Annual Report and Notice of AGM

RNS Number : 8344E
Smith (DS) PLC
08 July 2019

DS Smith Plc

(the "Company")



Publication of 2018/19 Annual Report and Accounts and

Notice of Annual General Meeting 2019



The Company's Annual Report and Accounts for the year ended 30 April 2019 and the Notice of the 2019 Annual General Meeting are today published and are available on the Company's website  Hard copy documents have been posted to shareholders who have elected to receive them.


The Company's 2019 Annual General Meeting will be held at 12 noon on Tuesday, 3 September 2019 at The Lincoln Centre, 18 Lincoln's Inn Fields, London WC2A 3ED.


In compliance with Listing Rule 9.6.1, copies of the following documents will be submitted to the UK Listing Authority and will shortly be available for inspection on the National Storage Mechanism website at


·                    2018/19 Annual Report

·                    Notice of Annual General Meeting 2019

·                    Form of Proxy for the Annual General Meeting 2019


In compliance with rule 6.3.5 of the Disclosure Guidance and Transparency Rules the documents can also be downloaded in pdf format from the Company's website


A condensed set of the Company's financial statements and information on important events that have occurred during the financial year and their impact on the financial statements were included in the 2018/2019 full year results announcement released on 13 June 2019.  That information, together with the information set out in the Appendix below, which is extracted from the Company's 2018/19 Annual Report, constitutes the material required for the purposes of compliance with DTR 6.3.5R.  This announcement is not a substitute for reading the Company's 2018/19 Annual Report.  





Iain Simm

Group General Counsel and Company Secretary

8 July 2019




The primary purpose of this announcement is to inform the market about the publication of the Company's 2018/19 Annual Report and Notice of Annual General Meeting 2019.


The information below, which is extracted from the Company's 2018/19 Annual Report and Accounts, is included solely for the purpose of complying with DTR 6.3.5R.  It should be read in conjunction with the full year results announcement released on 13 June 2019.  That information, together with the information set out below, which is extracted from the Company's 2018/19 Annual Report, constitutes the material required for the purposes of compliance with DTR 6.3.5R. This announcement is not a substitute for reading the Company's 2018/19 Annual Report.  Page and note references in the extracted information below refer to, respectively, page numbers and notes in the Company's 2018/19 Annual Report.


Principal risks (pages 49 to 50 and 52 to 55)


Making risk management work


Our priority is to ensure that DS Smith has a common understanding of risk management practices across all its businesses so as to inform strategic decision making and realise the potential opportunities for growth and development.


Members of the Board, Audit Committee and Group Operating Committee (GOC) maintain a high level of engagement on all aspects of the Group's approach to risk management. This positive 'tone from the top' is reflected well across the Group functions and divisions. There is a continuing emphasis on strengthening the relationship between our strategic priorities set out in the corporate plan and day-to-day risk management activities, whether this is by tracking risks in monthly divisional trading reports or through robust due diligence on acquisitions and new commercial ventures.


2018/19 was a year where our disciplined approach to balancing risks against identified opportunities resulted in changes to our business and risk profile, as shown by our purchase of Europac and the agreement to dispose of our Plastics division. Both these transactions enable us to remain on our strategic path despite the growth of external risks and changing geographical spread of our internal risks.  We continue to make sure our internal risks are supported with appropriate levels of investment and we have added to our risk management system of governance with two management committees.


Our framework for managing risks

Risk management is undertaken at all levels within the Group to support its growth and performance aspirations. One of our key principles is the effective management of those risks that give the Group a competitive advantage, where the Group has the scale, scope and capability to help realise benefits related to its value proposition to its customers and stakeholders. This risk strategy and the setting of objectives is executed by the GOC with assurance and oversight from the Audit Committee and Board.


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 Group's defined risk appetite is the translation of its corporate plan strategies into explicit statements on the level of risk it is willing to take.


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. We do this through the use and effective communication of relevant information, reporting and embedding them throughout our organisation's culture, capabilities and practices to foster better decision-making.


Report on our principal risks

The details of our principal risks and uncertainties and the key mitigating activities put in place to address them can be found on pages 52 to 55 and a summary is shown in the table overleaf. The principal risks are the ones that may have the greatest impact on our Corporate Plan and they have been discussed at Audit Committee meetings during 2018/19.


