note 21 to the consolidated financial statements, which consists of equity as presented in the consolidated statement of financial position, plus net debt.
190
Annual Report 2021 dssmith.com 191
Annual Report 2021 dssmith.com 191
FINANCIAL STATEMENTS
Shareholder information
Financial diary
7 September 2021
9 December 2021*
9 June 2022*
* Provisional date
Annual General Meeting
Announcement of half-year results for
the six months ended 31 October 2021
Announcement of full-year results for
the year ended 30 April 2022
Company website
The Company’s website at www.dssmith.com contains the latest
information for shareholders, including press releases and an
updated financial diary. Email alerts of the latest news, press
releases and financial reports about the Company may be obtained
by registering for the email news alert service on the website.
Share price information
The latest price of the Company’s ordinary shares is available on
www.londonstockexchange.com. DS Smith’s ticker symbol is
SMDS. It is recommended that you consult your financial adviser
and verify information obtained before making any investment
decision.
Registrar
Please contact the Registrar at the above right address to
advise of a change of address or for any enquiries relating
to dividend payments, lost share certificates or other share
registration matters. The Registrar provides online facilities at
www.shareview.co.uk. Once you have registered you will be
able to access information on your DS Smith Plc shareholding,
update your personal details and amend your dividend payment
instructions online without having to call or write to the Registrar.
Dividends
Shareholders who wish to have their dividends paid directly into a
bank or building society account should contact the Registrar. In
addition, the Registrar is now able to pay dividends to over 90
different countries. This service enables the payment of your
dividends directly into your bank account in your home currency.
For international payments, a charge is deducted from each
dividend payment to cover the costs involved. Please contact the
Registrar to request further information.
Share dealing services
The Registrar offers a real-time telephone and internet dealing
service for the UK. Further details including terms and rates can be
obtained by logging on to the website at www.shareview.co.uk/
dealing or by calling 0345 603 7037. Lines are open between 8am
and 4.30pm, UK time, Monday to Friday.
192
Registered office and advisers
Secretary and
Registered Office
Stockbroker
Citigroup
Iain Simm
DS Smith Plc
350 Euston Road
London NW1 3AX
Registered in England No:
1377658
Citigroup Centre
33 Canada Square
Canary Wharf
London E14 5LB
J.P. Morgan Cazenove
Auditor
Deloitte LLP
Hill House
1 Little New Street
London EC4A 3TR
Solicitor
Slaughter and May
One Bunhill Row
London EC1Y 8YY
25 Bank Street
Canary Wharf
London E14 5JP
Registrar
Equiniti
Aspect House
Spencer Road
Lancing
West Sussex BN99 6DA
Other information
Information on how to manage your shareholdings can be found at
https://help.shareview.co.uk. The pages at this web address
provide answers to commonly asked questions regarding
shareholder registration, links to downloadable forms and
guidance notes. If your question is not answered by the
information provided, you can send your enquiry via secure email
from these pages. You will be asked to complete a structured form
and to provide your shareholder reference, name and address.
You will also need to provide your email address if this is how you
would like to receive your response. In the UK you can telephone
0371 384 2197. Lines are open 8.30am to 5.30pm Monday to
Friday. For call charges, please check with your provider as costs
may vary. For overseas, telephone +44 (0) 121 415 7047.
This report contains certain forward-looking statements with
respect to the operations, performance and financial condition of
the Group. By their nature, these statements involve uncertainty
since future events and circumstances can cause results and
developments to differ materially from those anticipated. The
forward-looking statements reflect knowledge and information
available at the date of preparation of this report and DS Smith Plc
undertakes no obligation to update these forward-looking
statements. Nothing contained in this report should be construed
as a profit forecast.
Pages 1 to 109 consist of a Strategic Report and Directors’ report
(including the Directors’ remuneration report) that have been
drawn up and presented in accordance with and in reliance upon
applicable English company law. The liability of the Directors in
connection with such reports shall be subject to the limitation and
restrictions provided by, and shall be no greater than is required
by, applicable English company law.
D
S
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P
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2
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2
1
DS Smith Plc
350 Euston Road
London
NW1 3AX
Telephone
+44 (0) 20 7756 1800
www.dssmith.com
Keep in touch
@dssmithgroup
@dssmith.group
DS Smith
DS Smith
Printed in the UK by Principal Colour Ltd
on Revive 100% recycled offset and
Revive 100% recycled silk.
Both manufactured at a mill certified to
both ISO 14001 and FSC® accredited.
Principal Colour Ltd are certified to the
ISO 14001 Environmental Management
System and FSC® accredited.
Designed and produced by
Black Sun Plc (London)
+44 (0) 20 7736 0011