• DS Smith released a positive H1 22E trading update this morning: Structural demand trends and momentum persisted during May-October 2021. With “very” positive box volume growth, coupled with higher paper and box pricing, this has been more than enough to offset “significant” input cost increases. Their US operation’s performance continues to improve (c.13% of EBIT).
  • Corrugated box volume growth has been strong throughout H1 22E:  Regionally, DS Smith has grown in all areas, however, the US and Southern Europe have performed especially well. Despite the “re-opening of the high street”, e-commerce continues to grow. FMCG continues to comprise around 80% of their volumes, where demand remains strong.  
  • General theme of cost inflation continues to play out: Energy, OCC and logistic costs have increased significantly during H1 22A. On the energy front, encouragingly DS Smith’s LT hedging arrangements have shielded them with significant protection from recent rising energy costs. Considering current cost inflation, DS Smith believes this remains supportive of higher containerboard prices.
  • Strong cash flow generation to see MT gearing target reached: Net debt/EBITDA of c.2.0x is expected to be achieved in H1 22E, supported to a certain extent from the recent
    EUR 50mn disposal of the De Hoop paper mill.
  • Capital allocation focussed on leveraging accelerated growth trends from e-commerce and sustainability: Two new packaging plants in Italy and Poland are on track to be operational by Q4 22E, with more than 50% of capacity already pre-sold.
  • H1 22E results: DS Smith is expected to report H1 22E results on 9 December 2021.

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