Our Group continues to be exposed to a wide range of political, market, cyber and macro-economic risks in addition to the principal risks listed in this report. These other risks are monitored as part of our standard operating processes to ensure that appropriate mitigations are in place as part of regular management reviews. When considered appropriate these reviews are supplemented by 'deep dives' in targeted risk areas. This year the Group focused on its cyber exposures across its network and industrial control systems, assessed cyber mitigation plans against current investments and priorities set out in its cyber security strategy and plans.  Whilst our capacity to influence many of these external risks is often limited, our reviews and 'deep dives' on specific external risks enable us to maintain effective mitigation strategies within our business model that can quickly flex and adapt to a changing world.


Emerging risks reporting

In addition to considering current principal risks, our established risk reporting process was adapted in 2018 with the development of an emerging risk report to supplement existing reviews. One area of focus, highlighted by this first report, is where our plans and business model design might not support a wider societal purpose. This was reflected by the emerging risk of water imbalances (demand with availability) in some areas of our operations due to changing weather patterns and a project to build water stress plans at relevant paper and packaging sites is underway. Whilst none of the reported emerging risks were promoted to our principal risk list, we remain mindful of the pace and potential impact that such risks might have on our Group strategy in the future. We will continue to embed this reporting process into our standard risk reporting procedures.


Our principal risks

Risk assessment summary

The principal risks have been updated to reflect our strategic priorities as well as the level of progress in managing them.


Risks redefined

·      Process change risk has been changed to a risk of failing to capture our margin targets.

·    Digital technology risk has been changed to a risk that we fail to drive packaging transformations through technology advances.

·      Consolidation risk has been amended to reflect the unpredictable nature of disruptive and emerging markets.


Key influences

·      Macro-economic and political environments in Europe and the broader world economies continue to be uppermost in our minds given the international nature of our supply chain and the competitive nature of the markets within which we operate. Despite the natural hedges we have built through acquisitions and investments, these risks will continue to evolve given future scenarios with the US and China, Brexit and other developments in international trading rules.


Increasing areas of focus

·      Whilst there are disruptive threats from competitor behaviours, including investments they may make in containerboard capacity, our plans take into account these potential impacts through asset management and footprint realignment, including our acquisition strategy.

·      Our ability to secure the right level of integrated paper supply remains a priority and effective management of this risk is a key part of our planning, which will be further enhanced by extending our network following the full integration of our Europac assets.


Alert to signs of change

·      Whilst we continue to see many opportunities to adapt to changing consumer behaviours and the growth in multi-channel distribution, we remain alert to the risk that consumer shopping habits may differ from our expectations.

·     We continue to see the risk that new fibre technology adopted by others could have a material effect on our key production processes and costs and our investments in paper innovation aim to utilise the positive effects of identifying and adopting new fibre technologies.


Principal risks


Principal risks

Gross impact/

Net impact


Link to strategy

Risk tolerance



Management controls

Board reviews

1. Acquisition strategy

Our growth strategy is designed to create better value through economies of scale and by adding new

products and services to our supply cycle network.




To double our size and profitability



• Our acquisition growth does not support our pan-European and FMCG customers as they seek to develop a more global supply chain.


• Acquisitions fail to address key areas of vulnerability in our integrated business model and in particular do not address security of supply through adequate integration.


• We could succeed in entering new key markets and targeting growth areas.


• We continue to maintain a positive track record across small and

large transactions.


• We have a diverse acquisition strategy which includes bolt-on transactions.


• Through the Group Strategy Committee,

our divisions have clear targeted investments in key markets and geographies (including the US).


• Updates from the Group Chief Executive on progress on the acquisition strategy were reported at each Board meeting.


• Specific M&A activity reviews were held at least quarterly.


• The Board received detailed updates on the Europac transaction and integration process.



Eurozone and macro- economic markets Exposure to multiple political and economic factors could impact consumer disposable income and/or the level

of industrial activity.



To double our size and profitability



• Weak consumer demand may slow down growth in the Eurozone (France, Germany and Italy).


• Adverse exchange rate positions may create unpredictable pressures on pricing for our key commodities.


The UK's exit from the EU might require unprecedented adjustments to our business model that we may not have foreseen.


• Opportunities to reposition our business model outside of our traditional markets.


• Opportunities to re-adjust sources of supply.


• Opportunities to prioritise cost optimisation and efficiency improvements across all divisions and Group functions.


• Management teams continue to lead projects based on cost optimisation and operational efficiency.


• We continue to invest and actively manage

in a strategy to address any long-term Eurozone currency imbalances by managing impacts of short-term slower-growth markets in higher-growth geographies.


