## ANNUAL REPORT 2023 DS Smith Plc Annual Report 2023 ## ANNUAL REPORT 2023 ### FINANCIAL NON-FINANCIAL ## £8,221M 10.5% 762M 1 Revenue Return on sales units of plastic replaced since 2020 3 3 (2022: £7,241m) (2023: +11% ) (2022: 8.5%) (2023: +190bps ) (target of one billion units of plastic replaced by 2025) ## +35% £661M 15% 1,3 | Adjusted operating profit | Profit before tax | | | | | | --- | --- | --- | --- | --- | --- | | | | | CO | 2 e tonnes reduction since 2019 | | | (2022: £616m) (2023: £861m) | | 3 | | | | | | (2022: £378m) (2023: +71% | ) | (10% CO | | 2 e tonnes reduction vs 2022) | ## +14.3% 18.0P 100% 2 ROACE Dividend per share reusable or recyclable packaging (2022: +10.8%) (2022: 15.0p) (2023: +20%) manufactured (target achieved) ## 1.3X £354M 6% 1 Net debt/EBITDA Free cash flow reduction in accident frequency (2022: net debt/EBITDA 1.6x) (2023 cash conversion: 101%) rate vs 2022 1. Based upon continuing operations, before adjusting items and amortisation. These are all non-GAAP performance measures – see note 32 to the consolidated financial statements. 2. Operating profit before amortisation and adjusting items as a percentage of the average monthly capital employed over the previous 12 month period. 3. Based on constant currency. 42 Risk management Financial Statements ### CONTENTS | | | 45 | Principal risks | | | | --- | --- | --- | --- | --- | --- | | | | | | 122 | Independent Auditor’s report | | | | 50 | Viability statement | | | | Strategic Report | | | | 132 | Consolidated income statement | | | | 52 | Task Force on Climate-related Financial | | | | | | | | 133 | Consolidated statement of | | 1 | Why invest in DS Smith? | | | | | Disclosures (TCFD) comprehensive income | 2 | Our business – at a glance | | | | | | --- | --- | --- | --- | --- | --- | | | | 64 | EU Taxonomy | | | | | | | | 134 | Consolidated statement of | | 3 | Our Purpose framework | | | | | | | | 66 | Non-financial and sustainability | | financial position | | 4 | Understanding our customers | | information statement | | | | | | | | 135 | Consolidated statement of | | 6 | The DS Smith difference | | | | changes in equity | Governance | 8 | Chair’s statement | | | 136 | Consolidated statement of cash flows | | --- | --- | --- | --- | --- | --- | | | | 70 | Board of Directors | | | | 9 | Section 172 statement | | | 137 | Notes to the consolidated | | | | 74 | Chair’s introduction to governance | | | | 10 | Group Chief Executive’s review | | | | financial statements | | | | 76 | Division of responsibilities | | | | 12 | Our business model | | | 195 | Parent Company statement of | | | | 78 | Corporate governance in context | | financial position | | 14 | Stakeholder engagement | | | | | | | | 79 | Board leadership and Company Purpose | 196 | Parent Company statement of | | 16 | Our strategy and KPIs | | | | | | | | 81 | Nomination Committee Report | | changes in equity | | 18 | To delight our customers | | | | | | | | 84 | Audit, risk and internal control | 197 | Notes to the parent Company | | 20 | To realise the potential of our people | | | | | financial statements 86 Audit Committee Report 24 To lead the way in sustainability Five-year financial summary 204 | | | 92 | Remuneration Committee Report | | | --- | --- | --- | --- | --- | | 30 | To double our size and profitability | | | Shareholder information | | | | 119 | Additional information | | | 31 | Operating review | | | | | | | 121 | Statement of Directors’ responsibilities | | | 36 | Financial review | | | | FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT ## DIFFERENCE ## WHY INVEST IN DS SMITH? Our scale, innovation, sustainability credentials and strong purpose set us apart. ## STRONG STRONG ## MARKET DRIVERS CUSTOMER BASE Helping our customers by designing Ever-deeper relationships with our out waste, keeping valuable predominant customer base of materials in use and making it easier blue-chip, resilient fast moving for consumers to reuse and recycle consumer goods (FMCG) and packaging. consumer brands. Market share growth through exceptional service, We have already replaced over innovative products and security 762 million items of single-use plastic ofsupply. from customers’ supply chains. ## AN INDUSTRY A SUSTAINABILITY STRONG FINANCIAL ## LEADER LEADER POSITION A leading supplier of innovative, The only solely fibre-based major Revenue growth +11 per cent. sustainable packaging solutions in packaging company in Europe and Adjusted operating profit growth more than 30 countries with Europe’s largest cardboard and paper +35 per cent. | continued investment in our asset | recycler. We are driving the transition | | | --- | --- | --- | | base, research & development (R&D) | to the circular economy with | Strong free cash flow and leverage | | andinnovation. | ambitious targets in plastic | reduced to 1.3x net debt/EBITDA. | replacement and reducing greenhouse gas (GHG) emissions, resulting in improved ESG ratings. ## WINNING WITH Annual Report 2023 dssmith.com 1 OUR BUSINESS ## AT A GLANCE ### DS Smith is a leading provider of sustainable fibre-based packaging across Europe and North ### America which is supported by recycling and paper-making operations. It plays a central role ### in the value chain across sectors including FMCG, industrials and e-commerce. ### PACKAGING PAPER ### RECYCLING | We are a leading international sustainable | We are a leading international manufacturer of | We provide a full recycling and waste | | --- | --- | --- | | packaging company, with innovative packaging | corrugated case material (CCM), which is the | management service. We are Europe’s largest | | solutions made from recycled and/or recyclable | paper used for conversion into corrugated | cardboard and paper recycler and are also one | | material. We deliver innovative, fully fibre- | board. We also manufacture specialist paper | of the leading full service recycling and waste | | based corrugated products across Europe and | grades such as plasterboard liner. We operate | management companies in Europe. We collect | | North America for consumer products, | 13 CCM paper mills, 11 in Europe and two in the | quality paper and cardboard for recycling from | | e-commerce, promotion, transit and industrial | US. Of those, two are kraftliner mills (virgin | a range of sectors which provides cost efficient | | packaging. Wecomplement our product range | paper – one in the US, one in Europe) and the | raw material for the Group’s recycled paper- | | with consultancy on supply chain optimisation | remainder are principally dedicated to the | making processes. We also sell used fibre to | | and creative design. | production of recycled CCM (testliner). We also | third parties globally. | have two small mills in Europe producing specialist paper grades. c. 25,000 employees c. 4,000 employees c. 1,000 employees 2 c. 8.6 billion m corrugated c. 4.0 million tonnes CCM c. 5.7 million tonnes fibre board sold in 2022/23 produced in 2022/23 managed in 2022/23 ### WHERE WE OPERATE Our business operates in four geographic segments. Northern Europe 2022/23 Revenue 2022/23 Employees Belgium, Denmark, Finland, Germany, Netherlands, Norway, Sweden, Switzerland and United Kingdom £664m c. 2,000 Southern Europe France, Italy, Portugal andSpain £1,275m c. 11,000 c. 8,000 £3,132m Eastern Europe Austria, Bosnia and Herzegovina, Bulgaria, Croatia, Czechia, Estonia, £3,150m Greece, Hungary, Latvia, Lithuania, c. 9,000 North Macedonia, Poland, Romania, Serbia, Slovakia, Slovenia and Türkiye North America United States 2 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT OUR PURPOSE FRAMEWORK ## OUR PURPOSE AND VALUES ### REDEFINING PACKAGING FOR A CHANGING WORLD Our Purpose to Redefine Packaging for a Changing World focuses our DS Smith team on the rapidly evolving world around us, as consumers’ lives and shopping habits change, and digitalisation accelerates. Itencourages us to look outside the confines of the packaging industry and forward, to see how these changes will influence shopping patterns, impacton the environment, and the role packaging can play in a more sustainable experience for all. Our Purpose sharpens our instincts and encourages us to tackle some of the world’s biggest challenges, such as replacing problem plastics. It feeds all parts of our organisation, including people, policies, R&D, design and customer interactions. ### WE DELIVER OUR PURPOSE THROUGH OUR STRATEGIC GOALS... To delight our customers: To realise the potential of To lead the way in To double our size and by delivering outstanding our people: by creating a safe sustainability: by bringing profitability: by driving resultsto them as we increase environment where every ourcustomers into the circular operational and commercial their sales, reduce their costs, colleague can develop their economy using recyclable excellence, growing our manage their risk and become skills and ideas materials responsibly in our marketshare and expanding circularready circular business intonew markets See pages 16-17 for more information ### AND OUR NOW & NEXT SUSTAINABILITYSTRATEGY... Our focus is on: Circularity Carbon People & Communities Nature Designing out waste and Decarbonising our Creating a safe, diverse and Protecting and pollution, and keeping operations and value chain inclusive workplace and being regenerating nature materials in use active in our communities See pages 24-29 for more information ### WHICH HELPS US DELIVER OUR VISION TO BE THE LEADING SUPPLIER OF ### SUSTAINABLE PACKAGING SOLUTIONS Underpinned by our values: Be caring Be trusted Be challenging Be tenacious Be responsive We take pride in what we We can always be trusted We are not afraid to We get things done We seek new ideas do and we care about our to deliver on our promises constructively challenge and understanding customers, our people and each other and ourselves and are quick to react the world around us to find a better way to opportunities forward Annual Report 2023 dssmith.com 3 ### DYNAMICS OF OUR MARKETS Sustainability E-commerce Packaging has grown in the consciousness of consumers, Growth has steadied but the opportunity in e-commerce and more of it now arrives in the home environment. Given remains significant. High-quality packaging is an essential our innovation and sustainability credentials, concerns element of this supply chain, putting us in a unique about plastic and over-packaging create opportunities position to develop innovative, sustainable solutions. for us. Digital and data Greater focus is also placed on sustainable supply chains and our customers are looking for strong ESG credentials Enhancing our capability is critical to our growth agenda. in their suppliers. We are testing new applications throughout our business, including deploying real time data analysis within our Retail supply chain and manufacturing processes as part of our approach to monitoring inventory, and reducing costs. The increased cost of living has driven footfall to discount supermarkets, growing the demand for shelf-ready See more www.dssmith.com packaging that optimises costs, and generating opportunity for us to innovate in this space for our customers. 4 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT The corrugated packaging market size in Europe was $28 billion in 2022 (source: Smithers Pira). ## We support many of the world’s largest ## FMCG companies, delivering scale, ## quality and innovation to meet their ## sustainability agendas. Change brings innovation and opportunity Concerns around climate change have prompted consumers to consider the way they relate to packaging, and purchasing choices are increasingly influenced by those companies offering more sustainable solutions. There is mounting pressure on retailers and brands to live up to consumers’ sustainability expectations, and with our strong customer base in comparably resilient FMCG markets, we are well positioned to maximise the opportunity this brings and support our customers to meet that demand. Sustainability also continues to rise up the agenda for governments, with many proposing legislative changes aimed at limiting the use of single-use plastics and encouraging reuse. Consumers remain keen to use less plastic, and in meeting that demand, we have already replaced 762 million pieces of plastic in partnership with our customers since 2020. Innovation is at the heart of our response to consumer trends, and this autumn, we will launch our flagship Global R&D and Innovation Centre for ideation, design, testing, piloting and collaboration in Redditch, UK. Elements of this facility take SNAPSHOT OF inspiration from the car industry and deploy robotics to install OUR CUSTOMERS and test pilot product and service innovations, so that customers can visualise how we can meet consumer demand for sustainable We align to our customers’ needs, solutions, help them transition to the circular economy, and drive responding with agility and helping their sustainability agenda. drive their sustainability agenda. Expanding into Europe and building As the world continues to evolve and consumer preferences shift new, state-of-the-art sites that with it, we continue to tailor our solutions, helping our customers meet demand for innovative, to respond to these trends while meeting our shared sustainable solutions, we go where sustainability ambitions. our customers are. Annual Report 2023 dssmith.com 5 ### “We collaborate with DS Smith for the long term, and for ### the past ten years we have partnered on an exclusive supply ### basis. The strength of such relationships is put to the test in the ### hardest times, and DS Smith has proven a core partner to us. ### They have demonstrated time and again that they can carry the ### responsibility of our exclusive agreement, and have the right ### culture to protect and prioritise our business, especially when it ### comes to shielding consumers from inflationary costs, for which ### we appreciate the very conscientious approach they take.” Vinzenz Gruber Executive Vice President & President, Europe, Mondelēz International 6 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT 11% REVENUE GROWTH 2022/23 was an exceptional year for DS Smith, demonstrating the quality and value we deliver for our customers. ## Our differentiators and continued ## investment position us tosucceed. ## We are driving the transition to the ## circular economy by partnering with our ## predominantly FMCG customer base as ## a leading supplier of innovative, ## sustainable packaging solutions. Our customers value: Local market presence We invest with our multinational customers, who choose us because we offer consistency of service levels across territories. Security of supply We provide quality and security of supply that further strengthens long-standing, deep customer relationships. Forward-thinking and innovation Demand for sustainable packaging drives the need for innovation – our Circular Design Metrics help our customers create INNOVATING FOR sustainable packaging. OUR CUSTOMERS Tailored packaging solutions Sustainability sits at the heart of our business, and innovation and R&D We tailor solutions in response to consumer trends, such as are its critical enablers. To ensure growing demand for fibre-based packaging and evolving we continue to meet customers’ shopping habits and channels. needs, we are undertaking research Sustainable supply chains into the impact of the modern We use our Circular Design Principles to bring customers into the supply chain on packaging, and circular economy and meet their sustainability commitments, and continue to explore how they value our ambitious goal to reduce GHG emissions by alternative, bio-based fibres can be aligning our global operations to our validated 1.5°C target. used as a raw material to design out problem plastics in our new Fibre Replacing plastic Laboratory at Kemsley Mill, UK. We have replaced over 762 million items of plastic since 2020, and continue to explore alternative fibres drawn from bio-based materials. Annual Report 2023 dssmith.com 7 ## CHAIR’S STATEMENT ### Our customers continue to value the exceptional ### service, innovative products and security of ### supply we provide, and this has helped us to ### strengthen our relationships with them. Geoff Drabble Chair Strong strategic progress Sustainability I am delighted with the strategic progress we have made this The structural growth drivers remain strong in our industry with year. Our customers continue to value the exceptional service, sustainability driving change in our customers’ offerings and how innovative products and security of supply we provide, and this we work with them. Sustainability has always been at the heart has helped us to strengthen our relationships with them and gain of our business, both in how we operate, but also how we help market share. During the pandemic and over the last year we our customers solve their sustainability challenges. In the year, have focused on delivering for our customers, innovating with we saw a further significant acceleration in our customers’ them and helping them become more efficient while achieving aspirations for plastic replacement, commitment to carbon their sustainability goals, resulting in closer working relationships. reduction and move towards a circular economy. Our strong performance this year would not have been possible In 2022/23, we refreshed our Now & Next Sustainability Strategy without the commitment and hard work of our colleagues and on (read more on pages 24 to 29). The refreshed strategy behalf of the Board, I would like to thank them all, as well as incorporates the value of nature-based solutions for climate welcoming those who joined DS Smith during the year. change adaptation and mitigation, and builds on a strong foundation of health and safety and diversity, equity and We continue to be excited by the long-term growth drivers of inclusion. This includes ambitious targets to transition to the low corrugated packaging and our strong performance and financial carbon, circular economy of the future that will benefit people, position enable us to continue to invest in our business, nature and business. supporting our customers and driving profitable growth for DS Smith. The Board Our new packaging sites in Italy and Poland were opened in the In September 2022 Adrian Marsh, Group Finance Director, year and are now fully operational. These sites provide state-of- informed the Company that he planned to retire from his role the-art technology and the capacity to allow us to take advantage once a successor was in place. Adrian has been instrumental in of the customer demand and growth in these regions, and we are the growth and success of the Company over the last decade confident in the returns they will deliver. We continue to invest in which has been a period of great progression for the business. our products and services, innovating to help our customers drive On a professional level, he has significantly developed the their sustainability agenda. We are also investing for the finance function and our colleagues within it to reflect the environment to drive efficiency and reduce our greenhouse gas growth and internationalisation of the Group, and on a personal (GHG) emissions, supporting the delivery of our Science-Based level, the Board and I have greatly enjoyed working with him over Targets initiative (SBTi) validated target. many years. On behalf of the Board and the Company, I would very much like to thank Adrian for his major contribution and commitment to DS Smith and wish him well in his retirement. 8 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT I am also pleased to welcome Richard Pike as Adrian’s Strong financial performance and position replacement. Richard has been Chief Financial Officer of Biffa plc, We have delivered another year of strong profit growth and cash a UK sustainable waste management business, for the last four generation, reducing our net debt/EBITDA leverage ratio to 1.3. years and has enjoyed a highly successful career in finance, including a decade of leadership roles in manufacturing. Richard Our capital allocation priorities remain focused on disciplined joined as Group Finance Director designate on 29 March 2023 and investment to support growth with our customers and drive will take over from Adrian on the Board on 30 June 2023. shareholder returns while maintaining a robust balance sheet. I would also like to welcome our new Non-Executive Director, Eric The Board considers the dividend to be a very important Olsen, who joined the Board in May of this year. Eric’s extensive component of shareholder returns. experience in the fields of finance, human resources, strategy, Our strong financial performance and our good cash management operations and global leadership will contribute a deepening of allow us to grow our dividend. In respect of 2022/23, we paid an the range of perspectives brought to the Board’s discussions (see interim dividend of 6.0 pence and propose a final dividend of our Board of Directors on pages 70 to 73 for more information). 12.0 pence per share, taking the total dividend for this year to 18.0 pence per share. This represents a significant growth of Health and safety 20% versus 2021/22 and a cover of 2.0-2.5 times, in line with our Our values and priorities continue to drive the culture and progressive policy (see the Financial review on pages 36 to 41 for operating practices within our business. Our primary areas of more information). focus are always for the safety, health and wellbeing of our employees and serving our customers in these challenging times. Our strategic direction and outlook Once again, I am very proud of our people, working to serve our While economic conditions have continued to be volatile and box customers in a safe operating environment. Despite the many volumes have remained lower than normal, trading for the year th challenges we have faced, this is the 15 consecutive year we to date is in line with our expectations. Our strong customer have seen an improvement in our health and safety KPI (see page relationships in the resilient FMCG sector, together with the 16), an area that is a key priority for the Board. investments we are making to drive cost efficiencies and growth, give us confidence for the future. ### ENGAGING WITH STAKEHOLDERS: SECTION 172 STATEMENT The Board aims to promote the success of the Company for the benefit of its shareholders as a whole, taking into account the long-term consequences of its decisions and looking at those decisions through a variety of lenses. This involves the Board and management considering in detail and discussing the interests of the Company’s stakeholders including our customers; our people; our investors; our suppliers; local communities and non-governmental organisations; the importance of maintaining our reputation for high standards of business conduct and acting fairly as between shareholders; and the environment. More information about our stakeholders is set out on pages 14 and 15. More information about the Board balancing stakeholder interests is set out on pages 74 and 75. Examples of what that has looked like in practice over the past year are summarised below. Engagement with all our stakeholders is led by our executive teams, who in turn regularly update Board members, via presentations and briefings. In the governance section of this Annual Report we use s172 to highlight the examples referred to below. These illustrate aspects of the Board’s approach to its duties under section 172 of the Companies Act 2006: Stakeholder Strategic Report Governance Our customers Pages 4 to 7 (collaboration), 14 (engagement) Page 79 and 80 (engagement with our customers via updates from sales, marketing and innovation functions) Our people Pages 14 and 21 (engagement and feedback), 21 Pages 79 (engagement with our workforce), 79 (EWC meetings), (decisions made in consultation with employees), 79 (EWC representative attending Remuneration Committee 21 (engagement on health and safety), 21 (global meetings and Remuneration Committee Chair attending EWC recognition programme) Executive meetings), 79 (update on diversity, equity and inclusion and employee resource groups), 80 (in-person site visits) Our investors Page 14 (engagement) Pages 79 (engagement with our shareholders), 79 (briefing on views of institutional investors) Our suppliers Page 15 (engagement and supplier standards) Page 79 (engagement with our suppliers via updates from Group procurement) | The environment and | Pages 15 (engagement with stakeholders on | Pages 75 (briefing on next phase of activity to realise | | | --- | --- | --- | --- | | communities | | | O | | | environmental matters and charitable giving), 15 | commitment to align to a 1.5 | C scenario), 80 (engagement with | | | (engagement with ESG rating agencies) | other stakeholders including briefing on community engagement) | | | Governments | Page 15 (engagement) Page 80 (briefing on engagement with other interested | | | and non- stakeholders including on topics such as the new Packaging and governmental organisations Packaging Waste regulations) This statement is made in conformity with the requirement to explain how directors fulfil section 172 of the Companies Act 2006. Annual Report 2023 dssmith.com 9 ## GROUP CHIEF EXECUTIVE’S REVIEW ### The route to the circular economy depends upon ### new thinking, so alongside our high-quality asset ### base, we continue to invest intoinnovation, ### digital and data to drive sustainable solutions. Miles Roberts Group Chief Executive Leading the transition to the circular economy Our own sustainability agenda goes from strength to strength and in 2022/23, we refreshed our Now & Next Sustainability We have delivered an exceptional performance over the past Strategy, to ensure that it is fit for our dramatically 12 months despite the challenging environment, achieving a changing world. 35 per cent increase in profitability and continued market share gains. As well as a year of progress, it cannot be denied that it has Demonstrating our commitment to reducing carbon emissions, also been a year of volatility. Our thoughts remain with all those this year new and more energy efficient initiatives have launched that are suffering as a result of Russia’s invasion of Ukraine. at our sites in Viana, Portugal, Lucca, Italy, Aschaffenburg, Germany, and Rouen, France. Against an uncertain geopolitical and macroeconomic backdrop, our consistent and long-term strategy has enabled us to be both We are committed to the most ambitious carbon reduction target dynamic and dependable in meeting our customers’ evolving in the industry: a 1.5°C science-based target to reduce Scope 1, 2 needs. We have provided quality and security of supply that and 3 greenhouse gas (GHG) emissions 46 per cent by 2030 further strengthened our relationships, while continuing to compared to 2019. We have also committed to reach Net Zero invest into innovative and sustainable products and services, GHG emissions by 2050. Our achievements are being recognised strengthening our lead in the circular economy. independently, where we have been featured in the S&P Global 2023 Sustainability Yearbook, alongside some of the world’s This positions us well to maximise on opportunities for growth, best performing companies for corporate sustainability. and we continue to build on a platform of high-quality assets in North America and Europe that answer demand for leading-edge This is a collective achievement across the Group, delivered innovations. Operations at two new, state-of-the-art packaging through the combined talent of our world class people. facilities in Castelfranco Emilia, Italy, and in Belchatow, Poland are In 2022/23 we have increased our focus on wellbeing, diversity, progressing well, and we announced investment into the equity and inclusion, and are investing in development across the expansion of three of our German sites in Nördlingen, Bavaria and organisation. And, supporting all we do and of the utmost Arenshausen and Arnstadt in Thuringia. importance, I am delighted to share that our safety statistics have th In tandem, we continue to invest into innovation, digital and data, again improved, for the 15 year in a row. because the route to the circular economy depends upon new In looking back, I am proud of the drive and commitment shown thinking. From our packaging to our processes, our designers and by my colleagues at DS Smith. In looking forward, I am excited and innovators are pursuing every new opportunity to create circular energised for what I know we can and will achieve for the future. solutions to eliminate waste and pollution, circulate products and materials, and regenerate nature. Looking ahead, I am confident in our ability to deliver our Purpose of Redefining Packaging for a Changing World, maximising the In line with this, the construction of our Global R&D and growth opportunities that a changing world will inevitably bring. Innovation Centre for ideation, design, testing, piloting and collaboration in Redditch, UK, will launch this autumn, supporting customers to visualise the value we can bring. 10 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT ## Q&A How are you supporting employees through the Wehave set an ambitious 1.5°C science-based target, which has been validated by the Science Based Targets initiative, requiring a challenges of the past year, especially in relation 46 per cent reduction in Scope 1, 2 and 3 GHG emissions by 2030 to the cost of living? compared to 2019. Since 2019/20, we have reduced our Scope 1, 2 Our colleagues have demonstrated professionalism, agility and 3 emissions by 15 per cent. We have now refreshed Now & andcommitment in a year characterised by change, and the Next, ensuring that it is fit for our changing world, leverages our strength of our long-standing customer relationships comes as a resources in the areas that matter the most to our stakeholders, and direct result of employees’ efforts to support and delight them, responds to the commercial opportunity of the circular economy. again and again. We can rightly be proud of all that we have achieved together. How are you working to influence the wider sustainability agenda for your industry? We have a strong Purpose and values to underpin our culture and we aim to give every one of our colleagues the platform to realise We believe that collaborative approaches to innovation are their potential. We do this through a number of programmes required to help the entire industry and our customers transition including our diversity, equity and inclusion initiatives and to the circular economy. We are playing active roles in technical networks, development for all activities and wellbeing support. working groups such as 4evergreen, CPI and FEFCO to progress the dialogue on innovation in sustainable materials. We are The inflationary pressures of the last year have had deep impacts activein the legislative environment relating to policy on the around the world, and it is important that we continue to listen to decarbonisation of heat, reuse and recycling, and extended our colleagues. To that end, we have run local engagement producer responsibility (EPR). In all of these engagements, we surveys and listening sessions to inform our actions and address remaintrue to our Purpose and belief in the value of the key concerns. We have a range of support systems in place across circulareconomy. all our sites that our colleagues can call on, if they are in difficulty. These include support with financial, health and wellbeing- What do you see the coming year bringing related issues. forDSSmith? How have you managed inflation and higher I am very proud of our performance this year. We go into the next 12 months having continued to gain market share with forward inputprices? momentum. We are pleased that we have been able to keep We continue to manage the inflationary cost pressures customers supplied throughout the year’s upheaval, and while experienced in the market through significant risk management there has been some softening in industrials, FMCG remains more and hedging, alongside our forward-looking procurement resilient, so we expect to withstand some uncertainty ahead. approach and long-standing, strong supplier relationships. By leveraging our scale, our deep customer relationships and How do strategic reviews or closures undertaken innovative solutions, we have a strong platform to grow our in parts of DS Smith’s business fit with your market share over the next year. Our focus will be on delivering growth agenda? value for all our stakeholders including employees, customers, We periodically evaluate our operations to make sure that they suppliers and shareholders. are delivering the best value for our customers. Changing market dynamics over recent years – especially within recycling – require ### us to adapt our business model to meet these evolving trends, OUR STRATEGY and evaluate which assets are best suited to service our Our strategy is based on balancing the requirements of customers and support the growth of the business. DS Smith our core stakeholders and delivering on our Purpose: continues to deliver strong profitable growth, and strategic reviews are typical of the good cost management and focus on To delight our customers emerging customer needs that have always been a hallmark of How we engage with customers our business. They are part of what enables any business to ensure they maintain the right infrastructure to deliver future See more on pages 18-19 growth. To realise the potential of our people What progress have you made against your How we engage with our people Now& Next Sustainability Strategy? Since launching Now & Next three years ago, owing to the hard See more on pages 20-23 work of our teams across Europe and North America, we have already achieved a third of our sustainability targets on or ahead To lead the way in sustainability of schedule, including our target to manufacture 100 per cent How we engage with society reusable or recyclable packaging, to launch 100 biodiversity projects in our local communities and to maintain our use of See more on pages 24-29 100per cent recycled or chain of custody certified papers. To double our size and profitability How we engage with our investors See more on pages 30-34 Annual Report 2023 dssmith.com 11 OUR BUSINESS MODEL ### OUR RELATIONSHIPS ### AND RESOURCES Our people and values | We employ c. 30,000 people | | | | | | | b | u | s | i n | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | | r | | | | | e | s | | | | | | | | | | l a | | | | | | | s | | | | | | | | | u | | | | | | | | | m | | | | globally and invest in and develop | | | | c | | | | | | | | | | | | | | | | i r | | | | | | | | | | | o | | | them so they can realise their | | | c | | | | | | | | | | | | d | | | | r | | | | | | | | | | | | | e | | potential. Our values and | | u | | | | | | | | | | | | | l | | management standards guide how | O | | | | | | | | | | | | | | | we operate. Paper Manufacturing and other manufacturing ### physical assets 4 1 We have an extensive network of packaging manufacturing sites, paper mills, recycling depots and innovation centres, supported by the infrastructure of the countries in which we operate. ## DS Smith Our relationships Recycling Corrugated ## operations packaging We interact in a way consistent with our corporate values to build and maintain trusted relationships with our customers, suppliers and communities. ### Intellectual capital 3 2 Customers We have substantial customer understanding, innovation and Retailers patented designs. Consumers Digital and data Integration of digital and data will help increase manufacturing capacity and service levels, and deliver best in class customer experience. Financial capital 1 2 3 4 We are funded by a combination of CCM Boxes Used OCC and shareholder equity, debt and reinvested cash flow. Paper is converted Packaging is used by packaging recovered fibre into corrugated our customers, Used packaging is OCC and recovered Natural capital board and then retailers and collected and brought fibre are converted into packaging consumers We operate a circular model to our recycling into paper again facilities through the recycling of natural material, in particular wood fibre. CCM: corrugated case material, the paper used to form corrugated board. OCC: old corrugated cases, i.e. used corrugated board, a feedstock for recycled paper. 12 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT ### HOW WE CREATE VALUE THE VALUE WE ### CREATE 1. Insight 3. Design Satisfied customers Our strong relationships with our All of our designers use our Circular ## b u s i n We develop packaging that helps our ## r e s ## l a s customers in fast moving consumer Design Principles to improve the ## u m ## c customers sell more, reduce costs, ## i r o goods (FMCG), retail and industrial sustainability of packaging. Through ## c d manage risks and become circular- ## r e sectors help us gain insights in our network of designers and ## u l ready. changing consumer, retail and PackRight Centres, we create ## O regulatory trends and how they impact packaging that fulfils our customers’ Packaging that is sustainable use of packaging. We use this requirements for all stages of the Our packaging is usually fully knowledge to inform our innovation. primary product’s journey, whether recyclable and made from largely replacing plastic, improving protection recycled material. We recycle more 2. Innovation in transit, ease of identification in the packaging than we produce. Innovation is at the heart of our supply cycle, or presenting the primary business. We have a five-year, product to maximise sales. Replacing plastic £100 million investment programme in We have replaced 762 million units 4. Manufacturing research and development (R&D) to of plastic with alternative fibre- accelerate our work in the circular Our paper mills manufacture CCM and based solutions since 2020. economy and plastic replacement. our corrugated plants convert CCM into corrugated board, then print, cut and Returns to our capital We collaborate with our customers to pre-glue the boxes, which are then providers create sustainable packaging solutions shipped flat on pallets, ready for in our impact centres and are able to Investors benefit from strong assembly and filling at our customers’ test and pilot designs and then share operational and financial factories. We maximise the efficiency best practice across all regions. performance. of our manufacturing, for example, We are also innovators in the use of using light-weight papers where Safety and opportunity for light-weight corrugated board. Our possible to reduce the cost and carbon our people proprietary technology to test the impact of the packaging produced. We aim to create equality of strength of corrugated board as it is opportunity for people to grow and manufactured means we can use the develop throughout their career in a optimum paper weight required. safe working environment. Leadership in sustainability We are leading the transition on packaging sustainability through our engagement with major ### OUR DIFFERENTIATORS MARKET DRIVERS organisations such as the Ellen MacArthur Foundation. Responding to retail Scale Community involvement channel changes We have an active programme of community involvement in addition Innovation E-commerce to satisfying a societal need for recyclable packaging. Sustainability and See pages 14-15 for more Sustainability circular economy information on our stakeholders Annual Report 2023 dssmith.com 13 STAKEHOLDER ENGAGEMENT ## STAKEHOLDERS ### Our strategic goals are aligned with the requirements ### of all our stakeholders, so that we are delivering for all. WHY THIS STAKEHOLDER THEIR CONCERNS OUR RESPONSE IS IMPORTANT TO US OUR CUSTOMERS Our customers are largely fast moving consumer Customers are increasingly Our customers require an innovative and flexible goods (FMCG) companies that produce goods concerned about sustainability, partner with reliable world-class supply chains and typically sold in supermarkets and via both in terms of recyclable scale. We continue to innovate with new sustainable e-commerce channels. We make corrugated packaging materials and reducing solutions including using our Circular Design Metrics and packaging for some of the largest global food overall lifecycle impact, including provide more ways to work with customers than ever brands, online retailers and industrial customers optimisation in the supply chain. before. Our packaging is fully sustainable which means and sell paper and recycling materials to third They are interested in it helps our customers achieve their own sustainability parties. transparency in the supply chain, targets. compliance with laws and regulation, and competitive pricing. Read more on pages 18-19 They are alsofocused on the quality of the product and security of the supply chain and meeting their own sustainability targets. OUR PEOPLE | We are c. 30,000 people across 34 countries | Our people are interested in a | We are committed to ensuring our employees work | | --- | --- | --- | | worldwide, speaking 26 languages. We are | company they can be proud of, | in a safe, fair and productive environment and invest | | inspired by our Purpose and are diverse in our | a strong supportive culture in | in their development. We base our approach to, | | thinking. | which they feel safe, recognised, | and expectation of, our employees on our five | | | included and fairly rewarded, | DS Smith values. | A safe and inclusive workplace is a fundamental and one in which they can fulfil foundation for a successful company and a By giving everyone a voice, we provide a meritocracy theirpotential. crucial part of achieving our strategic goal, ’to with development opportunities forall and recognition realise the potential of our people’. We want all of personal achievement regardless of gender, of our people to come to work every day feeling ethnicity, age or religion. We encourage feedback and that they are safe and that they are included, no have mechanisms through our employee works councils matter their background. including the European Works Council, biennial employee survey and more regular pulse surveys, whichinform local action plans and sharing of best practice. Read more on pages 3 and 20-23 OUR INVESTORS Our shares are listed on the London Stock Our investors are concerned We engage with equity investors and analysts through Exchange, and we raise our debt from banks and about financial and operational regular meetings and conferences, including the Annual through listed bonds. Our equity and bonds are performance, sustainability General Meeting, and similarly engage with our banking owned by a wide range of investors in the UK, strategy and ESG scores, syndicate, fixed income investors and ratings agencies Europe, the US and beyond. We engage with compliance with laws and periodically. We aim to provide long term shareholder many of our largest shareholders, as well as industrial relations. value creation. We also regularly attend meetings and some smaller shareholders, on financial conferences focused on sustainability and showcase performance and topical issues of particular our latest sustainable solutions. interest to them. 14 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT WHY THIS STAKEHOLDER THEIR CONCERNS OUR RESPONSE IS IMPORTANT TO US OUR SUPPLIERS | We have approximately 40,000 suppliers, | Our suppliers are also concerned | Our suppliers are required to comply with our Global | | --- | --- | --- | | ranging from small suppliers of goods and | with compliance with laws, | Supplier Standard (GSS), which sets out ways of | | services to large paper manufacturers, from | competitive pricing and | working. We engage with our suppliers on a variety of | | whom we source substantial volumes of paper | sustainability. | topics, including circularity and carbon. This includes our | | for our corrugated board. | | target for 100 per cent of our strategic suppliers to set | their own science-based targets by 2027. Suppliers want to know how they can support us in delivering our sustainability plans through the products and services we purchase from them. NATURE We depend on nature for the air we breathe, the The climate crisis, deforestation, Decarbonisation and protection of nature is core to our food we eat and as a global business for the biodiversity loss, water scarcity Purpose and leadership in sustainability. range of resources it provides. and waste to landfill are priorities. We are accelerating decarbonisation of our global Protecting and regenerating forests and operations toward our ambitious 2030 target and Net biodiversity is essential to ensure the survival of Zero commitment. plant and animal species, genetic diversity and We strive to send zero waste to landfill and minimise our natural ecosystems. Biodiverse natural water withdrawal from the environment. We manage ecosystems provide clean water and air, our own forests responsibly and require those we contributing towards resource security and source from to do the same, while continuing to expand human health. our biodiversity programmes in our forests and papermills. OUR COMMUNITIES Contributing to local communities is a core social Ensuring we are a responsible, Our Purpose guides our community programmesand responsibility for any organisation. Engaging our sustainable business offering The DS Smith Charitable Foundation which support local people and communities aids training, employee communities support above initiatives, including environmental and education- skills and continued prosperity of our people and and beyond employment. focused charities, such as the Good Planet Foundation in local communities. As a large, global employer, France. Our Charitable Foundation has donated over we can equip our people and communities with £200,000 in 2022/23, including £50,000 to Turkish Red useful resources, particularly to promote Crescent for humanitarian reliefefforts. sustainable development. Read more on pages 24-29 GOVERNMENTS AND NON-GOVERNMENTAL ORGANISATIONS The primary focus of regulators and policy Sustainability and the circular We take a leadership role with relevant non- makers has been on: climate change, plastic economy, reducing our governmental organisations, such as our global packaging, waste, eco-design and extended greenhouse gas (GHG) emissions, partnership with the Ellen MacArthur Foundation. We producer responsibility (EPR). energy and water, and reducing are engaging with leading ESG organisations such as the waste and landfill. Science-Based Targets initiative to set meaningful and We engage in detailed consultations with ambitious goals around our carbon emissions, and we governments on the topics of recycling and remain part of the 4evergreen industry alliance to reuse, EPR and the decarbonisation of heat. We increase awareness of the benefits of fibre-based participate in industry organisations across the packaging materials in a circular and sustainable UK, EU and North America to combine our economy. influence. Annual Report 2023 dssmith.com 15 ## OUR STRATEGY AND KPIS ### Our strategy is based on balancing the requirements of our core stakeholders. ### OUR STRATEGIC PILLARS ### TO DELIGHT OUR TO REALISE THE TO LEAD THE WAY ### CUSTOMERS POTENTIAL OF IN SUSTAINABILITY ### OUR PEOPLE We do this by: We do this by: We do this by: • Delivering on our commitment for • Ensuring the health, safety and • Designing out waste and pollution, quality and service wellbeing of all our employees and keeping materials in use • Driving innovation and value-added • Creating a working environment where • Decarbonising our operations and packaging solutions they feel proud, engaged and developed value chain • Improving service levels • Focusing on embedding diversity and • Creating a safe, diverse and inclusive • Driving circularity and continuing to deliver inclusion by expanding resource groups workplace and being active in market-leading sustainable solutions. and local networks. our communities • Protecting and regenerating nature. ### OUR NON-FINANCIAL KPIS | On-time, in-full deliveries (OTIF) | Accident frequency rate (AFR) | Carbon reduction | | --- | --- | --- | | The proportion of our orders that are | The number of lost time accidents (LTAs) | Reduce Scope 1, 2 and 3 GHG emissions | | delivered on time, in-full across our | per million hours worked. | 46 per cent by 2030 compared to 2019 | | businesses. | | and reach Net Zero by 2050. | Why this is a KPI Why this is a KPI Why this is a KPI The AFR is the number of LTAs per million Packaging is an essential part of an hours worked. We believe all employees It is important that we play our part in efficient supply chain. Delivering as contribute to a safe working environment reducing global greenhouse gas promised is a critical component to and culture and our focus is on individual emissions, helping prevent the worst ensuring we remain a trusted partner to ownership. impacts of climate change and future- our customers. proof business growth in line with the Health and safety KPIs 2022/23 2021/22 goals of the Paris Agreement. 1 Total LTAs 91 96 2 AFR 1.82 1.93 2 1. LTA: number of accidents resulting in lost time 94% 8,250,702 tonnes CO e of one shift or more. 2 2. AFR: number of LTAs per million hours worked. 95% 8,373,310 tonnes CO e 2 2030 Target: 4,651,383 tonnes CO FTSE Women Leaders Report 2022 This is an independent framework which Our corrugated packaging Plastic replacement sets recommendations to improve the customers by volume Help our customers remove one billion representation of women on boards and DS Smith has a higher proportion of FMCG pieces of problem plastics by 2025. in leadership positions. and other consumer goods customers Why this is a KPI Why this is a KPI than the market average. Our customers approve of corrugated We are using this as a KPI to track progress Why this is a KPI packaging as a renewable alternative to in delivering gender balance aligned to We work with large customers in resilient plastic that, when recycled, prevents the FTSE 350 and 50 of the largest sectors such as FMCG and aim to grow waste from entering landfills and oceans, private companies. share with these customers. reducing the impact on marine life and the Overall FTSE ranking 40 natural world. (up from 41 in 2021) 1 Women on DS Smith Plc Board 37.5% 2 Senior leadership* 34.5% 1. Compared to FTSE 100 average of 40.5%. 83% 2. Compared to FTSE 100 average of 34.3%. * Senior leadership defined as our four Executive * Cumulative to the end of 2022/23. 82% 7,391,418 tonnes CO e Committees and their direct reports: Group Operating 2023 2023 2023 84% 96% Committee; Group Strategy Committee; Group Health, Safety, Environment and Sustainability Committee; and | 2022 2022 2022 | | | | | Group M&A Committee. | | --- | --- | --- | --- | --- | --- | | 2023 2021 2021 2021 | | 16 | 762 million units* | | | | | 2025 Target: 1 billion units 2023 Target: 97% | | | e | | 2 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT ### TO DOUBLE OUR SIZE AND PROFITABILITY We do this by: • Being well positioned in developed markets For further information on the definitions and calculations of our • Working with major FMCG brands financial KPIs and other non-GAAP performance measures, please • Driving market share gains see note 32 to the consolidated financial statements. • Investing behind fundamental growth drivers. ### OUR FINANCIAL KPIS LFL corrugated box Return on sales volume growth Earnings before interest, tax, amortisation and adjusting items Like for like (LFL) volume of corrugated as a percentage of revenue. box products sold measured by area. Why this is a KPI Why this is a KPI We target volume growth of at least The margin we achieve reflects the value 8.5% GDP +1 per cent because we expect to we deliver to our customers and our win market share by delivering value ability to charge for that value. It is also 8.4% to our customers. driven by our scale. A higher return on sales makes the profit more resilient to adverse effects. 5.4% Cash conversion Adjusted return on average 3.5% Free cash flow before tax, net interest, capital employed growth capex, pension payments and Earnings before interest, tax, amortisation adjusting items as a percentage of earnings and adjusting items as a percentage of before interest, tax, amortisation and average capital employed, including Net debt/EBITDA adjusting items. Free cash flow is the net goodwill, over the prior 12-month period. Net debt (calculated at average FX rates and movement on debt before cash outflow for Why this is a KPI | after deducting IFRS 16 lease liabilities) over | adjusting items, dividends paid, acquisition | | | --- | --- | --- | | earnings before interest, tax, depreciation, | and disposal of subsidiary businesses | Our target ROACE to be delivered | | amortisation and adjusting items for the | (including borrowings acquired) and | throughout the economic cycle is above our | | preceding 12-month period (adjusted for | proceeds from issue of share capital. | cost of capital. ROACE is a key measure of | | acquisitions and disposals made during the | | financial success and sustainability of | Why this is a KPI | financial year, and to remove the income | | | | returns and reflects the returns available for | | --- | --- | --- | --- | --- | | | | | We focus on cash conversion as part of our | investment in the business and for the | | effect of IFRS 16, | Leases | ). This definition is | | | | | | | wider focus on capital management and | servicing of debt and equity. All investments | in accordance with the Group’s covenants. maintaining a prudent balance sheet. Working and acquisitions are assessed with Why this is a KPI capital is a key focus within the business in reference to this target. Net debt/EBITDA is a key measure of balance order that all capital is employed where it can sheet strength and financial stability. best deliver returns for the business. | | | | | 1.6x | | 142% | | | 10.8% | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | 2.2x | 150% | | 8.2% | | | 2023 2023 2023 2023 2023 | -5.8% | 1.3x 101% | 14.3% 10.5% | | | | | | | | 2022 2022 2022 2022 2022 | | | | | | | | | | | 2021 2021 2021 2021 2021 | | | | | | | Annual Report 2023 dssmith.com 17 | | | | | 2023 Target: 3% 2023 Target: 10% - 12% 2023 Target: <2.0x 2023 Target: >100% 2023 Target: 12% - 15% | | | | | | | | | OUR STRATEGY ## CUSTOMERS ## 84% FMCG and other consumer goods ## 762M units of plastic replaced since 2020 ## 96% OTIF deliveries 18 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT Packaging Joining our leading-edge Castelfranco Emilia site in Italy, this year we also launched our state of the art facility in Belchatow, Poland. Our Packaging customers include the world’s biggest brands and These sites reflect our investment across our portfolio of multinational companies stretching across Europe and North packaging plants, as we increase our ability to deliver volume, America. We serve customers predominantly producing FMCG and introduce new efficient technologies and further establish a other consumer goods, together with industrial sectors including geographic footprint close to where our customers operate. automotive and construction. Our corrugated packaging European industry average Paper customers by volume corrugated packaging by volume Our mills in Europe and the US produce a wide range of high- quality finished paper products, primarily for container board products, all made from 100 per cent recycled or chain of custody 16% certified fibre sources. 26% The high performing packaging papers we produce, such as recycled corrugated case materials and kraftliners, are vital for our own packaging division to produce fibre-based packaging 84% 74% solutions. Our range of speciality papers includes plasterboard liners which are widely used in the construction industry. With an innovative R&D focus and a stringent quality assurance programme, we provide customers with the high performing quality papers they need for their manufacturing operations. Our Source: DS Smith analysis customers also benefit from our commitment to lower our impact on the environment and increase the efficiency of our paper- Our priority is to provide quality, sustainable packaging solutions making operations. For example, we have partnered with E.ON, that address the challenges of a fast-changing world. We one of Europe’s largest energy companies, to build a new continue to invest in our innovation strategy to ensure each new waste-to-energy and combined heat and power plant at product we create starts with in-depth research and insight, Aschaffenburg Mill, which will reduce GHG emissions. before our expert designers create solutions, using our Circular Design Principles, that meet local requirements but also have the Recycling ability to scale across the countries where we operate. Our recycling and waste management services help our customers waste less and recycle more. Across Europe and North Circular Design Metrics in action America and from municipalities to some of the best-known brands and retailers in the world, our expertise helps our Responding to consumer concerns on plastic waste, and in customers maximise their recycling strategies. partnership with home care product manufacturer Saponia d.d., we deployed our Circular Design Metrics to remove up to The paper and cardboard we collect for recycling feeds our own 8,000kg of plastic per year, and achieved 99.8 per cent paper mills as part of our closed loop recycling business model, recyclability, for their top-selling laundry detergent box. while also being sold into our global network of third-party paper mills. By working with our customers to build recyclability into ### “DS Smith is a partner that supports our their supply chains, we are helping to provide sustainable ### sustainability and environmental strategy solutions that the wider society demands from organisations. ### and we are proud to work together to replace Case study: Award-winning work with ### problem plastics and improve recyclability.” the Cotswold Company Dajana Mrčela The Confederation of Paper Industries awarded Cotswold Co CEO of Saponia d.d. with its coveted Recycling Award, for their work with us on increasing recycling from their customers’ homes. ### Case study: Replacing plastic with Velux “I am immensely proud of Cotswold Co and ### We partnered with Velux, one of the largest manufacturers very grateful to DS Smith for all their advice of roof windows, to create a packaging solution that removes ### and guidance to ensure our sustainability problem plastics while fitting into the existing manufacturing ### ideals are becoming a reality.” process. Velux, present in 36 countries, sought to remove single-use plastic in its packaging but required a solution that Jacquie Silvester retained a specific shape to integrate with Velux’s efficient Head of Sustainability and Improvement at Cotswold Co automated packing line. DS Smith design experts across Europe developed sustainable corrugated packaging elements that are fully fibre-based and recyclable. The result is an 80 per cent decrease in the amount of carbon produced in the manufacturing process and the removal of over 700, 000 pieces of plastic to date. Annual Report 2023 dssmith.com 19 Industrial FMCG and other consumer goods ## • • OUR STRATEGY ## PEOPLE ## +29% leadership-led health and safety activities ## 45,000 leadership safety talks ## 176,000 observation tours 20 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ## Ensuring the health, safety and wellbeing of all Focusing on health, safety and wellbeing is critical to achieve our ambition. ### Health and safety culture During 2022/23 we saw the reaffirmation of our health and safety (H&S) Vision Zero, which underpins our safety culture across the whole organisation to empower our employees to act proactively to identify and eliminate risks. We continue to make significant progress; the overall number of employee accidents and accident frequency rate (see page 16) have reduced by 6 per cent to a record low. Leaders from across the business led over 80 health and safety workshops. When leaders engage in H&S, we see a positive impact on our H&S employee engagement index, with a 65 per cent increase this year. To strengthen our safety culture, we continue to focus on leadership safety programmes to create H&S role models and this helped us record another 29 per cent increase in leader-led health and safety activities compared to last year (approximately 45,000 safety talks, 176,000 observation tours and 150,000 leadership-led risk assessments). In 2023/24 we will continue striving towards our Vision Zero ambition and ensure our health and safety culture is adopted across our site network. ### Wellbeing of our people We launched a global wellbeing survey this year to understand local initiatives and activities against our wellbeing framework. The survey confirmed every site has an active programme with examples such as physical and mental health support, phased retirement programmes, site risk assessments for employees with advisability and workplace assessments. In 2023/24 we will launch a wellbeing week to promote activities that will help every employee with their wellbeing. ### Engaging our employees A working environment that motivates and enables our workforce is critical to a continued positive customer experience. Understanding how people feel about working for DS Smith is an important part of our people agenda. Alongside surveys we use several approaches to engage our people. During 2022/23 leaders ran over 350 listening sessions with their teams to explore the results from the October 2021 employee survey. Over 700 actions were taken to address feedback on topics such as communication, health and safety, customer focus, work organisation and inclusion. To assess the impact of the engagement survey actions and pilot an improved approach to listening, we ran a series of targeted pulse surveys between January and March 2023. In total 4,700 employees, in 12 countries across all regions, were invited to participate. The average response rate increased and there was an average increase in engagement by 5 per cent and enablement by 3 per cent, with some locations recording improvements of more than 20 per cent. Our recognition programme, The Smithies, helps to engage employees by celebrating what they do. We have monthly local awards, and an annual online global awards ceremony celebrating finalists and winners across seven categories. ![img-0.jpeg](img-0.jpeg) In October 2022, over 2,500 colleagues around the world joined to celebrate 33 finalists, seven winners and a special Diversity & Inclusion Trailblazers award. In 2023/24 we will launch a new Energy Efficiency Improvement award to support our sustainability ambition. Our European Works Council (EWC), which includes 50 representatives from across the business, meets twice a year with management to provide feedback and discuss opportunities to improve. The EWC Executive holds monthly meetings with regional leads to ensure we have a regular two-way dialogue on employee matters across Europe. In 2023/24, we will continue to engage our people and plan to build on the success of the pilot to run targeted pulse surveys more frequently, to give opportunities for our employees to provide regular feedback and drive action. ### Developing our employees As a business we are evolving and growing through innovation in sustainability and aim to be a leader in circularity. Ensuring we have the right skills to deliver our ambition is critical to our success. We are actively investing in development to realise the potential of our people. ![img-1.jpeg](img-1.jpeg) Annual Report 2023 dssmith.com 21 TO REALISE THE POTENTIAL OF OUR PEOPLE CONTINUED Our e-learning platform, DS Smith Learning Percipio, has 7,000 courses available in multiple languages. We continue to expand the availability of learning and during 2022/23 we saw a further increase in the numbers of people making use of e-learning with 96,506 hours of development completed. Over the last two years we have created Learning Academies to develop critical skills in Sales, Marketing, Innovation (SMI), Operations, Finance, Digital and Data. In 2022/23 we had 1,176 colleagues receive learning through our SMI Academy across all countries. ### Leadership and talent development Developing our future leaders is key to our growth ambition. We continue to partner with Said Business School for leadership development with over 200 leaders having attended the Global Leadership Programme or Aspire Programme over the last five years. Over 40 per cent of participants have been promoted and retention rates are significantly higher than the Company average. We see increased collaboration, networking and sharing of best practice due to the relationships built through the programmes. We have expanded the developmental support given to first line managers built on the foundation of the First Line Manager (FLM) programme (implemented four years ago) with all our people managers provided with access to these development paths. To support talent earlier in their career, a new development centre was piloted in Finance and UK Packaging to help individuals better understand their potential. We have created a new Compass programme, piloted in Eastern Europe, to help individuals prepare for future roles by assessing where they are today and providing access to career development opportunities. ### Case study: Compass programme This programme is aimed at the development of future managers and equipping people with greater understanding of the wider business, an improved internal network and visibility of internal career opportunities. Graduates are critical to developing a diverse talent pipeline. During 2022/23 we welcomed 40 new hires, bringing the total number of graduates who are currently on one of our programmes to 77. Our schemes include Sales, Operations, Procurement, IT, Finance and Human Resources and are supported by a new structured two-year development pathway. In 2023/24 we will continue to focus on the development of our people through our early career and leadership programmes. ### Creating a modern, inclusive and diverse culture We are committed to increasing the diversity of our workforce to better reflect the communities in which we operate. Together, we are building an inclusive environment where everyone can realise their potential and thrive. In order to accelerate progress across our diversity, equity and inclusion (DE&I) agenda we are: - Working in partnership with employee resource groups (ERGs) to raise greater awareness and commitment to our DE&I agenda, measured by the geographic footprint and number of employees participating in ERGs - Strengthening leadership capability to create an inclusive and equitable working environment - Improving the use of demographic data to establish a baseline for our wider DE&I ambition. During 2022/23 colleagues in DS Smith worked together to create three new ERGs. We are now proud to support our LGBTQ+ and allies, culture and ethnic diversity, gender diversity and disability and allies networks with over 250 members and an executive sponsor engaged with each ERG. Colleagues working in our sites receive regular updates via posters and through manager briefings. ### Definition of DE&I **Diversity** is the range of human characteristics present within the organisation. **Equity** means providing everyone with what they need to succeed - recognising that not everyone starts from the same place. **Inclusion** describes how people feel about their experience in an organisation. Whether they feel it promotes and sustains a sense of belonging. ### Case study: Culture and ethnic diversity network This year, during UK Black History Month, colleagues from the Black community shared experiences in their personal and professional lives. In 2023/24 the network will promote World Day for Cultural Diversity for Dialogue and Development, UN International Day of Peace and World Kindness Day. Our Equal Opportunities & Anti-Discrimination policy is being embedded through training and awareness campaigns. During 2022/23 we focused on developing diverse candidate shortlists which has resulted in a 7 per cent increase in the percentage of female hires in the UK. We are in the process of reviewing specific people processes and have recently asked for feedback on the onboarding experience. We also plan to work with our employee networks to agree the mechanisms that will help accelerate the development of underrepresented groups, including sponsorship, reverse mentoring and targeted development. We have achieved gender parity in our graduate intake for the third year in a row. In addition, a total of 29 per cent attending our leadership programmes were female. Refer to pages 27 to 46 of our Sustainability Report 2023 for more information. 