DS Smith PLC
LSE:SMDS
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DS Smith PLC
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Good morning, ladies and gentlemen, and welcome to the DS Smith Q3 trading statement. My name is Courtney, and I'll be your coordinator for today's event. [Operator Instructions]I will now hand you over to your host, Miles Roberts, to begin today's conference. Thank you.
Firstly, good morning, everybody, and thank you very much for joining us today. I'm Miles Roberts, the CEO of DS Smith. And I'm joined here by Adrian Marsh, our CFO. Our trading statement released this morning relates to the period of trading since the 1st of November 2017. We're very pleased with the progress of the business in the period, reflecting the increasing relevance of sustainable packaging and our compelling customer offer. Box volume has remained strong, continuing the positive trend seen in the first half of the year, reflecting ongoing good progress with our multinational and e-commerce customers. Integration of our North American business is going extremely well. The business continues to perform ahead of our initial expectations, with packaging volume growth significantly ahead of the group average rate and the improved paper productivity.Recovery of recent increases in paper prices is also progressing well, fully in line with our expectations. This, together with our operational leverage coming from the strong top line growth, means that return on sales is expected to increase in this H2 period as compared to H1, and the full year return on sales is expected to be in line with that of the prior year, with trading overall fully in line with our expectations.And in addition, we're delighted to have completed yesterday the acquisition of Ecopack and Ecopaper in Romania. The acquisition will significantly enhance our capacity to serve customers in this very high-growth region as well as supporting our substantial wider Eastern European presence. So overall, I'm very pleased with how our strategy is delivering for customers and producing strong results. We continue to gain market share by delivering packaging that adds value to our customers as they look to improve the efficiency of their own operations. The excellent reaction from our U.S. customers reflects the differentiated offer we bring, including our expertise in retail-ready packaging and e-commerce. And at the same time, the benefit of a global supply platform for paper and fiber is being seen in the improved operational efficiency of our U.S. assets and greater coordination across the group. So we continue to be excited by the structural drivers that support the growth of sustainable packaging and the opportunities for DS Smith. Our outlook, therefore, is positive, and we remain confident in the future.I'd now like to invite any questions people have, which either myself or Adrian will answer. Thank you.
[Operator Instructions] So our first question comes in from the line of Barry Dixon.
Miles and Adrian, it's Barry Dixon here from Davy in Dublin. Just a few questions from me. Miles, you talked about further progress on box prices. You previously indicated 8% to 10% -- that you expected to get around the 8% to 10%. Can you give us any sense as to where you are in terms of achieving that target? Secondly, the box volume growth, I think, was 5% you reported in the first half. Is that kind of roughly what you've seen now in the second -- in your fiscal second half? And maybe you can give us some sense as to where you think the underlying market is growing and how much then you're getting from that increased market share. And then just finally, any update on the synergy target from Interstate?
Okay. So thank you, Barry. So box prices, we said previously that paper prices have increased roughly about EUR 80 to EUR 100 a tonne, depending on the grade. And if roughly, roughly packaging is EUR 1,000 a tonne, that means an 8% to 10% pay rise. That was obviously up to last year. And as you say we have a lag, typically, 3 to 4 months, but we're fully in line with recovering that. You should note that since the -- since we last spoke, it looks like paper prices will probably go up again, so therefore, there'll be a further increase required. But we are getting the increases that we have targeted. I should add that's on the back of very strong volume growth as well, and our volume growth has been slightly better in the second half than the -- second half to-date than the first half. That trend has continued to improve. And on the underlying market, we see it's running at about -- depends on the exact mix of business. But for our geographies, it's running at about just below 3% like-for-like growth. That's what we've seen for the -- what our estimate of the calendar year to December '17. It's to say, look, we haven't said anything on -- else on the synergies on the U.S. business. It is just a trading update, but I would emphasize that the business is going extremely well. We are delighted with the customer reaction. We're delighted with the integration with our people there. And I have to say, the supply chain as well that we're establishing between Europe and the U.S., so we continue to be very, very pleased with that.
The next question comes in from the line of Alex Mees.
Miles, a couple of questions, please. Just firstly, with regard to the organic growth, obviously continuing at a very strong level and given that the e-commerce is one of the key drivers, I wondered if you could just comment as to whether you think an elevated level of organic growth is possible to be sustained into 2019 as well as the rest of this year. And then just secondly, given all of the negative publicity around plastic packaging recently, I wondered if you saw any opportunities there for corrugated.
Thank you, Alex. If we look at the growth, as you know, we have a -- an absolutely leading position in e-commerce. We invested very heavily into it a number of years ago. And indeed, we are delighted with the relationship we have with many very large e-tailers. They continue to grow, but we've also seen the emergence of sort of the eBay customers, and we're getting very strong growth there in the mid- and the small tier as well. I should say when we look to our structural growth, that is one element of it, but let's not forget that e-commerce, in goods, represents less than 10% of total goods sold in Europe. And we are seeing a -- I think we highlighted in our half year a continuing structural move to our sorts of packaging, firstly, because of its recyclability. I already mentioned about e-commerce. We're seeing people shopping more frequently and, therefore, buying smaller pack sizes, which drives the use of our packaging. And of course, it's not just about e-commerce. We've got a whole changing consumer shopping landscape, the continual development of convenience, of discount, multiple formats; and again, that drives more packaging. So we are seeing an underlying strong growth that is flattered by e-commerce, but it's by no means the only story at all. It's always difficult to call it, but it does feel as if we are operating at a higher structural growth figure. That's partly why we announced the construction of 2 new box plants. We're -- where, obviously, we're cautious on investments. The recovery in Europe is certainly underway, but it's far from certain. We have announced 2, and frankly, we can't bring those 2 factories on quickly enough, such is the demand that we're getting for our solutions. You asked about plastics. There is a strong, I would say, consumer, not necessarily customer but certainly consumer awareness not just in the U.K. with following programs like Blue Planet. But just generally across Europe, consumers or the -- do a lot of research and -- with final consumers. We can see a reluctance for people to buy products in single-use plastics, and that's translating into our customers. And we are working hard with a number of them, thinking how can we replace single-use plastics. And it's not just the bottles for water. These are things like trays that go inside our food containers, to simple single-use plastics. We all see them all the time. How can we replace that with fiber-based solutions? We've obviously got the -- things like the coffee cup issue, and we're working hard with the solutions for that. Indeed, we're trialing a number of very innovative solutions that I have to say the initial results are extremely encouraging. But it's up to all of us to do more here and get people out of plastics and into fiber.
We currently don't have any further questions coming through. [Operator Instructions] Okay, there are no further questions coming through, so I'll hand it back over to yourself, Miles, for any concluding remarks.
Thank you very much for your time, as always. What I'll say is we remain very excited and confident about the future. Thank you for your time.
Ladies and gentlemen, thank you for joining today's call. You may now replace your handsets.