• At each Board meeting the Group Chief Executive and Group Finance Director presented reviews and forecasts on the impact of the macro-economic environment.


• Regular discussion in Group Chief Executive reports on Brexit and implications.


Paper supply

Large fluctuations in the

demand and supply dynamics

of fibre and the economic consequences of this can affect our long-term position as a net purchaser of paper from third party suppliers.




To double our size and profitability



• Our short paper supply strategy may leave the Group over-exposed to the threat of significant commodity price volatility.


•Unanticipated and prolonged price increases of specific paper grades sourced externally which are required to meet the demands of the Packaging division's Performance Assurance Consistency Environmental project.


• Improving supply chain performance

by challenging our closed-loop and

paper strategy.


• Accessing additional recycled paper material outside of the UK.


• Improvements in our internal supply of kraft paper from the Europac acquisition.

• Effective integration and review of all recycled

paper/kraft paper across all geographies

managed by our Paper division.


• Management oversight on the development of supply chain optimisations.


• Progress reporting of innovation activities including the use of mixed paper in our mills, fibre mining technologies and extraction of clean fibre.


• The Board regularly discussed M&A

opportunities with specific focus on

security of supply.


Capital markets and liquidity

Political, economic and credit impacts may have an adverse effect on our growth financing.



To double our size and profitability



• Continued uncertainty about how the UK's exit from the EU might be implemented.


• Failure to meet funding needs on favourable debt terms.


• Unplanned decreases and/or changes in sources of finance.

• Securing access to suitable sources of debt capital through effective active management of our core banking partners.


• The Group has access to bank funding from its revolving credit facility, maturing in 2023.


• Additional funding is available from other three-year facilities.


• We have extended maturities on our debt by raising longer dated debt in the bond markets.


• History of successful equity issuance.


• The Audit Committee regularly reviewed liquidity schedules, exchange rates, cash flows and covenant headroom.


• The Group Finance Director regularly updated the Board on finance options, including Euro-financing and debt financing arrangements.



Disruptive markets Market consolidation and disruptive behaviours in our markets weakens our position and bargaining power.




To double our size and profitability



• Our weaker competitive position in some markets may decrease sales volumes and margins.


• Competitors may succeed in imitating our integration model and challenge our supply cycle business model.


We may face a 'perfect storm' scenario where customers, suppliers and competitors dominate.


• Exploring a broader footprint for our packaging business.


• Assessing attractiveness of emerging markets, given their growing populations, economies and increased demand for branded consumer goods.

• Maintaining strategic project management to respond to new containerboard capacities and a changing geography of packaging customers.


• Regular reviews and updates to evaluate the scope and scale of our recycling footprint.


• Active project management focused on cost optimisation and footprint improvements.


• The Group Finance Director provided the Board with regular updates on market and competitor activity.




Non-compliance with local laws or regulations

may damage our corporate reputation and subject

the Group to significant financial penalties.




To delight our customers


• Direct intervention due to anti-trust laws.


• Cultural differences in newly acquired businesses may challenge the Group's business ethics.


• Greater constraints on handling food due

to contamination risk may require significant changes to product design and manufacturing.


• An opportunity to demonstrate a standard of ethics and behaviour well above expectations of all stakeholders.


• Enhanced collaboration with stakeholders to monitor the implications of change in the regulatory landscape.

• Creation of the Group Compliance Committee to oversee a broad range of compliance subjects.


• Regular assessment of compliance risks between sustainability and government and community affairs team.


• Manage oversight of our Vision Zero linking health and safety to all business activities.



• The Audit Committee regularly reviewed results of the internal control reports.


• The Board received an internal corporate governance update at almost every meeting.


• The Audit Committee received regular reports on ethics and compliance.



Changes in shopping habits

Our investments in innovative packaging fail to match expected growth in consumer spending.




To double our size and profitability



• Our customers may reject our e-commerce proposition.


We may not be quick enough to adapt to changes in use of substitute products.


Innovation may not be a sufficient driver of change for traditional single-use and recyclable packaging so as to broaden our offering in existing markets.


• Identifying early signs of growth opportunities by actively engaging with our customers and stakeholders.


• Exploring new opportunities in the packaging business by active engagement with customers on alternative paper packaging solutions.


• Fully resourcing an internal organisation

to grow and develop the e-commerce segment.


• Managing 'front end' supply chain services with fast moving consumer goods, industrial,

heavy-duty and display markets.


• Evaluations of our business model focused on strategic segments including end-to-end services.


• Board updates with innovation presentations.


• Board considered customer shopping habits as part of Group strategy review.