22 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT Diversity of our team 1 The overall percentage of females in DS Smith increased by 0.4 per cent to 22.9 per cent in the financial year 2022/23. Our total number of employees as at 30 April 2023 was 29,519 of which 22,761 (77.1 per cent) were male and 6,758 (22.9 per cent) were female. As reported in November 2022 in the 2022 FTSE Women Leaders Report, representation of women in our senior leadership (defined in accordance with the requirements of the FTSE Women Leaders Review as those on our four Executive Committees – Group Operating Committee; Group Strategy Committee; Group Health, Safety, Environment and Sustainability Committee; and Group M&A Committee – and their direct reports) increased by 1.6 per cent to 34.5 per cent in the 12 months to 31 October 2022. The Financial Conduct Authority (FCA) has introduced a requirement this year for listed companies to report on new board diversity targets and provide data on the gender and ethnic diversity of the board and in its executive management. Following the FCA’s definition, executive management for these purposes, means the members of our four Executive Committees. However, we have included Board members who are also in executive management only in the board members column, and not in the executive management column, in the below tables. We are committed to improving diversity across all protected characteristics and will continue to make progress in line with the new requirements from the FCA. Number of senior | | | | | | positions on the | Number in | Percentage of | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | FCA gender diversity reporting as at | | Number of | Percentage of | | board (CEO, CFO, | executive | | executive | | 30 April 2023: | boardmembers* | | | theboard | SIDand Chair) | management | management | | Men 5 62.5% 4 10 76.9% Women 3 37.5% – 3 23.1% Not specified/prefer not to say – – – – – Number of senior | | | | | | positions on the | Number in | Percentage of | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | FCA ethnic diversity reporting as at | | Number of | Percentage of | | board (CEO, CFO, | executive | | executive | | 30 April 2023: | boardmembers* | | | theboard | SIDand Chair) | management | management | | White British or other White (including minority-white groups) 7 87.5% 4 12 92.3% Mixed/Multiple ethnic groups 1 12.5% – – – Asian/Asian British – – – 1 7.7% Black/African/Caribbean/Black British – – – – – Other ethnic group, including Arab – – – – – Not specified/prefer not to say – – – – – * The number of board members includes those who are members of both the Board and the executive management. We asked all members of the Board and executive management to voluntarily self-disclose the data on their gender and ethnicity, using the terminology requested by the FCA. Further information about the diversity of our Board is set out in the Nomination Committee Report on pages 81 to 83. Our continued focus on female retention, development and recruitment has led to year on year improvements in our gender pay gap and this year we have achieved parity for the first time (see our UK Gender pay gap report). It continues to be a challenge to attract women into manufacturing, however we are making progress. We have an aspiration to improve gender diversity towards 40 per cent women in senior leadership by 2030. In 2023/24 we will review how we use demographic data to establish a baseline for our wider DE&I ambition. 1. Deloitte have provided independent third-party limited assurance for this 2022/23 metric. See the assurance statement on page 63 for information. Annual Report 2023 dssmith.com 23 OUR STRATEGY ## SUSTAINABILITY ## 762M units of plastic replaced with corrugated since 2020/21 ## 10% reduction in total GHG emissions since last year ## 100% reusable or recyclable packaging manufactured 24 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ## Now & Next Sustainability Strategy Our Purpose of Redefining Packaging for a Changing World has always reflected the need for a new approach to packaging. One of our greatest opportunities is to engage our customers on the circular economy, helping some of the world's leading brands to reach their sustainability goals. Since launching Now & Next in September 2020, our customers, employees and other stakeholders have been encouraged by the way in which our strategy captures the opportunity of the circular economy, from closing the loop through better design to protecting natural resources and reducing waste and pollution. Due to the hard work of our teams across Europe and North America, by the end of 2022/23, we had already achieved a third of our targets on or ahead of schedule. During this time, the world has changed in many ways, not least as a result of the Covid-19 pandemic, the war in Ukraine and the cost of living crisis. The need to take decisive action on climate change and to regenerate nature has never been greater and our stakeholders expect that we use our expertise, scale and innovation to deliver our ambitions, as a purely fibre-based packaging business that has sustainability at its heart. In 2022/23, we refreshed our Now & Next Sustainability Strategy, ensuring that it is fit for our dramatically changed world and that it enables us to leverage our resources in the areas that matter the most to our stakeholders, responding to the commercial opportunity of the circular economy. We maintained the popular 'Now' and 'Next' concept to prioritise action on the challenges facing the world today, whilst keeping an eye on the future. We have organised our ambitions into four strategic pillars: Circularity, Carbon, People & Communities and Nature, and set ambitious targets to transition towards the low-carbon, circular economy of the future that we believe will benefit people, nature and business. ### Circularity We are designing out waste and pollution through circular design and helping our customers to remove one billion pieces of problem plastic by 2025. We are keeping materials in circulation by manufacturing 100 per cent recyclable or reusable packaging and we have set a new target to launch up to five new innovative reusable packaging pilots by 2025. Our long-term ambition is for all our packaging to be recycled or reused and to send zero waste to landfill by 2030. ### Carbon We are decarbonising our entire global business to meet our 1.5°C science-based target: by 2030, reduce Scope 1, 2 and 3 greenhouse gas (GHG) emissions 46 per cent compared to 2019. We are encouraging 100 per cent of our strategic suppliers to set their own science-based targets by 2027 and we are committed to reaching Net Zero GHG emissions by 2050. ### People & Communities We are playing an active role in our local communities and are equipping our people to lead the transition to a circular economy. Our ambition is to engage 100 per cent of our people on the circular economy by 2025. We are committed to increasing the diversity of our workforce to better reflect the communities in which we operate. This includes ensuring that inclusive leadership workshops are completed by all leadership teams across sites by 2025, improving gender diversity to 40 per cent female representation in senior leadership positions and improving gender and ethnic diversity across our overall workforce year on year by 2030, and to set an aspiration for other protected characteristics by 2030. We continue to strengthen our human rights due diligence. ### Nature We are protecting nature by measuring and improving biodiversity in our own forests, in addition to implementing biodiversity programmes at our paper mills. We have set a new target to develop water management plans for 100 per cent of our paper mills and packaging plants by 2025. Our long-term ambition is to take a science-based approach to regenerate nature and to reduce the water withdrawal per tonne of production by 10 per cent by 2030 for our paper mills located in regions at risk of water stress. ### Materiality assessment Reflecting the pace of change in the world, in 2022/23 we conducted a refresh of our last materiality assessment to ensure that Now & Next captures shifts in prioritisation since the assessment undertaken three years ago. We adopted a 'double materiality' approach, capturing both 'impact' and 'financial' materiality. This meant that impacts that the business has on people and the environment ('inside-out'), alongside the impacts that people and the environment have on the business ('outside-in'), were evaluated. Topic prioritisation was tested using qualitative analysis of industry trends, alongside broad stakeholder engagement utilising surveys and interviews. The assessment concluded that the circular economy and climate change should remain our top priorities, being of critical importance for both the business and for people and the environment. Biodiversity and the regeneration of nature emerged as nascent topics that had increased in importance and health and safety, diversity and inclusion and human rights were also identified as important. These findings informed the development of Now & Next. Refer to page 61 of our Sustainability Report 2023 for more information, including our materiality matrix. Annual Report 2023 dssmith.com 25 TO LEAD THE WAY IN SUSTAINABILITY CONTINUED Now & Next Sustainability Strategy progress Our Now & Next Sustainability Strategy tackles the sustainability challenges facing us today, as well as those that will impact futuregenerations. Our strategy contributes to the UN Sustainable Development Goals (SDGs) as indicated below. Now & Next Sustainability Strategy target 2022/23 2021/22 Status Circularity Design out By 2025, optimise fibre for individual supply chains in 64% 26% Ahead waste and 100 per cent of new packaging solutions pollution | | | By 2030, optimise every fibre for every supply chain | Ongoing | | Ongoing | | On track | | --- | --- | --- | --- | --- | --- | --- | --- | | | | By 2025, help our customers to take one billion pieces of | 762 million cumulative | | | | Ahead | | | | problem plastic off supermarket shelves | total since 2020/21 | | | | | | | | By 2030, send zero waste to landfill | 204,637 | | 255,920 | | On track | | | | | tonnes | | tonnes | | | | | Keep materials | By 2025, test up to five reuse pilots and continue to | New target | | | | Early stage | | | in circulation | manufacture 100 per cent recyclable and reusable packaging | | | | | | | | | By 2030, aim for all our packaging to be recycled or reused | Ongoing | | Ongoing | | On track | | Carbon | Decarbonise our | By 2030, reduce Scope 1, 2 and 3 GHG emissions by | 7,391,418 | | 8,250,702 | | On track | | | operations and | 46 per cent compared to 2019 | tonnes CO | 2 e | tonnes CO | 2 e | | value chain By 2027, encourage 100 per cent of our strategic suppliers 32% On track (representing 76 per cent of purchased goods and services emissions) to set their own science-based targets. By 2050, reach Net Zero GHG emissions Ongoing Ongoing On track People & Engage By 2025, engage 100 per cent of our people on the 57% 50% On track Communities people and circular economy communities | By 2030, engage 10 million people on the | 8.4 million cumulative | | Ahead | | --- | --- | --- | --- | | circular economy and circular lifestyles | total since 2020/21 | | | | 100 per cent of our sites engaged in community activities | 100% | 100% | Achieved | each year Provide a safe Reduce the Accident Frequency Rate (AFR) every year 1.82 1.93 On track and inclusive Strive to achieve Vision Zero Ongoing Ongoing On track workplace By 2025, inclusive leadership workshops completed by all New target On track leadership teams across sites By 2030, improve gender diversity towards 40 per cent 34.5% 31.8% On track women in senior leadership and set an aspiration for other protected characteristics | | Respect | By 2025, complete SEDEX SAQ roll out to all sites and perform | 56% | | On track | | --- | --- | --- | --- | --- | --- | | | human rights | appropriate auditing of SAQs | | | | | | | Continue to improve human rights due diligence each year | Ongoing | Ongoing | On track | | Nature | Protect and | By 2025, measure and improve biodiversity in our own forests | Ongoing | Ongoing On track | | | | regenerate | and assess our dependencies on nature | | | | forests and By 2025, biodiversity programmes in place at each of our 13 12 On track biodiversity paper mills Set targets to regenerate nature taking a New target Early stage science-based approach Water By 2025, 100 per cent of our paper mills and packaging New target Early stage management sites to have water management plans By 2030, 10 per cent reduction in water withdrawal 3 3 intensity at mills at risk of water stress compared to 2019 8.9m / t nsp 8.1m / t nsp Behind See our Basis of Preparation, available online from the DS Smith ESG Reporting Hub, for full methodology notes. 26 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS # Now & Next progress highlights # Circularity # Designing out waste and pollution Our plastic replacement programme continued at pace during the year towards our ambition to replace one billion units of problem plastics by 2025. In 2022/23, we continued to replace plastic with recyclable, corrugated alternatives, bringing the cumulative total to 762 million since we set our target in 2020/21. Whilst overall sales are lower compared to last year, we continue to see strong appetite for corrugated packaging as a recyclable alternative to plastic. We have launched a number of campaigns targeted towards replacing common sources of plastic for our FMCG customers, such as produce trays, bottle holders and takeaway food boxes. We have continued to develop our ability to capture and report data relating to plastic replacement, from which analysis can be used to react more quickly to opportunities to convert plastic-based solutions to recyclable alternatives. We optimise packaging to fit the unique supply chains of our customers, using no more material than necessary. In 2022/23, we optimised 64 per cent of new packaging specifications for unique supply chains (2021/22: 26 per cent), driving innovation in design to reduce complexity in logistics and lessen downstream GHG emissions. This involves optimising packaging for efficiency, driving savings through small improvements to packaging dimensions, shape and materials that can multiply over thousands of units, resulting in lower environmental impact and financial savings for our customers. We continue to see strong approval of our Circular Design Metrics from our customers. We have developed the methodology for analysing supply chain data from our customers and improved the tracking of design projects that more precisely specify packaging to a customer's unique supply chain. The metrics are supported by our Circular Design Principles, utilised by our expert design community of more than 700 designers. This ensures that supply chain conditions are integrated into the design process, resulting in leaner packaging that maintains properties such as strength, resilience and recyclability. # Keeping materials in circulation In 2022/23, over 99.7 per cent of our manufactured packaging continued to be either reusable or recyclable (a target achieved last year), enabling recyclability at scale. We participated in technical working groups such as 4evergreen, CPI and FEFCO to progress the dialogue on innovation that extends the useful life of material. In our R&D efforts, we are prototyping innovations that include fully recyclable, translucent packaging and conducting research into alternative fibres. We have set a new target to launch up to five packaging reuse pilot schemes by 2025, of which innovation in materials development, borne out of R&D, will play an important role. We continue to advocate for segregated recycling infrastructure as a means to address the 'reject' non-fibre material that enters our circular business, which is the predominant source of waste that we send to landfill. In 2022/23, 204,637 tonnes of waste were sent to landfill (2021/22: 255,920 tonnes), a reduction driven by the implementation of several projects. These include significant reductions made at Kemsley, Rouen and Belisce mills; with waste-to-energy at Kemsley Mills (partly powering the steam generation that is supplied to the mill), incineration for local energy generation purposes at Rouen Mill and, in partnership with a local factory, for use in cement production at Belisce Mill, demonstrating the circular economy in other parts of our operations. # Carbon # Decarbonising our operations Our 1.5°C science-based target is to reduce Scope 1, 2 and 3 GHG emissions 46 per cent by 2030 compared to 2019 and to reach Net Zero GHG emissions by 2050. In 2022/23, our total GHG emissions across all three scopes were 7,391,418 tonnes CO₂e (2021/22: 8,250,702 tonnes CO₂e), which is a 10 per cent reduction compared to last year and a 15 per cent reduction since the base year (2019/20: 8,645,693 tonnes CO₂e). This improvement was primarily driven by the 'r4' steam and electricity supply contract at Kemsley Mill, which is powered by a new, highly efficient third-party owned and operated combined heat and power (CHP) plant. During the year, a third party took over operation of the CHP plant at Aschaffenburg Mill to begin its adaptation to generate energy from waste, alongside natural gas, using a highly efficient CHP process. At the start of the year, several renewable electricity contracts and a power purchase agreement became active, including a 100 per cent renewable electricity tariff for all of our UK Packaging and Recycling operations. We launched several energy efficiency initiatives, including an energy management checklist, case studies and workshops, delivered as part of our Group-wide ISO 50001 energy management system at 100 per cent of our in-scope sites (addressing 90 per cent of the Group energy consumption). Finally, reduced production levels compared to last year lowered energy consumption and therefore emissions. Throughout the year, we worked with a specialist energy consultancy to develop our plans to achieve the science-based target, including decarbonisation templates for our packaging plants. The templates identify the major technical solutions that will need to be implemented, such as solar and heat pumps, in addition to green electricity sourcing and energy efficiency opportunities. Our decarbonisation roadmap for our paper mills continued to be delivered whilst being refined, optimising for best cost solutions and improving assessments relating to future alternative fuel availability. Annual Report 2023 dssmith.com 27 TO LEAD THE WAY IN SUSTAINABILITY CONTINUED # Decarbonising our value chain In 2022/23, our procurement and paper sourcing teams began to engage our strategic suppliers to set their own science-based targets as part of our supplier engagement programme, customised to the carbon maturity of each supplier. We joined the Supplier Leadership on Climate Transition initiative, founded by some of our key customers, to actively encourage our least mature suppliers to begin the process of calculating their carbon footprint, setting a science-based target and implementing an emissions reduction programme. This work has initially prioritised our strategic paper suppliers, given that they represent our largest source of upstream emissions. Next year, we will begin to engage higher maturity suppliers as a CDP Supply Chain member. We estimate that in 2022/23, 32 per cent of our Scope 3 Category 1 (Purchased Goods and Services) emissions were generated by suppliers who have set, or are in the process of setting, their own science-based target. We continue to engage with our suppliers on the circular economy and assess the sustainability practices of our suppliers using EcoVadis, in addition to requiring that our suppliers adhere to our Global Supplier Standards. We have seen significantly increased engagement from our customers on carbon, who, using our Circular Design Metrics, are able to compare the carbon footprint of different packaging specifications to reduce the carbon footprint of their packaging. See page 03 for our Group GHQ emissions table, published as part of our Task Force on Climate-related Financial Disclosures (TCFD) reporting. # People & Communities # Engaging our people and communities on the circular economy In 2022/23, we engaged 57 per cent (2021/22: 50 per cent) of our people on the circular economy, reaching our colleagues through various channels, from team briefings and email newsletters to the Circular Economy Master Class, delivered by the University of Exeter. We developed new resources as part of our online Sustainability Hub, which features news, case studies and video content to help our people to develop their circular economy knowledge. We achieved our target to engage 5 million people on the circular economy by 2025 ahead of our plan and decided to extend our target to 10 million people, with a cumulative total of 0.4 million since setting our target in 2020/21. This includes our community activities such as delivery of our circular economy lesson plan in schools and engagements on social media. By the end of the year, 100 per cent of the sites included in our community programme (those with greater than 50 full time employees) had engaged with their communities for the fourth year running. Activities and donations, aligned to our three community programme priorities of biodiversity, circular economy and circular design, were delivered by our employees, including the distribution of eco-gesture booklets for young children in France, planting trees in the Hoonbos Forest in the Netherlands and building a second outdoor learning space in Hungary. # Respecting human rights In 2022/23, we began to roll out the SEDEX (supplier ethical data exchange) platform to integrate human rights compliance monitoring and reporting into our standard practices. We set a new target to complete the roll out of the SEDEX SAQ questionnaire to all sites by 2025, reaching 56 per cent of sites this year, which includes ways to assess potential risk and to manage identified issues relating to human rights. This builds on the launch of our Human Rights policy at the end of the previous year. We continued a programme of business ethics compliance training, which includes modules relating to modern slavery. # Providing a safe and inclusive workplace As part of our strategic pillar, 'to realise the potential of our people', we are committed to providing a safe and inclusive workplace. We integrated 'Vision Zero', our health and safety campaign which focuses on leadership, engagement, processes and culture to achieve our health and safety target of zero harm, into our Now & Next Sustainability Strategy to raise the profile of this important topic. We announced new aspirations to improve gender diversity towards 40 per cent women in senior leadership, improve gender and ethnic diversity across our overall workforce year on year and set an aspiration of other protected characteristics by 2030, emphasising our commitment to developing an inclusive culture where everyone is valued, respected and engaged at work. See pages 20 to 23 for how we are providing a safe and inclusive workplace. # Nature # Protecting and regenerating forests and biodiversity In 2022/23, our project to measure and improve biodiversity in our North American forest progressed to implement interventions to protect the local gopher tortoise population on our land. This is a species native to the south-eastern United States and is considered a 'keystone species', supporting other local wildlife and biodiversity. Alongside this, 13 of our paper mills (2021/22: 12) continued to develop their biodiversity activities as part of their biodiversity programmes this year. This includes, for example, a beehive project at Reading Mill, aiding pollination to support local plant life. Our protection and regeneration of forests and biodiversity is enforced by our 100 per cent recycled, PSCP, SFI or PEFC certification scheme requirements, both in our own forests and in the chain-of-custody certification for all of the papers we source. During the year, we established a deforestation working group, currently focused on assessing the implications of upcoming deforestation regulation and opportunities for closer commodities risk surveillance and monitoring. 28 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT As this work evolves, we will assess our dependencies on nature Our sites, which hold operational-level responsibility for health, and set targets to regenerate nature taking a science-based safety and environment issues, are supported by expert project approach. We are supportive of the Task Force on Nature-related teams and a sustainability network which help to launch Financial Disclosures (TNFD) framework and the need to factor initiatives, progress delivery and resolve challenges. These nature into business decisions to drive more restorative and groups include horizontal collaborations such as our Recyclability nature-positive outcomes. Forum and our Deforestation Working Group, both of which bring together people from a variety of levels and in different parts of Water management the business. We continue to take a risk-based approach to water management, which includes water stress mitigation planning The Group Sustainability, Government and Community Affairs and focused water withdrawal reduction actions in the regions teams partner with the business to deliver our sustainability most likely to be impacted by future water stress. In 2022/23, we programme whilst furthering our policy agenda. Finally, the Group maintained water stress mitigation plans at the 29 sites ESG Reporting team produces environmental, social and identified as at risk of water stress. This includes business governance (non-financial) data to support the delivery of continuity planning, regular contact with relevant stakeholders sustainability and oversee the necessary governance and (e.g. the water authority and local community) and monthly assurance arrangements required to meet the Group’s non- water performance tracking. financial reporting commitments. Given the importance of protecting water as a finite natural This governance structure is described in greater detail, in the resource, we are taking this work to a new phase, with a new context of climate change, on page 53 as part of our Task Force Now & Next target to implement water management plans at on Climate-related Financial Disclosures (TCFD) reporting. 100 per cent of our paper and packaging sites by 2025. This will Alignment with international frameworks go beyond mitigation planning to proactive stewardship, We support several international frameworks that are relevant to including the identification of water saving opportunities. corporate responsibility and ethical business conduct, including: In 2022/23, the average water withdrawal per tonne of • United Nations Global Compact (UNGC) production at paper mills located in regions at risk of water stress | | | 3 | • United Nations Declaration of Human Rights and the | | --- | --- | --- | --- | | increased compared to last year at 8.9 m | | /t nsp (tonne net | | | | 3 | | Convention on the Rights of the Child | | saleable production) (2021/22: 8.1 m | /t nsp), attributed to a | | | | greater number of shutdown periods, requiring drainage | | | • International Labour Organization (ILO) Eight Fundamental | | and refilling. | | | Conventions | • Organisation for Economic Co-operation and Development Governance of sustainability (OECD) Guidelines for Multinational Enterprises. Delivery of our Now & Next Sustainability Strategy and our action For information on our policies, procedures and performance, on other ESG/sustainability issues is underpinned by strong please refer to our Sustainability Report. governance. Our Group Operating Committee (GOC), the Group Chief Executive’s management board for leading Group-wide ESG ratings priorities, includes sustainability at the heart of its agenda. Accountability for sustainability ultimately lies with the Group CDP: A- Forests, A- Water Chief Executive and the Board considers ESG/sustainability- Security, A- Climate Change related risks, opportunities and strategy as core to the Group’s EcoVadis: Platinum operations. The GOC meets on a monthly basis as the ‘Health, MSCI: AA Safety, Environment and Sustainability (HSES)’ Committee. S&P Global Corporate Topics discussed this year included: Sustainability • Circular economy, including recyclability and biodiversity Assessment: 73, featured • Now & Next progress, including monthly GHG forecasts in the ‘2023 Sustainability • Roadmaps to deliver the 1.5°C science-based target Yearbook’ • Supplier engagement for Scope 3 emissions reduction Sustainalytics: ‘Low ESG • Government affairs and the policy environment Risk’ • Community affairs programme Circulytics: A- • ESG ratings performance. FTSE4Good: Included since The HSES Committee is supported by the Sustainability 2012 Leadership Team (SUS LT), chaired by the Head of Corporate ISS: ‘Prime’ B- Affairs, which is a multi-functional group with divisional and functional senior level membership. Divisional and functional UN Global Compact: leadership receive regular performance updates and are Member since 2013 consulted on decisions relating to their businesses. Annual Report 2023 dssmith.com 29 OUR STRATEGY ## SIZE AND ## PROFITABILITY ## 11% Revenue growth ## 35% Adjusted operating profit growth ## 34% EPS growth 30 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS # OPERATING REVIEW ## Deep customer relationships and cost mitigation driving profit growth The macroeconomic backdrop has remained challenging, with overall market demand worse than we originally expected, particularly in the second half of the year when we saw an impact from de-stocking by our customers and weak end consumer demand, leading to a full-year decline in our like for like box volumes of 5.8 per cent.* The medium-term target for box volume growth of GDP + 1 per cent was 3 per cent and has been heavily distorted by inflation. Despite this, our strong customer relationships and focus on quality and service enabled us to gain market share in the more resilient fast moving consumer goods (FMCG) and other consumer-related sectors, now representing 84 per cent of our volumes. For the 12-month period, revenue grew to £8,221 million (2021/22: £7,241 million), up 11 per cent on a constant currency basis and 14 per cent on a reported basis, with the decline in box volumes (£295 million) more than offset by higher selling prices (£1,196 million) across the Group which reflect the lag in recovery of the increases in input costs during the period 2021 to 2023. £1,026 million of this increase was due to higher packaging prices with the remainder of £170 million due to increases in the price of external sales of paper and energy, offset by a decline in the price of recycling materials. The impact of box and other volume decline led to a £99 million reduction in adjusted operating profit. Despite our continued cost and risk mitigation programmes, input costs were significantly impacted by inflationary price rises which led to an increase in costs, excluding the impact of volume declines, of £872 million versus the comparable period; with rises in raw material costs of £426 million, energy costs of £73 million and other costs, including labour and distribution, of £373 million. The impact of higher energy costs has been mitigated by our three-year rolling energy hedging programme and reduced consumption as we managed paper production, particularly in the second half of the year. Group return on sales grew during the year to 10.5 per cent (2021/22: 8.5 per cent), and within our medium-term target range of 10 to 12 per cent reflecting the increase in profitability despite the dilutive impact of inflation on both revenues and costs. Basic earnings per share from continuing operations grew 71 per cent on a constant currency basis to 35.8 pence. Adjusted basic earnings grew by 34 per cent on a constant currency basis to 43.0 pence per share, reflecting the growth in profitability. Return on average capital employed increased significantly by 350 bps to 14.3 per cent. The improving trend in profitability through the year combined with the improving returns from acquisitions and investments means ROACE was at the upper end our medium-term target range of 12 to 15 per cent. ## Cash flow and net debt During the year, the Group generated free cash flow* of £354 million (2021/22: £519 million), reflecting strong profits partly offset by a working capital outflow and increased capital expenditure spend. Cash conversion** as defined in our financial KPIs (note 32), was 101 per cent, in line with our target of being at or above 100 per cent. The working capital outflow of £121 million included a net benefit in the year of £69 million in respect of margin calls to manage our energy hedging position. The remaining balance of £181 million as at 30 April 2023 is expected to reverse in the financial year to 30 April 2024. The underlying working capital outflow reflects a decline in energy and raw material prices, principally paper, at the end of the financial year, partly mitigated by good cash collection and inventory management. Cash generated from operations before adjusting cash items of £1,092 million (2021/22: £1,092 million) was used to invest in net capex of £525 million, which increased by 27 per cent on the prior year. We have continued to invest in a number of ongoing customer-led projects together with our de-carbonisation and energy efficiency programmes. Net debt as at 30 April 2023 was £1,636 million (30 April 2022: £1,484 million), principally due to the increased capital expenditure and working capital outflow described above, together with an additional interim dividend cash payment due to a change in the timing of payments, as well as adverse movement in foreign exchange rates. Our net debt/EBITDA² ratio (calculated in accordance with our banking covenant requirements) improved to 1.3 times (2021/22: 1.6 times), substantially below our banking covenant of 3.75 times and within our medium-term target of at or below 2.0 times. The final payment of the interstate put option was delayed by the beneficiary and had it been paid our leverage would have been 1.4 times. Standard & Poor's have reconfirmed our investment grade credit rating with a stable outlook. The Group remains fully committed to maintaining its investment grade credit rating. * See notes on page 34 Annual Report 2023 dssmith.com 31 OPERATING REVIEW CONTINUED Investing for growth Dividend Over the last decade the Group has grown strongly through The Board considers the dividend to be an extremely important organic and inorganic growth as we have built a comprehensive component of shareholder returns. Today, we are announcing a platform of geographic coverage and capability to support our final dividend of 12.0 pence per share, taking the total dividend customers in our chosen markets. The structural drivers for for this year to 18.0 pence per share, an increase of 20 per cent growth in corrugated packaging remain more relevant than ever and consistent with our policy of 2.0-2.5 times dividend cover and support our long-term strategy of fully fibre-based solutions over the medium term. for a predominantly FMCG customer base. The consistent Subject to approval by shareholders at the AGM to be held on progress with our customers, as evidenced by record customer 5 September 2023, the final dividend will be paid on 3 October rating metrics and continued market share gains, gives us the 2023 to shareholders on the register at the close of business on confidence to invest further to support customers, drive growth 8 September 2023. and deliver attractive returns. Progress against medium-term targets Our capital expenditure for 2023/24 is expected to be around Medium-term targets Delivery in £500 million. In addition to maintenance and health and safety Continuing operations 2022/23 focused expenditure, this will be allocated across three main | | | | 4 | 5 | | --- | --- | --- | --- | --- | | areas: investing in new product and service innovation including | Organic volume growth | | ≥GDP | +1%, being 3% (5.8%) | | helping our customers drive their sustainability agendas; | | 2 | | | | | Return on sales | 10% – 12% 10.5% | | | investing in our capacity and capability in both our packaging 3 ROACE 12% – 15% 14.3% operations and aligning our paper capability to our customers’ needs; and investing to drive environmental and operational 6 Net debt/EBITDA ≤2.0x 1.3x efficiency. We continue to invest to achieve our Science Based 7,8 | | | Cash conversion | ≥100% 101% | | --- | --- | --- | --- | | Targets initiative approved CO | 2 reduction target of 46 per cent | | | | from 2019 to 2030, and our commitment to achieving net zero | | * See notes to the financial tables on page 34. | | carbon emissions by 2050. Our medium-term targets and key performance Leading the way in sustainability indicators Sustainability has been at the heart of our business for many We measure our performance according to both our financial and years as we have developed and grown into a solely fibre-based non-financial medium-term targets and key performance corrugated packaging business. Our customers value the indicators. Our financial key performance indicators and medium- investment we make in sustainable solutions and our approach to term targets have been discussed above. design using our leading circular design metrics. We work diligently with them to address their sustainability challenges Non-financial key performance indicators and have replaced 762 million of their units of plastic since 2020 DS Smith is committed to providing all employees with a safe and and 297 million in 2022/23. productive working environment. We are pleased, once again, to As well as supporting our customers’ sustainability challenges we report improvements in our safety record, with our accident also continue to make good progress in delivering against our frequency rate (defined as the number of lost time accidents per own sustainability targets. We have reduced our CO 2 emissions by million hours worked) reducing by a further 6 per cent to 1.8, 10 per cent in the year (15 per cent compared to 2019), reflecting our ongoing commitment to best practice in health and maintained our target to manufacture 100 per cent reusable or safety. We are proud that 265 out of a total of 325 reporting sites recyclable packaging and launched biodiversity programmes at achieved our target of zero accidents this year and we continue 13 of our mills. to strive for zero accidents for the Group as a whole. We are delighted our progress has been recognised with further In the year we achieved a good performance in our customer improvements in our rating by a number of external indices service measure of OTIF (on-time, in full) deliveries at 96 per including S&P Global and Sustainalytics, and through our cent, a significant improvement on the prior year (94 per cent). continuing high ratings at CDP, MSCI and EcoVadis. Management remains fully committed to our target of 97 per cent OTIF deliveries and the highest standards of service, quality and innovation to all our customers and we will continue to strive to meet the demanding standards our customers expect. 32 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT Operating review Southern Europe Change Unless otherwise stated, all commentary and comparable Year ended Year ended Change – constant analysis in the Overview and Operating review relates to the 30 April 2023 30 April 2022 – reported currency continuing operations of the Group, on a constant currency basis. Revenue £3,150m £2,736m 15% 12% | Group | | | | | Adjusted | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | Change – | operating profit* £501m £324m 55% 51% | | | | | Year ended | Year ended | Change – | constant | | 2 | | | | | | | | Return on sales | | 15.9% 11.8% 410bps 400bps | | £m | 30 April 2023 | 30 April 2022 | reported | currency | | | | | Revenue £8,221m £7,241m 14% 11% | | | | | * Operating profit before amortisation and adjusting items (refer to note 4 of | | | the consolidated financial statements). Adjusted operating profit* £861m £616m 40% 35% Southern Europe saw a lower decline in box volumes than the Operating profit £661m £443m 75% 71% Group average, reflecting a positive market share performance partially mitigating the overall economic conditions, with France * Operating profit before amortisation and adjusting items (refer to note 4 of the consolidated financial statements). weaker than Iberia and Italy reflecting weakness in overall household consumption. Revenue grew 11 per cent with lower box volumes more than Revenues grew by 12 per cent, due to the impact of increases in offset by higher selling prices in packaging and increases in the both packaging and paper pricing. Adjusted operating profit grew price of external sales of paper and energy. by over 50 per cent compared to the prior period, due to a very Adjusted operating profit grew 35 per cent driven by improved positive performance from the former Europac business acquired selling prices and effective cost mitigation more than offsetting in 2019 as well as the drop-through of price increases in volume declines and inflation. packaging. Accordingly, return on sales for the region grew to the highest within the Group. Northern Europe | | | | | Change | Eastern Europe | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Year ended | Year ended | Change | – constant | | | | | | | | 30 April 2023 | 30 April 2022 | – reported | currency | | | | | Change | | | | | | | | Year ended | Year ended | Change | – constant | | Revenue £3,132m £2,790m 12% 11% | | | | | | 30 April 2023 | 30 April 2022 | – reported | currency | | Adjusted | | | | | Revenue £1,275m £1,118m 14% 14% | | | | | | operating profit* £212m £139m 53% 51% | | | | | Adjusted | | | | | 2 Return on sales 6.8% 5.0% 180bps 180bps operating profit* £76m £73m 4% 4% 2 Return on sales 6.0% 6.5% (50bps) (50bps) * Operating profit before amortisation and adjusting items (refer to note 4 of the consolidated financial statements). * Operating profit before amortisation and adjusting items (refer to note 4 of the consolidated financial statements). In Northern Europe, organic corrugated box volumes across the region declined more than the Group average due to weaker Organic corrugated box volumes in Eastern Europe declined less overall economic conditions and very strong growth in the than the Group average, reflecting a relatively consistent comparative period. Germany experienced higher levels of performance of the region over the last few years. Turkey saw decline due to a larger market exposure to the industrial sector, the largest decline due to the impact of the recent earthquake. with the UK market impacted by a decline in the e-commerce Revenues grew 14 per cent, principally reflecting increases in sector following particularly strong growth over a number of packaging and paper pricing, and adjusted operating profit grew years. Revenues increased by 11 per cent in the region due to a 4 per cent, reflecting the recovery of higher paper prices offset combination of increases in box prices in packaging and an by cost inflation and costs of £19 million related to the decision to increase in sales prices for externally sold paper and volumes of close our Trakia paper mill in Bulgaria. recycled fibre. Adjusted operating profit grew substantially due to the increase in both paper and packaging price drop-through as well as strong cost management, partly offset by inflation and costs of £17 million related to the strategic review of our UK recycling depot network. Annual Report 2023 dssmith.com 33 OPERATING REVIEW CONTINUED | North America | | | | | Notes to the financial tables | | --- | --- | --- | --- | --- | --- | | | | | | Change – | Note 32 explains the use of non-GAAP performance measures. These measures | | | Year ended | Year ended | Change | constant | are used both internally and externally to evaluate business performance, as a | | | 30 April 2023 | 30 April 2022 | – reported | currency | | key constituent of the Group’s planning process, they are applied in the Group’s Revenue £664m £597m 11% (2%) financial and debt covenants, as well as in establishing the targets against which compensation is determined. Reporting of non-GAAP measures Adjusted alongside reported measures is considered useful to enable investors to operating profit* £72m £80m (10%) (21%) understand how management evaluates performance and value creation 2 internally, enabling them to track the Group’s adjusted performance and the Return on sales 10.8% 13.4% (260bps) (270bps) key business drivers which underpin it over time. Reported results are presented in the consolidated income statement and reconciliations to * Operating profit before amortisation and adjusting items (refer to note 4 of adjusted results are presented on the face of the consolidated income the consolidated financial statements). statement, in note 2, note 4, note 8, and note 32. 1. Operating profit (adjusted EBITA) is before adjusting items (as set out in note Packaging volumes in the region declined more than the Group 4 to the consolidated financial statements) and amortisation of £113 million. average, reflecting the overall economic environment and labour 2. Operating profit before amortisation and adjusting items as a percentage of shortages particularly in the first half, which temporarily revenue. restricted our production capacity at certain sites. 3. Operating profit before amortisation and adjusting items as a percentage of the average monthly capital employed over the previous 12-month period. Revenues decreased 2 per cent with increased packaging prices Average capital employed includes property, plant and equipment, offset by the decline in volumes and reduced pricing from right-of-use assets, intangible assets (including goodwill), working capital, provisions, capital debtors/creditors, biological assets and assets/liabilities external paper volumes sold in the export market. Adjusted held for sale. operating profit reduced due to export paper price declines in the 2 4. Corrugated box volumes on a 12-month basis (based on area (m ) of second half and inflationary increases in costs. corrugated box sold), adjusted for working days, on an organic basis. 5. GDP growth for rolling 12-months (year on year) for the countries in which Outlook DS Smith operates, weighted by our sales by country = 3 per cent. Source: Eurostat (16 May 2023) and ONS. While economic conditions have continued to be volatile and box 6. EBITDA being operating profit before adjusting items, depreciation and volumes have remained lower than normal, trading for the year amortisation and adjusted for the full-year effect of acquisitions and to date is in line with our expectations. Our strong customer disposals in the period. Net debt is calculated at average exchange rates as relationships in the resilient FMCG sector, together with the opposed to closing rates. Ratio as calculated in accordance with bank covenants. See note 32 to the consolidated financial statements on investments we are making to drive cost efficiencies and growth, non-GAAP measures for reconciliation. give us confidence for the future. 7. Free cash flow before tax, net interest, growth capital expenditure, pension payments and adjusting cash flows as a percentage of operating profit before amortisation and adjusting items. 8. Free cash flow is the net movement on debt before cash outflow for adjusting items, dividends paid, acquisitions and divestment of subsidiary businesses (including borrowings acquired) and proceeds from issue of share capital. 34 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT Annual Report 2023 dssmith.com 35 # FINANCIAL REVIEW ![img-2.jpeg](img-2.jpeg) Delivering profit growth in a challenging economic environment. Adrian Marsh Group Finance Director # Overview 2022/23 has seen the Group respond with strength to significant market and macroeconomic uncertainty, delivering profit growth with its highest recorded adjusted operating profit and achieving its medium-term targets for return on average capital employed, return on sales and leverage. The business saw revenue growth of 14 per cent (constant currency 11 per cent) as a short-term decline in packaging volumes were more than offset by sales mix and average selling prices. Adjusted operating profit grew by 40 per cent (constant currency 35 per cent) reflecting the recovery of increased costs in the current and previous years. During these significant periods of macroeconomic uncertainty, the Group remains committed to achieving its medium-term financial measures and key performance indicators, as established by the Board, together with maintaining its investment grade credit rating. The principal measure of return on average capital employed (ROACE) for the year was 14.3 per cent (2021/22: 10.8 per cent), which was towards the top of the target range of 12 to 15 per cent - and a 350 basis point improvement from the previous year. The results are described below: - Organic corrugated box volume reduced by 5.8 per cent (2021/22: an increase of 5.4 per cent) - Revenue increased 11 per cent on a constant currency and 14 per cent on a reported basis to £8,221 million (2021/22: £7,241 million) - Adjusted operating profit of £861 million, an increase of 35 per cent on a constant currency basis and 40 per cent on a reported basis (2021/22: £616 million) - 65 per cent increase in operating profit to £733 million on a reported basis; 61 per cent increase on a constant currency basis (2021/22: £443 million) - 71 per cent increase in statutory profit before tax to £661 million on a constant currency basis and 75 per cent increase on a reported basis (2021/22: £378 million) - Adjusted return on sales at 10.5 per cent (2021/22: 8.5 per cent) - Adjusted return on average capital employed of 14.3 per cent (2021/22: 10.8 per cent) - Net debt to EBITDA ratio of 1.3 times (2021/22: 1.6 times) - Cash conversion 101 per cent (2021/22: 142 per cent). Unless otherwise stated, the commentary below references the continuing operations of the Group. # Non-GAAP performance measures The Group presents non-GAAP measures alongside reported measures, in order to provide a balanced and comparable view of the Group's overall performance and position. Non-GAAP performance measures eliminate amortisation and unusual or non-operational items that may obscure understanding of the key trends and performance. These measures are used both internally and externally to evaluate business performance, as a key constituent of the Group's planning process, they are applied in the Group's financial and debt covenants, as well as comprising targets against which compensation is determined. Amortisation relates primarily to customer contracts and relationships arising from business combinations. Unusual or non-operational items include business disposals, restructuring, acquisition-related and integration costs and impairments, and are referred to as adjusting items. 