I last wrote about packaging firm DS Smith in July, following the announcements of its 2016/17 full year results. At the time the company announced that it was acquiring an 80% share of Interstate Resources for $920m. This week DS Smith published its six month results to 31 October 2017.
DS Smith has the majority of its earnings from overseas and is therefore sensitive to foreign exchange movements. The recent results benefitted from a weaker sterling but also showed good organic growth. The highlights included 5.2% like-for-like volume growth and 19% revenue growth (14% in constant currency). However, margins fell, mainly due to an increase in paper costs.
The integration of Interstate is progressing well and the company has upgraded the cost synergy target from $25m to $30m. It also announced in October the €208m purchase of EcoPack and EcoPaper, a packaging and paper group in Romania. The purchase of Interstate is DS Smith’s first venture into the US market. Compared with the European market, the US market is more consolidated, with the top five businesses comprising 74% of the market but it is a region the management has highlighted as an opportunity for expansion.
Growing convenience stores, a switch to e-commerce and the increased importance of sustainability (DS Smith is the largest paper recycling company in Europe) has led a drive towards DS Smith’s packaging solutions. This has helped generate the volume growth seen in the recent results. Later this month the company will be promoted to the FTSE 100 – a testament to the growth it has achieved both organically and through strategic acquisitions. However, going forward, DS Smith will hope to continue passing the higher costs of paper on to customers so that it does not negatively impact margins further.