Talent barriers

Despite our commitment

we may fail to retain, engage and develop a productive workforce and to develop key talent.




To realise the potential of our people


• Weaknesses in our organisation fail to drive innovation, manage change and engage our workforce.


• We do not harness agile working practices across our internal talent pool.


• Developing employee centred mobile processes by using global IT systems to ensure effective use of skills

and resources.


• Succession planning, international job rotation and talent pipeline.


• Managing our critical talent recruitment programme across our packaging academies.


Implementation of DS Smith Management Standards enhancing how people are managed and developed.




• The Nomination Committee regularly reviewed Board succession planning and talent management.


• The Group Chief Executive and the senior human resources team updated the Board and the Nomination Committee on senior management and talent management programmes.



Packaging transformations

Inability to integrate our digital printing technology and to integrate our innovations to drive further integration between customer products and the 'Internet of Things'.




To delight our customers


• Our inability to anticipate the shift in consumer buying habits influenced by digital technologies.


• Our inability to adopt technology quickly enough to maintain innovative growth for our

packaging business.


• Cyber-risk hinders the integrity of our business systems.


• Enhancing our e-commerce and digital technology competencies.


Adding value by focusing on IT eco-systems and a digital strategy to support long-term customer partnerships.

• Sales and marketing organisation operates alongside 'material related' innovation teams.


• Continued investments in digital printers, automation (including robotics) and machine innovations.

• The Board reviewed packaging transformation risks as part of the Corporate Plan process.


• Cyber security assessment report (based on international standards).


• IT network management and security review.

External advisory guidance on key cyber risks.


Changes in fibre technology

We may fail to exploit major developments in fibre usage or substitution.



To double our size and profitability



• Our inability to adapt to rapid technological changes in new fibre recovery, fibre/paper technology or packaging material technology.


• Our failure to manage a material decline in fibre quality, and leakage of fibre to other applications.

Exploring the use of virgin fibre in a sustainable manner, including production of kraft substitute and kraft top products.


• Continuing opportunity to develop our integrated innovation strategy.



Additional investments in research and development of fibre recovery, pulping, paper making and performance packaging.


Improving the management of maximisation of fibre efficiency.


Regular business assessments of investments in fibre recovery and stock preparations.


• The Board regularly discussed the security of supply of existing materials as part of M&A updates.




We may under deliver the required level

of transparency,

clarity and commitment to sustainability.




To lead the way in sustainability


• Inability to manage energy demand needs within our sustainability targets.


• Shift in recycling behaviour and consumer demand may hinder our competitive edge.


• Inability to reach and adequately disclose a higher standard/target as part of a DS Smith promise or as required by customers or regulators.

• New insights by creating a capex programme designed to enable continued progress on key sustainability targets.


• Listening to our stakeholders and encouraging wider engagement.




• Continued disclosure of our sustainability data to provide visibility and assurance

to our stakeholders.


• Further investment to improve management capabilities in sustainability operations.


• Internal sustainability KPIs to track measures important to our key stakeholders were set.





• The Board received updates on Group sustainability performance.


The Board received updates on the Kemsley power project.


Margin capture

We may fail to develop a comprehensive and sustainable approach

to manage our net profit margins driven by the variability of input costs with output prices.




To double our size and profitability




• Inability to create added value by mismanaging input costs with over commitments and an under-priced ceiling on products and services.


• Failure of strategic process change or critical system implementation failure.





• Ability to enhance the effectiveness of fibre and other efficiency programmes.


• Ability to build a distinct discipline around the themes of materials, machines, digital and supply chain.


• Management and investments in commercial functions designed to improve value growth.


• Improved project management approach to process change initiatives.


• Specific management reviews of product and account management.


• The Group Chief Executive and Group Finance Director presented the Board with regular updates.



Related Party Transactions (page 154)


Note 32 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 25). Included within the share-based payment expense, and detailed in the Remuneration Committee report, is a charge of £2m (2017/18: £3m) relating to key management personnel.


Transactions with pension trustees are disclosed in note 24.


Other related party transactions







Sales to equity accounted investees



Sales to other investees



Purchases from equity accounted investees



Purchases from other investees




Directors' Responsibilities (page 97)


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 Financial Reporting Standards (IFRSs) as adopted by the European Union and Article 4 of the IAS Regulation and 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.


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 United Kingdom 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 12 June 2019 and is signed on its behalf by Miles Roberts, Group Chief Executive and Adrian Marsh, Group Finance Director.

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