36 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT Reporting of non-GAAP measures alongside statutory measures The key measure of return on average capital employed improved is considered useful by investors to understand how by 350 basis points to 14.3 per cent (2021/22: 10.8 per cent). This management evaluates performance and value creation, performance is at the upper end of the Group’s medium-term enabling them to track the Group’s performance and the key target of 12 to 15 per cent and builds on the momentum seen in business drivers which underpin it and the basis on which to the second half of the prior year. anticipate future prospects. The Group has continued to focus on margin recovery through Note 32 explains further the use of non-GAAP performance commercial excellence, ongoing cost management and efficiency measures and provides reconciliations as appropriate to programmes. Adjusted return on sales increased by 200 basis | information derived directly from the financial statements. | points to 10.5 per cent (2021/22: 8.5 per cent), within the | | | | | | --- | --- | --- | --- | --- | --- | | Where a non-GAAP measure is referred to in the review, the | medium-term target of 10 to 12 per cent. | | | | | | equivalent measure stemming directly from the financial | Income statement – from continuing operations | 2022/23 | | 2021/22 | | | statements (if available and appropriate) is also referred to. | (unless otherwise stated) | | £m | | £m | Revenue 8,221 7,241 Trading results 1 Adjusted operating profit 861 616 Revenue increased by 14 per cent on a reported basis to Operating profit 733 443 £8,221 million (2021/22: £7,241 million). Packaging price rises 1 Adjusted return on sales 10.5% 8.5% across the year, reflecting cost inflation, coupled with higher 1 selling prices of paper and recyclate in the first half of the year Adjusted net financing costs (74) (70) increased revenue by £1,196 million, offsetting volume reduction Share of profit of equity-accounted effects of £398 million. investments, net of tax 2 7 Reported revenues are subject to foreign currency translation Profit before income tax 661 378 1 | effects. In the year, the euro accounted for 60 per cent of Group | Adjusted profit before income tax | | | 789 553 | | --- | --- | --- | --- | --- | | revenue. As such, the movements of the euro against sterling | | | 1 | | | | Adjusted income tax expense | | | (197) (131) | | during the year constituted the majority of the £182 million of | | 1 | | | | | Adjusted earnings | | | 592 422 | positive foreign exchange translation impact. On a constant Profit from discontinued operations, currency basis, revenues increased by 11 per cent. net of tax 11 – Corrugated box volumes reduced by 5.8 per cent (2021/22: 5.4 1 Adjusted basic earnings per share 43.0p 30.7p per cent growth) driven by a significant destocking in the supply Profit for the year attributable to chain reflecting the economic uncertainty and sentiment in the owners of the parent (including Group’s core markets and segments. The prior year volumes were discontinued operations) 502 280 2 particularly high (8.4 billion m of box sales) reflecting significant Basic earnings per share from continuing supply chain filling across all European markets as countries and discontinued operations 36.6p 20.4p moved out of Covid-19 restrictions. The average of the previous 2 Basic earnings per share from continuing two years’ volumes of (8.2 billion m of box sales) represents a more normalised single year. operations 35.8p 20.4p Adjusted operating profit of £861 million on a reported basis is an 1. Adjusted to exclude amortisation and adjusting items (see note 8). increase of 40 per cent (2021/22: £616 million). This is largely Adjusting items attributable to price rises (£1,196 million) exceeding the impact Adjusting items before tax and financing costs were £15 million of volume reduction of £99 million and input cost increases of (2021/22: £35 million) which relates to the pending acquisition of £872 million. Constant currency growth was 35 per cent as the final 10 per cent of the shares in Interstate Resources LLC. foreign exchange translation benefited adjusted operating profit This is due to the crystallisation of the put option for the final 10 by £20 million. The price rises in the year also reflect the full year per cent stake during the financial year. In relation to this, costs of effect of price rises put into effect in 2021/22 to recover the hedging the dollar payment of the liability have been incurred significant cost increases experienced in the second half of that which will continue until the payment is made. year. There have been no new adjusting items from continuing Operating profit at £733 million, is an increase of 61 per cent on a operations in the financial year, in line with guidance. constant currency basis and 65 per cent on a reported basis (2021/22: £443 million), as lower amortisation and adjusting Settlement of certain costs and obligations arising from the items added to the adjusted operating profit improvement. disposal of the Plastics division in 2021 resulted in a gain in adjusting items in profit from discontinued operations of On a reported basis, depreciation increased to £312 million £11 million. (2021/22: £290 million) reflective of investment in new packaging production capacity in Italy and Poland. Amortisation Adjusting items in 2023/24 are expected to be £nil. decreased to £113 million (2021/22: £138 million) as intangibles arising on earlier acquisitions completed their amortisation term. Annual Report 2023 dssmith.com 37 FINANCIAL REVIEW CONTINUED ## Interest, tax and earnings per share Net finance costs were £74 million (2021/22: £70 million). The increase of £4 million on last year is primarily due to rises in interest rates more than offsetting the effects of lower levels of debt. The employment benefit net finance expense of £1 million is £2 million lower than prior year. Adjusting financing costs in the prior year related to the final unwind of the Interstate Resources put option. The share of profits of equity-accounted investments was lower than the prior year at £2 million (2021/22: £7 million) as the conflict in Ukraine continues to impact our associate there. Profit before tax increased by 75 per cent on a reported basis to £661 million (2021/22: £378 million), driven by the increase in operating profit and a reduction in amortisation offset by increased financing costs. Adjusted profit before tax of £789 million (2021/22: £553 million) increased by 43 per cent on a reported basis, again due to the increase in the underlying adjusted operating profit. The tax charge of £169 million (2021/22: £98 million) reflects the impact of higher profits. The Group's effective tax rate on adjusted profit, excluding amortisation, adjusting items and associates, was 25.0 per cent (2021/22: 24.0 per cent). Reported profit after tax, amortisation and adjusting items for continuing and discontinued operations was £503 million (2021/22: £280 million). The increase in operating profit led to an increase of 75 per cent in basic earnings per share from continuing operations on a reported basis to 35.8 pence (2021/22: 20.4 pence), with adjusted earnings per share from continuing operations 40 per cent higher at 43.0 pence (2021/22: 30.7 pence) on a reported basis, 34 per cent higher on a constant currency basis. ## Acquisitions and disposals In recent years, the Group's strategy has focused on organic growth in order to support growth with our major customers. During 2019/20, the Group agreed to the purchase of a further 10 per cent holding in Interstate Resources for £106 million, following the exercise of part of the pre-existing put option by the former owners of that business. A cash settlement of £82 million was made in June 2020 with the balance paid in October 2021. The final 10 per cent stake remains subject to the put option conditions, which have now been met in the 2022/23 financial year with a final expected payment of $129 million which will be paid in 2023/24. In the first half of 2021/22, the Group disposed of its non-core Dutch paper mill operations for a consideration net of transaction costs of £35 million. ## Cash flow Reported net debt of £1,636 million (30 April 2022: £1,484 million) has increased from the prior year, as the rise in EBITDA from the strong business performance was offset by a net working capital outflow of £121 million, due largely to the decline in energy prices and paper raw material purchase prices at the end of the financial year, net capital expenditure of £526 million, £111 million higher than the previous year and higher tax payments. The working capital outflows were mitigated by maintaining focus on cash management, in particular cash collection and inventory management. The Group's energy and carbon hedges remained at a high value during the year and in order to manage our counterparty risk, margin calls of £267 million were made, of which £181 million relates to positions maturing after the year end. After the effect of benefits from prior year margin calls reversing, the net benefit to working capital of this credit risk management was £69 million. There was no impact on income from these actions. The debt was also impacted by both the absolute amount of dividends paid and also, following shareholder feedback, the acceleration of the 2022/23 interim dividend payment date to January 2023 which resulted in an additional payment of £83 million in the year compared to the previous year. Trade receivables factoring is £21 million lower than April 2022 at £360 million. This is a reduction of some 35 per cent from the peak balance of £559 million in 2018. Going forward the Group expects to continue to sell high credit quality receivables under this programme within the range £350-400 million outstanding at any one time. Such arrangements enable the Group to optimise its working capital position and reduces the quantum of early payment discounts given. Net capital expenditure increased by £111 million to £526 million in the year. The Group continued to focus on growth and efficiency capital projects, which represented 59 per cent of the reported spend in the year, with energy efficiency and carbon reduction projects representing 12 per cent of spend. Major investments in greenfield packaging plants in Italy and Poland were a significant portion of this, with the sites fully operational in 2022/23. Proceeds from the disposal of property, plant and equipment were £19 million (2021/22: £16 million). Tax paid of £136 million is £40 million higher than the prior year driven by increasing levels of profit in 2021/22. Net interest payments of £76 million increased by £14 million over the prior year driven by higher interest rates. Timing of payments on maturing US private placements and Euro medium-term notes accounts for the majority of the difference between cash interest paid and finance costs reported in the income statement, partly offset by amortisation of debt issuance fees. 38 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT Cash outflows associated with adjusting items increased by Statement of financial position £1 million to £14 million as programmes which commenced in At 30 April 2023, shareholder funds decreased to £4,084 million, previous years concluded and minimal cash outflows are from £4,232 million in the prior year. Profit attributable to anticipated in 2023/24. shareholders of £502 million (2021/22: £280 million), together Prior year disposal proceeds of £35 million related to the sale of with an actuarial gain on employee benefits of £11 million the de Hoop mill. (2021/22: £68 million gain) and foreign currency translation gain of £194 million (2021/22: loss of £40 million), was offset by a net Cash generated from operations before adjusting cash items was reduction in the cash flow hedge reserve of £645 million flat at £1,092 million. Net cash inflow was £49 million, a (2021/22: £712 million gain) driven by the significant reduction in £284 million decrease on the prior year. This reflects the effect of the underlying value of our commodity hedge positions as energy working capital outflows in the current year, increased net capital prices fell. Dividends paid in the year were £289 million expenditure and tax payments and includes the impact of (2021/22: £166 million). bringing forward of the date of settlement of the interim | dividend. | | | | | Equity attributable to non-controlling interests was £3 million | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | 2022/23 | | 2021/22 | | (2021/22: £2 million). The Group’s banking covenants stipulate | | | | Cash flow | | £m | | £m | the methodology upon which the net debt to adjusted earnings | | | | Cash generated from operations before | | | | | before interest, tax, depreciation and amortisation (EBITDA) ratio | | | | adjusting cash items 1,092 1,092 | | | | | is to be calculated. The effects of IFRS 16 | Leases | , adopted since | | Capital expenditure (net of disposal | | | | | 1 May 2019, are excluded by the banks from the ratio’s | | | | of fixed assets) (526) (415) | | | | | determination. The ratio has reduced to 1.3 times, with an | | | increase in adjusted EBITDA and a reduction in adjusted net debt. Tax paid (136) (96) This represents an improvement from the previous year-end Net interest paid (76) (62) position of 1.6 times. The ratio remains compliant with the Free cash flow 354 519 covenant requirements, which across all banking debt is 3.75 Cash outflow for adjusting items (14) (13) times. As the payment associated with the exercise of the second Dividends (289) (166) tranche of the Interstate Resources put option is still outstanding Acquisitions and disposals of businesses, at 30 April 2023, this has not been factored in to the calculated net of cash and cash equivalents – 12 ratio. If the payment was included, the ratio would increase to c. 1.4 times. The Group’s publicly traded euro and sterling bonds Other (2) (19) are not subject to any financial covenants. The bonds are, Net cash flow 49 333 however, subject to a coupon step up of 125 basis points for any Issue of share capital 4 7 period the Group falls below an investment grade credit rating. Loans, borrowings and finance leases The covenant calculations also exclude income statement items divested – 1 identified as adjusting by the Group and any interest arising from Foreign exchange, fair value and other the defined benefit pension schemes. At 30 April 2023, the Group movements (205) (30) has substantial headroom under its covenants, with the future Net debt movement – outlook assessed as part of the annual going concern review. The continuing operations (152) 311 Group’s investment grade credit rating from Standard & Poor’s Net debt movement – remains stable at investment grade, which takes into account all discontinued operations – – the items excluded from covenant calculations and working capital. Opening net debt (1,484) (1,795) Closing net debt (1,636) (1,484) Annual Report 2023 dssmith.com 39 FINANCIAL REVIEW CONTINUED | | 30 April | | 30 April | | Capital structure and treasury management | | --- | --- | --- | --- | --- | --- | | | | 2023 | | 2022 | | | Statement of financial position | | £m | | £m | In addition to its trading cash flow, the Group finances its | operations using a combination of borrowings, property and Intangible assets 2,927 2,906 equipment leases, shareholders’ equity and, where appropriate, Property, plant and equipment 3,529 3,128 disposals of non-core businesses. The Group’s funding strategy is Right-of-use assets 224 199 to achieve a capital structure that provides an appropriate cost of Inventories 619 703 capital whilst providing the desired flexibility in short and Trade and other receivables 1,257 1,229 medium-term funding to enable the execution of material Cash and cash equivalents 472 819 investments or acquisitions, as required. Derivative financial instruments 319 811 The Group aims to maintain a strong balance sheet enabling Employee benefits 24 – significant headroom within the financial covenants and to Other 86 91 ensure continuity of funding by having a range of maturities from Total assets 9,457 9,886 a variety of sources. The Group has an investment grade rating Bank overdrafts (104) (73) from Standard & Poor’s of BBB–, with a stable outlook. Borrowings (1,816) (2,072) The Group’s overarching treasury objective is to ensure sufficient Trade and other payables (2,287) (2,540) funds are available for the Group to execute its strategy and to Provisions (65) (55) manage the financial risks to which the Group is exposed. Employee benefits (79) (86) In November 2018, the Group signed a £1.4 billion five-year Lease liabilities (224) (203) committed syndicated revolving credit facility (RCF) with its core Derivative financial instruments (368) (84) banks. The second extension option was exercised in November Other (427) (539) 2020. £1.1 billion of the facility now matures in 2025 with the Total liabilities (5,370) (5,652) remaining £0.3 billion maturing in 2024. Net assets 4,087 4,234 In April 2023, the Group signed a £500 million term loan facility Net debt 1,636 1,484 with initial maturity of April 2024 extendable at the Group’s Net debt to EBITDA ratio 1.3x 1.6x discretion to April 2025. The facility remained undrawn at the year end. Energy costs Production facilities, in particular paper mills, are energy intensive Available cash and debt facilities are reviewed regularly to ensure which results in energy being a significant cost for the Group. In sufficient funds are available to support the Group’s activities. 2022/23, costs for gas, electricity and other fuels, net of periodic At 30 April 2023, the Group’s committed facilities totalled local incentives, were £669 million (2021/22: £609 million). The £3.4 billion, of which £1.6 billion remained undrawn and year saw significant increases in the first half year, which eased £2.9 billion matures beyond one year or more. Undrawn into the second half, with energy costs for the first half year of committed borrowing facilities are maintained to provide £400 million decreasing to £269 million in the second half year protection against refinancing risk. (2021/22: H1 £240 million, H2 £369 million). The net impact on the Group was mitigated by an increase in energy sales, At 30 April 2023, the committed borrowing facilities had a significantly less paper production in the second half of the year, weighted average maturity of 2.4 years (30 April 2022: 3.0 the Group’s three-year rolling hedging programme and the years). Additional detail on these facilities is provided below. benefits of free allowances following the introduction of phase 4 Total gross borrowings at 30 April 2023 were £1,816 million of the EU Emissions Trading Scheme. The Group continues to (30 April 2022: £2,072 million). The committed borrowing invest in energy efficiency projects and limits the exposure to facilities described do not include the £440 million of three-year volatile energy pricing by hedging energy costs with suppliers committed factoring facilities, which allow the sale of receivables and financial institutions, managed by the Group’s Energy without recourse. Given the three-year committed nature of Procurement team. these facilities, they fully protect the Group from any short-term liquidity risks which may arise from volatility in financial markets. 40 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT As described above, the Group continues to sell trade receivables The assumptions applied are subject to periodic review. A | without recourse, a process by which the trade receivables | summary of the balance sheet position as at 30 April is as follows: | | | | | | --- | --- | --- | --- | --- | --- | | balance sold is de-recognised, with proceeds then presented | | 30 April | | 30 April | | | within operating cash flows. | | | 2023 | | 2022 | | | | | £m | | £m | | The Group maintains a €1 billion Euro Commercial Paper | Aggregate gross assets of schemes 848 1,113 | | | | | | Programme, which remained undrawn at 30 April 2023. | Aggregate gross liabilities of schemes (903) (1,199) | | | | | Balance sheet deficit (55) (86) | | Maturity | | | £m | | | --- | --- | --- | --- | --- | --- | | Facilities Currency | | date | equivalent | | Deferred tax assets 14 21 | | Syndicated RCF 2018 Various 2024-25 1,400 | | | | | Net balance sheet deficit (41) (65) | Euro medium-term notes EUR 2024-26 1,189 The net deficit has decreased versus prior year driven by Euro RCF 2020 EUR 2025 53 significant increase in discount rate assumptions at 30 April 2023 Sterling bond medium-term and a less than corresponding fall in the asset valuations. note GBP 2029 250 The 2019 triennial valuation of the main UK scheme incorporated Euro term loan EUR 2025 17 updates to underlying scheme assumptions, including GBP term loan GBP 2024 500 demographic and life expectancy rates, which, along with Committed facilities at updates surrounding mortality and proportion married 30 April 2023 3,409 assumptions and future improvements, resulted in a net c. 3 per cent decrease in the valuation of the scheme liabilities. No Impairment changes were made to the previously approved funding plan The net book value of goodwill and other intangibles at 30 April following the triennial valuation. The main UK pension scheme 2023 was £2,927 million (30 April 2022: £2,906 million). has been undertaking its 2022 triennial valuation, with the valuation mutually agreed between the Company and the IAS 36 Impairment of Assets requires annual testing of goodwill Scheme Trustees with anticipation of formal agreement being and other intangible assets, as well as an assessment of any achieved by the statutory deadline of 31 July 2023. other assets for which there may be indicators of impairment. As part of this testing, the Group compares the carrying amount of Total cash contributions paid into the Group pension schemes, the assets subject to testing with the higher of their net reported within cash generated from operations in the cash flow, realisable value and value-in-use to identify whether any were £25 million in 2022/23 (2021/22: £21 million), which impairment exists. The asset or group of assets’ value-in-use is primarily constitute the agreed contributions under the UK determined by discounting the future cash flows they expect to defined benefit scheme deficit recovery plan. In response to the generate from the basis of the Group’s weighted average cost of market turmoil following the UK ‘mini-budget’ in September capital (WACC) of 9.5 per cent (2021/22: 9.5 per cent), plus a 2022, the Group made funding support of up to £100 million to blended country risk premium for each group of assets. Asset the main UK defined benefit pension scheme. This took the form values were tested as at 30 April 2023, with no impairment initially of a cash advance in anticipation of potential margin calls identified as a result of the testing performed. and latterly a liquidity facility. The cash advance was fully repaid within days of being made and as at 30 April 2023 the liquidity Pensions facility remained in place but was undrawn. The Group’s primary funded defined benefit pension scheme, based in the UK, is closed to future accrual. There are a variety of other post-retirement and employee benefit schemes operated locally for overseas operations, and an additional unfunded scheme in the UK relating to three former directors which is secured against assets of the UK business. In accordance with IAS 19 Employee Benefits (Revised 2011) , the Group is required to make assumptions surrounding rates of inflation, discount rates and current and future life expectancies, amongst others, which could materially impact the value of any scheme surplus or liability. A material revaluation of the relevant assets and liabilities could result in a change to the cost to fund the scheme liabilities. Annual Report 2023 dssmith.com 41 ## RISK MANAGEMENT: SAFEGUARDING ## OUR PURPOSE Our Group risk policy provides the framework through effective governance forums from Board level down to operational teams to ensure there is a common understanding of risk management practices across all parts of the Group in building a risk confident decision- making culture. This has been fully integrated with our annual corporate planning process. We use these practices to evaluate and accept those risks that we believe we have the capacity, know-how and experience to manage, or to understand and tolerate those risks that we cannot influence, in order to realise the potential opportunities for growth and development as per the annual risk reporting cycle. We are faced with greater uncertainty which we are keeping pace with through the key defences and mitigations across our 12 principal risks, capability and networks within the business, our governance framework and investment in key personnel. ### OVERSIGHT OF OUR PRINCIPAL RISKS Enterprise risk management framework, policies, standards and governance Regulation Macroeconomic Paper/fibre Shopping Sustainability Cyber attacks and impacts price volatility habits commitments governance 12 PRINCIPAL RISKS Packaging Substitution Security of Organisation Disruptive Digital capacity of fibre paper/fibre capability market players enablement fluctuations packaging supply Quarterly Our risk perspective Audit Committee LINES OF Over the past few years the Group’s investment in business growth to support its ambition to be the ASSURANCE TOP DOWNBOTTOM UP leading supplier of sustainable packaging solutions Quarterly has coincided with a particularly disruptive period. Group Strategy Committee During 2022 we saw a progressive recovery from Covid-19 and return to a ‘new normal’ being disrupted Monthly again by the consequences from the war in Ukraine Operational Group Operating Committee which triggered a number of new challenges alongside management a heightened level of familiar business risks (such as inflation, cost of living crises, supply chain) from geopolitical tensions and macroeconomic uncertainty. Quarterly The year also demonstrated that some risks are likely Group Compliance Committee Governance, Risk, to be more severe than previously considered (such as Audit & Compliance the beginnings of de-globalisation, climate change support functions impacts, transitioning to meet our 1.5°C science-based Ongoing RESILIENCE target to reduce greenhouse gas (GHG) emissions, the Internal Audit development of dual-use technologies, increasing scrutiny and regulation). These familiar and more Policies & procedures invasive risks are all converging to create additional Ongoing uncertainty and volatility and are likely to provide Group Risk another test of the resilience of the Group’s business strategy, key priorities and delivery on our targets. Ongoing Internal audit & control As in the past these tests are not new and with each Group functions reviews fresh set of challenges we remain confident in the fundamentals of our business strategy and our allocation of resources and investments to be able to Ongoing withstand these headwinds, improve our business and Divisions & Regions External assurance take advantage of key areas of opportunity. 42 4 2 5 3 1 TH ND TH RD ST FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT Annual risk reporting cycle MAY – JUL AUG – OCT NOV – JAN FEB – APR Oversight and review of the principal risks effectiveness and uncertainties, risk appetite and tolerance, and business viability as Board Reviews the progress of risk part of Corporate Plan discussions which is delegated to the Audit management in relation to the Committee. Corporate Plan, and reviews and approves completed Internal Audit reports and reviews status of programme Reviews Group and divisional Reviews Group risks, viability which includes the Group Further updates and risk reports, annual Internal Audit and risk management approves completed Internal Audit needs assessment, ethics report Committee effectiveness including go Audit reports and ongoing including audit plans and forward actions to implement Internal Audit work recommendations, and the Group ethics report Group Undertakes a review and assessment of the Undertakes an assessment of the Strategy Group’s principal and emerging risks six months post the Corporate Group’s principal and emerging risks against the Corporate plan Committee plan review Reviews a selection of Group Reviews a selection of Group function and/or divisional risks Reviews a selection of Group Reviews a selection of function and/or divisional including an update on TCFD Group function and/or Compliance Group function and/or risks including ‘deep dive’ requirements and improvements divisional risks including Committee divisional risks compliance risk discussions to due diligence on modern product safety complaints slavery in the supply chain Undertakes the year-end Updates review of Internal Internal Reviews its programme Considers response assessment of Internal Audit Audit programme and key Audit and key control risks to specifically selected risks needs and presents a plan for control risks the year ahead Provides feedback and guidance to divisions and Provides ongoing feedback to divisions and Group functions Evaluation on principal Group Group functions on risk on risk assessments for the Corporate Plan, principal risks risks review and emerging Risk assessments in preparation and emerging risks risks validation for the Corporate Plan process Produce year-end review of principal and key business risks and Group functions Update risk assessments and integrate into their corporate plans reconsider effectiveness of risk management actions implemented Divisions & Produce year-end review of principal and key business risks and Update risk assessments and integrate into their corporate plans Regions reconsider effectiveness of risk management actions implemented Mitigating and/or preventing the impact of a risk affecting our Corporate Plan delivery remains a cornerstone of our executive and operational management team efforts. Our risk heat map provides a summary of how we assess and evaluate the relationship between the likelihood and severity of our principal risks and uncertainties, taking into account the effectiveness of current mitigations, andinforms where the Group should prioritise investments to managethem. Annual Report 2023 dssmith.com 43 RISK MANAGEMENT CONTINUED Principal risks heat map Note: the potential accumulation of connected risks across three key drivers of our business model and Corporate Plan Bubble colour reflects risk relative priority highest risk second level priority Cyber attacks Paper/fibre third level priority price Macroeconomic By prioritising climate change risk and seizing opportunities we can maintain our competitiveness and Organisation ensure long term sustainability Digital capability Sustainability objectives, goals and outcomes. enablement commitments Climate change can affect the Security Packaging Shopping habits availability of raw materials and of supply capacity Regulation/ production processes, while natural limited to governance disasters can disrupt supply chains growth and damage infrastructure. It can also enhance the focus and opportunities presented to Fibre substitution Risk likelihood (with mitigation) DS Smith from investment into alternatives, innovation and focus Disruptive on regulation. market players Our current view on the systemic implications of climate change are presented in the table below. Risk severity (with mitigation) Climate-related risks and opportunities and principal risks See pages 53 to 55 Climate-related risk Type Link to principal risk Transition Increased spend on carbon Policy and legal • Regulation and governance taxes • Paper/fibre price volatility Increased cost of raw Market • Security of paper/fibre supply materials or threat to • Paper/fibre price volatility supply Physical Increased severity of Acute physical • Security of paper/fibre supply extreme weather events • Paper/fibre price volatility Increased likelihood Chronic physical • Regulation and governance of water stress Climate-related opportunity Growth in demand for Products and services • Shopping habits sustainable packaging • Packaging capacity • Organisation capability • Fibre substitution Greater resource efficiency Resource efficiency • Paper/fibre price volatility • Sustainability commitments Use of lower-emission Energy source • Sustainability commitments energy sources 44 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT Our principal risks Our risk universe encompasses a wide range of potential risks that could impact our operations and performance. These are defined and prioritised into 12 principal risks that we manage on a cyclical basis on a top down and bottom up approach. Our internal alignment and external validation through the annual risk reporting cycle enable us to make well-informed decisions. Macroeconomic impacts Paper/fibre price volatility Cyber attacks | | 1 | | 3 | | 2 | | --- | --- | --- | --- | --- | --- | | | 1 | | 2 | | 3 | | Definition | | Definition | | Definition | | | Multiple political/economic factors from | | Volatile commodity pricing for recovered | | The threat posed to our information or | | | foreign exchange/interest rates to | | paper (including old corrugated cases | | operational technology from ransomware | | | weakening major economies significantly | | (OCC)) and containerboard grades can | | and/or a failure to stop/identify | | | impact the level of consumer spend and | | create significant short-term challenges to | | sophisticated malicious cyber intruders on | | | customer demand for the Group’s | | capture appropriate returns by aligning raw | | our IT infrastructure. | | | packaging products. | | material costs to packaging sales revenues. | | | | Key defence/mitigations Key defence/mitigations Key defence/mitigations Regular awareness training and testing to A robust Corporate Plan process where A strategy demonstrating the Group’s better equip our employees with the macroeconomic trends are evaluated commercial credentials/services in knowledge to identify potential phishing/ alongside investments to improve Packaging to build up box prices regardless other social engineering techniques. production cost base, efficiency and of raw material cost and sell the additional Investments in IT security controls to deliver other initiatives such as value of our products, services, improve our capability to detect, respond sustainable growth and innovation innovations, sustainability credentials and to and prevent malicious cyber activity, priorities to strengthen resilience. customer brand benefits. including hardening of the IT estate via Focus remains on supplying packaging Strong discipline to maintain optimal network segregation between/within IT quality, service and volume to fast moving positions on CCM manufacture and and operational technology environments. consumer goods (FMCG) customers with a recovered paper sourcing and manufacture Regular improvements in, and testing of, constant focus on quality, service and with external selling strategies of excess IT disaster recovery planning through volume growth, as these customers tend recovered paper (if an excess is necessary cyber drills, policies and procedures, to show greatest resilience against GDP for security of supply). Trading position including penetration/vulnerability volatility. through paper sourcing to maximise testing. integration between internal CCM and box Our dynamic energy hedging strategy over plants. Continued expansion of the IT and five-year horizons smooths pricing operational technology security volatility, and other developments in our A disciplined approach in managing volume, capabilities through increased internal procurement and logistics flows are margin and pricing of stock keeping units resourcing and external partner support. helping to evolve our operating model and using technology innovations, performance maintain resilience. packaging, with at balance between Link to business strategy contracts indexed those freely negotiated Link to business strategy to support greater resilience with input To double our size pricing volatility. and profitability To double our size and profitability Link to business strategy Opportunity To double our size Accelerated investment in a strong cyber Opportunity and profitability security programme and culture of The Group’s ability to reposition our awareness to enhance our business business model outside of traditional Opportunity continuity credentials. sources of supply. Strengthening our value proposition and Key risk indicator Key risk indicator the fibre and efficiency programmes. IT security training effectiveness and Eurozone GDP growth rate. Key risk indicator phishing campaign statistics. Risk tolerance Paper/recovered fibre market price and box Risk tolerance selling price. Risk tolerance Risk outlook Risk outlook Risk outlook Risk rank change by year key Net risk tolerance key Risk outlook Principal risk example 1 – highest 12 – lowest Re-assess AcceptableUnacceptable Increasing Stable Decreasing 2 | 23/24 23/24 23/24 | | 1 2 | 3 | 3 | | | --- | --- | --- | --- | --- | --- | | 23/24 | 3 | | | | Annual Report 2023 dssmith.com 45 | | 22/23 22/23 22/23 | | | | | | 22/23 21/22 21/22 21/22 21/22 RISK MANAGEMENT CONTINUED Shopping habits Regulation and governance Sustainability commitments | | 12 | | | 6 | | 4 | | --- | --- | --- | --- | --- | --- | --- | | | 12 | | 4 | | | 5 | | Definition | | Definition | | | Definition | | | We fail to adapt our offer to the pace and | | Our governance model fails to support the | | | Our efforts and significant planned | | | direction of change in consumer spending | | way we are organised and our geographical | | | investments to decarbonise and transition | | | across the full retail FMCG spectrum, from | | spread, resulting in unauthorised, illegal, | | | our supply chain to a circular, low-carbon | | | the mega large brands, micro-brands and | | unethical or inappropriate actions. | | | economy do not keep pace with growing | | | omni-channel distribution networks of the | | | | | customer and investor expectations on | | Key defence/mitigations ‘big box’ superstores and discounters, to large organisations to make a positive the rise in e-commerce and importance of The Group continues to maintain detailed contribution and address global climate consumers’ values. and extensive arrangements for the change. management of standards, domestic and Key defence/mitigations Key defence/mitigations international compliance rules alongside Heavily invested in FMCG and omni-channel new regulations, with regular business The development, investment and timely distribution bringing performance unit legal compliance and control reviews implementation of effective carbon packaging, eco-friendly fibre-based and including health, safety, environment, reduction roadmaps for paper and packaging innovations to the forefront of agency and supplier standards and packaging energy efficiency, equipment our commercial strategy. product integrity/safety. upgrades and switching to alternative energy sources across all sites, whilst Our Sales, Marketing and Innovation Regulatory compliance training including monitoring and adapting to regulatory organisation is supported to ensure that e-learning modules for employees on a changes. the Group’s commercial strategy remains variety of compliance modules including agile and aligns product solutions/services antitrust, anti-bribery and corruption, and Ensuring we meet the growing consumer to reflect changing distribution and modern slavery to ensure full and investor demand for sustainable consumer preferences towards circular understanding of the applicable laws and packaging through a focus on packaging solutions (including the value of plastic high standards expected, alongside design, use and disposal based on a replacements, point-of-sale packaging and regular reporting and engagement with circular economy with business leaders end-to-end services). senior leadership at divisional level on and a sales force equipped to drive this legal, governance and compliance risk. agenda. Rethinking and applying a differentiated service offering to different customer Implementation of a strong and visual Regular reviews of, and governance and categories through improved use of ‘Speak Up!’ workplace malpractice regime reporting on, our sustainability priorities to digitisation alongside broader customer across the Group providing a confidential ensure they align with the expectations of experience solutions (including new route for employees to report perceived stakeholders, wider society and scientific technology platforms, services and tools). malpractice of any type. climate projections, as well as implementing TCFD recommendations and Reinforcing our Trend and Insights & Use of the Group Compliance Committee submission to top ESG ratings such as CDP. Marketing teams on understanding customer as a forum to review and assess specific and consumer habits, needs and behavioural compliance risk matters. Link to business strategy changes to inform research and development Link to business strategy options and operational capabilities. To lead the way in sustainability Link to business strategy To delight our customers To double our size Opportunity and profitability Ensuring that our circular packaging Opportunity solutions are sustainable through Enhancing our strong governance model Opportunity continued investment in sustainable beyond the standards requested of us projects such as efficiencies in energy Aligning our investments with consumer across the regulatory landscape. upgrades and the circular economy. spending patterns to meet consumer Key risk indicator | needs with active engagement around | | Key risk indicator | | | --- | --- | --- | --- | | packaging solutions. | Group and divisional compliance training | | | | | | Reduction of CO | 2 e per tonne of production. | and reviews. Key risk indicator Risk tolerance Risk tolerance Revenue and production growth for FMCG sector. Risk tolerance Risk outlook Risk outlook Risk outlook Risk rank change by year key Net risk tolerance key Risk outlook Principal risk example 1 – highest 12 – lowest Re-assess AcceptableUnacceptable Increasing Stable Decreasing 2 | 23/24 23/24 23/24 | | | 4 | 5 3 6 | | --- | --- | --- | --- | --- | | 23/24 | 3 | 46 | | | | 22/23 22/23 22/23 | | | | | 22/23 21/22 21/22 21/22 21/22 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT Organisation capability Packaging capacity fluctuations Disruptive market players | | 5 | | | 8 | | 10 | | --- | --- | --- | --- | --- | --- | --- | | | | 8 | | 7 | | 9 | | Definition | | | Definition | | Definition | | | Risk that the management approach to | | | Our performance and volume | | Disruptive behaviours in our key markets, | | | our people and assets may not correctly or | | | commitments to serve all our customers | | where there is a risk that significant | | | sufficiently identify future resourcing | | | with an increasing demand fluctuation for | | suppliers or competitors combine by | | | capability needs, particularly in the | | | packaging become limited by our | | copying our business model or disrupting | | | strategic growth drivers of Innovation, | | | production capacity or headroom through | | the fundamental assumptions of our | | | Sustainability and Digital and Data . | | | short-term and long-term variances and | | supply cycle business, causes shock/ | | | | | | instability. | | prolonged price and volume drop and | | Key defence/mitigations materially reduces our capability to Key defence/mitigations A combination of management actions purchase paper or restricts our ability to from L&D programmes, succession We have an agile Corporate Plan and compete more effectively. planning, up-skilling, cross-skilling, talent planning process designed to manage out Key defence/mitigations acquisition and graduate programme/ material variations between demand academies (including the DS Smith Way) to growth and capacity forecasting using The corporate planning process continues support the needs of the business and flexible capital investment plans to to ensure that the Group’s Strategy team improve employee engagement and support changes in our key markets and divisional leadership capture empowerment. alongside the development of new or information on changes in the market expansion of our existing packaging environment, building an acute Our HR and operational leaders work to manufacturing sites. understanding across our customer prioritise key activities aimed at effective portfolio on their future needs to resourcing for new and foreseeable work Rationalisation of existing capacity via determine areas of activity that could be realities to build needed skills, reduce improved customer-production footprint truly disruptive or where our bespoke reliance on the external labour market and alignment and equipment utilisation is solutions enhance our value proposition. review ways of working to improve considered through multi-year capital organisation flexibility and productivity. plans. This extends to include the ability to Continuous improvement of our make strategic decisions to transfer procurement and supply chain processes The Group HR function continues to between locations previously focused on for all paper grades and critical raw improve employee related reporting to industrial production and materials, including enhanced reflect wider support for a targeted and FMCG/e-commerce. contingency plans if critical suppliers were measured approach on diversity in all to be disrupted. management and operational levels. Developing clusters of production sites to improve capacity loading, implementing Leadership and management team retain Link to business strategy new shift patterns and sales and a heightened level of awareness of operational performance programmes to potential disruptive behaviours, possible To realise the potential optimise a full system of supply/demand blind spots and built-in institutional of our people loading, inventory and logistics planning. challenges to ensure a level of resilience operates in key areas of potential growth Opportunity Link to business strategy or change. Developing and refining ways to cross-skill To delight Link to business strategy and up-skill our workforce to support both our customers the current and future needs of the To double our size business. and profitability Opportunity Key risk indicator Aligning our investments to our Opportunity Employee turnover including external/ commitments to serve all of our customers internal hiring ratios and diversity and and push further growth, through a Focusing on sustainable growth and inclusion metrics. flexible end to end supply chain. reputation allows us to maintain our strong market position and compete with Risk tolerance Key risk indicator any new disruptive players . Packaging demand and production volume Key risk indicator metrics. Proportion of market share. Risk outlook Risk tolerance Risk tolerance Risk outlook Risk outlook | 23/24 23/24 23/24 | 7 8 | 9 | | | --- | --- | --- | --- | | 22/23 22/23 22/23 | | | Annual Report 2023 dssmith.com 47 | | 21/22 21/22 21/22 | | | | RISK MANAGEMENT CONTINUED Substitution of fibre packaging Security of paper/fibre supply Digital enablement | | | 11 | | 7 | | 9 | | | --- | --- | --- | --- | --- | --- | --- | --- | | | 10 | | | 6 | | | 11 | | Definition | | | Definition | | Definition | | | | Fibre-based packaging loses its | | | Large fluctuations in the availability of | | Digital transformation initiatives, from | | | | credentials as a sustainable product of | | | recovered paper (including OCC) and | | point-of-sale through to manufacture and | | | | choice against developments in plastic | | | containerboard adversely affects our | | delivery to customers, are too slow or the | | | | packaging or other materials that can be | | | performance. Our failure to adapt to | | investments required too high to | | | | reused and recycled, resulting in our | | | changes in installed paper production | | adequately adapt our ways of working or | | | | products being substituted and/or | | | capacity and imports, and our inability to | | we miss the opportunity to meet the | | | | replaced by competitor products. | | | produce a sustainable supply of internal | | demand for smart products, including | | | | | | | European fibre for critical paper grades, | | customer ease of access to our products | | | Key defence/mitigations including specific virgin papers, leaves us and services. Business investment in diverse portfolio over-exposed to the threat of significant Key defence/mitigations of materials/services beyond traditional commodity availability and price volatility pulp and paper alongside a dedicated for extended periods of time. The Group Strategy Committee oversight Government Affairs team that tracks/ of enterprise wide efforts to identify/ Key defence/mitigations monitors proposed government leverage digital revenue opportunities legislation, the potential impact and sets/ Cross-divisional capability to optimise the including ongoing reviews of digital ‘light drives focused and proactive make, buy, sell decision across the Group, house’ projects. communication strategies to respond ensuring the Group sources key paper We have created a central digital centre of centrally as well as through industry trade grades from external suppliers to deliver excellence called the Digital and Data Hub. associations to support/build the and flex to paper volume needs. This provides guidance and advice, a reputation of fibre-based materials in Investment in supply chain programmes to digital coordination point and a digital terms of recyclability, circularity, quality bring cross-divisional benefits from delivery capability. standards and innovation potential. improved stock visibility and plan We are hiring specific staff with expertise Collaboration between our Paper and adherence to help handle forecast in digital technologies such as data Packaging divisions and R&D teams to variability through the short, medium and engineering and digital product deliver innovative papers and corrugated long-term horizons. management to sit within the Digital and products, and develop new materials with A clearly defined fibre strategy based on Data Hub and embedded in the divisions. our suppliers and partners for barrier/ performance packaging, and ‘best fit’ We continue to select a number of key lamination concepts and plastic footprint alignment between paper partners to work with us to provide replacements. production, quality fibre sourcing and the specialist digital capability. Link to business strategy capacity needs of our Packaging division. Link to business strategy The service level agreements with key To lead the way suppliers revised/updated for the best To delight in sustainability customer-first approach in place when our customers prioritising how demand should be met Opportunity through supply channels. Opportunity Accelerating R&D investments into new Link to business strategy Prioritising the latest digital and enhanced fibre-based products transformation initiatives to not fall enables us to respond quickly and To double our size behind our competitors with regards to efficiently to any changes in packaging and profitability speed to market and smart products regulations that may impact the Group and offerings. take proactive action accordingly to Opportunity reduce any potential impacts. Key risk indicator Generating a best fit cost and quality Key risk indicator Customer satisfaction surveys and solution for our customers through the website visitor traffic. Fibre packaging volume and market share expertise of our paper sourcing strategy growth and level of legislative protection. and closed loop model. Risk tolerance Risk tolerance Key risk indicator Paper/recovered fibre supply volumes. Risk outlook Risk tolerance Risk outlook Risk outlook Risk rank change by year key Net risk tolerance key Risk outlook Principal risk example 1 – highest 12 – lowest Re-assess AcceptableUnacceptable Increasing Stable Decreasing 2 | 23/24 23/24 23/24 | | | 3 | 10 | 11 | 12 | | --- | --- | --- | --- | --- | --- | --- | | 23/24 | 3 | 48 | | | | | | 22/23 22/23 22/23 | | | | | | | 22/23 21/22 21/22 21/22 21/22 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT Continuous improvement is the cornerstone of our risk management By avoiding losses, we ensure operational efficiency, protect shareholder value and enhance the safety of our colleagues and communities. Viana Paper Mill (shown to the left), in northern Portugal, is one of the most prominent kraftliner mills in Europe. Since its acquisition in 2019, management’s rigorous risk improvement plan has seen the installation of automatic 2 sprinklers over 22,000 m of building area, alongside improvements to utility infrastructure, process safety controls and operator training. With further investments in a new recovery boiler and fire protection enhancements, the mill continues to adopt the highest industry standards for property protection. Emerging risks Our risk management programme includes a formal review of emerging risks. We define emerging risks as those which are not meaningfully impacting the Group today but are highly uncertain because their evolution is rapid, indirect or both, and have the potential for significant impact. These risks will typically have longer-term impacts which may fall outside our Corporate Plan horizon but warrant attention now to avoid the worst effects. Emerging risks require regular monitoring of external trends and insights, which, when combined with our existing knowledge and expertise, identifies the risks that could become relevant to the Group in the future. Collating information from both internal and external sources builds our list of key emerging risks to watch or act upon, which is formally reviewed every six months with the Group Strategy Committee alongside our principal risks. The two emerging risks below are gaining greater focus given our assessment of their potential high impact. New wave of nationalism – global operations Prolonged extreme weather and operating locally infrastructure impact Description Description There is a potential risk from the emerging new wave of Unanticipated prolonged and irregular extreme weather nationalism in different parts of the world. This trend refers events, such as heatwaves, droughts, floods and storms, to a growing sentiment among certain groups of people who could disrupt supply chain and transportation of raw prioritise their national identity and interests over global materials and finished products, resulting in delays, damage cooperation and integration. and additional costs. Impact Impact One potential impact of this could be the rise of trade barriers Prolonged extreme weather could also impact the energy and protectionist policies, which have the potential to limit and water supply to the Company’s facilities, affecting our our ability to export products and materials to different operations and productivity. countries. Infrastructure impacts, such as power outages, road closures Alternatively, there is the potential for increased political and port disruptions, have the potential to disrupt our instability and conflicts in certain regions, which could operations and supply chain. disrupt supply chains and operations. Additionally, we may Action face challenges in navigating the complex regulatory Our business continuity plans are structured to implement environment that may emerge as a result of this new wave contingency plans that consider the potential impacts of of nationalism. For example, there could be changes to extreme weather events and infrastructure disruptions. regulations around labour, environment and tariffs that Resulting consequences could involve diversifying could impact our operations and profitability. transportation routes, investing in backup energy and water Action systems, and identifying alternative sources of recycled Overall, we continue to closely monitor and navigate these materials. DS Smith may also need to work with local and potential risks in order to maintain our position as a leading national governments to improve infrastructure resilience global packaging company. and climate change adaptation measures. DS Smith recognises we are subject to many general risks and challenges that are not uncommon in the market around greater uncertainty, increased volatility and more complexity. Changes in socioeconomic conditions, political, financial, general regulatory and legislative changes can impact our ability to deliver our Corporate Plan. Through our corporate planning cycle, annual risk reporting cycle and ability to find the opportunity within our risk framework we are able to counter the effects of these more effectively through better mitigation, greater preparedness and collaboration. Annual Report 2023 dssmith.com 49 RISK MANAGEMENT CONTINUED Viability Statement Assessment of longer-term viability Context In accordance with the UK Corporate Governance Code, the Directors have assessed the viability of the Group over a three- The Group’s strategy and key differentiators are detailed on page year period to 30 April 2026, which is a longer period than the 3 and pages 4 to 6, and our risk management framework is minimum 12-month outlook required in adopting the going described on pages 42 and 43. Understanding of our business concern basis of accounting. This assessment period remains model, our strategy and our principal risks is a key element in the appropriate given the timescale of the Group’s planning and assessment of the Group’s prospects, as well as the formal investment cycle. consideration of viability. The Directors confirm that they have performed a robust The Group’s Corporate Plan cycle is the primary annual strategic assessment of the principal risks facing the Group as detailed on and financial planning activity through which the Board assesses pages 42 and 43, including those that will threaten its business the prospects of the Group, extending for the three successive model, future performance and solvency or liquidity. financial years that follow beyond the year ending after the assessment date. The planning process involves modelling under The assessment of the Group’s viability considers a pessimistic a series of assumptions surrounding both internal and external but plausible downside scenario aligned to the principal risks and parameters, with key assumptions including economic growth uncertainties set out on pages 45 to 48 where the realisation of projections, input pricing (including paper, fibre, energy and these risks is considered remote, considering the effectiveness labour), foreign exchange rates and packaging volume growth; of the Group’s risk management and control systems and current combined with the effects of major capital initiatives. The impact risk appetite. The degree of severity applied in this scenario was of climate change as expressed through the Group’s key risks in based on management’s experience and knowledge of the its risk management framework is taken into account during the industry to determine plausible movements in assumptions. The planning process, with capital commitments consistent with Directors note that the Group enjoyed a large degree of resilience meeting the Group’s SBTi carbon reduction commitments to the consequential downturns from the Covid-19 pandemic and included within the forecast horizon. The robust Corporate Plan through the increased economic volatility in the post-pandemic process is led by the Group Chief Executive, the Group Finance period, influenced by the impact of the war in Ukraine. Director and the Group Head of Strategy, in conjunction with The Group has significant financial resources including committed divisional management. The Board undertakes a detailed review and uncommitted banking and debt facilities, detailed in note 20. of the Corporate Plan during its December Board meeting. In assessing the Group’s viability, the Directors have assumed Although the Directors have no reason to believe that the Group that with its investment grade rating and successful history of will not be viable over a longer period, the three-year period was refinancing its maturing borrowings, the Group would be able to chosen for this assessment having considered the speed and refinance its existing banking and debt facilities, including those degree of change possible in the key assumptions influencing the maturing in November 2024. Group, as well as the speed of evolution in the footprint of the The Directors have also considered mitigating actions available to Group, which limits the Directors’ ability to predict beyond this the Group that are within management’s control, to respond to period reliably. Indeed, given the pace of change in the primary the stress scenarios such as restrictions on capital investment, sectors in which the Group operates, particularly FMCG and further cost reduction opportunities, and dividend suspension or e-commerce, as illustrated by the recent moves away from plastic restriction on dividend levels. The Directors have assumed that packaging and the acceleration into e-commerce driven by the these mitigating actions can be applied on a timely basis and at Covid-19 pandemic, the Directors believe that three years insignificant or no cost. represents the most realistic and appropriate timescale over which to assess the Group’s viability. Confirmation of viability Based on the analysis, the Directors have a reasonable The most recent Corporate Plan process was undertaken against expectation that the Group will be able to continue in operation the backdrop of the volatile economic environment experienced and meet its liabilities as they fall due over the three-year period in 2022/23, impacted by inflationary pressures, especially due to of their assessment. the wider economic consequences of the war in Ukraine. The budget process for 2023/24, conducted subsequent to the Corporate Planning process, reflected different dynamics, particularly with regard to fibre, energy and paper prices, but validated the overall Group profitability as set out in the Corporate Plan in the first financial year. Similarly, the going concern exercise which builds on the budget validated the overall Group profitability as set out in the Corporate Plan for the second year. On that basis, the Directors are satisfied that the Corporate Plan, which covers a three year forecast period, provides a suitable basis for the viability assessment. 50 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ## Going concern The Board has reviewed a detailed consideration of going concern, based on the Group's recent trading and forecasts, and including scenario analysis. This takes into account reasonably foreseeable changes in trading performance, including the continued uncertainty caused by high inflation and the ongoing war in Ukraine. At 30 April 2023 there was significant headroom on the Group's committed debt facilities, at a level c.£1.8 billion. The going concern assessment included the period to 31 October 2024 and considerations for the period immediately thereafter. Based on the resilience of the Group's operations to both the high-cost environment experienced throughout the last 18 months and the weak demand experienced during FY23, as well as the current and forecast liquidity available, the Board believes that the Group is well placed to manage its business risks successfully despite the uncertainties inherent in the current economic outlook, and to operate within its current debt facilities. The Group's current committed bank facility headroom, its forecast liquidity headroom over the going concern period of assessment and potential controllable mitigating activities available to management have been considered by the Directors in forming their view that it is appropriate to conclude that there is a reasonable expectation that the Group has adequate resources to continue in operational existence for the period of the going concern assessment. For this reason, the going concern basis has been adopted in preparing the financial statements. The financial statements have been prepared on the going concern basis with no material uncertainty identified after a detailed assessment. Further details, including the analysis performed and conclusion reached, are set out below. ## Liquidity and financing position The total drawn debt facilities at 30 April 2023 were £1.75 billion, of which £1.4 billion is publicly listed debt with no attached covenants. In addition, the Group has access to c.£1.65 billion committed bank facilities, which were unshown at 30 April 2023, which provide liquidity to the Group and some of which carry the same covenant of net debt/EBITDA of less than 3.75 times. The Euroland 2017 facility of £0.7 billion is due for renewal in July 2024 and the Syndicated RCF 2018 of £0.3 billion is due for renewal in November 2024. No reliance on refinancing has been assumed but the Group would expect to be able to refinance its maturing borrowings, including those maturing in July and November 2024. There is significant liquidity/financing headroom across the going concern forecast period. For this reason, the going concern review has focused more on forecast covenant compliance. ## Overview In determining the going concern basis for preparing the financial statements, the Directors consider the Company's objectives and strategy, its principal risks and uncertainties in achieving its objectives and its review of business performance and financial position. The economic environment reflected in this Going Concern assessment is based on the 2023/24 budget which anticipates moderate organic box volume growth across each of our regions, recognising the inflationary pressures in the Group's raw materials and overhead cost bases. In preparing the financial statements, the Group has modelled two scenarios in its assessment of going concern, neither of which indicate a covenant breach or a liquidity issue. These are: - The base case is derived from the 2023/24 full year budget. The key inputs and assumptions include: Packaging volume growth at moderate levels across the future periods considered by the modelling, driven by continued PMCG and e-commerce demand recovery, together with the recovery in industrial volumes. Both paper sales price and input fibre price are consistent with those anticipated in the budget - The downside case assumes European packaging volumes largely stagnating at 2022/23 levels, reflecting no future growth and higher inflationary pressures on the cost base, not mitigated by a commensurate increase in paper prices. With a significant portion of the Group's packaging contracts being either directly linked / referenced to a paper index, this results in higher input costs for the Group are more difficult to pass through to end customers. ## Mitigating actions The outturns of the above scenario modelling, combined with the strong operating performance throughout FY23 provide the Group a level of comfort that no significant cost / cash flow mitigations need to be built into the going concern modelling. However, a range of options remain at the Group's disposal should they be required which provide the opportunity to support EBITDA, cash flow and net debt, including: - Actions in respect of variable and controllable costs such as discretionary bonuses, pay rises, recruitment freezes and wider labour force actions in response to higher levels of volume reductions - Limiting capital expenditure to minimum maintenance levels by passing growth spend (including brownfield sites and other expansionary spend) - Strategic actions in respect of the Group's asset base could be considered in respect of disposals, mothballing and closures - A reduction or temporary suspension of the Group's dividend. The Group could also consider actions to assist covenant compliance, such as increased utilisation of debt factoring facilities and optimising working capital by negotiating longer payment terms whilst continuing to pay suppliers in full and in line with contractual terms. It is estimated that the Group EBITDA would have to fall by about 41 per cent from FY23 levels for a breach of the net debt/EBITDA covenant to occur although the Group would still have adequate liquidity. The Board considers this scenario to be a remote possibility based upon the Group's historical performance. ## Going concern basis Based on the forecast and the scenarios modelled, together with the performance of the Group in the current year, the Directors consider that the Group has significant covenant and liquidity headroom in its borrowing facilities to continue in operational existence for the length of the going concern period until 31 October 2024. No reliance on refinancing has been assumed but the Group would expect to be able to refinance its maturing borrowings, including those maturing in July and November 2024. Accordingly, at the June 2023 Board meeting, the Directors concluded from this analysis it was appropriate to continue to adopt the going concern basis in preparing the financial statements. Annual Report 2023 dssmith.com 51 TASK FORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURES (TCFD) 2017 2018 2019 2020 2021 2022-23 | Publication of the Task | Voluntary partial | The current base year | Full voluntary | Full mandatory disclosure | Reduced Scope 1, 2 and 3 | | --- | --- | --- | --- | --- | --- | | Force on Climate- | disclosure in line with | for our science-based | disclosure in Annual | in Annual Report 2022 | GHG emissions by | | related Financial | the recommendations, | target (2019/20) | Report 2021 | | 15 per cent | Validation of 1.5°C | Disclosures (TCFD) | predominantly via | | | compared to 2019/20 | | --- | --- | --- | --- | --- | | | | First climate | science-based target to | | | recommendations by | CDP Climate Change | | | | | | | scenario analysis | reduce Scope 1, 2 and 3 GHG | Evolution of the ESG | the Financial Stability | | | emissions 46 per cent by 2030 | underpin for the 2022/23 | | --- | --- | --- | --- | | Board (FSB) | Commitment to | | | | | | compared to 2019 | annual bonus, including the | reach Net Zero GHG development of initial plans emissions by 2050 ESG underpin introduced in to achieve longer-term the 2021/22 annual bonus, ‘Carbon Project’ to science-based targets including the commitment determine cost- to using longer-term Development of roadmaps, with optimised science-based targets key technical solutions identified decarbonisation to drive carbon reduction for our pathways, focused on Launch of our Green Finance packaging plants our Paper mills Framework, aligned to our priority Sustainable New governance organisation, Development Goals (SDGs) ‘Sustainability Delivery Team’, to manage capital and project deployment for reaching Net Zero Against a backdrop of inflationary pressure, rising interest rates In support of a 1.5°C ‘Net Zero’ economy, we are committed to and volatility, the recent energy crisis has demonstrated that our considering the Paris Agreement in our activities, including in our dependency on the global energy system has significant external engagement, as underpinned by the IPCC Sixth implications for how climate risk should be managed and how the Assessment Report (AR6) and the IPCC Special Report on transition to Net Zero should be planned. Global Warming of 1.5°C (SR1.5). In the context of rapidly changing global energy markets, we We have set a 1.5°C science-based target, to reduce Scopes 1, 2 remain steadfast in our belief that the circular economy is part of and 3 GHG emissions 46 per cent by 2030 compared to 2019 and the solution to climate change, whilst recognising the imperative we are committed to reaching Net Zero by 2050. This target has to transition to an affordable and clean energy system. been validated by the Science-Based Targets initiative (SBTi) and we are a member of the Business Ambition for 1.5°C campaign. Our circular business model keeps materials recirculating through recycling services which support the manufacture of recyclable We first included the TCFD recommendations in our 2018 Annual packaging. Whilst this alleviates pressure on natural systems, Report. Since then, we have developed our reporting, reaching such as forests, and prevents waste from entering landfills and complete disclosure of all recommendations a year ahead of oceans, it is energy intensive, generating greenhouse gas (GHG) mandatory disclosure last year. The timeline above demonstrates emissions that contribute to climate change. how we have usedthe TCFD recommendations to accelerate climate action. 