Measuring Our Progress - DS Smith

Measuring Our Progress

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.

Strategy and Key Performance Indicators

  • To delight our customers
  • To realise the potential of our people 
  • To lead the way in sustainability
  • To double the size and profitability of the business

Our strategic goals are aligned with the requirements of all our stakeholders, so that we are delivering for all.

To delight our customers

We do this by:

  • Delivering on our commitments for quality and service
  • Providing value-adding packaging solutions
  • Driving innovation, rolled out internationally

On-time, in-full delivery (OTIF)

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.

ON-TIME, IN-FULL DELIVERY (OTIF)
Definition: Proportion of orders fulfilled on-time, in-full, across all businesses

2020/21 performance: 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.

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 
  • Ensuring the health and safety and wellbeing of all
  • Building capability for the future

Accident Frequency Rate (AFR)

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.

ACCIDENT FREQUENCY RATE (AFR)
Definition: The number of lost-time accidents (LTAs) per million hours worked

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. 

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

2020/21 highlights:

  • 23% CO2e per tonne reduction since 2015
  • 54 million units of plastic replaced in the year
  • Set a science-based target and committed to achieving Net Zero emissions by 2050

To double the size and profitability of the business

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

Like-for-like corrugated volume growth

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.

Like-for-like corrugated volume growth
Definition: Like-for-like volume of corrugated box products sold (excluding the effect of acquisitions and disposals) measured by area

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.

Return on sales

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.

Return on sales
Definition: Earnings before interest, tax, amortisation and exceptional items as a percentage of revenue

2021 Performance: Return on sales of 8.4 per cent, down 250 basis points in 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.

Return on average capital employed (ROACE)

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.

Return on average capital employed 2021
Definition: Earnings before interest, tax, amortisation and exceptional items as a percentage of average capital employed, including goodwill, over the prior 12 month period

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.

Net debt/EBITDA

Net debt/EBITDA is a key measure of balance sheet strength and financial stability.

Net Debt/EBITDA
Definition: 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.

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.

Cash conversion 

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.

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.

2021 Performance: Cash conversion was 150 per cent, in line with our target,
reflecting a particularly strong working capital improvement.