52 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT Climate-related metrics are discussed at least monthly by Compliance statement management teams. Senior management teams review within- year performance, forecasts and longer-term progress against DS Smith Plc has complied with the requirements of Listing our targets, in addition to challenges, trends and opportunities Rule 9.8.6R(8) by including climate-related financial for addressing climate-related issues on a monthly basis and this disclosures consistent with the Task Force on Climate- is monitored by the HSES Committee on a quarterly basis, with related Financial Disclosures recommendations (Oct 2021 progress presented to the Board annually. update) in DS Smith Annual Report 2023, pages 52 to 63. Board Governance (and its principal committees e.g. Audit Committee) Describe the Board’s oversight of climate-related risks Health, Safety, Environment and Sustainability (HSES) Committee and opportunities (a management committee of the Group Operating Committee (GOC)) The Board and the Audit Committee maintain oversight of climate-related risks and opportunities when reviewing and Group Sustainability, Sustainability Group ESG guiding strategy, budgets and business plans. Annual updates on Government and Sustainability Leadership Team Reporting Team Community Affairs Team Delivery Team (SUS LT) (Finance) risk assessments, mitigation and progress are provided, and the (Corporate Affairs) Board makes significant strategic decisions, for example, the adoption of the science-based target. Divisional and Functional Leadership The Board and its Committees, members of whom have relevant ESG and sustainability experience, are updated on climate- related issues at a minimum annually. This includes the progress Sustainability SitesProject Teams of our Now & Next Sustainability Strategy and other items that Network involve climate-related issues, such as the Corporate Plan, principal risks and uncertainties, and remuneration. The Audit Committee is engaged on the assurance of climate-related Strategy metrics and developments in ESG reporting. Describe the climate-related risks and opportunities the Describe management’s role in assessing and managing organisation has identified over the short, medium and climate-related risks and opportunities long term Members of the Health, Safety, Environment and Sustainability Climate-related risks and opportunities could arise over the short (HSES) Committee, chaired by the Group Chief Executive, assess term (0-3 years), medium term (3-10 years) and long term (10+ and manage climate-related risks and opportunities. This years). These time horizons fit with the Group’s corporate and Committee meets monthly, having met 12 times during 2022/23 capital planning cycle time horizon (three years), which is used to to discuss, amongst other topics, GHG emissions forecasts, plans develop the Group’s strategy, in addition to the annual risk to deliver the science-based target and progress on climate- reporting cycle (one year), which is used to assess and related opportunities, such as plastic replacement. communicate risk. Climate-related risks are monitored as part of our standard Physical assets in our industry tend to have long lifetimes and operating procedures to ensure that appropriate mitigation is in efforts are made to extend the lifetime of machinery, place and are regularly reviewed by management. Management components and spare parts, fitting into the long-term is supported by the Sustainability Leadership Team (SUS LT), (10+ years) time horizon. As such, investment decisions are which comprises leaders from across the business, to develop made, including the implications that such decisions may have on strategies and policies to address climate-related risks and climate-related risks and opportunities under this long-term time opportunities. These committees draw on subject matter experts horizon. from Group Risk and Insurance, Group Strategy, Group Climate-related risks Sustainability, Group Finance and externally. They report • Increased spend on carbon taxes progress updates to executive management on an ongoing basis. • Increased cost of raw materials or threat to supply In 2022/23, a Sustainability Delivery Team, focused on the • Increased severity of extreme weather events deployment of projects to deliver Net Zero, was introduced. This • Increased likelihood of water stress team is responsible for developing and maintaining detailed plans for carbon/energy, water and waste reduction and coordinating Climate-related opportunities with divisional leadership and sites on the design, planning and • Growth in demand for sustainable packaging implementation required to reach Net Zero. • Greater resource efficiency • Use of lower-emission energy sources There is further divisional and functional leadership responsibility and a Sustainability Network, supported by specialist networks and project teams, which cascade activities, including those related to climate change, throughout the business. Annual Report 2023 dssmith.com 53 TASK FORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURES (TCFD) CONTINUED Climate-related risks Climate-related opportunities Increased spend on carbon taxes Growth in demand for sustainable packaging In the short term, there is a risk that new carbon taxes could be In the short term, there is an opportunity to drive organic growth introduced, or existing carbon taxes could be extended as a policy by demonstrating the benefits of circular packaging that helps tool to incentivise decarbonisation. brands and consumers to replace plastic and reduce their carbon footprint in the transition to Net Zero. Increased cost of raw materials or threat to supply In the medium to long term, there is a risk that raw materials Greater resource efficiency could become more expensive or difficult to acquire due to In the short term, there is an opportunity to use fewer resources disruption or market dynamic shifts caused by climate change. (materials, energy and/or water), both in manufacture through design and operating efficiency, and throughout the value chain Increased severity of extreme weather events to reduce climate impact and cost. In the medium to long term, there is a risk that the frequency and severity of extreme weather events could increase, causing Use of lower-emission energy sources damage and disruption in our own operations or the value chain. In the medium to long term, there is an opportunity to adopt lower-emission energy sources and energy efficiency measures. Increased likelihood of water stress These could be equipment-based (e.g. e-boilers and carbon In the long term, there is a risk that competition for water could capture and storage), fuel-based (e.g. hydrogen) or process- increase in the river basins from which we withdraw water, based (e.g. heat recovery and optimisation through digital and increasing the chance that supply constraints could be imposed. data innovation). Summary of climate-related risks and their potential future financial impact Likelihood | | | 1.5°C | >2°C | Potential financial impact as indicated by | | --- | --- | --- | --- | --- | | Climate-related risk Type Time horizon | | scenario | scenario | reference to climate scenarios and our analysis* | | Transition | Policy and legal Short term ••••• • £40-155 million potential increase in | | | | operating costs, depending on the price of future allowances in emission trading schemes, which would likely be greater in a Increased spend on 1.5°C scenario versus a >2°C scenario as a carbon taxes way to meet public policy objectives Market Medium – long ••• ••••• £36-119 million potential increase in term production costs attributable to climate- related disruption, which would likely be greater in a warmer scenario (e.g. 10 per Increased cost cent increase in costs in a >2°C scenario of raw materials versus 3 per cent increase in a 1.5°C or threat to supply scenario) Physical Acute physical Medium – long •• ••••• £10-118 million potential business term value-at-risk due to production downtime, assuming 1–12 months of disruption at one of our paper mills located in a region prone Increased severity to specific climate events (e.g. 12 months of extreme weather in a >2°C scenario versus one month in a events 1.5°C scenario) Chronic physical Long term •• ••••• £1-3 million potential business value-at- risk due to production downtime, assuming 7-31 days of interruption at one of our paper mills located in a region at risk of Increased likelihood water stress (e.g.31 days in a >2°C scenario of water stress versus seven days in a 1.5°C scenario) Total potential financial impact of climate-related risks £87-395 million* 54 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT Summary of climate-related opportunities and their potential future financial impact Likelihood | | | | 1.5°C | >2°C | Potential financial impact as indicated by | | --- | --- | --- | --- | --- | --- | | Climate-related opportunity Type Time horizon | | | scenario | scenario | reference to climate scenarios and our analysis* | | | Products and | Short term ••••• ••• £468-715 million potential increase in | | | | | | services | | | | revenue owed to production growth, | which would likely be greater in a 1.5°C | Growth in demand for | | | scenario as society demands more | | --- | --- | --- | --- | | sustainable packaging | | | sustainable products and services | | | Resource | Short term ••••• • £27-67 million potential cost saving as a | | | | efficiency | | result of resource efficiency (reduced | energy consumption), which would likely Greater resource efficiency be greater in a 1.5°C scenario as more resource efficiency opportunities are exploited Energy source Medium ••••• • Zero-£66 million potential cost saving as – long term a result of use of lower-emission energy sources, which would likely be greater in a | Use of lower-emission energy | 1.5°C scenario as more lower-emission | | --- | --- | | sources | energy sources are exploited | | Total potential financial impact of climate-related opportunities | £495-848 million* | ••••• Greater likelihood • Lesser likelihood * Climate scenarios are used, alongside other tools, to assess vulnerability to climate change and are intended to represent plausible future states to assist learning and aid decision-making rather than to present future projections or forecasts. The values given are illustrative and estimated within the context set out by each reference scenario and then adapted to fit DS Smith. This is based on a single financial metric, without considering the implications of secondary impacts. For example, there may be a cost associated with damage to reputation that could occur as a result of business interruption owing to climate change. Describe the impact of climate-related risks and opportunities on the organisation’s businesses, strategy and financial planning The Board, Group Operating Committee (GOC) and its Operations management committees consider climate-related issues when In our operations, our energy procurement and asset renewal reviewing and setting strategy, policies and financial planning. strategies are impacted by the value of emissions. This includes incorporating emissions valuations into project appraisals and Acquisitions or divestment capital planning, particularly when considering significant This includes significant strategic decisions, including how capital energy-related expenditure in our paper operations (as the most is secured and spent. For example, having divested our plastics energy intensive part of our business and therefore the greatest business, our focus has turned towards organic growth through emissions source). circularity, recyclability and resource efficiency, exploiting climate-related opportunities as a fibre-based manufacturer. For example, in 2022/23 we announced a new energy supply partnership at our Aschaffenburg Mill, which will combine Products and services technologies to transition from natural gas to energy generation We work with some of the world’s most iconic brands, which place from waste. climate change at the forefront of their agendas. In response, this has impacted our product strategy, for example in the articulation Research and development (R&D) of our customer value proposition, which was recently adapted to Our R&D investments include alternative packaging materials, in include ‘Circular ready: we help our customers with circular addition to barrier coatings that increase the efficacy of packaging solutions’. corrugated as an alternative to plastic. We engage our customers using innovative tools such as our We opened our Fibre and Paper Development Laboratory at Circular Design Metrics, which help our customers compare the Kemsley Mill, as part of our £100 million R&D package announced lifecycle carbon footprint of different packaging and help our last year, hosting innovative projects to accelerate our work on customers to identify opportunities for greater resource the circular economy. We also invest in achieving greater efficiency across the supply cycle and engage with them on resource efficiency for natural assets, such as water. This sustainability campaigns. includes, for example, the installation of water re-circulation systems within some of our paper mills. Annual Report 2023 dssmith.com 55 TASK FORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURES (TCFD) CONTINUED Describe the resilience of the organisation's strategy, taking into consideration different climate-related scenarios, including a 2°C or lower scenario Our most relevant climate-related risks and opportunities, alongside example outcomes drawn from several IEA and IPCC climate scenarios, including industry-specific scenarios, are described in the tables that follow. Climate-related risks Climate-related risk Increased spend on carbon taxes Type: Policy and legal transition risk Time horizon: Short term Link to principal risk: 'Regulation and governance' Potential to impact: our European paper mills, with the potential to extend to other regions Increased cost of raw materials or threat to supply Type: Market transition risk and/or acute or chronic physical risk Time horizon: Medium - long term Link to principal risk: 'Security of paper/fibre supply' Potential to impact: our Paper Sourcing and Procurement functions Increased severity of extreme weather events Type: Acute physical risk Time horizon: Medium - long term Link to principal risk: 'Security of paper/fibre supply' Potential to impact: specific geographies as identified by specialists, e.g. hurricanes on the south-eastern coast of the USA Increased likelihood of water stress Type: Chronic physical risk Time horizon: Long term Link to principal risk: 'Regulation and governance' Potential to impact: specific geographies as identified by the WRI Aqueduct tool, particularly our paper mills which use significant volumes of water to convert paper for recycling back into pulp 56 Description Definition New carbon taxes could be introduced, or existing carbon taxes, such as the European Union Emissions Trading System (EU ETS), could be extended as a policy tool to incentivise decarbonisation. Example outcome in a 1.5°C scenario Carbon taxes are introduced in new regions in the future, and/or schemes become more expensive to limit emissions. Example outcome in a >2°C scenario Carbon taxes remain mostly the same as today. Definition Raw materials, such as paper, pulp or starch, could become more expensive or difficult to acquire owed to disruption or shifts in market dynamics as a result of climate change. Example outcome in a 1.5°C scenario Disruption or shifts in market dynamics are less severe and more predictable, e.g. caused by planned regulatory change. Example outcome in a >2°C scenario Disruption or shifts in market dynamics are more severe due to chronic reasons, e.g. extreme weather causes crop failure. Definition The frequency and severity of extreme weather events could increase, causing damage and disruption. Example outcome in a 1.5°C scenario Extreme weather is less severe, causing minimal disruption. Example outcome in a >2°C scenario Extreme weather is more severe, causing greater disruption, e.g. thunderstorms, tornadoes and extreme heat. Definition Competition for water could increase in the river basins from which we withdraw water, increasing the chance that water supply constraints could be imposed by local authorities. Example outcome in a 1.5°C scenario Water stress is less severe, causing minimal disruption. Example outcome in a >2°C scenario Water stress is more severe, with greater disruption, e.g. as greater consumption patterns drive up water usage. STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Primary potential financial impacts Increased operating costs (e.g. higher compliance costs) In 2022/23, we paid c. £21 million (2021/22: £26 million) to emission trading schemes. If the cost per allowance increased to £140 per tonne of carbon (based on analyst views), the estimated annual cost, depending on future allowances, could increase to c. £155 million. If, as described by the IEA ETP 2°C scenario, a North American carbon tax was introduced, rising to $85 per tonne by 2030, this could result in a new cost of c. £40 million. Increased production costs (e.g. higher input prices) Higher input costs would have to be recovered through increased packaging pricing, which would increase revenue. If, for example, in a >2°C scenario, the average price of a key input were to increase by 10 per cent compared to present day, this could lead to an increase in production costs, assuming the same level of production as today, of £119 million. Alternatively, in a 1.5°C scenario, if only a 3 per cent increase was observed, owed to less severe disruption, this could lead to an increase in production costs of £36 million. Increased capital costs (e.g. more repair and maintenance) This could be as a result of damage to property, which may result in higher insurance premiums, compounded by costs to ensure continuity of supply. We use a 'business interruption value-at- risk' metric to determine the potential impact of disruption caused by a climate-related event. If, for example, in a >2°C scenario, production was halted for a whole year at our highest-value site in a geographic region prone to specific climate events, this could present an incident valued at £118 million. If, in a 1.5°C scenario, disruption only lasted for one month due to a less severe climate-related weather event, this would be valued at £10 million. Decreased revenues and profit (e.g. temporary curtailment) This could be as a result of decreased production capacity because of limits placed on water withdrawal. We use the IPCC 4°C scenario to identify sites at risk of water stress and a 'business interruption value-at-risk' metric to determine the potential impact resulting from a climate-related disruption. If, for example, in a >2°C scenario, production was halted for 31 days at our highest-value site located in a region at future risk of water stress, this could present an incident valued at £3 million. Were this incident only to occur for seven days, in a 1.5°C scenario, this would be valued at £1 million. Key actions in our strategies that mitigate the risk - Hedge the cost of fuel, energy and carbon with our suppliers and financial institutions - Factor the cost of carbon into our carbon roadmap analysis, planning and optimisation of project deployment, alongside scenarios and forecasts of future growth and fuel availability - Deliver our 1.5°C science-based target by switching from fossil to renewable fuels that reduce our GHG emissions and therefore limit exposure to carbon taxes - Optimise the best fit between paper production, fibre sourcing and packaging demand to balance over the long term - Remove unnecessary waste and save natural resources through innovative design, as part of delivering our Now & Next target to optimise fibre use for unique supply chains in 100 per cent of new packaging solutions by 2025 - Ensure that climate resilience indicators are part of the evaluation process when evaluating strategic decisions relating to our production footprint and capacity planning - Implement adequate and flexible business continuity plans, using data to improve climate modelling and to strengthen our business resilience with a changing climate pattern - Invest in closed-loop solutions that recycle water and other water efficiency measures as part of our Now & Next sustainability target to reduce water withdrawal by 10 per cent per tonne of production by 2030 compared to 2019 at paper mills located in regions at risk of water stress. - Maintain localised water stress mitigation measures at 100 per cent of our sites identified as at risk of water stress (29 sites in 2022/23), which includes business continuity planning, regular contact with relevant stakeholders (e.g. the water authority and local community) and monthly performance review. For 2023/24, we are rolling out water management plans. Annual Report 2023 dssmith.com 57 TASK FORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURES (TCFD) CONTINUED # Climate-related opportunities Climate-related opportunity Description # Growth in demand for sustainable packaging Type: Products and services Time horizon: Short term Link to principal risks: 'Changes in shopping habits', 'Packaging capacity fluctuations', 'Organisation capability', 'Substitution of fibre packaging' Alignment with strategic pillar: To delight our customers Potential to impact: our Packaging division, fed by our Paper and Paper Sourcing operations, with implications for recycling # Definition Drive organic growth by demonstrating the benefits of circular packaging that helps brands and consumers to replace plastic and reduce their carbon footprint in the transition to Net Zero. # Example outcome in a 1.5°C scenario Demand for sustainable packaging is greater as consumers are more conscious of their impact on the planet, necessitating greater recycling. # Example outcome in a >2°C scenario Uptake for sustainable packaging is slower and appetite for recycling is lower, foregoing the opportunity. # Greater resource efficiency Type: Resource efficiency Time horizon: Short term Link to principal risks: 'Paper/fibre price volatility', 'Sustainability commitments' Alignment with strategic pillar: To double in size and profitability Potential to impact: the whole business, but predominantly in packaging design to reduce material consumption and in the energy efficiency of our recycled paper mills, as they use heat to evaporate water in drying pulp and paper # Definition Use fewer resources (materials, energy and/or water), both in manufacture through design and operating efficiency, and throughout the value chain to reduce climate impact and cost. # Example outcome in a 1.5°C scenario Greater resource efficiency is achieved across the industry at the 'system' level, for example, by encouraging markets to invest in improved recycling infrastructure to create cleaner waste streams. This has the added benefit of increasing energy efficiency, as cleaner material requires less processing. # Example outcome in a >2°C scenario A lesser focus on resource efficiency fails to protect natural resources and the potential benefits are foregone. # Use of lower-emission energy sources Type: Energy source Time horizon: Medium - Long term Link to principal risk: 'Sustainability commitments' Alignment with strategic pillar: To lead the way in sustainability Potential to impact: the whole business, but predominantly our recycled paper mills, which rely on fossil fuels as, unlike primary pulp production, recycled production does not have biofuels readily available as a by-product from the wood used # Definition As energy systems evolve, there is an opportunity to adopt lower-emission energy sources and energy efficiency measures. These could be equipment-based (e.g. e-bolers and carbon capture and storage), fuel-based (e.g. hydrogen) or process-based (e.g. heat recovery and optimisation through digital and data innovation). # Example outcome in a 1.5°C scenario Transitioning from fossil fuels to renewable fuels, including biomass, biomethane and hydrogen limits warming to 1.5°C. # Example outcome in a >2°C scenario Lower-emission energy sources are not affordable or are unavailable at the scale required to achieve Net Zero and the fuel mix remains roughly the same as present-day. 58 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Primary potential financial impacts Increased revenues and profit (e.g. more sales) Organic growth and market share capture as a result of greater demand for recyclable packaging, enhanced by the added value of our sustainability, innovation and circularity credentials. If, for example, in a 1.5°C scenario, 1.5 per cent annual growth, as described in the IEA NZE 2050 scenario, could be fully exploited, by 2030 this could increase revenue by c. £715 million. Alternatively, in a >2°C scenario, with less demand for sustainable packaging, assuming 1 per cent annual growth, by 2030 this could increase revenue by c. £468 million. In each of these figures, we assume that the growth in paper production described in the reference scenario is a result of packaging demand, increasing packaging revenue. Decreased production costs (e.g. less material consumption) Decreased cost as a result of reduced materials, energy and water consumption, increasing profitability and added positive reputation value associated with a low environmental impact product. If, for example, in a 1.5°C scenario, energy intensity reduced by c. 1.5 per cent per year to 2030, as described in the IEA NZE 2050 scenario, this would result in a saving of c. £67 million. Alternatively, if in a >2°C scenario, only a 0.6 per cent decrease in energy consumption was secured, as described in the IEA SDS 2030 scenario, the saving would be reduced to c. £27 million. Beyond this example of energy efficiency, material efficiency through better product design and supply chain optimisation could present more savings and value creation opportunities. Decreased operating costs (e.g. less fossil fuel consumption) Decreased cost as a result of reduced energy consumption and less exposure to future fossil fuel price increases and sensitivity to the cost of carbon. Added returns on investment secured from low-emission technology. According to the IEA NZE 2050 scenario, it will be important to move away from fossil fuels to near zero-emission alternatives for the industry to reach Net Zero, with the proportion of renewable fuels in the average energy mix increasing from 43 per cent to almost 50 per cent in 2030. Assuming average renewable/non-renewable fuel costs, achieving this transition could present an energy cost reduction of £66 million. Alternatively, were no transition achieved, this would be zero. Inevitably costs would be incurred in achieving this transition which are not included in this analysis. Key actions in our strategies that realise the opportunity - Support our design and innovation community with the tools they need to design for the circular economy, building on over 1,000 designs for millions of products geared towards reducing the use of plastic - Invest in R&D (recently doubled to a £100 million package to deliver over five years) to include the creation of new breakthrough technologies in materials and design innovation to support the circular economy - Identify new plastic replacement opportunities, as part of delivering our Now & Next target to remove one billion pieces of problem plastics by 2025 - Reduce energy consumption as part of our Group-wide ISO 50001:2018 certified energy management system at 100 per cent of relevant sites to continuously improve energy performance, cost and GHG emissions, with site-level targets and monitoring in place - Advocate for separate collection of recyclables to improve quality of material by reducing contamination, increasing recycling rates, lowering environmental impact and cost for local authorities as part of our engagement with policy makers - Work with our customers to reduce fibre consumption, predominantly through better design, as part of delivering our Now & Next target to optimise fibre use for unique supply chains in 100 per cent of new packaging solutions by 2025 - Investigate opportunities to implement lower-emission energy sources, including the viability of renewable fuel sources as fossil fuel alternatives, to be well-positioned to take advantage of lower-emission energy sources - Deliver our carbon reduction roadmap, which sets out initiatives that allow our business to grow whilst realising the benefits of harnessing emerging renewable technologies Annual Report 2023 dssmith.com 59 TASK FORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURES (TCFD) CONTINUED # Climate scenario analysis methodology We use reference scenarios that are most relevant to our business, including industry-specific scenarios, to evaluate the potential impact of climate change. These reflect a range of temperature warming trajectories, based on different assumptions, that lead to worlds in which the average increase in global temperature varies from 1.5°C to greater than 2°C by 2100 compared to pre-industrial levels, presenting a range of potential contrasting futures. In each scenario, we assumed that we have the same activities as today, drawing on financial and non-financial data from the most recent reporting period at the time of producing the analysis. We selected reference points from the scenarios that are most relevant to our business. The financial impacts are estimates, given within the context set out by each scenario. Some of these estimates are different compared to last year because of changes in the macroeconomic environment (e.g. higher energy cost), updates made to the reference scenarios and developments made to our assumptions. The estimates provided may therefore be incomparable to those previously reported. # IEA SDS 1.5°C by 2030 (Pulp & Paper) In this scenario, growth in production and energy consumption are decoupled to achieve decarbonisation to the extent required to be on track with the Sustainable Development Scenario (SDS) by 2030. # IEA Net Zero Emissions by 2050 (Pulp & Paper) In this scenario, annual production expands, necessitating greater recycling. Using a higher share of bioenergy is important to align with the Net Zero Emissions by 2050 trajectory. # IEA ETP SDS 2°C In this scenario, mitigation measures are applied to carbon intensive industries, alongside technological advancements to the extent required to limit global warming to within 2°C by 2100 versus pre-industrial levels. # IPCC RCP 8.5 4°C In this scenario, a 'business as usual' state of no policy changes leads to growth in emissions, causing some of the physical effects of climate change to be felt with greater severity. # Outcome of our climate scenario analysis The results obtained from our climate scenario analysis suggest that our present-day strategy is resilient to climate-related risks and opportunities and that we would not need to make fundamental changes to our business model between now and 2030, under a variety of contrasting future warming scenarios. As an enabler of our strategic goal, 'to lead the way in sustainability', our Now & Next Sustainability Strategy, including our 1.5°C science-based target, sets the appropriate ambition to maximise the potential to exploit the opportunities arising from the transition to a 1.5°C world. Delivering the science-based target helps to mitigate climate-related risk through a strong decarbonisation programme coupled with appropriate risk management practices. As we decarbonise alongside the entire industry, we see an opportunity to be at the forefront of leading the transition to a circular economy, which, compared to the linear economy, is a better system for tackling climate change, pollution and biodiversity loss. # Implications for financial planning The potential impacts of climate-related risks and opportunities and mitigating actions are included in our financial planning processes. The potential for climate change having a material financial impact is captured through our enterprise risk management framework and Corporate Plan and Capital Plan processes. As we decarbonise our assets to deliver the science-based target, climate-related issues serve as an input into our financial planning processes, including budgeting, capital investment and insurance decisions. This includes, for example, the replacement of capital equipment such as boilers and combined heat and power (CHP) plants with more efficient and lower emission alternatives. These projects are considered over the time periods referred to on page 53 and are prioritised by a range of factors, such as asset retirement, technology availability and investment cost. We consider ourselves adequately positioned to respond to the identified climate-related risks and opportunities, including the results obtained from our climate scenario analysis. 60 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT Risk management Describe the organisation’s processes for managing climate-related risks Describe the organisation’s processes for identifying and assessing climate-related risks Our process for managing climate-related risks involves deciding whether to avoid, transfer, mitigate or accept a given risk. This is We undertake regular materiality analysis to ensure our influenced by a range of factors, such as the type of risk, site sustainability priorities remain aligned to those of our location, investment needed and forecasts of volume demand. stakeholders. In developing our Now & Next Sustainability Strategy, we consulted our stakeholders on a range of issues, Our risk management processes require that our principal including climate change, asking them about their perception of business risks, including climate risks, are graded on a scale from each issue as a risk or opportunity to our business. negligible to critical using specific impact criteria such as a financial value range. By way of example, a financial impact In 2022/23, we refreshed this assessment through a ‘double between 2.5 per cent and 10 per cent of operating income or net materiality’ lens, considering financial materiality (e.g. the impact profit is graded as a moderate strategic or financial risk. of climate change on the Group) and sustainability materiality (e.g. the impact of the Group on climate change). The results of Specialist functions (e.g. energy procurement), steering this assessment reinforced climate action, energy use and committees (e.g. the recyclability forum) and project teams (e.g. efficiency, product design for optimal resource use, recyclability those developing decarbonisation roadmaps) work across the and transitioning to a circular economy as of critical importance divisions and functions to implement mitigation measures and to for business and for the planet and society (see page 25 for more deliver our Now & Next targets that address climate-related risks information about our materiality process). All of these topics, and opportunities. These groups draw on internal and external categorised as of ’critical importance’, are covered within our resource, utilising specialist analysis, tools and expertise. climate-related risks and opportunities. For example, we have applied forecasts relating to the carbon These results, alongside a range of other credible sources such as price, electrical demand, decarbonisation policy, renewable industry research, CDP and the TCFD implementation guidance, deployment and availability of technologies in our project work to are used to grade risks using the likelihood of the risk occurring inform decarbonisation roadmaps for our packaging plants to and an estimate of the severity of resulting financial or strategic manage climate-related risk. impacts over various time horizons. Based on this risk grading, the Describe how processes for identifying, assessing and highest graded risks are evaluated in greater depth, considering managing climate-related risks are integrated into the our operations, supply chain, stakeholder expectations and organisation’s overall risk management regulation. Transition risks are assessed by the Group Risk and Insurance, Group Sustainability, Government and Community Climate-related risks are evaluated using the Group’s common Affairs, and Group ESG Reporting teams, working across risk language and are integrated into our principal risk functions to develop responses to the financial and strategic assessments where such risks could significantly affect the implications. Physical risks are assessed by each division, business during our Corporate Plan time horizon. supported by the Group Risk and Insurance team, drawing on All divisions and Group functions produce formal principal risk expertise from specialist organisations. assessment reports twice per year and undertake frequent risk Climate change could affect the availability of raw materials and reviews, considering the grading, trends and controls. The most production processes, while natural disasters can disrupt supply critical climate risks and opportunities are selected for climate chains and damage infrastructure. It could also enhance the focus scenario analysis, prioritising those for which high-quality data is and opportunities presented to DS Smith from investment into available. alternatives, innovation and focus on regulation. In considering Key mitigating actions in response to climate-related risks, such the prioritisation of climate-related risks and the relative as the science-based target, are agreed and developed by significance of climate-related risks in relation to other risks, we specialist functions, with input from the Sustainability Leadership assess climate change factors within the wider context of our Team and approval of the HSES Committee. These are prioritised Group principal risks (see pages 45 to 48), given that climate based on factors such as materiality, regulatory requirements change may amplify or dampen some of the Group’s principal and commercial opportunity. For example, actions relating to risks. climate change and the circular economy are prioritised given This integrated approach reduces the chance of inadvertently that our stakeholders considered these issues of ‘critical neglecting or creating a trade off between climate change and importance’ in the most recent materiality assessment. other risks, ensuring that climate-related risks and opportunities Prioritised actions are implemented by the relevant sustainability are embedded in the Group’s enterprise risk management and network, project teams and sites, with accountability for delivery corporate planning. with Divisional and Functional leadership. Management performance, including challenges and opportunities relating to mitigating actions are reviewed alongside the wider review of sustainability performance and where a material risk exists, this is captured in our regular risk reviews (see page 43). Annual Report 2023 dssmith.com 61 TASK FORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURES (TCFD) CONTINUED Metrics and targets Disclose the metrics used by the organisation to assess climate-related risks and opportunities in line with its strategy and risk management process Describe the targets used by the organisation to manage climate-related risks and opportunities and performance against targets Metrics and targets can be located in the table below. Progress against our Now & Next Sustainability Strategy targets is disclosed on page 26. Selected information marked with an asterisk (*) has been independently assured by Deloitte – see the Independent Assurance Statement on page 63. Additional non-financial metrics can be obtained from our online ESG Reporting Hub. Industry-specific metrics and targets used to assess and manage climate-related risks and opportunities Climate-related risk or opportunity Metric Unit of measure 2022/23 2021/22 2020/21 Trend Increased spend on Gross global Scope 1 emissions tonnes CO e 1,542,250* 2,023,278* 2,047,265 Ô 2 carbon taxes Percentage covered under Per cent 73* 79 80 Ô emissions limiting-regulations Now & Next target: By 2030, reduce Scope 1, 2 and 3 GHG emissions by 46 per cent compared to 2019 Increased cost of Percentage of fibre use optimised Per cent 64 26 23 Ó raw materials or for individual supply chains threat to supply Now & Next target: By 2025, optimise fibre for individual supply chains in 100% of new packaging solutions Increased severity Internal and highly localised insurance metrics (financial and non-financial), such as loss expectancy and of extreme proprietary risk scores, which can be compared within the Company and across the industry weather events | | | 3 | | | | | Ô | | --- | --- | --- | --- | --- | --- | --- | --- | | Increased | Total water withdrawals m | | 53,802,571* | | 54,644,995* 55,237,583 | | | | likelihood of water | Percentage of water withdrawn | Per cent | | 38 | | 31 36 | Ó | | stress | from areas at risk of water stress | | | | | | | | | Percentage of sites with a water | Per cent | | 100 | | 100 100 – | | stress mitigation plan in place Now & Next target: Maintain water stress mitigation plans at 100 per cent of our sites in current or future water stressed areas New Now & Next target: By 2025, 100 per cent of our paper mills and packaging sites to have water management plans Growth in demand Number of pieces of problem Million units 762 million – – Ó for sustainable plastics replaced (cumulative to the end of packaging 2022/23) Now & Next target: By 2025, help our customers take 1 billion pieces of problem plastics off supermarket shelves | Greater resource | Total energy consumption MWh | | 14,407,601* | | 15,324,120* 15,446,255 | | Ô | | --- | --- | --- | --- | --- | --- | --- | --- | | | | 3 | | | | | Ó | | efficiency | Water withdrawal per tonne of | m /t nsp | | 8.9* | | 8.1 8.1 | | | | production at mills in areas at risk | (tonne net | | | | | | | | of water stress | saleable | | | | | | production) Now & Next target: Maintain ISO 50001:2018 certification at 100 per cent of in-scope sites, covering 90 per cent of total energy consumption Now & Next target: By 2030, 10 per cent reduction in water withdrawal intensity at mills at risk of water stress compared to 2019 Use of lower- Percentage of overall energy Per cent 26 21 17 Ó emission energy consumption from renewable sources sources Percentage of electricity Per cent 15 13 12 Ó consumed that was generated from renewable sources Now & Next target: Reach Net Zero GHG emissions by 2050 62 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT Carbon pricing ESG considerations as an underpin to the annual bonus. We use internal carbon pricing as a tool to assess and manage In 2022/23, the three elements of the ESG underpin were met, carbon-related risks and opportunities. We apply an internal including the programme of work for our sites to achieve the carbon price on an ad-hoc, project-by-project basis to arrive at the science-based target. best cost solution, balancing financial and non-financial When considering the application of discretion to override the outcomes. For example, in our strategic assessment to achieve formulaic outcome for the 2023/24 annual bonus, the Net Zero, we modelled growth and investment phasing over 30 Remuneration Committee will take into account, alongside other years to tackle our greatest emission sources. The analysis ESG factors, the roll out of the updated Now & Next Sustainability included a range of historic and forecast carbon prices, as well as Strategy, which includes our approach to the delivery of science- carbon offset costs. based targets, taking into account updated actual performance Climate-related remuneration and current customer/regulatory requirements. The importance of ESG and sustainability, including climate For more information, see page 108. change, continues to be emphasised by the use of a variety of Disclose Scope 1, Scope 2 and, if appropriate, Scope 3 greenhouse gas (GHG) emissions, and the related risks Group GHG emissions (Streamlined Energy and Carbon Reporting (SECR)) | | | 2019/20 | Compared | Compared | | --- | --- | --- | --- | --- | | Metric Unit of measure 2022/23 2021/22 | | (base year) | to last year | to base year | | Direct (Scope 1) GHG emissions tonnes CO | 2 e 1,542,250* 2,023,278* 2,181,890 -24% -29% | | | | | Indirect (Scope 2 market) GHG emissions tonnes CO | 2 e 833,759* 759,257* 792,275 10% 5% | | | | | Indirect (Scope 3) GHG emissions tonnes CO | 2 e 5,015,409 5,468,167 5,671,528 -8% -12% | | | | 1 | Total GHG emissions | tonnes CO | 2 e 7,391,418 8,250,702 8,645,693 -10% -15% | | --- | --- | --- | | Gross Scope 1 and 2 (market) GHG emissions tonnes CO | | 2 e 2,376,009* 2,782,535* 2,974,165 -15% -20% | | GHG emissions from energy export tonnes CO | | 2 e 529,699* 647,258* 791,810 -18% -33% | 2 Net Scope 1 and 2 (market) GHG emissions tonnes CO 2 e 1,846,310* 2,135,278* 2,182,355 -14% -15% Energy consumption MWh 14,407,601* 15,324,120* 15,707,667 -6% -8% Energy exported MWh 1,739,186* 1,774,539* 1,977,616 -2% -12% Total production tonnes 10,164,657* 11,014,256* 10,222,065 -8% -1% 3 GHG emissions (net) per tonne of production kg CO 2 e/t nsp 182* 194* 213 -6% -15% Outside of scopes GHG emissions tonnes CO 2 e 1,018,232* 804,880 552,789 27% 84% 1. This is the metric used for our science-based target, calculated using the market-based approach. 2. Calculated as (‘Scope 1’ + ’Scope 2 (market-based)’) – ’GHG emissions from energy export’ to subtract the avoided emissions as a result of energy sales. 3. Industry-specific intensity metric. ‘t nsp’ stands for ‘metric tonnes net saleable production’. This is ‘Net Scope 1 and 2 (market) GHG emissions’ / ‘Total production’. 4 per cent of Scope 1 emissions and 33 per cent of Scope 2 (market-based) generated by UK-based operations in 2022/23. 12 per cent of energy consumption consumed by UK-based operations in 2022/23. Outside of scopes GHG emissions has been restated to include the CO 2 emissions from renewable fuels considered ’Net Zero’ under the greenhouse gas protocol. Methodology GHG emissions are reported in accordance with the Greenhouse Gas Protocol Corporate Accounting and Reporting Standard (Revised), consolidated under a financial control boundary. Department for Business, Energy & Industrial Strategy (BEIS) (2021) emission factors are applied, unless emission factors from other sources are more appropriate. For more information, see our online Basis of Preparation, available from our ESG Reporting Hub. Independent assurance has been obtained for the metrics marked ‘*’, see the statement below. Independent Assurance Statement Deloitte have provided independent third-party limited assurance in accordance with the International Standard for Assurance Engagements 3000 (ISAE 3000) and Assurance Engagements on Greenhouse Gas Statements (ISAE 3410) issued by the International Auditing and Assurance Standards Board (IAASB) over the selected information, identified with * in the above table, and other selected information relating to carbon, energy, water, waste, production and employee diversity identified with * within DS Smith Annual Report 2023, DS Smith Sustainability Report 2023 and DS Smith ESG Databook 2023. Deloitte’s full unqualified assurance opinions, which include details of the selected information assured in 2022/23 and 2021/22, can be found on our ESG Reporting Hub, at https://www.dssmith.com/sustainability/reporting-hub. Independent third-party limited assurance of selected information for the 2019/20 base year was provided by Bureau Veritas. See the full assurance statement on our ESG Reporting Hub, at https://www.dssmith.com/sustainability/reporting-hub. Annual Report 2023 dssmith.com 63 # EU TAXONOMY This voluntary disclosure has been prepared in accordance with Regulation EU 2020/852 (the 'Taxonomy Regulation') and Delegated Regulation EU 2021/ZL78 (the 'Disclosures Delegated Act'). ## Background The Taxonomy Regulation sets out a classification system that translates the European Union's environmental objectives into criteria for determining when an activity can be considered environmentally sustainable for investment purposes. The Taxonomy is designed as a transparency tool to enable investors to compare companies and investment portfolios on a consistent basis. It is not a mandatory list of activities for investors to invest in, nor does it set mandatory environmental performance requirements for companies or financial products. In addition, the Taxonomy also serves to advance the ambitions of the European Green Deal by scaling up sustainable investment. The Taxonomy Regulation establishes technical criteria for environmental sustainability across more than 100 economic activities and six environmental objectives. So far, criteria have been approved for activities contributing to the first two objectives: - Climate change mitigation - Climate change adaptation. ## How does it work? The EU Taxonomy requires four conditions to be met when meeting these objectives, for an economic activity to qualify as 'environmentally sustainable': - It contributes substantially to one or more environmental objectives or is an enabling activity - It does not significantly harm any environmental objectives - It is carried out in compliance with minimum safeguards - It complies with technical screening criteria. The Taxonomy requires mandatory disclosure of Key Performance Indicators (KPIs), that identify firstly the 'Eligibility' of an economic activity for consideration under the disclosure requirement and secondly, the 'Alignment' of those economic activities with the detailed 'screening criteria' provided by the act to identify in-scope activities. The KPIs required for disclosure are: (1) turnover derived from products or services associated with economic activities that qualify as environmentally sustainable, (2) capital expenditure related to qualifying economic activities, and (3) operational expenditure related to qualifying activities, expressed as a per cent of the total for each measure, for the in scope company. The EU has stated it intends to develop the Taxonomy over time and the fact that an activity is not currently recognised as substantially contributing to one of the EU's environmental objectives does not necessarily mean it is not sustainable. As a UK company with its registered office and headquarters in London, DS Smith plc is not currently subject to the Taxonomy Regulation on a mandatory basis. However, we welcome measures to increase transparency and seek to comply with the Taxonomy on a voluntary basis. Our industry (paper and packaging manufacturing) and primary economic activity currently falls outside the scope of economic activities defined by the EU Taxonomy Directive and as such, this can lead to an understatement of relevant revenue for Taxonomy purposes. Within the current Taxonomy, we have identified that some of our activities are environmentally sustainable taxonomy-aligned activities - predominantly our recycling operations. ## EU Taxonomy eligible and aligned activities In DS Smith Annual Report 2022, for our first year of Taxonomy disclosure, we mapped our activities to the EU Taxonomy-eligible business activities and identified the per cent of total Group turnover, capital expenditure and operating expenditure relating to EU taxonomy-eligible activities. For 2022/23, reflecting the development of the Taxonomy, we have reviewed our economic activities and extended the list of those business activities which we have assessed as taxonomy eligible and aligned based on information obtained from the EU's 'Taxonomy Navigator', provided by the European Commission. We have identified the five eligible activities, along with their associated Standard Classification of Economic Activities in the European Community (NACE) system codes and sectors. The use of NACE codes and sectors is for indicative purposes only and does not prevail over the activity description nor should it be interpreted as otherwise affecting the scope of reporting. ## Cogeneration of heat/cool and power from bioenergy (D35.11, D35.30) (Energy) Some of our paper mills generate heat and power in combined heat and power plants (CHPs) that are fed by renewable fuel sources, such as wood residuals and heavy black liquor, as byproducts of the virgin papermaking process. Renewable sources contribute c. 26 per cent of total energy consumption. ## Collection and transport of non-hazardous waste in source segregated fractions (E38.11) (Water supply, sewerage, waste management and remediation) Our recycling operations manage c. 6 million tonnes per year of paper and cardboard for recycling, including collection and transportation. All separately collected and transported non-hazardous waste that is segregated at source and intended for preparation for reuse or recycling operations is considered to make a substantial contribution to climate mitigation under the relevant criteria. ## Construction, extension and operation of waste water collection and treatment (E37.00) (Water supply, sewerage, waste management and remediation) We own and operate industrial wastewater treatment plants to meet our own process water withdrawal and discharge requirements, including water treated on behalf of third parties. 64 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS **Forest management (AZ) (Forestry)** We manage c. 8,000 hectares of forest in North America and Iberia, providing timber feedstock to our virgin papermaking process. We maintain SFI (Sustainable Forestry Initiative) certification (North America) and FSC® Forest Management certification and PEFC Sustainable Forest Management (Iberia) certifications, meaning that our forests are managed in line with rigorous sustainability requirements. **Installation, maintenance and repair of energy efficiency equipment (C16, C17) (Construction and real estate)** We maintain equipment to increase energy efficiency in the manufacture of wood products, paper and paper products. As this activity relates to building and construction, the most relevant substantial contribution criteria for climate mitigation is the installation and replacement of energy efficient light sources. **Proportions of Taxonomy-eligible and Taxonomy-aligned turnover, CapEx and OpEx** In 2022/23, c. 4 per cent of turnover, c. 14 per cent of capital expenditure and c. 3 per cent of operating expenditure related to taxonomy-eligible activities. Of this, c. 3 per cent of turnover, c. 1 per cent of capital expenditure and c. 1 per cent of operating expenditure was taxonomy-aligned. As the delegated acts continue to be developed and brought forward by the European Commission, we expect that more of our economic activities will be classified as environmentally sustainable. Given our position as a leading provider of sustainable packaging solutions, operating a circular business model focused on recycled cardboard, we expect to be well-positioned for the majority of our economic activities to be considered environmentally sustainable. We will monitor the development of this emerging legislation and will look to evolve our disclosure accordingly. A more detailed EU Taxonomy disclosure, including methodologies, can be obtained from the DS Smith ESG Reporting Hub, available online at https://www.dssmith.com/sustainability/reporting-hub. | | Proportion of turnover (share of revenue) (%) | | Proportion of capital expenditure ("CapEx") (%) | | Proportion of operating expenditure ("OpEx") (%) | | | --- | --- | --- | --- | --- | --- | --- | | | Eligible | Aligned | Eligible | Aligned | Eligible | Aligned | | Cogeneration of heat/cool and power from bioenergy (D35.11, D35.30) | Less than 0.1% | 0 | 4.22 | 0 | - | - | | Collection and transport of non-hazardous waste in source segregated fractions (E38.11) | 3.34 | 3.34 | 1.06 | 1.06 | 1.34 | 1.34 | | Construction, extension and operation of waste water collection and treatment (E37.00) | Less than 0.1% | 0 | 0.54 | 0 | - | - | | Forest management (AZ) | 0.22 | 0 | 0.37 | 0 | 1.76 | 0 | | Installation, maintenance and repair of energy efficiency equipment (C16, C17) | - | - | 8.01 | Less than 0.1% | - | - | | **Totals** | **4** | **3** | **14** | **1** | **3** | **1** | Annual Report 2023 dssmith.com 65 ## NON-FINANCIAL AND SUSTAINABILITY ## INFORMATION (NFSI) STATEMENT The table below sets out where information relating to non-financial and sustainability matters can be found in our Strategic Report. Compliance statement DS Smith Plc has complied with the requirements of sections 414CA and 414CB of the Companies Act 2006 (as amended by The Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2022) with the table disclosed below and other disclosures throughout the Strategic Report. The climate-related financial disclosures of the Company are contained within the Task Force on Climate-related Financial Disclosures (TCFD) section, on pages 52 to 63 of this Annual Report. Reporting Where to read more in this report about our impact, requirements Some of the relevant policies including the principal risks relating to these matters Page(s) 1 Climate • Group Sustainability policy • Task Force on Climate-related Financial Disclosures 52-63 change and sustainability 1 | Environmental | • Group Sustainability policy | • Our sustainability approach, strategy, focus and targets | 5, 24-29 | | --- | --- | --- | --- | | matters | | • Our sustainability performance | 16 | | | | • Our differentiators | 6-7 | | | | • Risk – sustainability | 46 | | | | • Task Force on Climate-related Financial Disclosures | 52-63 | 2 Employees • Code of Conduct • What we create for our people 14, 20-23 2 • ‘Speak Up!’ • Diversity and inclusion 22-23 1 • Group Health and Safety policy statement • To realise the potential of our people – performance 16 • Equal Opportunities and Anti- • Health, safety and wellbeing 21 2 Discrimination policy • Risk – organisation capability 47 1 • Personal Data Protection policy • Gender pay gap reporting 23 1 • Document Retention policy • Our Purpose 3 1 • Confidential Information policy 1 • Conflicts of Interest policy 2 Human rights • Code of Conduct • Sustainable governance 29 2 • Anti-Slavery and Human Trafficking policy • Risk – governance 46 2 Social matters • Code of Conduct • Contributing to our communities 15, 24-29 2 • Gifts and Hospitality policy Compliance • Corporate Criminal Offence (Anti- • Risk – governance 46 2 Facilitation of Tax Evasion) policy 2 • Anti-Bribery and Corruption policy 1 • Competition Law Compliance policy 1 • Commercial Agents policy 1 • Conflicts of Interest policy Business model • Our business model 12-13 | Non-financial | • Employees: Accident frequency rate | 16 | | --- | --- | --- | | KPIs | • Customers: On-time in-full deliveries (OTIF) | 16 | | | • Sustainability: Greenhouse gas (GHG) emissions | 16 | | | • Climate change: TCFD metrics and targets | 62-63 | 1. Available to all employees through the DS Smith intranet. Not published externally. 2. Available both on our website www.dssmith.com and to employees through the DS Smith intranet. 66 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT Our policies A combination of online and in-person training on all the key policies is carried out across the Group and there is also a system of bi-annual certification for senior managers, certifying that they have read and understood the policies, have cascaded down to their direct reports and that they are not aware of any breach of such policies. All employees, contractors and third parties are encouraged to report any circumstances where there is a suspected or actual breach of any of the DS Smith policies, applicable laws or the high standards as set out in the Code of Conduct, either through their managers, the confidential ‘Speak Up!’ helpline or directly to the Group General Counsel and Company Secretary. All reported incidences of actual or suspected breach of any of the policies are promptly and thoroughly investigated. The Group Compliance Committee and the Audit Committee also consider any high-risk areas identified by the Internal Audit function, the legal team or the divisional compliance teams. Many of these policies can be found on our website. Policy Description Code of Conduct DS Smith Plc (DS Smith) and its subsidiaries (Group) are committed to the highest ethical standards in the way in which we engage with each other and our customers, employees, shareholders, suppliers, contractors and other stakeholders. Our Code of Conduct sets out what these commitments mean and the behaviours which are expected of all our employees, officers and business partners. This includes our expectations on health and safety, business practice, human rights, the environment, prevention of tax evasion and employee relations among other key areas for the business. Alongside the Code of Conduct we have an Employee Charter drawn up in partnership with the European Works Council (EWC) which builds on our Code of Conduct and reinforces our standing commitment to comply with applicable legislation and regulatory requirements. We also have other key Group policies outlined below, which serve to further expand upon the provisions in the Code of Conduct. Anti-Bribery We have zero tolerance for any form of bribery or corruption and are committed to complying with all applicable anti-bribery and anti-corruption laws. This policy provides guidance on how to comply with the rules against bribery and other corrupt conduct that apply and Anti- to the Group. In addition to our employees and contractors, we require that all third parties engaging with any entity in the Group comply Corruption with this policy. policy Anti-Slavery We do not tolerate any form of modern slavery within the Group or within our supply chain. We respect fundamental human rights and are committed to the principles set out in the United Nations Universal Declaration of Human Rights and this is documented in our Code of and Human Conduct, Employee Charter and Anti-Slavery and Human Trafficking policy. Our progress in the area of modern slavery is set out in our Trafficking annual Modern Slavery statement. The ultimate responsibility for prevention of modern slavery rests with the Group’s leadership, with policy the Board of Directors having overall responsibility for ensuring this policy is implemented across the Group. Commercial It is important to our ongoing success that DS Smith avoids damage to its reputation due to an act carried out by an agent in our name. The Commercial Agents policy outlines the rules that we expect to be followed across the Group when engaging and monitoring our Agents policy relationships with agents. This policy also offers guidance to our agents on what is expected of them as an agent of DS Smith. Such guidance is supplemented by additional e-learning compliance training where appropriate. This ensures that agents are properly vetted and monitored. Competition We are committed to ensuring that our activities within the European Union (EU) and outside the EU are conducted in compliance with the principles of the EU competition rules as well as all applicable national rules that apply to the Group. This policy provides guidance on Law and competition laws, information exchanges, swaps, trade associations and dawn raids. Additional e-learning training is available to support Antitrust this policy. Compliance policy Conflicts of Conflicts of interest, whether actual, potential or perceived, may impair our ability to act in accordance with our ethical standards and values. It is therefore important for all of our employees and any person associated with us to be aware of, and adhere to, the policies and Interest policy procedures that we have in place to manage such conflicts. This policy outlines the requirements and processes in respect of conflicts of interest and advises employees of their obligations. It also includes a self-assessment tool to assist in determining whether there may be a conflict and a form for the disclosure and handling of conflicts of interest by employees and their line managers. Confidential We keep certain types of information confidential for important business reasons, including to comply with legal requirements (such as data protection and competition law), and to maintain a competitive edge. Confidential information is information that is not generally Information known or publicly available and is only available to employees or workers as a result of their employment/engagement with us. This policy policy sets out how confidential information should be handled and outlines the procedures that safeguard it. Corporate The Group will not engage in or be associated with any form of tax evasion anywhere in the world, nor facilitate such activities. This policy sets out the responsibilities of the Group as well as those working for or on behalf of the Group, and provides information and guidance on Criminal how to recognise and deal with potential tax evasion issues and our compliance processes. This policy must be implemented and followed Offence by everyone who works for us or provides personal services to the Group and it must be communicated to all suppliers and customers. (Anti- Facilitation of Tax Evasion) policy Annual Report 2023 dssmith.com 67 NON-FINANCIAL AND SUSTAINABILITY INFORMATION (NFSI) STATEMENT CONTINUED Policy Description Document In the course of carrying out our various business activities, we collect information from individuals and external organisations and generate a wide range of data and information which is recorded and stored. DS Smith is therefore committed to ensuring that it Retention continues to ensure the accuracy of any data stored and ensuring that data (especially personal data) is only retained for as long as is policy necessary. Equal We are committed to promoting equal opportunities in employment. Job applicants, employees and contingent workers will receive equal treatment regardless of age, disability, race, religion or belief, sex, sexual orientation, gender reassignment, marriage and civil Opportunities partnership, pregnancy and maternity or any other characteristic protected by applicable law. It is imperative for us to provide a respectful and Anti- work environment and we have a zero tolerance approach to discrimination. This policy sets out the Group’s approach to equal Discrimination opportunities and the avoidance of discrimination at work, as well as the processes to be followed in the event of any actual or suspected conduct which breaches this policy. All parties are encouraged to raise concerns if they find conduct within DS Smith that is offensive or a policy violation of this policy, through their line manager, local human resources (HR) or use of the ‘Speak Up!’ process so the Group can investigate and take appropriate remedial measures to end any conduct that violates this policy. Gifts and We recognise that the act of giving and accepting gifts and hospitality can be part of building normal business relationships. However, our policy aims to ensure that our employees and contractors never accept gifts or hospitality which could break the law, compromise their Hospitality judgement, conflict with their duty to DS Smith or our customers, or which could appear to others that their business judgement has been policy improperly influenced. Equally, our employees and contractors must never offer a gift or hospitality which could have this effect on the recipient. In order to monitor compliance with these principles, each site must maintain a gifts and hospitality register and registers must also be kept for head offices and specific functions that are not site specific. Before giving or receiving any gift and/or hospitality, depending on the value or the identity of the provider/recipient, our employees and contractors may be required to record the gift and/or hospitality in the relevant gifts and hospitality register, and/or seek approval from their line manager and the Group General Counsel and Company Secretary. Group Health Health and safety is the top priority and DS Smith actively strives for the continuous improvement of health and safety in the workplace. We aim to provide a healthy and safe working environment for all our employees and to ensure the safety of our contractors, site visitors, and Safety the public and all others affected by our operations. The ultimate responsibility for health and safety rests with the Group Chief policy Executive, the Board members and the executive management team. This responsibility is cascaded through the organisation via statement divisional/regional Chief Executive Officers and their leadership teams, enabling us to comply with local health and safety laws and regulations in addition to our own standards and guidelines. Group Our Sustainability Strategy is supported by policies which align the management of sustainability issues across our organisation. Risks arising from sustainability issues are considered as being among the key risks to the Group’s operations. To manage and mitigate such Sustainability risks we have policies for existing and emerging sustainability issues. Our policies include Conflict Minerals, Carbon and Energy Efficiency, policy Community Engagement, Global Supplier Standards, Human Rights, Water Stewardship, Zero Waste to Landfill and Sustainable Forest Management and Fibre Sourcing. These policies are periodically reviewed and updated, with action plans communicated to the heads of each business unit. The Board receives regular reports on performance and the Group Chief Executive is responsible for addressing sustainability-related issues. The Health, Safety, Environment and Sustainability Committee meets monthly and the Sustainability Steering Group oversees the process for addressing sustainability-related issues and sets and monitors internal targets and strategies to ensure sustainability-related risks and opportunities are appropriately managed. Personal Data We recognise our responsibility to treat individuals’ personal data correctly and lawfully and take this issue very seriously. Compliance with data protection laws is critical to the success of our business. Compliance with statutory data protection is crucial in our relationship Protection with our employees, customers, suppliers and business partners. The management of the relevant DS Smith company is responsible for policy cascading this policy and each site is responsible for confirming compliance. The Divisional Heads of Privacy will also send an annual confirmation form to check that each site is compliant. ‘Speak Up!’ All of our employees, those providing services to DS Smith (contingent workers), shareholders and Non-Executive Directors are expected to conduct DS Smith business in a legal and ethical manner as detailed in our Code of Conduct. They have a responsibility not only to be policy aware of the Code of Conduct but to bring to the attention of management any activity which may be in violation of our policies or local law or does not meet the standards set out in the Code of Conduct. Employees are encouraged in the first instance to report any concerns to their line manager, local HR or employee representative. If not comfortable to do so, then there are ‘Speak Up!’ options available, where a report can be made through a dedicated free phone line or a secure website (both maintained by an independent third party that is under a duty of confidentiality). The phone and website support a majority of languages spoken across DS Smith. Alternatively, the Group General Counsel and Company Secretary can be contacted via email or letter. All ‘Speak Up!’ options are available 24 hours a day seven days a week and all ‘Speak Up!’ reports are treated in the strictest confidence and are investigated. Findings from the investigations may include corrective actions and lessons to be learned. Twice a year, a summary of reports made and findings from the investigations is shared with the Audit Committee and the EWC Executive. It is our policy to build a climate of support for our employees if concerns are raised, including a suspected breach of our Code of Conduct, and to ensure that there is an avenue to report concerns which will then be confidentially investigated. 68 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT Statement of approval This Strategic Report, including pages 1 to 69, was approved by the Board of Directors on 22 June 2023 and is signed on its behalf by Miles Roberts Group Chief Executive Annual Report 2023 dssmith.com 69 ## BOARD OF DIRECTORS N | Geoff Drabble | Miles Roberts | Adrian Marsh | | --- | --- | --- | | Chair | Group Chief Executive | Group Finance Director | | Appointed to the Board on 1 September 2020 | Appointed to the Board on 4 May 2010 as Group | Appointed to the Board on 24 September 2013 | | as a Non-Executive Director and became the | Chief Executive. | as Group Finance Director, Adrian will retire | | Chair of the Board and the Nomination | | from the Board on 30 June 2023. | Key strengths Committee on 3 January 2021. • Clear strategic mindset Key strengths Key strengths • Strong leadership skills • Strong financial and risk management • Wealth of industrial and international expertise within an international context experience Skills, experience and contribution • Wealth of finance experience in large, listed Miles’ strong leadership skills combined with his • Extensive experience of chairing boards multinationals clear strategic mindset, rooted in the Skills, experience and contribution practicality of his engineering and accountancy Skills, experience and contribution Geoff’s wealth of industrial and international training, means that his skills and experience, Adrian’s depth of experience in a range of experience, combined with his experience of and ability to identify material risks and financial roles in large, listed multinationals chairing boards of listed companies and his sustainable growth opportunities for the means that his skills and experience contribute awareness of both the non-executive and chief Group’s business, contribute to the Board’s clear to the Board’s understanding of all aspects of executive perspective, means that his skills and strategic vision. He brings to the Board the financial implications, whether risks to be experience contribute to the Board’s practical extensive financial and operational experience assessed and managed, or opportunities to be understanding of good governance in action, particularly within international manufacturing identified and realised, of both the day to day balancing stakeholders’ interests across the industries. and project aspects of the Group’s business and range of issues considered by the Board, operations. Following his early career in engineering, Miles including environmental, social and governance became a chartered accountant. He was As the former head of Tax, Treasury and (ESG) matters. | | previously Chief Executive of McBride plc, | Corporate Finance at Tesco PLC, Adrian has | | --- | --- | --- | | Geoff served for 12 years as Chief Executive of | having originally joined as its Group Finance | helped DS Smith to significantly build the | | Ashtead Group plc, the FTSE 100 industrial | Director. | finance function and deliver strong financial | | equipment rental company. He was previously | | results. As a qualified accountant, and coming | As Group Chief Executive, Miles leads the an executive director of The Laird Group plc and from a FTSE background, he has held divisional executive management of the Group and is held a number of senior management positions CFO positions at both AstraZeneca plc and responsible for DS Smith’s overall ESG at Black & Decker. Geoff retired from being the Pilkington plc. performance and its clear objectives at the Senior Independent Director at Howden Joinery centre of our business model, taking into External appointments Group Plc in May 2023. | | account the Board’s risk appetite. He chairs the | Adrian is a non-executive director and audit | | --- | --- | --- | | External appointment | Group’s Health, Safety, Environment and | committee chair at John Wood Group PLC and | | Geoff is non-executive chair of Ferguson plc. | Sustainability Committee that monitors the | with effect from 1 May 2023 became non- | | | establishment of goals, management of risks | executive director and chair of the risk and audit | | | and opportunities, reporting and related | committee of Co-operative Group Limited. | governance procedures in that area. External appointment Miles is a non-executive director of Land Securities Group PLC. Principal Board Audit Nomination Remuneration Chair Committee Committee Committee Committees key: 70 N R A N R FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT | Celia Baxter | Alan Johnson CMG | Alina Kessel | | --- | --- | --- | | Non-Executive Director | Non-Executive Director | Non-Executive Director | | Appointed to the Board on 9 October 2019 as a | Appointed to the Board on 1 June 2022 as a | Appointed to the Board on 1 May 2020 as a | | Non-Executive Director and Chair of the | Non-Executive Director. | Non-Executive Director. | Remuneration Committee. Key strengths Key strengths Key strengths • Strong financial background in the FMCG • Broad and wide-ranging marketing • Extensive HR experience and ESG knowledge sector experience and experience • Extensive international experience • International outlook • Board experience in non-UK listed companies Skills, experience and contribution Skills, experience and contribution Skills, experience and contribution Alan’s extensive financial and international Alina’s experience of living, as well as working, Celia’s background of working in a range of experience working within the consumer goods in a number of different countries, including the sectors means that, as well as her experience and retail sectors and his experience of chairing US, combined with her expertise in marketing asa remuneration committee chair and her international accountancy bodies brings a range and communications means that her skills and understanding of employee dynamics and ESG of important different perspectives to experience contribute an additional perspective issues, she brings extensive and practical contribute to the Board’s discussions. to the Board’s discussions, particularly when business knowledge to the Board. considering the interests of employees (based Alan has been President and Chair of the Board in over 30 countries) and our global customers Celia was Director of Group HR and responsible of the International Federation of Accountants and discussing how to communicate key for all ESG activities at Bunzl plc for 13 years. and chaired the audit committee of the non-financial aspects of our business. | Her early executive career was with Ford Motor | International Valuation Standards Council. Alan | | | --- | --- | --- | | Company and KPMG. She has held HR positions | held a number of senior finance positions at | She has over 25 years of experience building | | with Hays plc, Enterprise Oil Plc and Tate & Lyle | Unilever during a 30-year career, including Chief | global brands for large multinational clients, | | Plc. As a non-executive director she was on the | Audit Executive and Chief Financial Officer of | helping them grow their business through | | board of NV Bekaert SA until May 2020 and on | the Global Foods Division. He was previously | communications, experience, commerce | | the board of RHI Magnesita N.V. until June 2021 | Chief Financial Officer and then a non-executive | andtechnology. Her current role with WPP | | and retired as Senior Independent Director | director at food retailer Jerónimo Martins, SGPS, | includes working with global clients on their | | andthe remuneration committee chair at Senior | SA until April 2016. | sustainability agenda. Originally from Ukraine | | plc in April 2023. | | and a US national, Alina has lived and worked | External appointments inthe UK, US, Australia and Germany. External appointments Alan is a non-executive director of Imperial Celia is the senior independent director and Brands plc and William Grant & Sons Holdings External appointment remuneration committee chair of Dowlais Group Limited, where he also chairs the audit Alina is a Global Client Leader at WPP, plc and non-executive director of discoverIE committee and has been appointed as the aleadinginternational marketing Group plc. inaugural Chair of the Stakeholder Advisory communications company. Council, which will provide strategic advice to the International Ethics Standards Board for Accountants and the International Auditing and Assurance Standards Board. Annual Report 2023 dssmith.com 71 R N A R N A R N A BOARD OF DIRECTORS CONTINUED | Eric Olsen | David Robbie | Louise Smalley | | --- | --- | --- | | Non-Executive Director | Senior Independent Director | Non-Executive Director | | Appointed to the Board as a Non-Executive | Appointed to the Board as a Non-Executive | Appointed to the Board on 23 June 2014 as a | | Director on 15 May 2023. | Director on 11 April 2019 and became Chair of | Non-Executive Director. | the Audit Committee at the conclusion of the Key strengths Key strengths 2019 AGM. He was appointed Senior • Knowledge of manufacturing operations • Strong HR experience Independent Director on 28 February 2022. • Experience in leading multinational • Extensive knowledge of people listed entities Key strengths management, rewards and remuneration • Strong financial, risk management and schemes Skills, experience and contribution corporate finance experience Eric’s extensive experience in the fields of Skills, experience and contribution • International and strategic mindset finance, human resources, strategy, operations Louise’s recent experience as a serving listed and global leadership will contribute a Skills, experience and contribution company executive director, combined with her deepening of the range of perspectives brought David’s strong financial, risk management and extensive knowledge of progressive people to the Board’s discussions. corporate finance experience combined with his management practices in multi-site large scale international and strategic mindset and businesses, means that her skill and experience Eric is a Certified Public Accountant (CPA), practical governance experience with over 20 contribute to the Board’s focus on the holding a Master of Business Administration years serving as a director on FTSE boards importance of enabling everyone who works for from HEC international business school in Paris. means that his skills and experience add depth the Group, whatever their background, to Eric was the CEO of LafargeHolcim from to the Board’s discussions in these areas. realise their potential. 2015-2017. Prior to that he also held a number | of other roles within the Lafarge Group, | David was the Senior Independent Director and | She was Group Human Resources Director of | | --- | --- | --- | | including as EVP Organisation and Human | chair of the audit committee at FirstGroup plc | Whitbread PLC and for nine years until August | | Resources and EVP in charge of Operations. Eric | until June 2021. He was previously Finance | 2021 an executive director of Whitbread PLC, | | started his career in the field of M&A at Deloitte | Director of Rexam PLC. Prior to his role at | where she held several key transformation and | | & Touche and Banque Paribas and was one of | Rexam, David served in senior finance roles at | HR roles. She previously worked as a HR | | the managing partners of Trinity Associates for | BTR plc before becoming Group Finance | professional in the oil industry, with BP and Esso | | six years. Eric has dual American and French | Director at CMG plc in 2000 and then Chief | Petroleum. Louise is an alumna of the | | nationalities. | Financial Officer at Royal P&O Nedloyd N.V. in | Cambridge Institute for Sustainability | | | 2004. He served as a non-executive director of | Leadership and has experience of leading | External appointments the BBC between 2006 and 2010 and as chair of timely evolutions of sustainability strategies. Eric is CEO of Aliaxis SA, board member of their audit committee. David qualified as a Fortera Inc, member of the Technical and External appointments chartered accountant at KPMG. Strategic Advisory Committee of Breakthrough Louise is a non-executive director and Energy Ventures Europe and a corporate External appointment remuneration committee chair of Informa PLC advisor for Temasek Holdings Inc. David is a non-executive director and audit and a non-executive director of A.G. BARR p.l.c. committee chair of easyJet plc. Principal Board Audit Nomination Remuneration Chair Committee Committee Committee Committees key: 72 R N A R N A R N A A N R FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT Richard Pike Iain Simm Group Finance Director – designate Group General Counsel and Company Secretary As was announced on 27 April 2023, Richard will be appointed to the Board as Group Finance Appointed Group General Counsel and Company Director and as an Executive Director with Secretary on 6 June 2016. effect from 30 June 2023 when Adrian Marsh Key strengths retires. • Legal expertise Key strengths • Wealth of experience in assisting boards with • Financial and general management legal and governance matters experience in leadership roles in manufacturing Skills, experience and contribution Iain’s experience as general counsel and • Experience in the recycling and sustainability company secretary in listed entities operating sectors on a multi-jurisdictional basis means that the Skills, experience and contribution Board benefits from his advice on governance Richard’s financial and general management and compliance matters as well as advice on experience in leadership roles within complex legal issues. manufacturing companies, together with his Iain has previously held General Counsel and knowledge and understanding of the recycling Company Secretary roles with Signature and sustainability sectors, will play a central role Aviation plc and P&O Ports Ltd. He undertook with the Board’s discussions on the next his legal training with Slaughter and May and chapter of growth for DS Smith. worked for a number of years in their corporate Before joining DS Smith, Richard was Chief and commercial department. Financial Officer of Biffa plc. Prior to that he External appointment spent time in the food manufacturing sector as None. Group Finance Director of AB Sugar and Managing Director of British Sugar (both parts of ABF plc), followed by being Chief Financial Officer of Boparan Holdings Limited. Earlier in his career Richard trained and qualified as a chartered accountant with PwC, and thereafter went on to hold a variety of roles at Scapa Group plc, Pilkington plc and Manchester Airports Group. External appointment None. Annual Report 2023 dssmith.com 73 ## CHAIR’S INTRODUCTION ## TO GOVERNANCE ### Good corporate governance is an essential ### element in helping to build a successful business ### in a sustainable manner. Geoff Drabble, Chair Introduction Balancing stakeholders’ interests This section of the Annual Report focuses on corporate Each Board pack for Board meetings includes a reminder of each governance. Having a structured corporate governance Director’s duties under section 172 of the Companies Act 2006. framework enables the right information to be brought before That frames our deliberations at meetings in the context of a the right people at the right time to make informed decisions, reminder that every Director must act in the way they consider, in which in turn strengthens the Group’s decision-making processes good faith, would be most likely to promote the success of the and supports the Board’s key focus on delivering the Group’s Company for the benefit of its members as a whole, while thinking strategy for the benefit of our shareholders and taking into about the likely consequences of any decision in the long term, account the interests of all our stakeholders. the interests of the Company’s employees, the need to foster the Company’s business relationships with suppliers, customers and Your Board understands that good corporate governance is an others, the impact ofthe Company’s operations on the community essential element in helping to build a successful business in a and the environment, the desirability of the Company maintaining sustainable manner and that regular evaluation (see page 80) a reputation for high standards of business conduct, and the need supports that. to act fairly as between the members of the Company. Division of responsibilities The principal decisions that the Board takes can be divided into My role as Chair is to lead the Board and be responsible for its two categories: there are decisions taken relating to matters overall effectiveness in directing the Company. It is important considered each year (such as approving the Corporate Plan, the that each member of the Board is clear about their responsibilities budget and the Annual Report, or considering the level of and that each member of the Board is able to contribute fully to dividend payment to propose) and there are decisions that relate all aspects of the discussions we have as a Board. to a new project or an identified inflection point, when a new direction is to be taken. The approval of certain Group policies (including some of those listed in the Non-Financial and Sustainability Information Over the past 12 months the Board has discussed a number of Statement on pages 66 to 68) is one of the matters reserved to important capital expenditure projects, such as the expansion of the Board and is one of the ways we, as a Board, have oversight the paper mill at Lucca, Italy, our greenfield sites that opened in of longer-term aspects of the Group’s operations, including our September 2022 in Italy and Poland, and the development of a leadership on sustainability matters and our progress in biomass plant at Rouen, France. When considering this type of addressing climate-related issues. project, the Board looks beyond the financial projections and asks questions about, for example, the emissions of the expanded Succession planning sites and the impacts on the local communities, whether that be As a Board, and when we meet as the Nomination Committee, we offering new employment opportunities or contributing to regularly discuss senior leadership succession, as we recognise concerns about water scarcity. These are long-term projects with that non-financial resources and the manner in which we deliver the potential for beneficial long-term impacts that contribute to our strategy are as important as financial resources and the our strategic goal of leading the way in sustainability. strategic content of our Corporate Plan. For simplicity of presentation, information about this crucial topic is set out in the Nomination Committee Report. 74 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT Having approved in 2022 the Group’s commitment to a 1.5°C science-based target, validated by the Science Based Targets initiative, the Group is now moving to the next phase which includes adopting decarbonisation templates on a site by site basis, prioritising the greatest emission sources. The templates identify the major technical solutions that will need to be implemented, such as solar and heat pumps, in addition to green electricity sourcing and energy efficiency opportunities, and are being consolidated into a Group-wide roadmap for achieving the 2030 commitment. These solutions will aim to accelerate progress to meet the near-term 2030 target to reduce Scope 1, 2 and 3 greenhouse gas emissions 46 per cent by 2030 compared to 2019, as part of reaching the long-term 2050 target of Net Zero greenhouse gas emissions. The Board understands the importance of being both thoughtful and nimble, as it supports the executive team in implementing longer-term plans, in setting appropriate metrics in this key area and in reacting to the regulatory changes. As your Chair I look forward to both supporting and challenging the executive team to adapt and evolve to the long-term benefit of all our stakeholders as we realise our Purpose of ‘Redefining Packaging for a Changing World’. Geoff Drabble Chair 22 June 2023 In addition to the regulatory Statement about the Company’s Statement about the requirement to include a statement engagement with the wider UK Company’s engagement with about section 172 of the Companies workforce suppliers and customers Act 2006 in the Strategic Report More detail about how we realise the More detail about how we engage (which is on page 9), there is also a potential of our people by engaging with with our customers and the requirement to make a statement our wider workforce (a term that is wider importance of sustainability about the Company’s engagement than the term employees, who are those throughout our supply chain is set out with the wider UK workforce and employed directly by the Group under on pages 18 and 19 and 24 to 29 of with suppliers and customers. The contracts of service) wherever they are the Strategic Report. methods of engagement in the UK based (not just those based in the UK) is and outside the UK are broadly the set out on pages 20 to 23 of the Strategic same, so we have cross-referenced Report. below, not repeated, our disclosures on these matters. Annual Report 2023 dssmith.com 75 ## DIVISION OF RESPONSIBILITIES ### DIVISION OF RESPONSIBILITIES OF THE BOARD The Board Chair Group Chief Executive The Board is collectively responsible for • Primarily responsible for overall • Responsible for executive the long-term success of the Group and operation, leadership and management of the Group as awhole for ensuring leadership within a governance of the Board • Delivers strategic and commercial framework of effective controls. The • Leads the Board, sets the agenda objectives within the Board’s stated key roles of the Board are: and promotes a culture of open risk appetite debate between Executive and • Builds positive relationships with all • Setting the strategic direction of the Non-Executive Directors the Group’s stakeholders. Group • Regularly meets with the Group Chief • Overseeing implementation of the Executive and other senior strategy by ensuring that the Group management to stay informed is suitably resourced to achieve its strategic aspirations • Ensures effective communication with our shareholders. • Providing entrepreneurial leadership within a framework of prudent and effective controls which enables risk to be assessed and managed • Ensuring that the necessary financial and human resources are in place for Senior Independent Non-Executive Directors the Group to meet its objectives Director • Constructively challenge and help • Setting the Group’s values. develop proposals on strategy • Provides a sounding board to the Chair and appraises his performance • Scrutinise the performance of management • Acts as intermediary for other Directors, if needed • Review performance of the business. • Available to respond to shareholder concerns if contacted. Board and Board Committee meetings attendance Nomination Audit Remuneration Board Committee Committee Committee Total number of meetings in 2022/23 7 6 4 6 Executive Directors Miles Roberts 7/7 6/6 n/a n/a Adrian Marsh 7/7 n/a n/a n/a Non-Executive Directors Geoff Drabble 7/7 6/6 n/a 6/6 Celia Baxter 7/7 6/6 4/4 6/6 Alan Johnson – joined the Board on 1 June 2022 7/7 6/6 4/4 5/6 Alina Kessel 7/7 6/6 4/4 6/6 David Robbie 7/7 6/6 4/4 6/6 Louise Smalley 6/7 5/6 3/4 6/6 Rupert Soames – retired from the Board on 6 September 2022 2/2 2/2 1/1 3/3 The Chair also holds meetings with the Non-Executive Directors without the Executive Directors present. 76 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT ## BOARD’S PRINCIPAL COMMITTEES Nomination Committee Audit Committee Remuneration Committee • Reviews the structure, size and • Monitors the integrity of the Group’s • Recommends the policy for the composition of the Board and its reporting process and financial remuneration of the Chair, the Committees management, its accounting processes Executive Directors, the Company • Identifies and recommends suitable and audits (internal and external) Secretary and senior executives, in candidates to be appointed to the Board • Ensures that risks are carefully alignment with the Group’s reward and reviews the wider senior identified and assessed and that sound principles management talent pool systems of risk management and • Considers remuneration of the wider • Considers wider elements of succession internal control are in place workforce when setting remuneration planning below Board level, including • Oversees fraud prevention of the Chair, the Executive Directors, diversity. arrangements and reports received the Company Secretary and senior under the ‘Speak Up!’ policy. executives and reviews related policies and alignment of incentives and rewards with culture, to help inform setting of the Remuneration policy • Considers the business strategy of the Group and how the Remuneration policy reflects and supports that strategy. For more information see page 81 For more information see page 92 For more information see page 86 Board’s standing sub-committees In addition to the three principal Committees of the Board there are four further standing sub-committees of the Board. Disclosure US Sub Committee General Purposes Share Schemes Committee Committee Committee which oversees the strategic which oversees the Company’s direction of business in the US, which facilitates efficient which facilitates administrative compliance with its disclosure together with any associated operational management matters in relation to the obligations. risks or opportunities in the decision-making in relation to Group’s share schemes. business. day to day financing and administrative matters. Management committees Four management committees, chaired by the Group Chief Executive, and the Group Compliance Committee also support the work of the Board and its principal Committees. Group Health, Safety, Group Operating Group Strategy Group M&A Committee Environment and Committee Committee Meets once every two months Sustainability Meets monthly Meets once every Considers potential acquisitions and disposals Committee twomonths and other related aspects that may impact the Considers Group-wide Meets monthly initiatives and priorities. realisation of the Corporate Plan. Plans the business strategy Reviews the implementation implementation as approved Oversees the management of operational plans. Reviews by the Board and set out by the processes, targets and changes to policies and annual Corporate Plan process. strategies designed to manage procedures and facilitates the The Corporate Plan is used to Group Compliance Committee health and safety and discussion of the development develop the Group’s strategy, Meets quarterly environmental and sustainability of new projects. based on the set strategic risks and opportunities, including Oversees compliance with all legal, regulatory reviewing performance on direction. The Corporate Plan’s and organisational requirements including the climate-related issues and the focus is primarily on strategic effective interface between the financial, Group’s health and safety and actions, supported by high legal, risk and internal audit functions, environmental and sustainability level financial information. It reporting back to both the Group Operating responsibilities and covers a three-year time Committee and the Audit Committee. commitments. horizon and is reviewed annually by the Board. Annual Report 2023 dssmith.com 77 ## CORPORATE GOVERNANCE ## INCONTEXT Corporate governance in action All relevant provisions of the Code have been complied with throughout the year ended 30 April 2023, other than provision The governance section of the Annual Report outlines how we 38. More information about the retirement benefit contribution have applied the main principles of the 2018 UK Corporate rates for Executive Directors was included in prior annual reports. Governance Code (Code). The Code is published by the Financial These contribution rates were fully aligned to those available to Reporting Council (FRC) and available at www.frc.org.uk. the workforce on 30 December 2022. Our compliance with the UK Corporate The Nomination Committee Report and the paragraphs on Board evaluation in practice within the Board leadership section explain how Governance Code’s five sections we have applied aspects of Code principles J to L and how we have put the provisions of section 3 of the Code into practice. 1 Board leadership and Company Purpose Your Board rigorously challenges strategy, assesses performance and From page 81 balances the interests of all our stakeholders to ensure that every decision we make is of the highest quality. 4 Audit, risk and internal control The regulatory requirement is to include in the Strategic Report a All your Board’s decisions are discussed within the context of the risks statement about the Directors’ compliance with section 172 of the involved. Effective risk management, set in the context of a well- Companies Act 2006, which includes taking into account the interests structured internal control framework, is central to achieving our of a variety of stakeholders. This is on page 9. strategic objectives, particularly as we balance the sometimes conflicting interests of our stakeholders. s172 We use this symbol in the governance section of the Annual Report to highlight examples that illustrate aspects The audit, risk and internal control section and the Audit Committee of that statement. Report explain how we have applied aspects of Code principles M, N and O in section 4 of the Code and how we have put the provisions of that The Directors’ biographies on pages 70 to 73 summarise what each section into practice, firstly through matters that come before the full Board member contributes to the governance of the Company and its Board and secondly through the detailed work of the Audit Committee. long-term success. The Chair’s introduction to governance puts DS Further information about our principal and emerging risks, as well as Smith’s approach to matters of corporate governance into our DS Smith our viability and going concern statements, are in the risk section on context and links to the topics covered in section 1 of the Code, as we pages 42 to 51. explain in this governance section how we have applied aspects of Code principles A to E and how we have put the related provisions of the Code From page 84 into practice. 5 Remuneration From page 79 Our Remuneration policy, which was approved at the 2020 AGM and is being proposed for renewal at the 2023 AGM, is designed to support 2 Division of responsibilities our long-term strategy and to promote long-term sustainable success. Your Board and its Directors, both Executive and Non-Executive, It was developed taking into account wider circumstances as your Board operate within a clear framework of roles and responsibilities. One of currently understands them and setting those in the context of the the roles of Non-Executive Directors is to broaden the diversity of longer-term future of DS Smith in this ever-changing world. Each viewpoints shared in the boardroom discussion, drawing on the full element of remuneration is looked at, both individually and range of their experience in other industries and other countries, while cumulatively, and in the context of the remuneration arrangements for considering a range of other stakeholders’ perspectives. the wider workforce. We explain how we have applied aspects of Code principles F to I and The remuneration sections of this report explain how we have applied how we have put the related provisions of section 2 of the Code into aspects of principles P, Q and R in section 5 of the Code and how we practice in the section on division of responsibilities and in the have put the provisions of that section into practice, as well as how we Nomination Committee Report, where we also have more information have complied with regulatory requirements in relation to about the independence of Directors. remuneration matters. It also includes the full text of the Remuneration policy that is being voted on by shareholders at the 2023 AGM. The From page 76 remuneration of the Executive Directors is summarised in our ‘at a glance’ section. Our Remuneration policy is aligned to our Purpose of 3 Composition, succession and evaluation ‘Redefining Packaging for a Changing World’. Your Board scrutinises the effectiveness of its performance in an annual Board evaluation and evaluates the balance of skills, experience, From page 92 knowledge and independence of the Directors. That then informs the succession planning process, which also takes into account the contribution made by having a diversity of backgrounds (whether of gender, of social or ethnic backgrounds, or of the less immediately visible cognitive differences). All new Directors receive a tailored induction programme, which builds on their personal experience and ensures that appointments can be made from a wider pool of talent than one limited to only those with previous experience of holding a directorship with a UK listed company. 78 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS # BOARD LEADERSHIP AND COMPANY PURPOSE ## Board leadership in action The Code provides that a board should establish a company's purpose and values as well as its strategy and that its directors should lead by example and promote the desired culture. The Code highlights the importance of effective engagement with shareholders and other stakeholders. The Group's key stakeholders and their differing perspectives are identified and taken into account, not only as part of the Board's annual strategy and corporate planning discussions, but also in our project assessments and in other Board conversations. Health and safety is always a priority item on the Board's agenda. Setting the example from the top down is critically important and the Board was pleased to hear that the Group-wide lost time accident frequency rate has fallen again to a new low of 1.82. Delivery of our Corporate Plan will be driven by our continuing progress in sustainability and circularity, innovation, digital and data and organic growth. The Board is regularly briefed about our progress in delivering against each of these. Each element has a key role in the realisation of our Purpose of 'Redefining Packaging for a Changing World'. The Board understands that the Group has a role as an employer and as a taxpayer, as well as a member of the wider communities in which our sites are based and as a key link in the supply chains through which so many goods pass, and that these roles are broader than the more traditional single role of a corporate entity reporting on its financial results to its shareholders. The balancing of the differing perspectives of all our key stakeholders is a recurrent theme in our Board's conversations. All discussions, assessments and conversations focus not only on delivering increased value for shareholders, but also assess the impacts of our decisions and strategies on the Group's wider stakeholders. (The concerns of, and our response to, our stakeholders are summarised on pages 14 and 15.) The Board recognises the importance of regular, open and constructive dialogue with shareholders and other stakeholders and this has long been a key aspect of our culture and of our decision-making. ## Engagement with our shareholders Dialogue with investors continues throughout the year, not only ahead of the AGM. The Group's Investor Relations team coordinates ongoing communication with shareholders and analysts, and the Board receives regular updates on the views of the Group's shareholders from our internal team and also from the Company's brokers, so all Board members have a clear understanding of the views of the shareholders. Celia Baxter, as Chair of the Remuneration Committee, leads the engagement with shareholders when we have remuneration matters to discuss. Each year some institutional investors (and other interested bodies) issue materials concerning their expectations of companies. These are summarised for, and considered by, the Board, which also informs the comments that Board members make on the working drafts of the Annual Report that they review, prior to its final approval and publication. ## Engagement with our workforce Our engagement with our workforce makes use of the well-established European Works Council (EWC) structure. EWC representatives meet regularly with our Group Chief Executive and Group HR Director to discuss a wide range of topics. While health and safety, Group performance and sustainable employment are always on the agenda for these discussions, this year topics have also included discussions about implementation of closed circuit television in some areas to support further health and safety improvements, mental health and wellbeing, and diversity and inclusion. Members of management continued to attend EWC meetings throughout the year, held virtually on a platform that enables live translation. Again this year an EWC representative joined a meeting of the Remuneration Committee to support and inform discussions about the Remuneration policy being proposed for 2023 to 2026 and health and financial wellbeing programmes and to reflect on some of the topics discussed when Celia Baxter, the Chair of our Remuneration Committee, met with the EWC Executive earlier in 2023. All these meetings build further on the dialogue started in 2020. The regular schedule of reporting to the Nomination Committee includes the review of employee talent, development and succession plans as well as insight into the progress made on diversity, equity and inclusion and updates on the growing network of employee resource groups. All these activities ensure that the voice of our workforce is heard regularly in the boardroom and provide richer context for the Board's decision-making. ## Engagement with our suppliers, customers and other stakeholders The business relationships with our suppliers, customers and other stakeholders, such as regulators and non-governmental organisations, are matters which the Group Chief Executive covers in his regular reports to the Board. In addition the Board receives regular updates from the Group procurement function which has first-line responsibility for relationships with suppliers. In the past year the Board has discussed the continuing effects of Covid-19, the war in Ukraine, and some of the impacts of high levels of inflation in some countries and of the unprecedented volatility in energy prices. The Board has appreciated the work done by the procurement function strengthening existing relationships with suppliers so that supplies have continued to flow, even in times of shortage. Annual Report 2023 dssmith.com 79 BOARD LEADERSHIP AND COMPANY PURPOSE CONTINUED The most recent update to the Board on sales, marketing and innovation highlighted the importance of product-based innovation and the role of the efficiency improvements expected from the digital and data programmes underway. The Global R&D and Innovation Centre focusing on early-stage design and prototyping work, based in Redditch, UK, alongside one of our sheet plants, will support the strong pipeline of product innovation. Complementing the regular briefings from operational and functional management about Group-specific matters (such as reports from our Corporate Affairs director on progress made during the year on our programme of wider engagement in the community and the report to each Board meeting on health and safety), the Board also has a programme of briefings both from internal specialists (on such topics as the new Packaging and Packaging Waste regulations in the EU and its implications for the Group) and from the Group's external advisers on a range of topics, including cyber security, and the wider views of the market, and of institutional shareholders in particular, on the Group. This enables current and future plans to be set in the wider context of the broader environment. This covers not just topics that are currently visible, but emerging areas of interest and concern across a diverse range of fields. Our engagement with the local communities of which our sites and employees are apart has been a developing area of focus in recent years. The Board has been briefed on recent examples such as the eco-classroom providing an outdoor classroom and creative community space in Bagyka, Hungary, and the support provided by colleagues in Asheboro and Cambridge, US, to provide meals at Thanksgiving to residents in Delaware, Maryland, Virginia and North Carolina. #### Board engagement through site visits Board site visits are an important way in which Board members can engage with our employees, assess and monitor culture, and understand more about our customers and suppliers. The Board went to Madrid for its October 2022 meetings and enjoyed seeing at first hand the successful integration of Europac and the strengths and culture of that business and its management and the qualities our employees there bring to the overall Group. At each Board meeting health and safety is reported on, including the total number of near misses and safety observations. These are seen as indicators of employee engagement in observing and reporting positive behaviour and identifying health and safety risks. The level of engagement is seen as a reflection of the culture and health and safety leadership at a site and in 2022/23 the number of safety observations per employee (the health and safety engagement index) was 20.8, a 65 per cent increase compared to the previous year, demonstrating the increasing levels of engagement with applying continuous improvement techniques in all areas, as this is the highest figure since the Group started tracking it in 2017. While virtual site visits were a helpful part of the induction programme for new Board members in 2020/21, Board members have appreciated the richer experience of in-person visits. #### Board evaluation in practice Board evaluation is an iterative process. After each evaluation (whether internal or external and including evaluations of Committees and Directors) the Board sets itself objectives. Following the formal external evaluation in 2022, the Board set itself a number of objectives, taking forward from that external evaluation a focus on a structured approach to succession planning with improved oversight of talent and development programmes. In the first part of 2023 Board members completed an internal questionnaire, which gave structured content for each Board member's individual discussions with the Chair. At that time David Robbie, as Senior Independent Director, met with all the Directors individually, to appraise the Chair's performance and subsequently discussed this with him. At the April Board meeting the Directors considered the feedback from the above process and adopted Board objectives for 2023. After the pandemic's disruption of physical site visits and the limited opportunities for virtual site visits, the Board and individual Directors were particularly keen to set an objective of arranging additional visits to sites in the coming months. Other objectives for the Board in 2023/24 include maintaining focus on talent and succession planning and considering the balance between short, medium and longer term in the corporate planning cycle. Both as part of the Board and Committee evaluation process and during the year, the Non-Executive Directors met without members of executive management being present. As with every high performing board, the Directors will continue to watch for areas of improvement, not just when Board evaluation is a formal agenda item at a Board meeting, so that the Board continues to contribute to the overall effectiveness of the Group. A recent example of this was developing an executive summary financial dashboard for inclusion in the Board papers which supports the focus on the key metrics of the drivers of business performance. #### Succession and composition More details about succession planning are set out in the Nomination Committee Report. 80 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT ## NOMINATION COMMITTEE REPORT ### Our principal objective as a Nomination ### Committee is to make sure the Board has ### individuals with the necessary range of skills and ### knowledge, and diversity of experiences to lead ### the Company and deliver the Group’s strategy. Geoff Drabble, Chair of Nomination Committee Dear shareholders Looking forward The Nomination Committee supports the Board on the crucial Our key priorities over the next 12 months remain consistent with topic of executive and non-executive succession planning. those for the previous year. As well as the regular cycle of matters that the Committee schedules for consideration each Our principal objective as a Nomination Committee is to make year, we are planning to: sure the Board has individuals with the necessary range of skills and knowledge, and diversity of experiences to lead the Company • Oversee the increase in capabilities and bench strength of our and deliver the Group’s strategy. As a Committee we continue to core employee base in order to properly support our growth in focus on senior executive succession planning, as well as Board areas such as innovation and digital enablement composition, as we progress towards a greater range of diversity • Encourage the spotlight on talent rising up through the of experiences across the Group’s senior leadership team. organisation, enabled by the focus on training and development for all Our key responsibilities • Improve the Nomination Committee‘s understanding of the As a Committee we have delegated authority from the Board to challenges and benefits of reporting on progress in relation to focus on Board and Committee composition and succession diversity, equity and inclusion. planning. In discharging those key responsibilities in relation to succession planning we also consider ways to: Geoff Drabble Chair of Nomination Committee • Improve diversity in the pipeline for senior management roles • Further strengthen the senior management team. 22 June 2023 As Chair of this Committee, I report to the Board on the outcome of our meetings. Our priorities over the year were: Membership and operation of the Committee Member Since • To keep under review succession planning at the Executive | Director level and support succession planning at senior | Geoff Drabble (Chair) 2020 | | --- | --- | | management levels | Celia Baxter 2019 | | • To improve the diversity on the Board | Alan Johnson – with effect from 1 June 2022 2022 | | • To monitor the Group’s progress towards increasing the | Alina Kessel 2020 | | relative number of women in senior management positions and | Miles Roberts 2010 | senior management diversity David Robbie 2019 • To understand in overview the Group’s talent processes Louise Smalley 2014 • To keep under review our leadership needs, both executive Rupert Soames retired from the Board and its Committees on 6 September and non-executive, with a view to ensuring the continued 2022. Eric Olsen joined the Board and its Committees on 15 May 2023. ability of DS Smith to compete effectively in the marketplace. Annual Report 2023 dssmith.com 81 NOMINATION COMMITTEE REPORT CONTINUED During the year, the Committee held six formal meetings and Directors and the Committee made a recommendation to the there were updates between formal meetings and a number of Board. When making decisions on new appointments, Board ad hoc briefings. Details of individual Directors’ attendance can be members consider the skills, experience and knowledge already found on page 76. The Group General Counsel and Company represented on the Board and the alignment in terms of the Secretary acts as Secretary to the Committee. culture and values of DS Smith. The Committee also kept in mind the benefits of diversity, in all its forms, including of gender, Board changes and composition ethnicity and life experience. A similar process was followed for Alan Johnson joined the Board on 1 June 2022 and Rupert Soames the recruitment of Eric Olsen as a Non-Executive Director to the retired from the Board at the conclusion of the Annual General Board, supported by Korn Ferry, who were selected as the Meeting on 6 September 2022, but all the other Directors held preferred partner given their track record in non-executive office throughout the year under review. Their biographies, appointments. including their key strengths, skills, experience and contribution Apart from assisting with recruitment, Odgers Berndtson has no to the Board, are set out on pages 70 to 73. other connection to the Company. Korn Ferry has also provided Adrian Marsh will retire from the Board on 30 June 2023 and advice to the Remuneration Committee in relation to various Richard Pike (whose appointment was announced on aspects of remuneration and talent assessment services to the 18 November 2022) will replace him from that date as the Group. Neither Odgers Berndtson nor Korn Ferry have any Company’s Group Finance Director and an Executive Director. Eric connection with any individual Directors, other than Korn Ferry is Olsen joined the Board with effect from 15 May 2023 and Eric’s advising the International Federation of Accountants on the and Richard’s respective elections as a Director of the Company search for its next chief executive officer and Alan Johnson is the will be put to the Annual General Meeting on 5 September 2023 chair of the search committee. for approval. Induction, training and development programmes Succession planning and recruitment Upon appointment to the Board, Directors undertake an induction The Committee keeps under regular review succession planning programme, receiving a broad range of information about the at the Executive Director level and supports succession planning Group tailored to their previous experience. This includes at senior management levels, valuing the balance of continuity information on the operational and sustainability performance and refreshment over the medium term. The Committee’s annual and business of the Group and details of Group strategy, rolling schedule of periodic agenda items includes a deep dive corporate governance and Board procedures. In reviewing his into senior talent management, talent and skillset mapping and induction programme experience, as part of the latest Board succession planning, informed by a presentation given by the evaluation, Alan Johnson was very impressed with the well- Group HR Director. structured onboarding programme, and thanked the senior management team for the time they spent with him. The For each Board appointment made we follow a similar process as engagements gave him a very thorough introduction to the the Board seeks to appoint an outstanding candidate, with a Group. different range of experience, to maximise Board effectiveness. Assisted by the Group Company Secretary, the Chair has When we think about diversity we recognise that diversity can responsibility for Directors’ induction programmes, and also for take many forms, including diversity of gender and of socio- the Board’s training and professional development. Directors economic and ethnic backgrounds, and diversity of cognitive and have been given training and presentations during the course of personal strengths, as well as the diversity of life experience and the year to keep their knowledge current and enhance their the role of intersectionality, where different characteristics experience. This has included topics such as updates on overlap. We also recognise that diversity at Board level and remuneration matters, implementation of our sustainability throughout the Company is a valuable strength, bringing with it a regime, Task Force on Climate-related Financial Disclosures range of perspectives. (TCFD) and associated reporting and cyber security. The mix of skills needed by Board members will change as the Directors will continue to receive regular training updates from landscape in which the Group operates changes. Therefore, as we appropriate internal and external specialists on governance consider each new Board appointment, the role specification is issues, financial and reporting standards, digital development, not a direct replication of the role of a retiring Board member. cyber security and sustainability. In addition, Directors are fully The process for the appointment of Richard Pike as the new aware of their own responsibility for identifying and satisfying Group Finance Director began with a process to appoint an their own specific training requirements. appropriate firm of consultants to support our search. Odgers Berndtson were selected as the preferred partner given their Time commitments track record in executive finance appointments. Under the Code the reasons for the Board permitting its members A role specification was agreed and provided to Odgers to enter into significant new external appointments should be Berndtson who then put forward a shortlist of candidates for explained in the Annual Report. review by the Committee. The shortlisted candidates were Miles Roberts joined the board of Land Securities Group PLC in interviewed by a number of the Executive and Non-Executive September 2022, having until August 2021 been on the board of 82 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS Aggreko plc, so the Board was confident that this appointment would not adversely impact the time Miles commits to his DS Smith role. Similarly, (having retired from the board of Senior plc in April 2023) Celia Baxter joined the board of discoverIE Group plc in June 2023 and Dowlais Group plc (where she is senior independent director and remuneration committee chair) became a listed company in April 2023. Also with the Board's approval, noting that this expansion of his portfolio of roles was done in the light of his forthcoming retirement, Adrian Marsh joined the board of Co-operative Group Limited with effect from 1 May 2023. Louise Smalley's appointment to the board of A.G. BARR p.l.c. with effect from 1 June 2023 was also approved by the Board, noting that she was building up her portfolio of roles, following her retirement from full-time executive employment in 2021. As part of the process of appointing Eric Olsen to the Board, the Board noted the value that the variety of his current roles will bring to the Group. The experience gained in external roles held by our Board members broadens and deepens the knowledge and experience of the Directors, which in turn benefits the Company. Directors do not take part in any discussion concerning their own external appointments. ### Diversity The Board diversity and inclusion policy applies to the Board and its principal Committees. The policy acknowledges the importance of diversity and includes an explicit requirement to take into account diversity when considering appointments to the Board. DS Smith acknowledges the importance of diversity of thought, skills and experience in the effective functioning of the Board and the wider organisation. This diversity may arise from any number of sources, including differences in age, gender, ethnicity, disability, sexual orientation, cultural and economic background and religious belief. Our Directors have experience of a wide range of industries and backgrounds, as well as of complex organisations with a global reach. Looking at diversity beyond the Board and across the Group, the Board recognises that some challenges in achieving diversity arise from social contexts with impacts not limited to DS Smith as a Group, but the Board remains committed to ensuring that all have an equal chance of developing their careers within our business. Currently the Group's leadership populations are internationally diverse but the Group is aware that more needs to be done to improve the gender and ethnic mix and address the ageing demographic in the leadership population. (See page 22 for more about our programmes to develop diverse leadership talent, from whom might be drawn a future generation of executive and non-executive directors, and to improve the gender balance of those in senior management and their direct reports.) Tables with numerical data reporting on gender and ethnic background diversity in the format required by recent regulatory changes are set out on page 23. As at 30 April 2023 (the final day of the financial year, which is our chosen reference date) our Board was made up of three women and five men. With 37.5 per cent of the Board being women, we are below the 40 per cent threshold specified by the Financial Conduct Authority. In addition we do not have a woman in at least one of the specified senior board positions (chair, chief executive, senior independent director or chief financial officer). The Board is mindful of these requirements being introduced following recent regulatory changes and of changing expectations of stakeholders. The Board is actively looking to increase the proportion of women on the Board. Our most recently published UK gender pay gap report is available on our website. We know that we have a relative lack of women in executive management positions and that the number of women in senior leadership roles fluctuates, but the trend in recent years has been towards a better gender balance. With the appointment of Alan Johnson on 1 June 2022 the Board now meets the Parker Review recommendation that each FTSE 100 board should have at least one director from a non-white ethnic minority background. ### Independence and re-election of Directors The Nomination Committee makes an assessment each year of the criteria set out in the Code concerning independence and the Committee also reviews the time commitment of Non-Executive Directors to assess whether each has sufficient time to discharge their duties. Louise Smalley was first appointed to the Board nine years ago in June 2014, but the Board is of the view that Louise remains independent as she continues to exercise independent judgement and that she provides continuity and experience of the Board's previous discussions, since the other Non-Executive Directors were appointed much more recently, in 2019 and later. The Committee therefore confirms that all the Non-Executive Directors are independent and each has sufficient time to discharge their duties. The Committee also considered Geoff Drabble to be independent on his appointment to the Board. The Nomination Committee this year considered the then current term of appointment to the Board of Geoff Drabble, Alina Kessel and Louise Smalley. Board members reviewed the commitment and contribution to the Board and its Committees of Geoff, Alina and Louise, as well as the balance of their skills, knowledge and experience with those of the other Directors and it was agreed that Geoff's term and Alina's term should be renewed for a further three years and Louise's should be renewed for a further period, recognising her already nine years in the role. (Directors do not participate in any debate or decision about their own re-appointment.) The expiry date of the current term of each of the Non-Executive Directors is set out on page 113. All current Directors (except for Adrian Marsh) are standing for re-election or, in the case of Eric Olsen, election and Richard Pike will be standing for election, at the 2023 AOM. ### Board and Committee evaluation Information about this year's internal evaluation of the Board and its Committees can be found on page 80. Annual Report 2023 dssmith.com 83 ## AUDIT, RISK AND ## INTERNALCONTROL Risk management and internal control information is to be collected and collated and how that information is shared across the Group’s senior management and The Board has overall responsibility for establishing and those who are involved in implementing the Group’s risk maintaining the Group’s systems of risk management and internal management strategy and risk reporting. control (including financial, operational and compliance controls) and retains ultimate accountability for the effectiveness of the The Board discusses regularly the Group’s cyber security systems and processes implemented. The Board confirms it has programme, as well as benefiting from presentations from conducted an annual review of the overall effectiveness of the external cyber advisers. Cyber security is also discussed by senior Group’s system of internal controls and risk management executive management at the Group Operating Committee procedures implemented during the year and up to the date of meetings, along with other aspects of IT infrastructure and approval of this Annual Report, as well as a robust assessment of security controls. the Group’s emerging and principal risks, summarised on pages 42 The Audit Committee has kept up to date with risk developments to 49. This review consisted of annual presentations from, and throughout the year with in-depth discussion of the Group’s challenges to, senior management, together with regular principal risks and mitigation efforts and has noted the way in updates from the risk, governance and Internal Audit functions which our divisions and Group functions have continued to throughout the year. demonstrate resilience and revise risk mitigation remedies in The systems and processes implemented are designed to their plans where appropriate. identify, manage and, where appropriate, avoid or eliminate The Group Compliance Committee has continued to meet significant risks that might affect delivery of the Group’s business regularly and to expand its oversight of the business. Recent objectives; and to provide reasonable, but not absolute, topics have included product safety compliance, compliance assurance against material misstatement or loss. There is an training, UK defined benefit pensions legislation, update on TCFD established and ongoing process for identifying, evaluating and requirements, embedding compliance through a communications managing the significant risks and uncertainties faced by the campaign and the introduction of a risk-profiling tool to improve Group. This includes a process of self-certification by senior the due diligence on modern slavery in the supply chain. divisional management, confirming that their divisions have complied with Group policies and procedures and reporting any Further details on the Group’s risk management and mitigation significant control weaknesses identified during the past year. In approach for each principal risk, including its emerging risks addition, it includes reviewing the results of the work of the reporting, are set out in the risk management section on pages Group’s Internal Audit function and Group Governance team and 42 to 49 and the Group’s viability statement on page 50. Our Task the adherence to the risk identification and management Force on Climate-related Financial Disclosures are set out on processes identified above. These procedures have continued to pages 52 to 63. Emerging risks are reported on as part of the risk be in place throughout the year and up to the date of approval of management reviews. Integrating them into the reporting this Annual Report. processes supports the Board in maintaining a clear overview, taking account of the increasing ESG disclosure requirements and The Board also has procedures in place to ensure that its powers the effect of macroeconomic uncertainty. to authorise and manage conflicts are operated effectively. These procedures were followed throughout the year and up to Internal control the date of approval of this Annual Report. The Board determines the objectives and broad policies of the Group and has a set schedule of matters which are required to be Risk management brought to it for decision. Overall management of the Group’s risk Our risk management framework and processes remained robust appetite, its tolerance of risk and discussion of key aspects of during the year, supporting management in identifying changes execution of the Group’s strategy remain the responsibility of the in the profile of our principal risks despite the unprecedented Board. The Board has delegated to the Audit Committee the volatility of the external economic environment. Management responsibility for establishing a system of internal controls and employees have continued to manage the day to day risks appropriate to the business environments in which the Group that the Group faces and have been able to adapt and to plan operates. Key elements of this system include: responses to these changing situations. Our risk reviews, embedded within our strategic planning processes, support • A clearly defined divisional organisation structure for effective management of the Group’s principal risks and monitoring the conduct and operations of individual business uncertainties and inform the regular updates on specific risk units areas that are brought for discussion and review at the Audit • Clear delegation of authority throughout the Group, starting Committee. Given the ever-increasing regulatory and governance with the matters reserved for the Board requirements on risk reporting, including those required as part • A formal process for ensuring that key risks affecting of the Task Force on Climate-related Financial Disclosures (TCFD), operations across the Group are identified and assessed on a the Board reviewed and updated the Group’s risk policy to ensure regular basis, together with the controls in place to mitigate that increased reporting obligations continue to be managed those risks. Risk consideration is embedded in decision-making efficiently. The policy was amended to provide greater clarity of processes at all levels with input from risk specialists where purpose in the Group’s risk management objectives, how risk appropriate, and the most significant risks are periodically 84 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT reviewed by the Board. The risk process is reviewed by the Audit provides reports detailing findings and recommendations Audit Committee of potential control process improvements and conducts • Control policies and procedures in functions including finance, supplementary reviews, where merited, to ensure that tax, IT, HR, procurement and legal, are reviewed and updated management implements the recommendations agreed. as appropriate and supplemented by mandatory training During the year, Internal Audit’s activities were supported and complemented by management’s Group Governance team. • Assurance processes over the internal financial control environment such as annual controls self-assessment and The Internal Audit plan is designed each year to align to key risks ongoing divisional control review programmes faced by the Group, as well as to provide rotational assurance. • The preparation and review of comprehensive annual The annual Internal Audit plan, and any revisions required to divisional and Group budgets; and an annual review and respond to emerging risks or areas of concern, are approved by approval by the Board of the three-year Corporate Plan the Audit Committee. The Internal Audit plan considers the scope • The monthly reporting of actual results using the Group and effectiveness of the management assurance programme consolidation system and their review against budget, undertaken by the Group Governance team in determining forecasts and the previous year, with explanations obtained rotational coverage of financial controls audit activities, as well as for all significant variances providing assurance over the management assurance programme itself. • The Operating Framework which outlines key control procedures and policies to apply throughout the Group. This Findings from the Internal Audit and Group Governance teams are includes clearly defined policies and escalating authorisation reported to Group and divisional business management as well as levels for capital expenditure and investment, with larger to the Audit Committee to give a holistic assurance picture. capital projects, acquisitions and disposals requiring Board The Audit Committee periodically considers stakeholder feedback approval. This framework is kept under periodic review on the quality of the work of Internal Audit. External Quality • Regular formal meetings between the Group Chief Executive, Assessment is required by the Institute of Internal Auditors the Group Finance Director and divisional management to Standards every five years so this will next be due in 2025. discuss strategic, operational and financial issues • Communicating key corporate values through our Code of Conduct and associated policies to all employees to ensure relevant staff are properly trained and equipped to exercise management oversight and control. The Group Governance team is a centrally-led function that maintains and develops the internal control framework, provides support and training to the business in complying with that framework and provides assurance to management about compliance with the framework through a site and risk-based work programme. As the second line of defence, an important part of this function’s role is to support the business in development of remediation plans and corrective actions for control weaknesses identified through the governance and compliance work programme, or through Group Internal Audit’s activities. The function continues to lead the cross-functional preparation for the anticipated UK Government-led reform of financial and non-financial internal controls and corporate governance. Internal Audit The Internal Audit function is an in-house function that operates under a charter approved by the Audit Committee that sets out the purpose, scope and authority of the function to deliver the Internal Audit plan. It is the third line of defence. The Internal Audit function’s remit is to provide independent assurance to measure the success of the organisation at managing risk and to drive continuous improvement. This takes the form of reviews of the operations of Group sites, service centres, functions, projects, processes and compliance risk areas, in accordance with a previously agreed plan, including an assessment of implemented systems of internal control. Internal Annual Report 2023 dssmith.com 85 ## AUDIT COMMITTEE REPORT ### The Committee plays a key role in assisting the ### Board to fulfil its oversight obligations and ### continues to respond to its remit concerning the ### Group’s reporting processes, risk management ### and the control environment, while preparing for ### developments in new regulations. David Robbie, Chair of Audit Committee Dear shareholders The Committee continues to monitor the presentation of financial results, particularly taxation and the measures of I am pleased to present the Audit Committee Report, which underlying performance, cash flows and financial position provides an overview of the Audit Committee’s role supporting together with impairment assessments, going concern and the Board in its oversight of the integrity of the reporting process viability. This year the Committee has included ESG information and control framework across the Group. Details of the Board’s presented under the Streamlined Energy and Carbon Reporting procedures and processes in relation to oversight of risk (SECR) and the Task Force on Climate-related Financial Disclosure management and internal control are set out on pages 84 and 85. (TCFD) requirements as part of its review work. In addition, the Our principal objectives as an Audit Committee are: Committee has reviewed the Group risks and systems of risk • To monitor the integrity of the Group’s reporting process and management and internal control, noting the likely developments adherence to the Group’s accounting policies and procedures in response to the UK Government-led reforms to financial and non-financial controls and corporate governance. • To ensure that risks are carefully identified and assessed; and that sound systems of risk management and internal control Looking forward are implemented. As well as the regular cycle of matters that the Committee Our role as a Committee is pivotal in ensuring the robustness of schedules for consideration each year, we are planning over the the Group’s risk management activities and internal control next 12 months to: environment, ensuring the integrity of the financial reporting • Expand scrutiny, both by the Committee and Internal Audit, process. The Group’s procedures and systems to identify, over sustainability, climate and broader ESG reporting mitigate and manage risks continue to develop to allow the • Continue to monitor emerging risks for the Group internal control and financial reporting processes to also benefit • Continue to monitor legislative and regulatory changes that from continuous incremental improvement. may impact the work of the Committee, particularly the During the year under review, Ernst & Young LLP (EY) were development of the requirements from the UK Government’s appointed as the Group’s external Auditor, following the restoring trust in audit and corporate governance initiative. conclusion of Deloitte’s tenure. The Group has successfully As Chair of the Audit Committee I make myself available at the worked with EY on the necessary audit transition activities, and Company’s annual general meeting to answer any shareholder EY now having completed both their first half year review and full questions on the Committee’s remit. year Group and Company audits. David Robbie Chair of Audit Committee 22 June 2023 86 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT ### AUDIT COMMITTEE MEETINGS’ KEY TOPICS ## 2022 2023 | | • Review of the 2021/22 Annual Report and | | | • Update on full year forecast results and trading | | --- | --- | --- | --- | --- | | | | announcement, including a review to ensure the | | outlook and emerging year-end accounting issues | | JUN | | report was fair, balanced and understandable | APR | and matters of judgement | | 2022 | • Going concern and viability statement | | 2023 | • Interim going concern assessment and | | | • Impairment assessment review | | | consideration of significant accounting policies | and judgements • Effectiveness of internal control framework | | update | • Annual impairment review | | --- | --- | --- | | • Review of adjusting items | | • Effectiveness of internal controls review | | • Review of risk appetite and tolerance statement, | | • Ethics and compliance report review | | | risk heat maps and assurance matrix | • Update on external Auditor plan and fees | | • Internal Audit report | | • Risk update and review of emerging risks | | • External Auditor report | | • Review and approval of Internal Audit plan for | | • Review of external Auditor effectiveness paper | | 2023/24 including confirmation of non-financial | | | and recommendation to the Board to appoint Ernst | areas to be targeted | | | & Young LLP for 2022/23 | • Review of fraud processes | • Review of current developments in ESG reporting | | • 2022/23 external Auditor plan for the half year | | | • Review of the 2022/23 Annual Report and | | --- | --- | --- | --- | --- | | | • Review of letter to management from external | | | announcement, including a review to ensure the | | OCT | | Auditor on 2021/22 audit | JUN | report was fair, balanced and understandable | | 2022 | • Impairment assessment review | | 2023 | • Going concern and viability statement | | | • Review of adjusting items | | | • Review of the key non-financial metrics in the | SECR and TCFD tables • Internal Audit report • Impairment assessment review • Ethics and compliance report review • Effectiveness of internal control framework • Risk update update • Review of adjusting items • Internal Audit report and review of internal assessment of the effectiveness of the Internal Audit function • External Auditor report • Review of external Auditor effectiveness • Recommendation of appointment of the external Auditor • Update on half year forecast results • Going concern DEC • Review of announcement of half year results 2022 Other matters particularly focused on by the Audit • External Auditor half year report, including confirmation of independence and objectivity Committee in its discussions with management include: • Oversight of external audit tender and transition processes • Internal Audit report • Risk management, internal control and compliance enhancements • Non-audit fees review • Quality of earnings • Risk update • Financial commitments and liabilities • Pensions • Taxation matters, including review of strategy and risks • Internal Audit and in-house governance, compliance and corporate governance activities updates • Climate and sustainability risks and the evolution of disclosure requirements Annual Report 2023 dssmith.com 87 AUDIT COMMITTEE REPORT CONTINUED Membership and operation of the Committee satisfied that the Group’s executive compensation arrangements Member Since do not prejudice robust controls and good stewardship. David Robbie (Chair) 2019 A key element of the Committee’s oversight role is to challenge Celia Baxter 2019 management and test the validity of any critical assumptions and Alan Johnson – since 1 June 2022 2022 matters of significant judgement. Areas debated include an assessment of the Group’s mitigation of the risk of fraud and the Alina Kessel 2020 impairment assessment assumptions. The Committee has taken Louise Smalley 2014 a close interest in developments in sustainability reporting. In Eric Olsen joined the Board and its Committees on 15 May 2023. conjunction with the Board, the Committee continues to Rupert Soames retired from the Board and its Committees on 6 September 2022. challenge management on its approach to matters relating to cyber security. The Audit Committee met on four occasions during the year, with meetings scheduled to align with the Group’s external financial The Committee approved the Group’s annual Internal Audit plan, reporting obligations. Details of the attendance of individual which was primarily risk-based, focusing on those areas which Directors can be found on page 76. As and when required, the are the most significant risks facing the business, as well as Audit Committee members were joined by the Group Chief providing rotational coverage of processes, systems, core Executive, the Group Finance Director, the Group Financial compliance risks and strategic projects, and overseeing internal Controller, the Group Risk Officer and representatives from the management compliance activities. During the year, the Internal Audit and Governance teams and the external Auditor for Committee received regular reports summarising findings from parts of these meetings, by invitation. The external Auditor was the Internal Audit reviews performed, action plans to address any not present at meetings where their performance was discussed. areas highlighted for improvement and additional activity review The Audit Committee also met privately with the external Auditor summaries from internal compliance teams. As two years had as appropriate. elapsed since bringing the Internal Audit function in-house, an independent internal assessment of the effectiveness and The Group General Counsel and Company Secretary acts as performance of the Internal Audit function was carried out during Secretary to the Committee. the year with the findings reported to and evaluated by the The Board is satisfied that the Chair of the Committee and other Committee. This annual review, complemented by the insights members of the Audit Committee have both recent and relevant into performance provided by the quality of the regular reports, financial experience (as set out on pages 70 to 73) and that the enabled the Committee to remain satisfied that the performance Audit Committee, as a whole, has competence relevant to the of the function was effective and that its quality, experience and sector (namely manufacturing) in which the Company operates. expertise are appropriate for the business. In addition to the scheduled Committee meetings, the Chair Fraud risk oftheAudit Committee held separate individual meetings during The Group has a framework to both protect itself against the risk the year with the Group Finance Director and his team, the and the consequences of fraud and to detect and investigate GroupRisk Officer, representatives from Internal Audit and the instances of actual and alleged fraud. Fraud encompasses external Auditor. misappropriation of assets, financial misstatement, and bribery The Audit Committee received sufficient, reliable and timely and corruption. The tone from the top is clear – the Group has a information from management to enable it to fulfil its zero tolerance to fraud, as set out in the fraud policy guidance. responsibilities. Interms of protection against fraud, there is an operational framework setting out policies on such areas as code of conduct, Risk management, internal control and anti-bribery and corruption, conflicts of interest and gifts and InternalAudit hospitality, complemented by mandatory training. The Group In fulfilling the Committee’s oversight of the risk management internal financial control framework provides the day to day first and control environment, a number of key activities are line of defence against misappropriation and misstatement, and undertaken during the year, including regular meetings with adherence to this control framework is monitored through site senior management. visits by Internal Audit and Group Governance and detailed The Audit Committee considered the Group’s risk management bi-annual certification processes. The confidential ‘Speak Up!’ activities during the year (with specific discussions of topics such reporting programme, together with a comprehensive, specific as an update on the Group’s Risk policy, an in-depth discussion on fraud response policy and associated guidance, underpin the sustainability commitment risks, security of paper supply and approach to detection and investigation of alleged and actual risks associated with future resourcing capability needs, fraud. All instances of alleged fraud are investigated fully and particularly in the strategic growth drivers of innovation, lessons learnt incorporated, as appropriate, into the frameworks sustainability and digital and data). The Audit Committee and training. The Internal Audit function takes the lead on these continued its regular review of risk reporting to ensure that the investigations and the Audit Committee is informed fully on these balance between risk and opportunity was in keeping with the activities. The Committee is satisfied that the Group’s overall Group’s risk appetite and tolerance. The Audit Committee is framework to mitigate the risk of fraud is appropriate and proportionate. 88 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT Confidential reporting Twice a year the Committee receives separate reports on matters raised through ‘Speak Up!’, the Group’s confidential reporting channel, and any related investigations. The ‘Speak Up!’ programme is available through a multi-language phone line and web portal and third parties, such as suppliers and contractors, can also report through that phone line and web portal. The Code specifies that reports arising from such confidential reporting channels should either be reviewed by the Board or an explanation given. All Board members attend that part of the Audit Committee meeting when ‘Speak Up!’ and any related investigations are reported on. This means that representatives from both Internal Audit and the external Auditor (who attend the Audit Committee meetings but not Board meetings) can contribute their perspectives, which is a valuable part of the review process. Internal Audit are also able to provide specialist support where such assurance is considered necessary. Financial reporting The Code requires the Board to confirm that the Annual Report presents a fair, balanced and understandable assessment of the Group’s performance, business model and strategy. This is an important area of focus for the Committee. At the request of the Board, the Committee undertook procedures so as to be able to advise the Board on this. Committee members gave input at various stages during the planning and drafting process, as well as taking the opportunity to review the Annual Report as a whole and discuss, prior to the June Audit Committee meeting, any areas requiring additional clarity or better balance in the messaging. Significant matters considered in relation to the financial statements Issue Review and conclusion Carrying value of The Group has significant balances of goodwill and customer related intangibles arising from the goodwill acquisition programme of the last 10 years. Goodwill is subject to an annual impairment exercise undertaken by comparing the value in use of the Group’s four cash-generating units (CGUs) – Northern Europe, Southern Europe, Eastern Europe and North America. This exercise uses the Group’s annual Board approved budget financial information and assumptions as the basis for the CGUs’ cash flows, together with long term growth assumptions and market based discount rates. The Committee has reviewed the results of this exercise and the disclosures in the Financial Statements. The Committee is mindful that these assumptions are subject to change and has considered appropriate scenarios reflecting these sensitivities. The Committee noted that the assumptions for North America, as a region in which the Group has a limited track record, required more judgement. The Committee is satisfied that the impairment exercise was rigorous and the judgements made by management were reasonable, that there is significant headroom of value in use over the carrying values of each of the CGUs, that no impairments were necessary and that the disclosures in the Financial Statements are appropriate. Taxation Taxation remains a key area of focus for the Committee, particularly given the continued and increasing level of fiscal authority activity, ongoing tax enquiries and the second pillar of the OECD Base Erosion and Profit Shifting framework. The Group is exposed to differing tax regimes and risks which affect both the carrying values of tax balances (including deferred tax) and the resultant income statement charges. The Audit Committee reviewed the tax charge for the half year and the full year, including the underlying tax charge, the appropriateness of and movement in tax provisions recognised and the risks associated with them. The Committee is satisfied that the amounts recognised and the disclosure provided are appropriate. ESG reporting The ESG reporting landscape has over the past 12 months been an area of significant regulatory development and this is set to continue. The Group maintains its monitoring and assessment of the implications of developments such as CSRD (Corporate Sustainability Reporting Directive) and ISSB (International Sustainability Standards Board), in addition to EU Taxonomy requirements and the recommendations set out under the UK TPT (Transition Plan Task Force). Over the past year, the Group has continued to develop its ESG disclosures, including reporting under the requirements of the TCFD (Task Force on Climate-related Financial Disclosures) on pages 52 to 63, EU Taxonomy (pages 64 and 65), the Non-Financial and Sustainability Information Statement (pages 66 to 68) and Streamlined Energy and Carbon Reporting (SECR) in alignment with the greenhouse gas protocol on page 63. The ESG reporting function is integrated within the Group reporting and governance functions within the Group finance team and delivers work relating to assurance, reporting systems, forecasting and planning and disclosure, in addition to partnering with the business to strengthen the production and use of ESG data. The Audit Committee has received a comprehensive briefing during the year covering the evolving ESG landscape together with regular updates. The Committee has specifically reviewed the SECR and TCFD disclosures and is satisfied that they are appropriate. Deloitte LLP is the independent assurance provider providing assurance for selected metrics (indicated with an asterisk in the relevant disclosures in the 2023 Annual Report) during the financial year 2022/23. Annual Report 2023 dssmith.com 89 AUDIT COMMITTEE REPORT CONTINUED Other activities of the Committee Independence and objectivity Preparation for corporate governance reform In order to ensure the independence and objectivity of the external Auditor, the Audit Committee maintains and regularly The Committee continues to stay abreast of ongoing guidance reviews the Auditor Independence policy which covers non-audit and consultations arising from the UK Government’s proposals for services which may be provided by the external Auditor, and restoring trust in audit and corporate governance. The permitted fees. Committee has reviewed updates on management’s ongoing preparation activities to respond to the likely final requirements. The Group has a policy on the supply of non-audit services by the external Auditor, which was most recently updated in April 2023. Financial Reporting Council (FRC) correspondence The policy prohibits certain categories of work in accordance with During the year, the FRC reviewed the Group’s Annual Report and guidance such as the FRC Ethical Standard. Itspecifies that the Financial Statements for the year ended 30 April 2022. No Group should not employ the external Auditor to provide questions or queries arose from this review and matters noted of non-audit services where either the nature of the work or the disclosure improvement and compliance with legal, accounting extent of such services might impair their independence or and reporting requirements have been reflected as appropriate in objectivity. The external Auditor is permitted to undertake some this year’s Annual Report. non-audit services under the Group’s policy, providing it has the skill, competence, integrity and appropriate independence Committee’s continued development safeguards in place to carry out the work in the best interests of In order to help the Committee continue to meet its the Group, for example, permissible reporting accountant work responsibilities, Committee meetings include regular corporate associated with significant acquisitions. All proposed permitted governance updates and briefings from external advisers or from non-audit services above a de-minimis financial threshold are members of senior management. subject to the prior approval of the AuditCommittee. The Committee’s effectiveness was reviewed as part of the wider Non-audit services and fees are reported to the Audit Committee Board’s evaluation and review of effectiveness, as described on twice each year. During 2022/23, total non-audit fees paid to the page 80. external Auditor of £0.3 million were 5 per cent of the annual Group audit fee (2021/22: £0.5 million: 10 per cent): see note 3 to External Auditor the consolidated financial statements. In addition, £9.4 million Effectiveness was paid to other accounting firms for non-audit work, including In addition to the external Auditor confirming their independence £0.1 million for specific work projects allocated by the Internal and objectivity, the Audit Committee also evaluates and monitors Audit team. their effectiveness through a review of the qualifications, The EU Audit Regulation (Retained Legislation) and the FRC’s expertise and resources of the engagement team. revised Ethical Standard mean that there is also a cap of 70 per This is conducted through direct assessment and recurring cent on the ratio of non-audit fees to audit fees that can be paid activities. As part of the current assessment of effectiveness, the to the external Auditor, which places a further constraint on the Audit Committee has taken into consideration the guidance non-audit services permitted. issued by the FRC including, insofar as practical the new guidance Annually, the Audit Committee receives written confirmation on oversight of the external audit set out in the recently from the external Auditor of the following: published document “Audit Committees and the External Auditor: Minimum Standard”. Based on evidence from management, the • Whether they have identified any relationships that might external Auditor and, as appropriate, external sources together have a bearing on their independence with its own experience, the Audit Committee assessed the • Whether they consider themselves independent within the mindset and culture, skills, character and knowledge, quality meaning of the UK regulatory and professional requirements control and judgement of the external Auditor. The assessment • The continued suitability of their quality control processes and considered the degree of challenge to management, the issues ethical standards. identified and the quality of explanations. The Audit Committee The external Auditor also confirms that no non-audit services recognises that the quality of an audit is paramount. The prohibited by the FRC’s Revised Ethical Standard were provided Committee is satisfied with the effectiveness of the external to the Group or parent Company. Auditor and that the current year audit was one of high quality. On the basis of the Committee’s own review, approval Separate from the meetings of the Audit Committee, the Chair of requirements in the non-audit services policy, and the external the Committee meets regularly with the external Auditor’s lead Auditor’s confirmations, the Audit Committee is satisfied with the engagement partner. The Committee also has meetings with external Auditor’s independence and objectivity. members of the external Auditor team, with no members of executive management present. 90 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT External Auditor fee and appointment Our key responsibilities External audit fee negotiations are approved by the Audit Committee each year. There are no contractual restrictions on the As a Committee we have delegated authority from the Board Group in regard to the current external Auditor’s appointment. to focus on the following key responsibilities: Ernst and Young LLP were appointed as external Auditor to the • Ensuring the integrity of financial reporting and associated Group in 2022, with Kevin Harkin being appointed the lead audit external announcements partner for the 2022/23 year end. • Reviewing and challenging the application of the accounting policies and principles reflected in the Group’s Pursuant to the terms of the Statutory Audit Services for Large financial statements Companies Market Investigation (Mandatory Use of Competitive • Reviewing disclosures made under the provisions of the Tender Process and Audit Committee Responsibilities) Order Streamlined Energy and Carbon Reporting legislation and 2014 (Competition & Markets Authority Order), which is now in Task Force on Climate-related Financial Disclosures force, the Audit Committee is solely responsible for negotiating provisions and agreeing the external Auditor’s fee, the scope of the statutory audit and initiating and supervising any competitive • Assessing the basis on which the viability statement and tender process for the external audit. When a tender is going concern statement are being made and challenging undertaken, the Committee is responsible for making the assumptions underlying them recommendations to the Board as to the external Auditor’s • Managing the appointment, independence, effectiveness appointment. The Committee’s policy is that the role of external and remuneration of the Group’s external Auditor, Auditor will be put out to tender at least every ten years in line including the policy on the supply of non-audit services with the applicable rules. • Initiating and conducting the audit tender process for the external audit The Audit Committee confirms that the Company has complied with the provisions of the Competition & Markets Authority Order • Monitoring the adequacy and effectiveness of the internal with regards to external audit tendering and audit responsibilities control environment throughout its financial year ended 30 April 2023. • Challenging the plans and effectiveness of the Internal Audit function, which is independent from the Group’s external Auditor • Overseeing the Group’s risk management processes and performance • Reviewing the effectiveness of established fraud prevention arrangements and reports made through the confidential ‘Speak Up!’ policy process • Assessing the Group’s compliance with the 2018 UK Corporate Governance Code • Providing advice to the Board on whether the Annual Report and financial statements, when taken as a whole, are fair, balanced and understandable and provide all the necessary information for shareholders to assess the Group’s position, performance, business model and strategy • Recommending to the Board the appointment of the external Auditor. Annual Report 2023 dssmith.com 91 # REMUNERATION COMMITTEE REPORT ![img-3.jpeg](img-3.jpeg) Our Remuneration policy and practices remain aligned to our strategy and incentivise performance. Celia Baxter, Chair of Remuneration Committee # Dear shareholders # Introduction On behalf of the Board, I am pleased to present the Directors' Remuneration Report for the year ended 30 April 2023, which sets out how we have implemented the Remuneration policy that was approved by shareholders at the annual general meeting (AGM) in September 2020. Three years on from that vote, our Remuneration policy is due for renewal this year and will be put to shareholders for approval at our AGM in September. The Remuneration policy proposed for 2023 to 2026 is set out in full on pages 98 to 104, together with background to the minor changes proposed to the existing policy. My letter on pages 92 to 94, the summary on pages 95 to 97 and the Annual Report on Remuneration on pages 105 to 118 will be presented for approval by an advisory vote at our AGM in September 2023. Our role as a Remuneration Committee is to develop a reward package for executives and senior management that supports our vision and strategy as a Group and ensures those rewards are performance-based and encourage long-term shareholder value creation. Our Purpose as a Group is 'Redefining Packaging for a Changing World'. More about the delivery of our Purpose through our strategic goals and our Now & Next Sustainability Strategy is set out on page 3 and pages 24 to 29 of this year's Annual Report. # Our achievements and variable pay outcome Our Purpose also informs the Group's approach to strategy, which has led, not only to the financial and non-financial results highlighted on the inside front cover, but also to our high scores among the environmental, social and governance (ESG) ratings published by MSCI (AA) and EcoVadis (Platinum) as well as those issued by Sustainalytics, S&P Global Corporate Sustainability Assessment (CSA - formerly known as D(SI) and CDP. You can read about the achievements of our business during 2022/23 in more detail in the Strategic Report starting on page 1. Highlights for the 2022/23 financial year include: - Adjusted operating profit increased by 35%, on a constant currency basis to £861 million - 6 per cent reduction in accident frequency rate - 762 million units of plastic replaced since 2020. In respect of the variable pay elements linked to the 2022/23 financial year, the Performance Share Plan (PSP) award made in 2020 had performance conditions based on earnings per share (EPS) and return on average capital employed (ROACE) performance and the three year cumulative relative total shareholder return (TSR) performance between 2020/21 and 2022/23. The Committee is mindful of the potential for windfall gains from the vesting of this award. In considering this potential issue the Committee noted that the grant had been made in July 2020 after the share price had recovered from the Covid-19 impact in the first part of that calendar year. The 272p share price used for the grant had recovered 14 per cent by 30 April 2023 and, importantly, this share price recovery has been underpinned by an increase to £861 million from £660 million in adjusted operating profit since the year ending 30 April 2020, being the year before any significant impact of Covid-19. The Committee believes that the PSP outcome is appropriate and is a fair reflection of business performance over the period. The Group's performance against the bonus measures of adjusted earnings before tax and amortisation (EBTA) and free cash flow was strong and the formulaic outcome of the bonus was 100 per cent of the maximum bonus opportunity. The details of the 2022/23 annual bonus performance are set out on pages 107 and 108. 92 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS In considering whether to apply discretion to override the annual bonus formulaic outcome, an ESG underpin is used. The Committee took into account three ESG factors: - development of initial plans to achieve the longer-term science-based targets for carbon reduction in the business; - continuing maintenance of high health and safety standards; and - continued work with our communities. The Committee reviewed the evidence of performance against these factors (see summary on page 108) and concluded this was satisfactory and that no discretion needed to be applied. The Committee has therefore decided that the Executive Directors will receive 100 per cent of the maximum annual bonus opportunity. Taking into consideration the context of the wider experience of our key stakeholders described below, the Committee concluded that the total variable pay outcome (both the PSP and the annual bonus) in respect of 2022/23 appropriately reflected the Company's performance and was commensurate with the broader stakeholder experience in the period. It was therefore not felt necessary to apply any discretion to amend the outcome of the PSP or the annual bonus. The Committee also concluded that the Remuneration policy has operated as intended, both in terms of appropriately incentivising corporate performance and in respect of quantum. #### Stakeholder experience in the year under review When deciding the level of these variable pay elements, the Committee also considered the experience of a wide range of the Group's key stakeholders during the 2022/23 financial year. We have continued to deliver on our commitment to quality and service for our customers, with our on-time, in full rate increasing to 96 per cent with commensurate improvements in product quality and customer satisfaction scores. These improvements are reflected in the most recent brand survey undertaken by the Group that shows a further increase in the value and standards our brand represents as scored by our actual and prospective customers. Group-wide we have kept a strong focus on employee health and wellbeing, which features a number of aspects. Our programmes have included supporting the financial education of employees and raising the awareness of the importance of saving for the future, even in challenging economic times. The Committee has been mindful of the external economic environment and in particular the high levels of inflation which are impacting the cost of living for so many of our employees. We have been able to support our lowest paid colleagues with higher salary increases than those for our more senior colleagues and the use of lump sums in certain countries to address cost of living challenges. An example of the former, in the UK, is that the majority of our lowest paid employees received an increase of 8 per cent in 2022/23, while our more senior employees received an increase of 4 per cent. In the UK and US, during the year we launched a financial wellbeing campaign and consultation service to provide access to online materials on how to manage their money in a challenging economic environment. The Group has surveyed over 250 sites, to better understand what current health and wellbeing initiatives are available to employees across the Group. A health, safety and wellbeing week is planned to further engage with employees around experiences, knowledge, skills and available tools as part of an ongoing programme of employee support. The Group's connection with the local communities where our sites are based has continued to strengthen. For the fourth year running all our sites with more than 50 full-time employees have participated in community activities. Over the past 12 months we have continued to work with our suppliers and at our sites to increase our focus on human rights due diligence and to integrate this more fully into our business. In 2022/23, our procurement and paper sourcing teams began to engage our strategic suppliers to set their own science-based targets as part of our supplier engagement programme, customised to the carbon maturity of each supplier. We joined the Supplier Leadership on Climate Transition initiative, founded by some of our key customers, to actively encourage our least mature suppliers to begin the process of calculating their carbon footprint, setting a science-based target and implementing an emissions reduction programme. This work has initially prioritised our strategic paper suppliers, given that they represent our largest source of upstream emissions. As we continue to refine our policies and practices across all areas of the ESG agenda, the Committee continues to be impressed with the progress in relation to sustainability matters that DS Smith makes. This has been driven by the Group's values. Our commitment to carbon reduction has driven our work with a specialist energy consultancy throughout the year to develop our plans to achieve the science-based target, including decarbonisation roadmaps for our packaging plants. These roadmaps identify the major technical solutions that will need to be implemented, such as solar and heat pumps, in addition to green electricity sourcing and energy efficiency opportunities. Our decarbonisation roadmap for our paper mills continued its delivery whilst being refined, continuing to optimise for best cost solutions and improving assessments relating to future alternative fuel availability. All these factors drive the Group's ongoing profitability and cash flow, impacting the performance measures of our incentive plans. The underlying importance of these factors to the Group continues to be emphasised by the use of a variety of these ESG considerations as an underpin to the annual bonus, both for the 2022/23 and the 2023/24 annual bonus. In respect of the 2022/23 financial year, an interim dividend has been paid and an increased final dividend has been recommended, subject to the approval of shareholders at the forthcoming AGM. #### Our year under review The key discussions of the Committee and decisions taken since 1 May 2022 were: - Making sure that there is appropriate balance between the business need for meaningful incentivisation for management and the recognition of the wider societal context in which the business operates, taking into account the differing expectations of each key stakeholder group, including our customers, employees, investors and suppliers Annual Report 2023 dssmith.com 93 REMUNERATION COMMITTEE REPORT CONTINUED - Undertaking the triennial review of our Remuneration policy, consulting with stakeholders on minor changes proposed and preparing the policy for 2023 to 2026 - Reviewing the salaries of the Group Chief Executive and the next layer of management and approving the treatment of remuneration arrangements for joiners and leavers in that layer of senior management. As part of our review we always consider the salary increases implemented across the Group. This year due to the high inflation rates in the UK, the country in which our Executive Directors are based, we decided to award lower percentage pay increases to senior management than those awarded to the majority of non-management employees - Considering the treatment of the outstanding unvested awards under the PSP and deferred share bonus plan (DSBP) held by Adrian Marsh, our current Group Finance Director, when he served notice of his intention to retire from the Board and from full-time executive roles. Adrian will continue to receive his salary, retirement and other benefits and will be eligible to receive a bonus for 2023/24 pro-rated to the date he ceases to be an employee. The bonus will (subject to performance targets being met) be payable at the normal time and will be paid 50 per cent in cash and 50 per cent in deferred shares in line with the policy. Adrian will be treated as a good leaver in respect of his outstanding PSP, DSBP and Sharesave awards. The post-cessation shareholding requirement will apply to Adrian on cessation of his employment in September - Reviewing the remuneration of Richard Pike, the incoming Group Finance Director who joins the Board on 30 June 2023. Richard will receive a salary of £650,000 and benefits in line with the Remuneration policy, including a retirement benefit contribution rate of 6 per cent of salary. He will be entitled to an annual bonus opportunity of 150 per cent of salary and a PSP award of 200 per cent of salary. To compensate for remuneration forfeited from his previous employer on joining DS Smith Plc, Richard has been granted buy-out awards, further details of which are set out later in this report - Considering whether the formulaic outcome of the annual bonus and PSP are judged to be appropriately aligned with business performance and stakeholder experience over the relevant periods and assessing the impact of Covid-19 on the business when deciding on the appropriate approach for bonus and PSP, this continues to be an important consideration for determining vesting levels in 2023, as it was for selecting performance measures and targets in 2022 - Setting the targets for the annual bonus and PSP awards made in 2022/23 and the performance measures and weighting for the 2023/24 awards, taking into account a number of factors which included our medium term growth targets, the volatility of paper pricing, the challenging economic environment with inflationary pressures, rising interest and tax rates, and our investment programme - Assessing the operation of the ESG underpin in the bonus - Considering whether there is a need to include specific ESG measures in the bonus and PSP awards. Sustainability continues to be one of the key values of DS Smith and our progress and our leading position in promoting the circular economy have been achieved without the need to directly incentivise ESG. Accordingly, the Committee decided to maintain the current approach of having an ESG underpin to the annual bonus. The Committee will continue to monitor further developments in this area and will take those into account in considering whether a different approach to using ESG in remuneration might be appropriate in the future. ### Our Remuneration policy for 2023 to 2026 The Committee reviewed the operation of the Remuneration policy and concluded that this structure has operated as expected in the context of the Company's performance for the 2020 to 2023 period. It is therefore not proposed to change the structure of remuneration set out in the Remuneration policy approved by shareholders in 2020. Since that policy was approved in 2020 there have been two changes in relation to its implementation as to quantum. Both changes were referred to in the 2022 Annual Report and those changes are now reflected in the proposed Remuneration policy for 2023 to 2026, namely: - the alignment of the Executive Directors' retirement benefit contribution rate with that available to the workforce in the country where they are based for employment purposes (currently 6 per cent); and - the increase of the expected shareholding requirement of the Group Finance Director from 175 per cent to 200 per cent of salary. As part of our regular three-yearly cycle, the Committee this year reviewed the current policy in the context of the business strategy and the evolving expectations of our shareholders and stakeholders and is only proposing a couple of minor changes as detailed (together with the reasoning behind them) on page 98. ### Our conversation with our workforce A European Works Council (EWC) representative joined a Committee meeting this year to support and inform discussions about the Remuneration policy being proposed for 2023 to 2026 and about health and financial wellbeing programmes and to brief the Committee about some of the topics discussed at recent meetings of the EWC. In addition, I once again attended meetings of the EWC Executive to engage and consult with them on executive remuneration and wider employee remuneration issues. When we met in April 2023 we discussed employee mental health and financial wellbeing. I also updated the EWC Executive on the proposed changes to the Remuneration policy and we discussed the reasons why an employee Sharesave opportunity had not been launched during the year but was under consideration for the forthcoming year. These meetings are a regular feature of the annual timetable as both I and the EWC Executive value the opportunity they provide to understand more about matters relating to the Executive Directors' remuneration and its alignment with that of the wider workforce, as well as providing an additional channel through which the voice of employees can be heard in the boardroom. ### Our conversation with our shareholders Shareholder views, whether directly or indirectly expressed, together with relevant guidance and emerging trends, are carefully considered when reviewing reward design and outcomes. We wrote to our major shareholders in October 2022 asking them for any comments on the proposed 2023 Remuneration Policy. As we are only proposing minimal amendments to our Policy, there was minimal shareholder response and comments received on the changes proposed. At the AGM in September 2023, shareholders will be asked to vote on the Remuneration policy and the Remuneration Report. I hope that the Committee will have your support on both of these resolutions. As Committee Chair, I continue to be available to engage with shareholders, as they so wish, on remuneration matters. **Celia Baxter** Chair of Remuneration Committee 22 June 2023 94 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT ## REMUNERATION AT A GLANCE Single total figure of remuneration for 2022/23 (£’000s) (Audited) £960 £1,677 £1,553 £4,190 Fixed pay (salary, retirement and other benefits) Adrian Marsh Annual bonus £592 £759 £2,141£790 PSP Total single remuneration figure Vesting as a % of maximum £’000 Increase | | | | | 2022/23 | 2020/21 PSP vesting | | | --- | --- | --- | --- | --- | --- | --- | | | 2022/23 2021/22 | | annual bonus | | | in2023/24 | | Miles Roberts 4,190 2,580 62% | | Miles Roberts 100% 66.67% | | | | | | Adrian Marsh 2,141 1,347 59% | | Adrian Marsh 100% 66.67% | | | | | For more information on how this is calculated see page 105. Salary Retirement benefit Salary increases with effect from 1 August 2023 are set out The contribution rates for Miles Roberts and Adrian Marsh were below and on page 106. further reduced with effect from 30 December 2022 and their retirement benefit contribution rate is now aligned with that available to the workforce in the UK, 6 per cent of salary (being the country where they are based for employment purposes). 2023/24 application The table below sets out a summary of how the Remuneration policy proposed for 2023 to 2026 will apply during 2023/24. Remuneration element Application of the Remuneration policy Base salary • The salary for Group Chief Executive Miles Roberts will be increased by 5.13% to £890,000, an increase that took into account the average increase of 5.72% for the UK workforce as a whole. • No increase in the salary of Adrian Marsh, Group Finance Director. • Richard Pike, Group Finance Director designate: £550,000. Annual bonus • No changes to maximum award levels of: • Group Chief Executive 200%; and • Group Finance Director 150%. • Bonus payable to Executive Directors paid half in cash and half in deferred shares, under the DSBP, with the shares vesting after three years. • The performance measures for 2023/24 remain as adjusted EBTA and free cash flow with equal weighting. (Details of the ESG underpin are set out on page 108.) Performance • No change to maximum award level for Group Chief Executive of 225% and for Group Finance Director of 200%. share plan (PSP) • The performance measures for 2023/24 will remain as adjusted EPS, adjusted ROACE and relative TSR with equal weighting. • Any shares that vest under this award must be retained for a further two years before they can be sold and they are also subject to a post-employment holding condition. Retirement benefit • Contribution or cash alternative rate for Group Chief Executive and for Group Finance Director is 6%, which is aligned with that available to the UK workforce. Shareholding • Shareholding target remains at 225% of salary for the Group Chief Executive and at 200% of salary for the Group Finance Director. guidelines • Actual holding (valued at closing price on the last trading day of financial year) was 970% for Miles Roberts and 314% for Adrian Marsh. Richard Pike is required to build up his shareholding over five years from his appointment as an Executive Director. Before joining the Company as an employee Richard already held 372,871 shares in the Company. Any shares that vest under PSP or DSBP awards granted in 2020/21 or subsequent years will, until the relevant shareholding requirement is met, be held in a nominee arrangement, because they are subject to a post- Miles Roberts employment holding condition (in addition to the two-year post-vesting holding condition). Annual Report 2023 dssmith.com 95 REMUNERATION AT A GLANCE CONTINUED Payment schedule for remuneration elements | Year | | Base | | Base | Base | Base | Base | Base | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | commencing | | year | | year +1 | year +2 | year +3 | year +4 | year +5 | | | Base salary | Paid over |      | | | | | | financial year | Annual bonus | Following the | | • 50% of annual bonus | Three years after the cash bonus is | |   | | --- | --- | --- | --- | --- | --- | --- | | | end of the | | awarded is paid in cash | paid, the 50% deferred share-based | | | | | base year: | • 50% of annual bonus awarded | | portion vests under the DSBP and is | | | | | | | paid in an award of shares | | subject to any applicable post- | | | | | | under the deferred share | | employment holding condition | | bonus plan (DSBP) which vests in base year +3 Performance Shares are   Shares awarded under the PSP vest if  Two year awarded performance conditions are satisfied post-vesting share plan (PSP) under the PSP holding Shares remain subject to a two year period for post-vesting holding period (that PSP awards does not extend beyond the second ends anniversary of any departure) and are subject to any applicable post-employment holding condition Key attributes to consider in reviewing are to be proportionate and designed in a way to minimise any behavioural risks. All the criteria for each element of an remuneration matters individual’s remuneration are explained, so that each individual Under the 2018 Corporate Governance Code the Remuneration has a clear and predictable line of sight as to what actions will Committee is asked to describe with examples how it has impact their remuneration outcomes, so that all remuneration is considered six specific factors. appropriately earned for genuine business performance aligned The Committee has reviewed the reward principles (set out on with the Company’s culture, values and strategy. page 97). The decisions made in relation to remuneration matters are taken The Committee has noted that these principles are clear and in alignment with these over-arching reward principles that apply expressed simply. Under our reward principles incentive levels to all executive management. Employee voice in the boardroom Use of existing European Other sources Any reward-related Works Council of feedback on feedback also shared with Information flow (EWC) structure the total employee Remuneration Committee experience Include a reward session led by the Group HR Director and the Group Head of Reward at the regular meetings with Remuneration Information flow the EWC Executive Board Committee Invite EWC representative to speak regularly atRemuneration Committeemeetings 96 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT DS Smith reward principles As part of good practice for any reputable company we apply the following baseline principles when setting reward across the organisation: • Meets legal and regulatory requirements • Simple and clear to understand • Affordable and sustainable • Is competitive in the market on a total reward basis to enable DS Smith to attract and retain the right level of talent. However, to differentiate our employee value proposition and ensure that our approach to reward aligns to our culture, we have developed the following DS Smith reward principles: • We support a culture of meritocracy where our people are encouraged to reach their potential and are clear on what they need to do to succeed. For salaried employees, reward should be differentiated using our Group salary and incentive ranges for entry, established and high performers. Where pay is determined through collective bargaining and there is less scope to differentiate by individual, the highest performers should be rewarded through development, promotion and other recognition opportunities. • We strive to have consistent policies and practices at a local level and transparency in our benefits offering and policies. • Incentives are designed to reward collective rather than individual effort, to support our one DS Smith culture. For senior managers, this is Group financial performance but for middle managers and frontline employees, performance measures can be the key value drivers that the individuals are able to influence directly such as cost, quality and service. • All employees should have the opportunity to share in the success of the Group. • Share ownership is fundamental at senior levels and desirable across the Group. • The Group respects the need for employees to make their own choices around what they value, although there are certain reward components linked to health and wellbeing where the Group may decide it is appropriate to set a minimum Group standard. • Our pension offering should be competitive with the local market where this is a benefit valued by employees. • When determining rewards, demonstration of an individual’s behaviours in line with the Group’s values (be caring, be challenging, be trusted, be responsive and be tenacious) are considered alongside the results achieved. • In managed exits people should be treated fairly, in line with the Group’s values and with dignity, but failure should not be rewarded. • Safeguards are applied to ensure that incentive levels are proportionate, appropriately earned for genuine business performance aligned to Company strategy and designed in a way to minimise any behavioural risks. In summary: key objectives of our Remuneration policy The purpose of our current and of our proposed Remuneration policy is to deliver a remuneration package that: • Attracts and retains high calibre Executive Directors and senior managers in a challenging and competitive business environment • Reduces complexity, delivering an appropriate balance between fixed and variable pay for each Executive Director and the senior management team • Encourages long-term performance by setting challenging targets linked to sustainable growth • Is strongly aligned to the achievement of the Group’s objectives and shareholder interests and to the delivery of sustainable value to shareholders • Seeks to avoid creating excessive risks in the achievement of performance targets • Is consistent with the Company’s Purpose and values • Is commensurate with pay conditions across the Group • Is aligned to the DS Smith reward principles (as set out above) • Takes into account overall corporate performance as well as business performance. All our decisions as a Remuneration Committee are taken in this context. Annual Report 2023 dssmith.com 97 # REMUNERATION POLICY This part of the report sets out the proposed Remuneration policy to be put to a binding vote of the shareholders at the annual general meeting (AGM) currently expected to be held on 5 September 2023. This policy will apply for a maximum of three years from the date of approval. The current Remuneration policy was applicable from 8 September 2020 when the policy was approved by shareholders at the AGM. Votes cast by proxy and at the meeting in respect of the Remuneration policy were 93 per cent voting in favour. That policy can be read in full in the 2020 Annual Report at https://www.dssmith.com/investors/annual-reports/archive. ## Proposed Remuneration policy There are no significant changes being proposed in 2023 to the policy approved in 2020, which it is proposed to roll over for the next three years, with only minor changes, either of a housekeeping nature or intended to provide some degree of future proofing as we set down the policy for the next three years. In determining the proposed new policy the Committee reviewed the extent to which the current policy was working in the context of the current business strategy and therefore its alignment with the strategic direction of the Company. It also took into account the alignment to the wider pay policy across the Group, the evolving expectations of our shareholders and stakeholders, the appropriateness from a risk appetite perspective, and feedback from shareholders during the policy period. Celia Baxter, the Chair of the Remuneration Committee, met with the EWC Executive earlier in 2023 and an EWC representative joined a meeting of the Remuneration Committee. This dialogue supported and informed discussions about the Remuneration policy being proposed for 2023 to 2026. All Committee members are independent Non-Executive Directors who have no potential conflict of interest in relation to matters of executive remuneration. In relation to the policy on matters of non-executive remuneration, no changes are proposed in 2023. The limit on aggregate annual fees were last amended and approved by shareholders at the AGM in 2017 and are set out in the Company's Articles of Association. Both the policy on remuneration of Directors and the policy on remuneration of employees are guided by DS Smith's reward principles (see page 97). Employees in senior management, including the Executive Directors, have a significantly higher proportion of performance-related variable pay. Outside the senior management team, variable pay is also operated with a variety of performance measures used as targets for the applicable bonus plans. The main changes to the policy are: - Increasing the shareholding requirement for the Group Finance Director (from 175 per cent to 200 per cent of salary) which was reported in the 2021 Annual Report - Reducing the maximum retirement benefit contribution rate for Executive Directors which was implemented in 2022 and reported in the 2022 Annual Report. In addition, a number of minor changes have been included to provide some additional flexibility and clarity to the policy. | Element, purpose and link to strategy | Operation and performance metrics | Maximum opportunity | | --- | --- | --- | | **Base salary** To help recruit and retain key senior executives To provide a competitive salary relative to comparable companies, in terms of size and complexity. | Normally reviewed by the Committee annually and fixed for the 12 months commencing 1 August. The Committee takes into account: • role, competence and performance; • average change in broader workforce salary; and • total organisational salary budgets. When external benchmarking is used, the comparator groups are chosen having regard to: • size-market capitalisation, turnover, profits and the number of employees; • diversity and complexity of the business; • geographical spread of the business; and • domicile of the Executive Director. | Salaries will normally be increased in line with increases for the workforce in general, unless there has been an increase in the scope, responsibility or complexity of the role, when increases may be higher. Phased higher increases may also be awarded to new Executive Directors who were hired at a discount to the market level to bring salary to the desired mid-market positioning, subject to individual performance. The aim is to position salaries around the mid-market level, although higher salaries may be paid, if necessary, in cases of external recruitment or retention. | 98 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT Element, purpose and link tostrategy Operation and performance metrics Maximum opportunity Annual bonus Targets are set annually. The performance measures, targets Maximum bonus potential of 200% of base and weightings may vary from year to year in order to align salary, with target bonus being no greater than To incentivise executives with the Company’s strategy and goals during the year to which one half of the maximum. to achieve or exceed the bonus relates. Bonus starts to be earned at the threshold level specific, predetermined Performance measures can include some or all of the following: (below which 0% is payable). objectives during a financial measures, strategic measures and ESG measures. Current maximum potential for each Executive one-year period. Bonus payouts are determined by the Committee after the Director is set out in the Annual Report on To reward ongoing year end, based on performance against predetermined Remuneration. objectives, at least the majority of which will be financial. delivery and contribution to strategic initiatives. Up to half of the bonus is paid in cash and the balance is deferred into shares. Deferred proportion of The deferred bonus shares vest after three years. Dividend bonus, awarded in equivalents arising over the period between the grant date and shares, provides a the vesting date are paid in cash or shares in respect of the retention element and shares which vest. additional alignment of The annual bonus plans are not contractual and bonuses under interests with the plans are not eligible for inclusion in the calculation of the shareholders. participating executives’ retirement benefit arrangements. Malus and clawback provisions apply to the annual bonus plan and the deferred bonus shares so that individuals are liable to repay/forfeit some or all of their bonus if there is a material misstatement of results, error in calculation, gross misconduct, payments based on erroneous or misleading data, significant reputational damage or corporate failure. The Committee will act reasonably in the application of malus and clawback. Performance Awards of nil-cost options or conditional awards of shares are The maximum annual award under the PSP that made annually with vesting dependent on the achievement of may be granted to an individual in any financial share plan (PSP) | | performance conditions measured at the end of the three-year | year is 225% of salary in normal circumstances | | --- | --- | --- | | To incentivise Executive | performance period. | and 400% of salary in exceptional | | Directors and other | | circumstances, which is limited to buy-out | Awards will vest, subject to performance, on the third senior executives to awards under recruitment. anniversary of grant and will be subject to an additional achieve returns for two-year holding period post-vesting, during which time Actual award levels to Executive Directors are shareholders over a awarded shares may not be sold (other than for tax purposes). set out in the Annual Report on Remuneration. longer time frame. The Committee reviews the quantum of awards annually to No greater than 25% of the relevant part of the ensure that they are in line with market levels and appropriate, award will vest for achieving threshold To help retain executives given the performance of the individual and the Company. performance (which for a relative TSR and align their interests performance measure would be median Performance measures can include some or all of the following: with shareholders performance), increasing to full vesting for the financial measures, strategic measures, ESG measures and through building a achievement of maximum performance. relative TSR. shareholding in the Dividend equivalents arising over the period between the grant Company. date and the vesting date are paid in cash or shares in respect of the shares which vest. Malus and clawback provisions apply to the PSP so that individuals are liable to repay/forfeit some or all of their shares if there is a material misstatement of results, error in calculation, gross misconduct, vesting based on erroneous or misleading data, significant reputational damage or corporate failure. The Committee will act reasonably in the application of malus and clawback. Annual Report 2023 dssmith.com 99 REMUNERATION POLICY CONTINUED Element, purpose and link tostrategy Operation and performance metrics Maximum opportunity Share ownership During employment Not applicable guidelines Executive Directors are expected to build and maintain a shareholding in the Company’s shares as a multiple of their To further align the base salary within five years of appointment as an Executive interests of executives Director (Group Chief Executive 225%, Group Finance Director with those of 200%). To achieve this, Executive Directors are expected to shareholders. retain at least 50% of shares (net of tax) which vest under the Company’s share plans until the share ownership guidelines are met. Incentive awards which have vested but that the Executive Director has yet to exercise and unvested incentive awards under the DSBP (if they are only subject to a time- based condition) are considered to count towards the shareholding on a notional post-tax basis. Non-Executive Directors are expected to build and maintain a shareholding that is equivalent to 50% of their annual fee from the Company within two years of their date of appointment. After employment In respect of share plan awards granted from 2020 onwards, Executive Directors are required to retain, for two years after leaving the Company, a holding of shares at a level equal to the lower of the shareholding requirement they were subject to during employment and their actual shareholding on departure (excluding shares purchased with own funds and any shares from share plan awards made before 2020). All employee Executive Directors have the opportunity to participate in the Up to £500 per month (or local currency UK or international sharesave plans on the same terms as other equivalent). share plan eligible employees (which is currently an opportunity to save Encourages long-term up to £250, or local currency equivalent, per month). There are shareholding in the no performance conditions applicable to awards. Company. Retirement benefit Executive Directors can elect to: Maximum: a retirement benefit contribution rate aligned with that available to the workforce in • participate in the Group’s registered defined contribution To provide income in the country where they are based for plan (DC Plan); or retirement. employment purposes. • receive a salary supplement; or • a combination of the above. Benefits Directors, along with other UK senior executives, receive a car Benefit levels may be increased in line with allowance or company car equivalent, income protection market levels to ensure they remain competitive To help retain employees insurance, life cover of four times salary, family medical and valued by the recipient. However, as the and remain competitive insurance and subsidised gym membership. Additional benefits cost of the provision of benefits can vary without in the marketplace. (including a relocation allowance) may be provided from time to any change in the level of provisions, no time, where they are in line with market practice. maximum is predetermined. Any reasonable business related expenses may be reimbursed (including tax thereon, if deemed to be a taxable benefit). 100 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT Element, purpose and link tostrategy Operation and performance metrics Maximum opportunity Non-Executive Reviewed annually by the Board (after recommendation by the No prescribed maximum annual increase. Committee in respect of the Chair). Directors and Chair Details of current fees are set out in the Annual Fee increases, if applicable, are normally effective from 1 Report on Remuneration. Attract and retain high August. The Board and, where appropriate, the Committee, performing individuals. Aggregate annual fees limited by Articles of considers pay data at comparable companies of similar scale. Association (currently to £1,000,000). Directors with additional responsibilities, currently the Senior Independent Director and the Chairs of the Audit and Remuneration Committees, receive additional fees. No eligibility for participation in bonuses, retirement plans or share plans but limited benefits may be delivered in relation to the permanency of their duties as a Director (e.g. hospitality, provision of a mobile phone, tablet/laptop and travel-related expenses). Tax may be reimbursed if these benefits are deemed to be a taxable benefit. If there is a temporary yet material increase in the time commitments for Non-Executive Directors, the Board may pay extra fees on a pro-rata basis to recognise the additional workload. Recruitment (and appointment) policy The remuneration package for a new Executive Director would be set in accordance with the terms of the Company’s approved Remuneration policy in force at the time of appointment. Similar considerations may also apply where a Director is promoted to the Board from within the Group. Element Recruitment policy Base salary The Committee will take into consideration a number of factors, including the current pay for other Executive Directors, external market forces, skills and current level of pay. Salary may (but need not necessarily) be set below the normal market rate, with a series of planned increases implemented over the following few years to bring it to the desired positioning, subject to individual performance. Benefits Benefits provision would be in line with normal policy. The Committee may agree that the Company will meet appropriate relocation costs and tax thereon. Retirement benefit The retirement benefit contribution rate will be aligned with that available to the workforce in the country where the Executive Director is based for employment purposes. Annual bonus Eligible to take part in the annual bonus, with a maximum bonus of up to 200% of salary in line with policy. Depending on the timing of the appointment, the Committee may deem it appropriate to set annual bonus performance metrics different from those that apply to the current Executive Directors for the first performance year in which the appointment falls. PSP A normal award of up to 225% of salary, in line with policy. In exceptional circumstances this may be increased up to 400% of salary in order to accommodate any buy-out awards. Buy-out awards In exceptional circumstances, the Committee may offer additional awards (using Listing Rule 9.4.2, if necessary). Any such awards would be for the specific purpose of recruiting an Executive Director key to the operation of the Group. The awards would not exceed what is felt to be a fair estimate of remuneration forfeited when leaving the former employer and would reflect (as far as possible) the nature and time horizons attached to that remuneration and the impact of any performance conditions. The Company would aim to replace any forfeited cash awards with shares wherever possible. Shareholders will be informed of any such payments at the time of appointment. Annual Report 2023 dssmith.com 101 REMUNERATION POLICY CONTINUED In the case of an internal executive appointment, any variable Termination payments salary element awarded in respect of the prior role would be Service contracts may be terminated without notice and without allowed to pay out according to its existing terms, adjusted as payment or compensation, except for sums earned up to the date relevant to take the appointment into account. In addition, any of termination of employment, on the occurrence of certain other ongoing remuneration obligations existing prior to events, such as gross misconduct. appointment would continue. The Company may terminate the contract with immediate effect For the appointment of a new Chair or Non-Executive Director, by making a payment equal to basic salary and, in the case of the the fee arrangement would be set in accordance with the current Group Chief Executive, retirement benefit contribution/ approved Remuneration policy in force at that time. allowance for any unexpired period of notice. In the case of the Notice period and payment for loss of office current Group Chief Executive only, the quantum of the retirement benefit allowance would be based on the rate set out The Company employs the Executive Directors on ‘rolling’ service in his original service agreement of 30 per cent of salary (rather contracts which are terminated only by notice from the Company than any reduced allowance applying at the time of the or the Executive Director. These notice periods will not exceed termination). As part of the agreement to amend the terms of one year. Non-Executive Directors have letters of appointment Miles Roberts’ contact in relation to his retirement benefit for a term not to exceed three years whereupon they are arrangements, the Company agreed to not amend the existing normally renewed, but generally for no more than three terms in terms in the employment contract in relation to any payment in aggregate. The notice period is one month by either the Company lieu of notice due in the event of a termination instigated by the or the Non-Executive Director. Non-Executive Directors are not Company. eligible for payments on termination. In line with the UK Corporate Governance Code (the Code), all Directors (including The Committee’s normal policy on termination is to make phased Non-Executive Directors) are subject to annual re-election by compensatory payments and to reduce or stop such payments to shareholders at the AGM. Their letters of appointment detail the former Executive Directors where they receive remuneration time commitment expected of each Non-Executive Director. Both from other employment during the notice period (where this is these and the Executive Directors’ service contracts are available consistent with local employment legislation and market for inspection at the registered office during normal business practice). hours and at each AGM. The table below sets out key provisions for Directors leaving the Company under their service contracts and the incentive plan rules. Share ownership guidelines applicable after the cessation of employment are set out in the earlier section of this policy under ‘share ownership guidelines’. Element Termination policy Fixed pay (salary, • Payment will be made up to the termination date in line with relevant contractual notice periods and retirement and other will not exceed contractual entitlements. benefits) Annual bonus: good • The annual bonus will normally be paid out, subject to performance against targets set. leaver • The award level will be reduced on a pro-rata basis to reflect the proportion of the performance period served. • The Committee retains discretion to further reduce the awards granted to reflect any personal performance issues. • The award will be made half in cash and half in deferred shares with the vesting date for the share element set at the third anniversary of grant. • Payment of the cash bonus will be on the normal payment date unless the Committee determines that the payment will be made early on the date of termination of employment (in exceptional circumstances only). DSBP: good leaver • DSBP awards, that are unvested at the date notice is served, will vest on the normal vesting date (i.e. third anniversary of grant) unless the Committee determines that awards will vest early on the date of termination of employment. 102 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT Element Termination policy PSP: good leaver • PSP awards will vest, subject to performance, on the normal vesting date unless the Committee determines that the awards will vest early on the date of termination of employment (in exceptional circumstances only). • For awards that vest following departure, the Committee will reduce the two year post-vesting holding period so that it does not extend beyond the second anniversary of departure. • Awards will normally be reduced on a pro-rata basis unless, exceptionally, the Committee determines that such an adjustment would be inappropriate. • The Committee retains discretion to further reduce the awards granted to reflect any personal performance issues. Incentive plans: all • All unvested performance-related elements of pay will normally lapse immediately at the earlier of other leavers notice being served or the date of termination, unless by exception the Committee determines that it will lapse on the date of termination. • Any vested but unexercised PSP awards still in their two year post-vesting holding period will still remain available for exercise regardless of the reason for leaving. For all leavers, the Committee may also determine to make a payment in reimbursement of a reasonable level of outplacement and legal fees and tax thereon in connection with a settlement agreement. The Committee may agree payments it considers reasonable in settlement of legal claims. This may include an entitlement to compensation in respect of leavers’ statutory rights under employment protection legislation in the UK or in other jurisdictions. Change of control The Committee can use its judgement to make adjustments to published outturns for significant events or changes in the There are no enhanced provisions on a change of control, but the Company’s asset base that were not envisaged when the targets Committee can exercise judgement and discretion in line with the were originally set or for changes to accounting standards, to respective incentive plans (such as for the vesting of share awards ensure that the performance conditions achieve their original or making bonus payments part of the way through the financial purpose. year). The Committee also has the discretion to reduce or apply other Discretions and judgements restrictions to an award if, after taking into account all The Committee will operate the annual bonus plan and long-term circumstances known to the Committee, it determines that the plans according to the rules of each respective plan, their respective amount which a participant would otherwise receive pursuant to an ancillary documents and the UK Financial Conduct Authority’s incentive award in accordance with its terms would result in the Listing Rules, which, consistent with market practice, include participant receiving an amount which the Committee considers discretion in a number of respects in relation to the operation of cannot be justified or which the Committee considers to be an each plan. Discretions include: unfair or undeserved benefit to the participant. • Who participates in the plan The Committee has the discretion to override formulaic outcomes • Determining the timing of grants of awards and/or payments to the bonus and the PSP or DSBP in order to ensure that outcomes • Determining the quantum of an award and/or payment reflect true underlying business performance or to reduce awards if • Determining the extent of vesting the business has suffered an exceptional negative event in order to ensure that outcomes reflect overall corporate performance. • How to deal with a change of control or restructuring of the Group • Whether or not an Executive Director or a senior manager is a The Committee can use its discretion to reduce or waive the good leaver for incentive plan purposes and whether the post-employment shareholding requirement in the event of ill proportion of awards that vest do so at the time of leaving or at health or death. The post-employment shareholding requirement the normal vesting date(s) would normally fall away on a change of control, although the • How and whether an award may be adjusted in certain Committee reserves the right to continue its application where circumstances (e.g. for a rights issue, a corporate restructuring or there is a merger involving a share-for-share exchange. for special dividends) In addition, the Committee can amend the Remuneration policy • What the weighting, measures and targets should be for the with regard to minor or administrative matters where it would be, in annual bonus plan and PSP awards from year to year the opinion of the Committee, disproportionate to seek or await • The Committee also retains the ability, within the policy, if events shareholder approval. occur that cause it to determine that the conditions set in relation Any historic share awards that were granted before the date to an annual bonus plan or a granted PSP award are unable to arevised policy came into force remain eligible to vest or be fulfil their original intended purpose, to adjust targets and/or set exercised or sold based on their original award terms and the different measures or weightings for the applicable annual bonus Remuneration policy that was in force when those awards plan and PSP awards. weregranted. Annual Report 2023 dssmith.com 103 REMUNERATION POLICY CONTINUED Illustration of the application in 2023/24 of the Remuneration policy The balance between fixed and variable ‘at risk’ elements of remuneration changes with performance. Our Remuneration policy results in a significant proportion of remuneration received by Executive Directors being dependent on performance. Thetotal remuneration of Miles Roberts and (on an annualised basis) for Richard Pike (who will join the Board on 30 June 2023) for maximum, target and minimum performance in 2023/24 is presented in the charts below. (The basis of the calculation of the share price appreciation is that the share price embedded in the calculation for the PSP awards in the maximum bar chart is assumed to increase by 50 per cent across the performance period.) These figures are indicative as future share prices and future dividends are not known at present. Maximum (fixed remuneration plus maximum annual bonus opportunity plus 100% vesting of performance shares) and share price appreciation of 50%: £’000s £954 £1,758 £5,569£2,857 £602 £825 £1,650 £3,077 Fixed pay: 17% Bonus: 32% PSP: 51% Fixed pay: 19% Bonus: 27% PSP: 54% Maximum (fixed remuneration plus maximum annual bonus opportunity plus 100% vesting of performance shares) £’000s £954 £1,758 £4,617£1,905 £602 £825 £2,527£1,100 Fixed pay: 21% Bonus: 38% PSP: 41% Fixed pay: 24% Bonus: 33% PSP: 43% Target (fixed remuneration plus half of maximum annual bonus opportunity plus 25% vesting at threshold of performance shares) | £’000s | | | | | £413 | £275 | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | £954 £879 | £2,309£476 | | £602 | | £1,290 | | | | | Fixed pay: 41% | Bonus: 38% | PSP: 21% | Fixed pay: 47% | | | Bonus: 32% | PSP: 21% | Minimum (fixed remuneration only, i.e. latest known salary, benefits and pension) £’000s £954 £602 Fixed pay: 100% Miles Roberts Richard Pike 104 Fixed pay: 100% FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT ## ANNUAL REPORT ## ON REMUNERATION The tables below show how we have applied the Remuneration policy during 2022/23. They disclose all the elements of remuneration earned by the Directors during the year. Full details of the policy that was voted on in 2020 are included in the 2020 Annual Report and is available on our website. Information about the Remuneration policy to be voted on in 2023 is set out in this report. Ernst & Young LLP has audited, as required by the applicable regulations, those tables labelled as audited. Single total figure of remuneration for each Director (audited) Total single | | | | | Retirement | | | Total fixed | | | | | Long-term | | Total variable | | remuneration | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | Salary | Benefits | 1 | benefits | 2 | remuneration | | Annual bonus | | 3 | incentives | | remuneration | | | figure | | Executive Directors | | £’000 | £’000 | | £’000 | | | £’000 | | £’000 | | | £’000 | | £’000 | | £’000 | | Miles Roberts | 2021/22 809 22 131 962 1,618 0 1,618 2,580 | | | | | | | | | | | | | | | | | 4 Group Chief Executive 2022/23 838 22 100 960 1,677 1,553 3,230 4,190 Adrian Marsh 2021/22 508 19 57 584 763 0 763 1,347 4 Group Finance Director 2022/23 527 19 46 592 790 759 1,549 2,141 1. Taxable benefits in 2021/22 and 2022/23 principally include a car allowance of £20,000 for Miles Roberts and £17,500 for Adrian Marsh. Both Directors also receive income protection, life and health cover. 2. In lieu of membership of the defined contribution scheme Miles Roberts and Adrian Marsh each receive an annual retirement benefit allowance which was reduced with effect from 30 December 2022 to align with that of the workforce in the UK. The annual retirement benefit allowances are not pensionable and are not considered to be salary for the purpose of calculating any bonus payment or long-term incentive. 3. The annual bonus, when paid, is paid 50% in cash and 50% in deferred shares as described in the policy table on page 99. 4. The value of long-term incentives for 2022/23 represents the estimated value of the 2020/21 award, using the average share price of the last three months of the 2022/23 financial year of 328p (the performance period for this award being the three years ending 30 April 2023). Fees 3 3 Total Total £’000 2022/23 2021/22 £’000 £’0002022/23 2021/22 Non-Executive Directors Geoff Drabble 330 330 330 330 Celia Baxter 79 77 79 77 1 Alan Johnson 59 – 59 – Alina Kessel 64 62 64 62 David Robbie 89 78 89 78 Louise Smalley 64 62 64 62 2 Rupert Soames 22 70 22 70 Total 707 679 707 679 1. Alan Johnson joined the Board on 1 June 2022. 2. Rupert Soames stepped down from the role of Senior Independent Director with effect from 28 February 2022 and from the Board with effect from the conclusion of the 2022 AGM. 3. Non-Executive Directors received no taxable benefits, annual bonus, long-term incentives or retirement benefit payments during 2021/22 or 2022/23. Eric Olsen joined the Board on 15 May 2023. Annual Report 2023 dssmith.com 105 ANNUAL REPORT ON REMUNERATION CONTINUED # **FIXED PAY** # **Base salary (audited)** # **Salaries for Executive Directors (audited)** | | 1 August 2021 (i) | 1 August 2022 (ii) | 1 August 2023 (iii) | Earned in 2022/23 (ii) | | --- | --- | --- | --- | --- | | Miles Roberts | 814,000 | 846,600 | 890,000 | **838,450** | | Adrian Marsh | 511,500 | 532,000 | n/a^{1} | **526,875** | 1. Adrian Marsh will retire from the Company's Board on 30 June 2023. When reviewing salaries the Committee takes account of a number of factors, with particular focus on the general level of salary increases awarded to employees throughout the Group. Where relevant, the Committee also considers external market data on salary and total remuneration. When initially considering the Executive Directors' salary increase for 2023, the Committee also looked at the data for the peer group of FTSE 51-150 companies (excluding Financial Services companies). It chose that comparator group as one that (in line with the Remuneration policy) reflected a similar size and complexity of business and of geographical spread as well as the domicile of the Executive Directors. The Committee applies judgement when considering such data. In April 2023 the usual review of executive remuneration was held and it was agreed that a pay increase of 5.13% would be implemented on 1 August 2023 for Miles Roberts, an increase that took into account the average increase of 5.72% for the UK workforce as a whole. # **Fees for Non-Executive Directors and the Chair (audited)** In addition to a base fee of £64,500, the Chair of the Audit Committee and the Chair of the Remuneration Committee each receive a fee of £15,000 per annum and the Senior Independent Director receives a fee of £10,000 per annum. The fee for the Chair with effect from 3 January 2021 was set taking into account market rates for comparable positions and is fixed for three years. It was agreed that an increase of 5% would be implemented on 1 August 2023 in respect of the base fee for Non-Executive Directors increasing to £67,750, with the fee for the Chair of the Remuneration Committee and the fee for the Chair of the Audit Committee increasing to £16,000 per annum and that for the Senior Independent Director increasing to £15,000 per annum. This decision took into account market rates for comparable positions and the average increase for the UK workforce as a whole of 5.72%. | | Base fee effective from: | | | Earned in 2022/23 (ii) | | --- | --- | --- | --- | --- | | | 1 August 2021 (i) | 1 August 2022 (ii) | 1 August 2023 (iii) | | | Geoff Drabble^{1} | 330,000 | 330,000 | 330,000 | **330,000** | | Celia Baxter | 62,000 | 64,500 | 67,750 | **78,875** | | Alan Johnson^{2} | - | 64,500 | 67,750 | **58,708** | | Alina Kessel | 62,000 | 64,500 | 67,750 | **63,875** | | David Robbie | 62,000 | 64,500 | 67,750 | **88,875** | | Louise Smalley | 62,000 | 64,500 | 67,750 | **63,875** | | Rupert Soames^{3} | 62,000 | 64,500 | - | **21,867** | 1. Geoff Drabble joined the Board with effect from 1 September 2020 and became Chair with effect from 3 January 2021. His total fee as Non-Executive Chair is £100,000 per annum (fixed for three years). 2. Alan Johnson joined the Board on 1 June 2022. 3. Rupert Soames stepped down from the role of Senior Independent Director with effect from 28 February 2022 and from the Board with effect from the conclusion of the 2022 ASM. Eric Olsen joined the Board on 15 May 2023. 106 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ## VARIABLE PAY The Committee believes it is important that a significant portion of the Executive Directors' package is performance-related and that the performance conditions support the delivery of the Group's strategy and its long-term sustainable success. The Remuneration policy encourages long-term performance by setting challenging targets linked to sustainable growth for the variable pay, which consists of the annual bonus and the longer-term PSP. The Remuneration Committee has discretion to adjust retrospectively the targets, for example after a substantial restructuring, and would normally discuss this with its larger shareholders. Alternatively adjustments to published outturns may be appropriate for significant events or changes in the asset base that were not envisaged when the targets were originally set, to ensure that the performance conditions achieve their original purpose. Full disclosure of this would be given in the Remuneration Report. The Remuneration Committee has the discretion to override formulaic outcomes in order to ensure that outcomes reflect true underlying business performance. When considering that discretion in relation to the annual bonus for 2022/23 the Committee took, and in relation to the annual bonus for 2023/24 the Committee will take, into account various ESG matters (as described on page 108). ### Performance measures An explanation of the performance measures for the annual bonus (assessed on a constant currency basis) and PSP (assessed on an actual currency basis without adjustments for exchange rate movements) is set out below. The strategic rationale for the choice of these performance measures is to focus on the key financial measures both over the longer performance period for the PSP of three years and the shorter performance period for the annual bonus of one year. #### Adjusted earnings per share (EPS) applicable to the PSP Adjusted EPS is disclosed in the Annual Report and is the portion of the Group's adjusted after tax profit allocated to each outstanding share. Adjusted EPS is an indicator of the underlying performance of the Group. #### Adjusted return on average capital employed (ROACE) applicable to the PSP ROACE is disclosed in the Annual Report. It is defined as earnings before interest, tax, amortisation and adjusting items as a percentage of average capital employed, including goodwill. This is a measure of the efficiency and profitability of the assets and investments. #### Total shareholder return (TSR) applicable to the PSP TSR is the increase (or decrease) in the value of a notional investment in a share in the Company and each of the companies in the Industrial Goods and Services Supersector within the FTSE 350 Index over the three-year PSP performance period, taking account of share price movement and the value of dividends (which are deemed to be re-invested) over that period. This is a measure that takes into account the experience of shareholders over the applicable period. #### Adjusted earnings before tax and amortisation (EBTA) applicable to annual bonus EBTA is adjusted earnings before taxation, amortisation and income from associates. This measure gives a snapshot of the performance of the Group in the short term of a single financial year. #### Free cash flow applicable to annual bonus 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, adjusted for the effects of changes in factoring balances. This measure focuses on liquidity, a key area in an uncertain economic environment. ### Annual bonus #### Bonus in 2022/23 The Executive Directors' targets for the 2022/23 bonus were based on the financial targets set out below, with annual bonus payments determined by reference to performance over the financial year ended 30 April 2023. Achievement is calculated on a straight-line basis between threshold and target and between target and maximum. Adjusted EBTA and free cash flow have equal weighting as annual bonus performance measures. #### Targets and outcomes (audited) | Financial measure | Threshold 0% of maximum | Target 50% of maximum | Maximum | Achieved | | --- | --- | --- | --- | --- | | Adjusted EBTA | £602m | £632m | £662m | £769m | | Free cash flow | £65m | £105m | £145m | £346m | Annual Report 2023 dssmith.com 107 ANNUAL REPORT ON REMUNERATION CONTINUED # ESG underpin ESG underpin statement Assessment of performance in 2022/23 | Development of initial plans to achieve longer-term science-based targets for carbon reduction in the business | The programme of work for our sites to achieve the longer-term science-based targets for carbon reduction has been planned and those plans have been shared with each site for further fine-tuning. For more information see page 27. | | --- | --- | | Continuing maintenance of high health and safety standards | Group-wide lost time accident performance is 6% better than 2021/22. Group-wide H&S engagement index has increased in each of the last six years, further evolving our safety culture and contributing to the reduction in the total number of accidents (with and without lost time) that is 8% better than 2021/22. For more information see pages 16 and 21. | | Continued work with our communities | The Group has completed the planned community programme activity in all 164 targeted sites. | # Outcomes (audited) | | Miles Roberts | Adrian Marsh | | --- | --- | --- | | Adjusted EBTA (as a proportion of the maximum opportunity) | 50/50 | 50/50 | | Free cash flow (as a proportion of the maximum opportunity) | 50/50 | 50/50 | | Total (as a proportion of the maximum opportunity) | 100/100 | 100/100 | | Maximum bonus opportunity as a % of salary | 200% | 150% | | Value of bonus paid in cash | £838,450 | £395,156 | | Value of bonus deferred into shares | £838,450 | £395,156 | | Overall award level | £1,676,900 | £790,312 | Performance is assessed on a constant currency basis and therefore the actual published results are restated for bonus purposes using budgeted exchange rates. Bonus awards are measured against the achievement of the Group's objectives. Maximum bonus opportunity for 2022/23 for Miles Roberts was 200% of salary and for Adrian Marsh was 150% of salary and was between 50% and 100% for the other most senior executives. When deciding the level of variable pay, including the annual bonus, the Committee considered the experience of the Group's stakeholders during the 2022/23 financial year (as summarised on page 59). The Committee concluded that the outcome of the annual bonus in respect of 2022/23 appropriately reflected the Company's performance in 2022/23 and was commensurate with the broader stakeholder experience in that period, and that appropriate progress and actions have continued to be made to realise our ESG agenda. It was therefore not felt necessary to apply any discretion to amend the outcome of the overall award level. # implementation for 2023/24 The annual bonus for 2023/24 will remain in line with the Remuneration policy and with a maximum opportunity of 200% of salary for the Group Chief Executive and 150% for the Group Finance Director. For 2023/24 the bonus will be based on EBTA and free cash flow, each with equal weighting. In the event of an unbudgeted acquisition or disposal in the year, the Committee will assess how the financial performance of the acquired or disposed of company should be treated. In the opinion of the Committee, the annual bonus targets for 2023/24 are commercially sensitive and accordingly are not disclosed prospectively. These will be disclosed next year in the Directors' remuneration report, so that achievement against those targets will be visible, in retrospect. When considering the application of discretion to override the formulaic outcome for the 2023/24 annual bonus, the Committee will take into account the following factors: - Roll out of an updated Now & Next Sustainability Strategy, which includes our approach to the delivery of science-based targets, to take account of updated actual performance and current customer/regulatory requirements - Continuing maintenance of high health and safety standards - Continued work with our communities. The Committee will report on its assessment of the Group's performance in those areas in the Annual Report 2024 (following a similar format to its assessment for 2022/23 above). Having an ESG underpin in this way acknowledges the importance of ESG which is integral to the DS Smith strategy, and in particular our strategic goal to lead the way in sustainability. 108 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT Performance Share Plan (PSP) Overview of the Performance Share Plan The PSP operates as a long-term incentive plan for senior managers in the Group, with awards vesting after three years, and held for a further two years by the Executive Directors. The awards have three performance measures: adjusted EPS, adjusted ROACE and relative TSR. These have equal weighting. The Committee’s policy is that no adjustments for exchange rate movements are made to EPS and ROACE over the three-year performance period as these are of a long-term nature and fluctuations are more likely to average out over the period. The relative TSR vesting scale is median to upper quartile performance, with no vesting below median performance. 25% of the award vests for achieving threshold performance, increasing on a straight-line basis to full vesting for maximum performance. The TSR comparator group for the 2020/21, 2021/22 and 2022/23 awards is the FTSE 350 Industrial Goods and Services Supersector. 2020/21 awards vesting in 2023/24 The PSP award made on 14 July 2020 has EPS, ROACE and TSR performance conditions, each with an equal weighting and measured at the end of the three-year performance period ending on 30 April 2023. The EPS, ROACE and TSR performance targets and actual performance against targets are set out in the table below. The Committee is mindful of the potential for windfall gains when an award vests and having considered the wider context of the grant and vesting of this award, the Committee believes that the PSP outcome is appropriate and is a fair reflection of business performance over the period. As no bonus was paid in the summer of 2020 there were no DSBP awards made then and therefore there are no DSBP awards vesting in summer of 2023. EPS, ROACE and TSR performance targets for 2020/21 awards (audited) Threshold Maximum Outcome Weighting (25% vests) (100% vests) Outcome (% of measure) Adjusted EPS One third 34.2p 36.5p 43.0p 100% Adjusted ROACE One third 11.0% 12.5% 14.3% 100% 1 Relative TSR One third Median Upper quartile Below median 0% 1. Measured against the FTSE 350 Industrial Goods and Services Supersector. 25% of the PSP award vests for achieving threshold performance, increasing on a straight-line basis to full vesting for maximum performance. Resulting vesting levels for 2020/21 awards (vesting in 2023/24) (audited) Number of Number of Number of Dividend Total number of Estimated value 2 Executive Director Award shares at grant shares to vest 1 shares to lapse equivalents shares (£’000) Miles Roberts PSP 647,123 431,415 215,708 41,976 473,391 1,553 Adrian Marsh PSP 316,286 210,857 105,429 20,516 231,373 759 1. These shares are subject to a two-year holding period from the vesting date. 2. The estimated value of the shares vesting on the third anniversary of the grant made on 14 July 2020 and the dividend equivalents is based on the average share price during the three months to 30 April 2023 (328p). Breakdown of the estimated value of 2020/21 awards (vesting in 2023/24) (audited) | PSP original | | | PSP award | | | Dividend | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | award value | | 1 | appreciation | 2 | equivalents | | 3 | Total value | | | | (£’000) | | (£’000) | | | (£’000) | | | (£’000) | Miles Roberts 1,173 242 138 1,553 Adrian Marsh 574 118 67 759 1. Calculated as the number of shares from the original award vesting multiplied by the grant price (based on the average share price for the three trading days preceding the award) of 272p. 2. Calculated as the number of shares vesting multiplied by the difference between 272p (see footnote above) and the average share price during the three months to 30 April 2023 of 328p. 3. Calculated as the number of dividend equivalent shares vesting multiplied by the average share price during the three months to 30 April 2023 of 328p. Annual Report 2023 dssmith.com 109 ANNUAL REPORT ON REMUNERATION CONTINUED # **PSP and DSBP awards granted in 2022 vesting in 2025/26 (audited)** The PSP awards made in 2022 in respect of 2022/23 were in line with the applicable Remuneration policy and, as reported in last year's Remuneration Report, were: - 225% of salary for the Group Chief Executive and 200% of salary for the Group Finance Director - Any shares that vest under the PSP awards granted in 2022/23 must be retained for a further two years before they can be sold (a total of five years from original grant) and they are also subject to a post-employment holding condition, meaning that any applicable shares that vest will be held in a nominee arrangement, if the required shareholding level in the nominee arrangement has not been met. For any PSP awards which vest following departure that have been granted good leaver treatment, the Committee will reduce the two year post-vesting holding period so that it does not extend beyond the second anniversary of departure, provided that the three-year period after grant has been completed - The PSP awards were granted as nil-cost options and are subject to three performance measures: adjusted EPS, adjusted ROACE and relative TSR, with equal weighting on each element. The DSBP awards made in 2022 relate to the deferral into shares of half of the bonus paid in 2022 in relation to the bonus award included in the single total figure of remuneration for 2021/22. They were granted as nil-cost options and are not subject to performance conditions, but are subject to continued employment. | Executive Director | Award | Number of options granted under award on 27 June 2022 | Face value of award at time of grant ($) | | --- | --- | --- | --- | | Miles Roberts | PSP | 638,153 | 1,831,499 | | | DSBP | 281,881 | 808,998 | | Adrian Marsh | PSP | 356,445 | 1,022,997 | | | DSBP | 132,850 | 381,280 | These PSP and DSBP awards were made on 27 June 2022. The face value in the above table is calculated using 287p which was the average price of a 0.5 Smith share for the three trading days preceding the grant of the award and the price used in the calculation of the number of options awarded. 25% of the PSP award vests for achieving threshold performance, increasing on a straight-line basis to full vesting for maximum performance. The applicable performance period for these PSP awards ends on 30 April 2025. The targets for the 2022/23 PSP award are set out below: | % vesting as a proportion | Adjusted EPS (See third) | Adjusted ROACE (See third) | Relative TSR (See third) | | --- | --- | --- | --- | | 100% | 42.0p | 13.8% | Upper quartile | | Between 25% and 100% | 36.0 - 42.0p | 12.0 - 13.8% | Between median and upper quartile | | 25% | 36.0p | 12.0% | Median | 1. The comparator group for measurement of relative TSR is the FTSE 350 Industrial Goods and Services Supersector, as it was in 2020/21 and 2021/22. Awards vest on a straight-line basis between threshold and maximum performance. The performance measurement period for the adjusted EPS and adjusted ROACE targets is the 2024/25 financial year and for the relative TSR target is the three years to 30 April 2025. # **PSP awards to be granted in 2023 vesting in 2026/27** The PSP awards to be made in 2023 in respect of 2023/24 will be in line with the applicable Remuneration policy, with grants being made of up to 225% of salary for the Group Chief Executive and 200% of salary for the Group Finance Director. As a matter of best practice, before finalising the PSP award levels, the Committee considered the movements in the share price since the 2022 PSP grant and will monitor performance against the targets to consider whether discretion should be applied to the formulaic outturn when determining the vesting outturn. The performance measures and their weighting for the award will remain the same as in 2022/23. The targets for the 2023/24 PSP award will be: | % vesting as a proportion | Adjusted EPS (See third) | Adjusted ROACE (See third) | Relative TSR (See third) | | --- | --- | --- | --- | | 100% | 42.0p | 13.8% | Upper quartile | | Between 25% and 100% | 36.0 - 42.0p | 12.0 - 13.8% | Between median and upper quartile | | 25% | 36.0p | 12.0% | Median | 1. The comparator group for measurement of relative TSR will be the FTSE 350 Industrial Goods and Services Supersector, as it was in 2020/21, 2021/22 and 2022/23. Awards vest on a straight-line basis between threshold and maximum performance. The performance measurement period for the adjusted EPS and adjusted ROACE targets is the 2025/26 financial year and for the relative TSR target is the three years to 30 April 2026. 110 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT The Committee’s aim, as always, has been to set robust targets with a strong degree of stretch in the applicable economic context. In setting the target ranges the Committee took into account a number of factors which included our medium term growth targets, the volatility of paper pricing, the challenging economic environment with inflationary pressures, rising interest and tax rates, and our investment programme. Our desire continues to be to set targets which balance stretch with the ability to at least achieve the threshold level so that awards remain motivating and meaningful to all participants. DSBP awards in 2023 As set out on page 108, half of the value of the bonus to be paid in 2023 in respect of the performance over the financial year ended 30 April 2023, will be deferred into shares, which will not vest until 2026. Outstanding PSP and DSBP share awards during 2022/23 and as at 30 April 2023 (audited) The table below sets out details of Executive Directors’ outstanding share awards, both under the PSP and the DSBP, during the year under review. Unvested awards will vest in future years subject to performance and/or continued service. Vested awards will expire if not exercised before the relevant expiry date. Vesting date (if any performance | | Awards held | | | | | | Grant price | | Market price | | | conditions | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | at 30 April | | Dividend | Exercised/ | | Lapsed/ | for award | | on date of | | Awards held | applicable | | Award date | | 2022 Granted | equivalents | vested | 1 | forfeited | | (p) 2 | exercise (p) | at 30 April 2023 | | are met) Expiry date | Miles Roberts PSP 15 Jul 19 481,039 – – – 481,039 357.00 – 0 15 Jul 22 15 Jul 29 PSP 14 Jul 20 647,123 – – – – 272.00 – 647,123 14 Jul 23 14 Jul 30 PSP 8 Jul 21 411,635 – – – – 434.00 – 411,635 8 Jul 24 8 Jul 31 PSP 27 Jun 22 – 638,153 – – – 287.00 - 638,153 27 Jun 25 27 Jun 32 DSBP 15 Jul 19 157,055 – 11,889 168,944 – 357.00 – 168,944 15 Jul 22 15 Jul 29 DSBP 8 Jul 21 177,529 – – – – 434.00 – 177,529 8 Jul 24 8 Jul 31 DSBP 27 Jun 22 – 281,881 – – – 287.00 – 281,881 27 Jun 25 27 Jun 32 2,325,265 Adrian Marsh PSP 15 Jul 19 235,098 – – – 235,098 357.00 – 0 15 Jul 22 15 Jul 29 PSP 14 Jul 20 316,286 – – – – 272.00 – 316,286 14 Jul 23 14 Jul 30 PSP 8 Jul 21 229,953 – – – – 434.00 – 229,953 8 Jul 24 8 Jul 31 PSP 27 Jun 22 – 356,445 – – – 287.00 356,445 27 Jun 25 27 Jun 32 DSBP 15 Jul 19 74,015 – 5,602 79,617 – 357.00 263.50 0 15 Jul 22 15 Jul 29 DSBP 8 Jul 21 83,672 – – – – 434.00 – 83,672 8 Jul 24 8 Jul 31 DSBP 27 Jun 22 – 132,850 – – – 287.00 – 132,850 27 Jun 25 27 Jun 32 – 1,119,206 1. Miles Roberts as at 30 April 2023 continued to hold awards granted on 15 July 2019 which had vested but remained unexercised. Adrian Marsh as at 30 April 2023 did not hold any vested, unexercised awards. 2. The figure in this column is the average price of a DS Smith share for the three trading days preceding the award and is the price used in the calculation of the number of options originally awarded. Annual Report 2023 dssmith.com 111 ANNUAL REPORT ON REMUNERATION CONTINUED The target ranges for the 2020/21 PSP awards are set out on page 109. The target ranges for the 2022/23 awards are set out on page 110. The relative TSR target for the 2021/22 award is the same as it was for the 2020/21 award. For the 2021/22 awards the target ranges for EPS and ROACE are set out in the audited table below. PSP plan EPS range ROACE range 2021/22 35.2 - 40.0p 11.2 - 13.1% It is currently intended that any ordinary shares required to fulfil entitlements under the DSBP and the award granted to Richard Pike in connection with his recruitment (the full details of which are set out on pages 116 and 117) will be satisfied solely with existing shares acquired by Computershare Trustees (Jersey) Limited in its capacity as trustee of the employee benefit trust (the Trust), which buys shares to do so. The Trust may also be used to fulfil certain entitlements under the PSP and the employee sharesave plans or those may be fulfilled by newly-issued shares. Sharesave – employee share plans (audited) Executive Directors are eligible to participate in the Sharesave (SAYE) on the same terms as all other UK-based employees of the Company and participating subsidiaries of the Group. Options are granted under the SAYE, which, in the UK, is an HMRC tax-advantaged plan. Participants contract to save up to the equivalent of £250 per month over a period of three years (two years in the US). The current maximum permitted monthly saving of the equivalent of £250 is set by the Company. Under the applicable plan rules (and the Remuneration policy) the monthly maximum could be increased in the future to up to the equivalent of £500 per month. The option price is discounted by up to 20% (15% in the US) of the average closing mid-market price of the Company’s shares on the three dealing days prior to invitation (20-day average to the day before grant in France and the higher of the mid-market average price on the day before invitation and the mid-market average on the day before grant in the US). In common with most plans of this type, there are no performance conditions applicable to options granted under the SAYE. | | | Options | | Options | | Options | | Market price on | | | | | | Date | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | held at | granted during | | | exercised | Options lapsed | date of exercise | | Options held at | Exercise price | | from which | | | Name of Director | 30 April 2022 | | | the year | during the year | | during the year | | (p) | 30 April 2023 | | (p) | exercisable Expiry date | | Miles Roberts 2,769 – – – – 2,769 325.00 1 Apr 24 30 Sep 24 Adrian Marsh 2,769 – – – – 2,769 325.00 1 Apr 24 30 Sep 24 Share ownership guidelines Executive Directors are expected to build a significant shareholding in the Company within five years from the date of their appointment as an Executive Director. Executive Directors’ shareholdings (including those of their connected persons) are summarised in the following audited table: | | | | Total | | | Total | | Unvested only | | | | Shareholding | | Shareholding at | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | shareholding as at | | | shareholding as at | | | subject to continued | | | Vested awards | | | required | 30 April 2023 | | | Requirement | | | Name of Director | | 30 April 2022 | | | 30 April 2023 | | | employment | 1 | (not exercised) | 2 | | (% salary) | | (% salary) | 3 | | met | Executive Directors Miles Roberts 2,063,831 2,063,831 494,385 89,540 225% 970% Yes Adrian Marsh 291,021 301,021 237,384 0 200% 314% Yes 1. Includes the awards of deferred bonus shares granted in 2021 and 2022 and the 2020/21 PSP award, to the extent that it is due to vest on 14 July 2023, which is not subject to any further performance conditions. A reduction to the gross award levels of 47% has been applied for the expected level of tax and social security deductions that will ultimately be due on these shares. 2. The DSBP award granted on 15 July 2019 has now vested but has not been exercised by Miles Roberts. A reduction to the gross award levels of 47% has been applied for the expected level of tax and social security deductions that will ultimately be due on these shares. 3. Based on the salary as at 30 April 2023 and a share price of 310p (being the closing price on 28 April 2023, the last trading day of the financial year) multiplied by the current year shareholding and interests in shares which count towards the shareholding requirement. The PSP awards granted in 2021 and 2022 are unvested and remain subject to performance conditions so are not included in the above table as they do not count towards the shareholding requirement. Nil-cost options which have vested but have yet to be exercised are considered to count towards the shareholding requirement, other than any such shares that correspond to the estimated tax and national insurance contributions. As at 30 April 2023 Miles Roberts did, and Adrian Marsh did not, hold any such vested but unexercised awards. Failure to meet the minimum shareholding requirement is taken into account when determining eligibility for share-based incentive awards for Executive Directors. There have been no changes to the shareholdings set out above between the financial year-end and the date of this report. Awards which vest on 14 July 2023 (and subsequent years) will be held in a nominee arrangement, if the required shareholding in the nominee arrangement has not been met, because they are subject to a post-employment holding condition (in addition to the two-year post-vesting holding condition that applies to vested PSP awards). On cessation of employment, Adrian Marsh will be required to retain for a period of two years in that nominee arrangement a shareholding, in respect of awards granted from 2020 onwards only, equal to the lower of 200% of his base salary or his actual shareholding in that arrangement on cessation of employment. 112 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT Non-Executive Directors are expected to build up a holding in shares equivalent to 50% of their annual fees within two years of their date of appointment. Non-Executive Directors’ shareholdings (including those of their connected persons) are summarised in the following audited table: | | | | Total | | | Total | Shareholding | | Shareholding at | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | shareholding as at | | | shareholding as at | | | | required | 30 April 2023 | | | Requirement | | | Name of Director | | 30 April 2022 | | | 30 April 2023 | | | (% fee) | | (% fee) | 1 | | met | Non-Executive Directors Geoff Drabble 60,000 77,445 50% 73% Yes Celia Baxter 10,993 15,113 50% 59% Yes 2 2 Alan Johnson – 12,596 50% 61% Yes Alina Kessel 12,000 19,000 50% 91% Yes David Robbie 20,000 30,000 50% 104% Yes Louise Smalley 18,600 18,600 50% 89% Yes 1. Based on the fee as at 30 April 2023 and a share price of 310p (being the closing price on 28 April 2023, the last trading day of the financial year) multiplied by the current year shareholding and interests in shares which count towards the shareholding requirement. 2. Alan Johnson joined the Board on 1 June 2022. He has not yet been on the Board for two years. Eric Olsen joined the Board on 15 May 2023. External appointments The Board supports Executive Directors taking up appointments outside the Company to broaden their knowledge and experience. Each Executive Director is permitted to accept one non-executive appointment (or in exceptional circumstances two appointments) from which they may retain any fee. Any external appointment must not conflict with a Director’s duties and commitments to DS Smith. Miles Roberts was appointed a non-executive director of Land Securities Group PLC with effect from 19 September 2022 and retained fees of £43,526 for the year ended 30 April 2023. Adrian Marsh retained fees of £69,142 for the year ended 30 April 2023 (£67,450 for the year ended 30 April 2022) in respect of his appointment as a non-executive director of John Wood Group PLC. Directors’ contracts and notice periods Date of contract/date of Expiry date of current term initial appointment to the Board for Non-Executive Directors Geoff Drabble Chair 1 September 2020 31 August 2026 Miles Roberts Group Chief Executive 4 May 2010 not applicable Adrian Marsh Group Finance Director 24 September 2013 not applicable Celia Baxter Chair of Remuneration Committee 9 October 2019 8 October 2025 Alan Johnson 1 June 2022 30 May 2025 Alina Kessel 1 May 2020 30 April 2026 Eric Olsen 15 May 2023 14 May 2026 David Robbie Chair of Audit Committee and Senior Independent Director 11 April 2019 10 April 2025 Louise Smalley 23 June 2014 31 March 2024 Miles Roberts and Adrian Marsh each have a notice period of 12 months exercisable by either the Company or the individual. As previously announced, Adrian Marsh will retire from the Company’s Board on 30 June 2023. Non-Executive Directors have letters of appointment for an initial term of three years whereupon they are normally renewed. The current terms of the Non-Executive Directors are set out in the table above. The notice period is one month exercisable by either the Company or the Non-Executive Director. Non-Executive Directors are not eligible for payments on termination. In line with the UK Corporate Governance Code, all Directors (including Non-Executive Directors) are subject to annual re-election by shareholders at the AGM. Their letters of appointment detail the time commitment expected of each Non-Executive Director. Both these and the Executive Directors’ service contracts are available for inspection at the registered office during normal business hours and at each AGM. Payments to past Directors or for loss of office (audited) No payments were made to past Executive Directors during the year ended 30 April 2023 (2021/22: Nil). No payments were made in respect of loss of office during the year ended 30 April 2023 (2021/22: Nil). Annual Report 2023 dssmith.com 113 ANNUAL REPORT ON REMUNERATION CONTINUED ### Relative importance of spend on pay The table below shows the expenditure and percentage change in overall spend on employee remuneration and dividends. | | 2022/23 £m | 2021/22 £m | Percentage change | | --- | --- | --- | --- | | Overall expenditure on employee pay^{1} | **1,500** | 1,381 | 9% | | Dividend paid during the year | **289** | 166 | 74% | 1. Total remuneration reflects overall employee costs and includes some exchange rate fluctuation. See consolidated financial statements note 6 for further information. ### Review of past performance – total shareholder return graph The graph below illustrates the Company's TSR performance since 1 May 2013 (the period required by the applicable regulations), relative to the FTSE 100 Index as well as the FTSE 250 Index. In December 2017 the Company joined the FTSE 100 Index from the FTSE 250 Index. Therefore, both indices are considered appropriate comparator indices for the Company. As at 30 April 2023 DS Smith ranked 50 by market capitalisation. This graph looks at the value, over the ten years to 30 April 2023, of an initial investment of £100 in DS Smith shares compared with that of £100 invested in both the FTSE 100 and FTSE 250 Index. The other points plotted are the values at intervening financial year ends. #### Total shareholder return **+99.7%** ![img-4.jpeg](img-4.jpeg) ### Remuneration of the Group Chief Executive The table below shows the total remuneration figure for the Group Chief Executive for each of the last ten financial years. The total remuneration figure includes the annual bonus and long-term incentive awards which vested, based on performance in those years. The annual bonus and long-term incentive awards percentages show the payout for each year as a percentage of the maximum available for the financial year. | | 2013/14 | 2014/15 | 2015/16 | 2016/17 | 2017/18 | 2018/19 | 2019/20 | 2020/21 | 2021/22 | 2022/23 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Total remuneration (£'000) | 3,696 | 5,527 | 4,447 | 4,861 | 4,220 | 3,065 | 1,422 | 2,525 | 2,580 | **4,190** | | Annual bonus payout | 85% | 88% | 79% | 45% | 88% | 74% | 0% | 98% | 100% | **100%** | | Long-term incentive vesting | 98% | 92% | 94% | 100% | 93% | 52% | 35% | 0% | 0% | **66.67%** | 114 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS # **Group Chief Executive pay ratio disclosures (audited)** | | Method | 25^{th} percentile | Median | 75^{th} percentile | | --- | --- | --- | --- | --- | | | | Total pay ratio | Total pay ratio | Total pay ratio | | 2018/19 | B | 100:1 | 91:1 | 72:1 | | 2019/20 | B | 52:1 | 44:1 | 35:1 | | 2020/21 | B | 90:1 | 71:1 | 60:1 | | 2021/22 | B | 81:1 | 60:1 | 56:1 | | **2022/23** | **B** | **132:1** | **104:1** | **101:1** | The table above sets out how the single total figure of remuneration (STFR) for the Group Chief Executive compares to the STFR of the UK employees at the 25$^{th}$ percentile, median and 75$^{th}$ percentile. All STFRs for the 2022/23 financial year have been based on full-time equivalent values and annualised where necessary. The table below sets out the split between total remuneration (fixed and variable pay and benefits) and the salary component of that total for UK employees used in the above total pay ratio calculations. DS Smith has chosen to use methodology B (as defined in the applicable regulations) to calculate the figures in the tables above and below, because, in 2022/23 as was the case in prior years, there were multiple bonus plans in place across the UK which are not payable in some cases in advance of the Directors' remuneration report being approved by the Board, meaning it is not practically possible to collate the bonus amounts relating to performance during 2022/23 for every UK employee in advance of this remuneration report being approved. # **Remuneration used to calculate the Group Chief Executive pay ratio disclosures** | | 25^{th} percentile pay ratio | | Median pay ratio | | 75^{th} percentile pay ratio | | | --- | --- | --- | --- | --- | --- | --- | | | Total remuneration ($) | Base salary ($) | Total remuneration ($) | Base salary ($) | Total remuneration ($) | Base salary ($) | | 2018/19 | 30,744 | 26,608 | 33,804 | 32,051 | 42,277 | 31,622 | | 2019/20 | 27,244 | 26,647 | 32,342 | 31,479 | 40,349 | 36,202 | | 2020/21 | 28,042 | 25,729 | 35,384 | 33,566 | 42,142 | 39,756 | | 2021/22 | 31,877 | 28,282 | 42,645 | 37,647 | 46,215 | 42,210 | | **2022/23** | **31,850** | **30,632** | **40,288** | **38,748** | **41,564** | **39,217** | As DS Smith uses methodology B, the 2022 UK gender pay gap data has been used to identify the relevant comparator employee falling at the relevant percentile and to calculate the annual total remuneration relating to 2022/23 for the three identified employees on the same basis as the Group Chief Executive's annual total remuneration for the same period in the single figure table. We are confident that the three employee STFR figures (which include applicable bonus) used in the pay ratio reporting are as representative of the respective percentiles as would have been the case if the 2022/23 STFR had been calculated for all UK employees. (The data reference date was 25 April 2023.) As a result of the large proportion of variable pay in the Group Chief Executive's total reward, the ratio can be subject to a high degree of volatility from one year to the next. That is the case this year, when, unlike last year, there has been a vesting of the PSF award, which has resulted in an increase in the ratio. We will continue to report on trends in these figures, which are expected to fluctuate as variable pay outcomes fluctuate for the Group Chief Executive. The Company does believe that the median pay ratio for 2022/23 is consistent with the pay, reward and progression policies for UK employees taken as a whole. Annual Report 2023 dssmith.com 115 ANNUAL REPORT ON REMUNERATION CONTINUED # **Annual percentage change in remuneration of Executive and Non-Executive Directors and employees** The table below shows the percentage change in three aspects of remuneration (salary or fee, benefits and bonus) for the Group Chief Executive, the Group Finance Director and the Non-Executive Directors who were Directors at 30 April 2023 compared to full-time equivalent employees of the Company. (The format of the table is prescribed by regulation. Benefits and bonus are not applicable to Non-Executive Directors. The increase in fees for certain Non-Executive Directors relates to their change of role in the applicable period, as noted below.) The section headed '% change on prior year for 2022/23' sets out the change from financial year 2021/22 to financial year 2022/23. The normal date for any implementation of a pay review is 1 August, not the start of the financial year. (Other explanatory notes concerning the figures for the prior years were set out in the Annual Reports for 2021 and 2022.) | | Miss Roberts | Adrian Marsh | Geoff Drabble | Colin Baxter | Alan Johnson | Alma Kessel | David Robbie | Louise Smalley | Company employees | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | **% change on prior year for 2022/23** | | | | | | | | | | | **Salary/Fee** | **3.6** | **3.6** | **0** | **2.9** | **n/a** | **3.7** | **13.5** | **3.7** | **4.9** | | **Benefits** | **(1.2)** | **0.2** | **n/a** | **n/a** | **n/a** | **n/a** | **n/a** | **n/a** | **5.0** | | **Bonus** | **3.6** | **3.5** | **n/a** | **n/a** | **n/a** | **n/a** | **n/a** | **n/a** | **9.8** | | **% change on prior year for 2021/22** | | | | | | | | | | | Salary/Fee | 2.9 | 2.9 | 0 | 1.5 | n/a | 1.9 | 3.7 | 1.9 | 4.1 | | Benefits | 2.8 | 1.2 | n/a | n/a | n/a | n/a | n/a | n/a | 11.2 | | Bonus | 5.0 | 5.1 | n/a | n/a | n/a | n/a | n/a | n/a | 8.3 | | **% change on prior year for 2020/21** | | | | | | | | | | | Salary/Fee | 1.1 | 1.1 | n/a | 0 | n/a | n/a | 8.1 | 0.6 | 2.0 | | Benefits | (1.2) | (2.3) | n/a | n/a | n/a | n/a | n/a | n/a | 1.3 | | Bonus | n/a | n/a | n/a | n/a | n/a | n/a | n/a | n/a | n/a | 1. Alan Johnson joined the Board on 1 June 2022 so in 2022/23 he has no prior year to compare 2022/23 with. 2. David Robbie became Senior Independent Director on 28 February 2022 (part way through the prior year of 2021/22). (i.e. Olsen joined the Board on 15 May 2023) # **Remuneration of Richard Pike** Richard Pike will replace Adrian Marsh as the Company's Group Finance Director and as an Executive Director with effect from 30 June 2023. Set out on page 95 are details of Richard's remuneration as Group Finance Director, which is in line with the applicable Remuneration policy. To compensate Richard for share-based incentive awards that he forfeited on leaving his former employer, Richard was granted on 27 April 2023 two conditional awards in respect of the Company's shares. The principal terms of these awards are summarised below. These awards were granted in the context of Richard's recruitment and under Listing Rule 9.4.2, given that it was not practicable under the Company's existing share plans to grant these awards in addition to an executive director's normal business as usual awards and the commercial necessity to agree the terms of buying out these awards as part of Richard's onboarding. The first of these awards (which represents the element of Richard's 2021 long-term incentive award from his former employer that Richard forfeited) is over 85,675 shares and will have a normal vesting date of 14 June 2024. The number of shares over which this award has been granted has been calculated to reflect the extent to which the performance conditions applicable to the original award would have been, in the opinion of the former employer's independent remuneration committee, achieved. The second of the awards (which represents the 2022 long-term incentive award which lapsed in connection with Richard joining the Company) is over 194,191 shares, has a normal vesting date of 27 June 2025 and will be subject to the same performance conditions as the awards granted to the Company's Executive Directors in June 2022. 116 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS To align Richard with the rest of the senior management team, the terms of the awards have been designed to replicate, so far as practicable, the terms of the Company's current PSP which was last approved by shareholders in September 2017. The two awards therefore both contain provisions equivalent to the existing PSP rules, including in relation to (i) the treatment of awards if Richard were to leave the Group or if there was a takeover of the Company; (ii) the application of malus and clawback to awards; (iii) the fact that the awards will not be pensionable; and (iv) the Listing Rule requirement to obtain prior shareholder approval for amendments to the arrangements. Both awards are also subject to a two-year post-vesting holding period in line with both best practice expectations for UK-listed companies and the Remuneration policy that will apply to Richard Pike when he becomes an Executive Director and after vesting will be held in a nominee arrangement, if the required shareholding in the nominee arrangement has not been met, because they are subject to a post-employment holding condition. #### Voting on the remuneration policy at the 2020 AGM and on the remuneration report at the 2022 AGM At the AGM held in 2022, votes cast by proxy and at the meeting in respect of the Directors' remuneration report were 1,006,312,888 (94.22%) voting in favour and 61,690,968 voting against (5.78%) with 196,214 votes withheld, being votes that are not recognised as a vote in law. At the AGM held in 2020, votes cast by proxy and at the meeting in respect of the remuneration policy were 916,656,836 (93.13%) voting in favour and 67,569,543 voting against (6.87%) with 24,228,039 votes withheld, being votes that are not recognised as a vote in law. #### Remuneration Committee governance The Board is ultimately accountable for executive remuneration and delegates this responsibility to the Remuneration Committee. The Committee's principal function is to support the Group's strategy by ensuring that its delivery is underpinned by the Company's overall Remuneration policy, as described earlier in this report. It also determines the specific remuneration package, including service contracts and retirement benefit arrangements, for each Executive Director and our most senior executives, as well as the fees paid to the Chair. The Remuneration Committee's Terms of Reference can be found at www.dssmith.com/investors/corporate-governance/committees/. #### KEY RESPONSIBILITIES OF THE REMUNERATION COMMITTEE - Designing the Remuneration policy - Implementing the Remuneration policy - Ensuring the competitiveness of reward, within an appropriate governance framework - Designing the incentive plans - Setting incentive targets and determining award levels - Overseeing all share awards across the Group. Each of these responsibilities impacts the other. The Committee is very conscious of the importance of the wider context in which it operates in discharging these responsibilities. | Members | Since | | --- | --- | | Celia Baxter (Chair since October 2019) | 2019 | | Geoff Drabble | 2020 | | Alan Johnson - since 1 June 2022 | 2022 | | Alina Kessel | 2020 | | David Robbie | 2019 | | Louise Smalley | 2014 | Rupert Soames retired from the Board and its Committees on 6 September 2022. Eric Olsen joined the Board and its Committees on 15 May 2023. Details of individual Directors' attendance can be found on page 76. The Group General Counsel and Company Secretary acts as Secretary to the Committee. All members of the Committee are Independent Non-Executive Directors. This is fundamental to ensuring Executive Directors' and senior executives' remuneration is set by people who are independent and have no personal financial interest, other than as shareholders, in the matters discussed. There are no potential conflicts of interest arising from cross-directorships and there is no day to day involvement in running the business. The Committee consults with the Group Chief Executive, who may attend meetings of the Committee, although he is not involved in deciding his own remuneration. The Committee is assisted by the Group Head of Reward, the Deputy Company Secretary, the Group General Counsel and Company Secretary and the Group Human Resources Director. No-one is allowed to participate in any matter directly concerning the details of their own remuneration or conditions of service. As described earlier in the report, the Company has discussed with the EWC Executive matters relating to Executive Directors' remuneration. When considering matters relating to the remuneration of the Executive Directors, the Committee takes into account the overall approach to reward for, and the pay and employment conditions of, other employees in the Group. To differentiate our employee value proposition and reinforce our strong DS Smith culture, the Group has developed the DS Smith reward principles (set out on page 97) which are endorsed by the Committee and were last reviewed by the Committee in 2023. Current policies and future decision making are matched against these to drive continuous improvement in this area. Annual Report 2023 dssmith.com 117 ANNUAL REPORT ON REMUNERATION CONTINUED ### TOPICS CONSIDERED AS PART OF REGULAR ANNUAL DECISION-MAKING CYCLE ### OF REMUNERATION COMMITTEE • How the business has performed against financial targets and ESG expectations • Forecasts for the year to come • Feedback from both the employee survey and pulse surveys on how employees feel about the quality of the Group’s leadership. This includes whether the leadership team continues to demonstrate living our values, how we measure employee performance and whether employees believe we have the right approach to reward • Review of guidance from the government and investor bodies • Holistic view of market practices • Assessing whether our remuneration framework is appropriately aligned with our culture and continues to motivate our leaders to achieve the Group’s strategic objectives and does not inadvertently motivate inappropriate behaviour giving rise to ESG or other risks • Consideration of remuneration and related policies across the Group • Discussion of the relevant aspects of this year’s Board effectiveness review. During the financial year of 2022/23 the Committee was advised by Korn Ferry in relation to various aspects of the remuneration of Executive Directors for which they were paid £43,376, partly on a fixed fee basis and partly on a time and materials basis. Korn Ferry in the financial year 2022/23 has also provided non-executive and executive search and talent assessment services to the Group. The teams providing that are separate from the Remuneration Committee advisers and there was no conflict of interest. The Committee is satisfied that the advice it receives from its advisers is objective and independent. Korn Ferry is a member of the Remuneration Consultants Group and adheres to the Code of Conduct for Remuneration Consultants (which can be found at www.remunerationconsultantsgroup.com). This report has been prepared in accordance with applicable legislation and regulatory requirements, including those of the Large and Medium-Sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013 (Regulations). The Regulations require the Auditor to report to shareholders on the audited information within this report and to state whether, in their opinion, the relevant sections have been prepared in accordance with the Companies Act 2006. The Auditor’s opinion is set out in the Independent Auditor’s report and we have clearly marked the audited sections of this annual report on remuneration. On behalf of the Board Celia Baxter Chair of Remuneration Committee 22 June 2023 118 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS # ADDITIONAL INFORMATION ## Acquisitions and disposals Acquisitions and disposals in the year ended 30 April 2023 are described in note 30 to the consolidated financial statements. ## Events after the reporting date There are no subsequent events after the reporting date which require disclosure. ## Share capital Details of the issued share capital and the rights and restrictions attached to the shares, together with details of movements in the Company's issued share capital during the year, are shown in note 24 to the consolidated financial statements. Pursuant to the Company's employee share option schemes 1,527,919 ordinary shares of 10 pence each were issued during the year. Between 1 May and 22 June 2023 inclusive, 1,487 shares were issued pursuant to the Company's employee share option schemes. The Company has not utilised its authority to make market purchases of 137,632,140 shares granted to it at the 2022 annual general meeting (AGM) but, in line with market practice, will be seeking to renew such authority at this year's AGM. The trustee of the employee benefit trust, which is used to purchase shares on behalf of the Company as described in note 24 to the consolidated financial statements, has the power to vote or not vote, at its absolute discretion, in respect of any shares in the Company held unallocated in that trust. However, in accordance with good practice, the trustee adopts a policy of not voting in respect of such shares. The trustee has a dividend waiver in place in respect of shares which are the beneficial property of the trust. ## Dividends An interim dividend for 2022/23 of 6.0 pence per ordinary share was paid on 31 January 2023 and the Directors recommend a final dividend of 12.0 pence per ordinary share, which together with the interim dividend, increases the total dividend for the year to 18.0 pence per ordinary share (2021/22: 15.0 pence). Subject to approval of shareholders at the AGM to be held on 5 September 2023, the final dividend will be paid on 3 October 2023 to shareholders on the register at the close of business on 8 September 2023. ## Political donations No political donations were made during the year ended 30 April 2023 (2021/22: nil). DS Smith has a policy of not making donations to political organisations or independent election candidates or incurring political expenditure, as defined in the Political Parties, Elections and Referendums Act 2000, anywhere in the world. ## Directors' and officers' liability insurance The Company has purchased and maintains appropriate insurance cover in respect of Directors' and officers' liabilities. The Company has also entered into qualifying third-party indemnity arrangements for the benefit of all its Directors and qualifying third-party indemnity arrangements have been entered into by a subsidiary of the Company for the benefit of certain directors of companies within the Group, all in a form and scope which comply with the requirements of the Companies Act 2006. These indemnities were in force throughout the year and up to the date of this Annual Report. ## Additional employee disclosures In our Strategic Report on pages 1 to 69 we set out some of the ways in which we realise the potential of our people, including how we engage with our workforce. As part of creating a modern, diverse and inclusive culture all companies within the Group strive to operate fairly at all times and this includes not permitting discrimination against any employee, applicant for employment or contingent worker on the basis of race, religion or belief, gender, disability, age, sexual orientation, gender reassignment, marital status or any other characteristic protected by local law (and complying with the Group's Equal Opportunities and Anti-Discrimination policy). This also includes giving full and fair consideration to suitable applications for employment from disabled persons, making reasonable adjustments in the hiring process to ensure fairness and equity in the selection process. For existing employees who develop a disability we will make all reasonable adjustments to support their continued employment, in their same job or, if this is not practicable, making every effort to find suitable alternative employment and to provide relevant training and career development opportunity. Through the Group's engagement survey, via our European Works Council which brings together employee representatives from the different European countries where we operate, as well as through site and team meetings and briefing newsletters, the Group provides employees with various opportunities to obtain information on matters of concern to them, to improve their awareness of the financial and economic factors that affect the performance of the Group and to provide their feedback. Annual Report 2023 dssmith.com 119 ADDITIONAL INFORMATION CONTINUED Substantial shareholdings Information provided to the Company pursuant to the Financial Conduct Authority’s Disclosure Guidance and Transparency Rules (DTRs) is published on a Regulatory Information Service and on the Company’s website. The following information has been received, in accordance with DTR 5, from holders of notifiable interests in the Company’s issued share capital. As at 30 April 2023 As at 22 June 2023 Nature of holding Aviva plc and its subsidiaries 6.79% 6.79% Direct & indirect BlackRock, Inc. 5.05% 5.05% Indirect abrdn plc Below 5% Below 5% Indirect Ameriprise Financial, Inc. and its group 4.981% 4.981% Direct & indirect Black Creek Investment Management Inc. 4.034428% 4.034428% Direct & indirect Sarasin & Partners LLP 3.01% 3.01% Indirect Norges Bank 2.991380% 2.991380% Direct Merpas (UK) Limited 2.985% 2.985% Direct & indirect Auditor Companies within the Group have branches in Norway, Poland and Slovakia. Each of the persons who is a Director at the date of the approval of this Annual Report confirms that: The information that fulfils the requirements of the corporate governance statement for the purposes of DTR 7 can be found on • so far as the Director is aware, there is no relevant audit pages 70 to 91, and that governance report also forms part of the information of which the Company’s Auditor is unaware; and Directors’ report. • the Director has taken all the steps he/she ought to have taken as a Director in order to make him/herself aware of any The Strategic Report on pages 1 to 69 and the governance report relevant audit information and to establish that the Company’s and Directors’ Remuneration Report on pages 70 to 120 together Auditor is aware of that information. represent the management report for the purpose of compliance with DTR 4.1.8R. This confirmation is given and should be interpreted in accordance with the provisions of section 418 of the Companies The Directors’ report was approved by the Board of Directors on | Act 2006. | 22 June 2023 and is signed on its behalf by: | | --- | --- | | A resolution to reappoint Ernst & Young LLP as Auditor will be | Iain Simm | | proposed at the forthcoming AGM. | Group General Counsel and Company Secretary | Listing Rule 9.8.4 and other required disclosures 22 June 2023 To the extent that there is information applicable to be disclosed under Listing Rule (LR) 9.8.4, such information is set out on the pages listed in the table below: Subject matter Page(s) Details required by LR 9.4.3 of award granted in context of LR 9.4.2 116 and 117 Certain information is included in our Strategic Report (pages 1 to 69) or Financial Statements that would otherwise be required to be disclosed in this section of the report. This is as follows: Subject matter Page(s) Likely future developments in the business 4 to 7 Research and development 12 and 13 Use of financial instruments 40 and 41 Greenhouse gas emissions 63 As is customary, our principal financing facilities incorporate market standard change of control clauses. 120 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT ## STATEMENT OF DIRECTORS’ ## RESPONSIBILITIES The Directors are responsible for preparing the Annual Report assets of the Group and to prevent and detect fraud and other and the Group and Company Financial Statements in accordance irregularities. with applicable law and regulations. Under applicable law and regulations, the Directors are also Company law requires the Directors to prepare Group and responsible for preparing a Strategic Report, a Directors’ Report, a Company Financial Statements for each financial year. Under that Directors’ Remuneration Report and a corporate governance law they have elected to prepare the Group Financial Statements statement that comply with that law and those regulations. in accordance with UK-adopted International Accounting The Directors are responsible for the maintenance and integrity Standards in conformity with the requirements of the Companies of the corporate and financial information included on the Act 2006, and the parent Company Financial Statements in Company’s website. Legislation in the UK governing the accordance with UK Accounting Standards, including FRS 101 preparation and dissemination of financial statements may differ Reduced Disclosure Framework. Company law requires the from legislation in other jurisdictions. Directors to prepare Group and parent Company Financial Statements for each financial year. Under that law the Directors Responsibility statement of the Directors in have elected to prepare the Group Financial Statements in respect of the Annual Report and the Financial accordance with UK-adopted international accounting standards Statements (IFRSs) and have elected to prepare the parent Company We confirm that to the best of our knowledge: Financial Statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom • the Financial Statements, prepared in accordance with the Accounting Standards and applicable law), including Financial applicable set of accounting standards, give a true and fair view Reporting Standard 101 ‘Reduced Disclosure Framework’ (FRS of the assets, liabilities, financial position and profit or loss of 101). the Company and the undertakings included in the consolidation as a whole; and Under company law the Directors must not approve the Financial • the Strategic Report and the Directors’ Report, including Statements unless they are satisfied that they give a true and fair content contained by reference, includes a fair review of the view of the state of affairs of the Group and Company and of their development and performance of the business and the profit or loss for that period. In preparing each of the Group and position and performance of the Company and the Company Financial Statements, the Directors are required to: undertakings included in the consolidation taken as a whole, • select suitable accounting policies and then apply them together with a description of the principal risks and consistently; uncertainties that they face. • make judgements and estimates that are reasonable and The Board confirms that the Annual Report and the Financial prudent; Statements, taken as a whole, are fair, balanced and • for the Group Financial Statements, state whether they have understandable and provide the information necessary for been prepared in accordance with UK-adopted International shareholders to assess the Group’s position and performance, Accounting Standards in conformity with the requirements of business model and strategy. the Companies Act 2006; This responsibility statement was approved by the Board of • for the Company Financial Statements, state whether the Directors on 22 June 2023 and is signed on its behalf by: applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in Miles Roberts Adrian Marsh the Company Financial Statements; Group Chief Executive Group Finance Director • assess the Group and Company’s ability to continue as a going concern, disclosing, as applicable, matters relating to going 22 June 2023 22 June 2023 concern; and • use the going concern basis of accounting unless they either intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so. 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 its Financial Statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the Annual Report 2023 dssmith.com 121 ## INDEPENDENT AUDITOR’S REPORT ## TO THE MEMBERS OF DS SMITH PLC Opinion In our opinion: • DS Smith Plc’s group financial statements and parent company financial statements (the “financial statements”) give a true and fair view of the state of the group’s and of the parent company’s affairs as at 30 April 2023 and of the group’s profit for the year then ended; • the group financial statements have been properly prepared in accordance with UK adopted international accounting standards; • the parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice, including Financial Reporting Standard 101 ‘Reduced Disclosure Framework’; and • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. We have audited the financial statements of DS Smith Plc (the ‘parent company’) and its subsidiaries (the ‘group’) for the year ended 30 April 2023 which comprise: Group Parent Company Consolidated statement of financial position as at 30 April 2023 Statement of financial position as at 30 April 2023 Consolidated income statement for the year then ended Statement of changes in equity for the year then ended Consolidated statement of comprehensive income for the year Related notes 1 to 17 to the financial statements including a then ended summary of significant accounting policies Consolidated statement of changes in equity for the year then ended Consolidated statement of cash flows for the year then ended Related notes 1 to 34 to the consolidated financial statements, including a summary of significant accounting policies The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and UK adopted international accounting standards. The financial reporting framework that has been applied in the preparation of the parent company financial statements is applicable law and United Kingdom Accounting Standards, including FRS 101 “Reduced Disclosure Framework” (United Kingdom Generally Accepted Accounting Practice). Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report below. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the group and parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the Financial Reporting Council’s (FRC) Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the group or the parent company and we remain independent of the group and the parent company in conducting the audit. 122 122 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ### Conclusions relating to going concern In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the directors' assessment of the group and parent company's ability to continue to adopt the going concern basis of accounting included: - The audit engagement partner and senior team members directed and supervised the audit procedures on going concern, in particular, assessing management's going concern model, assumptions therein and the result of their base and downside scenarios. - In conjunction with our walkthrough of the group's financial close process, we confirmed our understanding of management's forecasting and going concern assessment process including obtaining the director's going concern assessment, cash flow forecast and covenant calculations for the going concern period which covers a period up to 31 October 2024; - We understood the operation of management's model, checked the clinical accuracy of management's modelling, and recalculated management's forecasts of its compliance with borrowing covenants throughout the assessment period under management's scenarios; - Performing an independent analysis of events and factors that we would expect to be considered by management in its going concern analysis, to determine if there were any events or factors not included. We checked that climate change considerations were factored into future cash flows; - Auditing the key factors and assumptions, which include sales volumes, sales price, capital expenditure and energy costs, adopted in the cash flow model used for the going concern assessment, including considering whether management had exercised any bias in selecting their assumptions. By comparing against past performance and available market data; - Verifying the terms, maturity, interest rates, and any restrictions or covenants of the borrowings held by the group at the date of approving of the financial statements against the original contracts. In addition, we have obtained independent third party confirmations for the borrowings held by the group. We also considered repayments required of these facilities during the going concern period assessed as well as in the period shortly thereafter; - Checking the consistency of the factors and assumptions adopted in the going concern assessment with other areas of our audit, including the group's asset impairment assessment; - Challenged the adequacy of the going concern assessment period to 31 October 2024, taking into consideration whether any events or conditions after the period would indicate a longer review period would be more appropriate; - We performed independent sensitivity analyses and reverse stress testing of EBITDA and related cash flows in order to identify what events or conditions could lead to the group exhausting all liquidity or breaching the financial covenants during the going concern assessment period. We considered the likelihood of those events or conditions arising and the possible mitigating actions that management could take in such a scenario. This included a review of the group's operating and non-operating cash outflows and evaluating the group's ability to control these outflows as mitigating actions if required; and - Considering whether management's disclosures in the Annual Report and Accounts were appropriate. ### Our key observations The results from both management's evaluation and our independent reverse stress testing indicate that the group would need to be exposed to downside events, significantly greater than the financial effect of the disruption caused in recent years (e.g. due to COVID-19 and high-cost inflation following Russia's invasion of Ukraine), throughout the going concern period in order to breach its covenants or exhaust its available liquidity. The group has borrowing facilities available to it during the going concern period. The undrawn committed facilities available as at 30 April 2023 amounted to £1.65bn which includes the group's £0.7bn Eurobond facility maturing in July 2024 and £0.3bn Syndicated revolving facility maturing in November 2024 the latter of which is after the end of the going concern assessment period. Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the group and parent company's ability to continue as a going concern for a period to 31 October 2024. In relation to the group and parent company's reporting on how they have applied the UK Corporate Governance Code, we have nothing material to add or draw attention to in relation to the directors' statement in the financial statements about whether the directors considered it appropriate to adopt the going concern basis of accounting. Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the group's ability to continue as a going concern. Annual Report 2023 dssmith.com 123 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF DS SMITH PLC CONTINUED Overview of our audit approach Audit scope • We performed an audit of the complete financial information of 11 components, and audit procedures on specific balances for a further 8 components. • The components where we performed full scope procedures contributed 76% of the group’s Profit Before Tax, 66% of the group’s Revenue and 74% of the group’s Total Assets. The 7 specific scope components contributed 15% of the group’s Profit Before Tax, 13% of the group’s Revenue and 12% of the group’s Total Assets. For 1 specified procedures component, this contributed 3% of the group’s Profit Before Tax, 4% of the group’s Revenue and 1% of the group’s Total Assets Key audit We identified the following key audit matters that, in our professional judgement, had the greatest effect on our matters overall audit strategy, the allocation of resources in the audit and in directing the audit team’s efforts: • Valuation of uncertain tax positions • Carrying value of goodwill of the North America CGU Materialit Overall group materiality of £33.5m which represents 5% of the group’s Profit Before Tax. An overview of the scope of the parent company and group audits Tailoring the scope Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for each component within the group. Taken together, this enables us to form an opinion on the consolidated financial statements. We take into account size, risk profile, the organisation of the group and effectiveness of group-wide controls, changes in the business environment and other factors, such as recent Internal Audit results, when assessing the level of work to be performed at each component. In assessing the risk of material misstatement to the group financial statements, and to ensure we had adequate quantitative coverage of significant accounts in the financial statements, within the four geographic segments, three in Europe (Northern Europe, Eastern Europe and Southern Europe) and another in North America, we selected 19 components (2022 predecessor auditor: 17) covering entities within the UK, France, Germany, Spain, Portugal, Italy, North America, Belgium, Denmark, Hungary, Netherlands, Poland and Sweden, which represent the principal business units within the group. Of the 19 components selected, we performed an audit of the complete financial information of 11 components (“full scope components”) which were selected based on their size or risk characteristics. For 7 components (“specific scope components), we performed audit procedures on specific accounts within those business units that we considered had the potential for the greatest impact on the financial statements either because of the size of these accounts or their risk profile. For the remaining 1 component, we performed specified procedures over revenue and inventory. For the current year, 11 full scope components contributed 76% of the group’s Profit Before Tax, 66% of the group’s Revenue and 74% of the group’s Total Assets. The 7 specific scope components contributed 15% of the group’s Profit Before Tax, 13% of the group’s Revenue and 12% of the group’s Total Assets. For the specified procedures component, this contributed 3% of the group’s Profit Before Tax, 4% of the group’s Revenue and 1% of the group’s Total Assets. The audit scope of these specific and specified procedures scope components may not have included testing of all significant accounts of the component but will have contributed to the coverage of significant accounts tested for the group. Of the remaining components that together represent 6% of the group’s Profit Before Tax, none are individually greater than 2% of the group’s Profit Before Tax. For these components, we performed other procedures, including analytical reviews, testing of cash balances, testing of consolidation journals and enquiry of management about unusual transactions in these components to respond to any potential risks of material misstatement to the group financial statements. 124 y 124 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF DS SMITH PLC CONTINUED The charts below illustrate the coverage obtained from the work performed by our audit teams. Profit before tax Revenue Overview of our audit approach 6% | Audit scope | • We performed an audit of the complete financial information of 11 components, and audit procedures on specific | Full scope components | | Full scope components | | --- | --- | --- | --- | --- | | | balances for a further 8 components. | | 17% | | | | | Specific and specified | | Specific scope components | 18% • The components where we performed full scope procedures contributed 76% of the group’s Profit Before Tax, procedures scope Other procedures 66% of the group’s Revenue and 74% of the group’s Total Assets. The 7 specific scope components contributed components 17% 15% of the group’s Profit Before Tax, 13% of the group’s Revenue and 12% of the group’s Total Assets. For 1 Other procedures specified procedures component, this contributed 3% of the group’s Profit Before Tax, 4% of the group’s 66% Revenue and 1% of the group’s Total Assets 76% Key audit We identified the following key audit matters that, in our professional judgement, had the greatest effect on our matters overall audit strategy, the allocation of resources in the audit and in directing the audit team’s efforts: • Valuation of uncertain tax positions Total assets • Carrying value of goodwill of the North America CGU Materialit Overall group materiality of £33.5m which represents 5% of the group’s Profit Before Tax. Full scope components 13% Specific and specified An overview of the scope of the parent company and group audits procedures scope Tailoring the scope 13% components Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for each Other procedures component within the group. Taken together, this enables us to form an opinion on the consolidated financial statements. We take into account size, risk profile, the organisation of the group and effectiveness of group-wide controls, changes in the business environment and 74% other factors, such as recent Internal Audit results, when assessing the level of work to be performed at each component. In assessing the risk of material misstatement to the group financial statements, and to ensure we had adequate quantitative coverage of significant accounts in the financial statements, within the four geographic segments, three in Europe (Northern Europe, Eastern Europe and Southern Europe) and another in North America, we selected 19 components (2022 predecessor auditor: 17) covering entities within the Involvement with component teams UK, France, Germany, Spain, Portugal, Italy, North America, Belgium, Denmark, Hungary, Netherlands, Poland and Sweden, which represent In establishing our overall approach to the group audit, we determined the type of work that needed to be undertaken at each of the the principal business units within the group. components by us, as the primary audit engagement team, or by component auditors from other EY global network firms operating under Of the 19 components selected, we performed an audit of the complete financial information of 11 components (“full scope components”) our instruction. Of the 11 full scope components, audit procedures were performed on 1 of these directly by the primary audit team, who also which were selected based on their size or risk characteristics. For 7 components (“specific scope components), we performed audit performed central testing for a number of significant matters, such as the audit of uncertain tax positions, derivatives, pensions, impairment procedures on specific accounts within those business units that we considered had the potential for the greatest impact on the financial and factoring contracts amongst other areas. For the 7 specific scope components, where the work was performed by component auditors, statements either because of the size of these accounts or their risk profile. For the remaining 1 component, we performed specified we determined the appropriate level of involvement to enable us to determine that sufficient audit evidence had been obtained as a basis procedures over revenue and inventory. for our opinion on the group as a whole. For the current year, 11 full scope components contributed 76% of the group’s Profit Before Tax, 66% of the group’s Revenue and 74% of The group audit team followed a programme of planned visits that were designed to ensure that Senior Executive members of the audit the group’s Total Assets. The 7 specific scope components contributed 15% of the group’s Profit Before Tax, 13% of the group’s Revenue team visited the primary operating locations where the group audit scope is focused. During the current year’s audit cycle, visits were and 12% of the group’s Total Assets. For the specified procedures component, this contributed 3% of the group’s Profit Before Tax, 4% of undertaken by the primary audit team to the component teams in France, UK, Spain, North America and Italy where all of the full scope the group’s Revenue and 1% of the group’s Total Assets. The audit scope of these specific and specified procedures scope components may components are located, with the exception of Germany (Packaging) for which we performed detailed discussions with the component team not have included testing of all significant accounts of the component but will have contributed to the coverage of significant accounts combined with the remote review of their working papers in video conference. These visits involved discussing the audit approach with the tested for the group. component team and any issues arising from their work, and meetings with local management and visits to operational sites. The group audit team interacted regularly with the component teams using video conference calls where appropriate during various stages of the Of the remaining components that together represent 6% of the group’s Profit Before Tax, none are individually greater than 2% of the audit, reviewed relevant working papers and were responsible for the scope and direction of the audit process. This, together with the group’s Profit Before Tax. For these components, we performed other procedures, including analytical reviews, testing of cash balances, additional procedures performed at group level, gave us appropriate evidence for our opinion on the group financial statements. testing of consolidation journals and enquiry of management about unusual transactions in these components to respond to any potential risks of material misstatement to the group financial statements. Annual Report 2023 dssmith.com 125 y 124 Annual Report 2023 dssmith.com 125 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF DS SMITH PLC CONTINUED Climate change Stakeholders are increasingly interested in how climate change will impact DS Smith Plc’s group. The group has determined that the most significant future impacts from climate change on its operations will be from (i) increased spend on carbon taxes, (ii) increased cost of raw materials or threat to supply, (iii) increased severity of extreme weather events and (iv) increased likelihood of water stress. These are explained on pages 52-63 in the required Task Force for Climate related Financial Disclosures (“TCFD”) and on pages 45-49 in the principal risks and uncertainties. They have also explained their climate commitments on pages 25 to 29. All of these disclosures form part of the “Other information,” rather than the audited financial statements. Our procedures on these unaudited disclosures therefore consisted solely of considering whether they are materially inconsistent with the financial statements or our knowledge obtained in the course of the audit or otherwise appear to be materially misstated, in line with our responsibilities on “Other information”. In planning and performing our audit we assessed the potential impacts of climate change on the group’s business and any consequential material impact on its financial statements. The group has explained in its basis of preparation note 1 how they have reflected the impact of climate change in their financial statements including how this aligns with their commitment to the aspirations as set out in their TCFD and its defined sustainability targets as outlined in the Strategic report. The basis of preparation also explains management consideration of the impact of climate change in respect of (a) estimates of future cash flows used in the impairment assessment of goodwill and going concern, (b) assessment of residual values and estimated useful economic lives of property, plant and equipment, (c) adequacy of provisions for liabilities. Whilst management disclosed that the group’s sustainability strategy did not have a material impact, management is aware that this will evolve in future periods and will regularly assess these risks against the judgements and estimates made in preparation of the group’s financial statements. Our audit effort in considering the impact of climate change on the financial statements was focused on evaluating management’s assessment of the impact of climate risk, physical and transition, their climate commitments, the effects of material climate risks disclosed on pages 52-63 and the significant judgements and estimates disclosed in note 1 and whether these have been appropriately reflected in the future cash flows used to assess the carrying value of goodwill, economic life of property, plant and equipment, and adequacy of provisions following the requirements of UK adopted international accounting standards. As part of this evaluation, we performed our own risk assessment, supported by our climate change internal specialists to determine the risks of material misstatement in the financial statements from climate change which needed to be considered in our audit. Our audit testing included challenges to management with regards to cost assumptions for climate adaptation solutions particularly around capital expenditures and cost of carbon emission certificates, impacting future profit and forecasted cash flow. We corroborated our analysis with market available information for any change in climate related regulations and discussions with our component teams. In determining the valuations and the timing of future cashflows, we acknowledged that there is a degree of uncertainty involved and all climate related risks or future outcomes are not yet known. We also challenged the Directors’ considerations of climate change risks in their assessment of going concern and associated disclosures. Where considerations of climate change were relevant to our assessment of going concern, these are described above. Based on our work we have not identified the impact of climate change on the financial statements to be a key audit matter or to impact a key audit matter. Key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in our opinion thereon, and we do not provide a separate opinion on these matters. Refer to Accounting policies (page 137); and Note 7 to the Consolidated Financial Statements (page 149). Risk – Valuation of Uncertain Tax For the year ended 30 April 2023 the group recognised a total tax risk provision (including interest) of £114m Positions (2022: £118m). The group is subject to income tax in numerous jurisdictions and is routinely under audit by tax authorities in the ordinary course of business. Management applies judgement in assessing uncertain tax positions in each jurisdiction, which requires interpretation of local tax laws and specific facts and circumstances. Specifically, each tax provision involves the evaluation of unique and evolving facts and circumstances. Given the magnitude of the amounts subject to this judgement, there is a risk that tax provisions may be misstated. 126 126 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS # **Risk - Valuation of Uncertain Tax Positions (continued)** # **Our response to the risk** Our approach focused on the following procedures: - We obtained an understanding of management's key controls over their tax provision in supporting the prevention, detection and correction of material errors in the financial statements. - The group audit team evaluated the tax positions taken by management in each significant jurisdiction in the context of local tax law, correspondence with tax authorities and the status of any tax audits. Our work utilised support from local country tax specialists in jurisdictions where the group has more significant tax exposures. - We assessed the group's transfer pricing judgements, considering the way in which the group's businesses operate and the correspondence and agreements reached with tax authorities, including correspondence on tax audits and reviewing tax returns. - We evaluated the methodology adopted by management to calculate uncertain tax provisions and whether this is compliant with IFRIC 23. - In evaluating management's accounting, we developed our own range of acceptable provision levels for the group's tax exposures, based on the evidence we obtained. - The group audit team evaluated the completeness of uncertain tax positions by understanding the group's process for determining the completeness of identified tax risks and challenging whether risks provided for in one jurisdiction were applicable in other jurisdictions. - We evaluated the adequacy of the related disclosures provided in the group financial statements. # **Key observations communicated to the Audit Committee** Management's provision falls within our independently determined range and as a result we are satisfied that the estimates and judgements made by management in the valuation and accounting of uncertain tax provisions are reasonable and in accordance with IAS 12 and IFRIC 23. # **Risk - Carrying value of goodwill of the North America CGU** Refer to Accounting policies (page 137); and Note 10 to the Consolidated Financial Statements (page 153). As at 30 April 2023, the total carrying value of goodwill was £2,268m (2022: £2,193m) of which £633m (2022: £628m) relates to the North America Paper and Packaging (NAPP) CGU. As a result of the annual impairment test of goodwill, management concluded that the recoverable amount of goodwill and non-current assets was in excess of the carrying value. Auditing management's goodwill impairment test involved complex and subjective auditor judgment due to the nature of the projections and assumptions used in determining the recoverable amount of goodwill. The estimate of recoverable amount of the goodwill and non-current assets of each cash generating unit ('CGU') is determined using a net present value calculation based upon the forecast future cash flows of each CGU. In our audit of impairment, we identified a specific significant audit risk in relation to management's assessment for the North America CGU given recent trading results for this CGU. The recoverable amount of this CGU was sensitive to significant assumptions such as sales volume and price assumptions underlying the cash flow forecasts, long term growth rate, and discount rate. Specifically, the group's long term growth rate assumptions could be affected adversely by changes in projections about future market or economic conditions. This sensitivity is more pronounced in a newer CGU with a limited track record in meeting forecasts. The risk is that the carrying values for NAPP will not be supported by the future cash flows the assets generate, resulting in an impairment charge that has not been recognised by management. Annual Report 2023 dssmith.com 127 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF DS SMITH PLC CONTINUED Risk – Carrying value of goodwill of the North America CGU (continued) Our response Our approach focused on the following procedures: to the risk • We obtained an understanding of management’s key controls designed to identify and respond to the risk related to the impairment of goodwill. • We assessed the appropriateness of the group’s CGUs identified by management. • We reviewed the valuation methodology for consistency with the requirements of IAS 36 and tested the integrity of models in determining the recoverable amount for the CGUs. • We tested the forecast cash flows by comparing the key assumptions, such as price, volume and capital expenditures, used within the impairment models to approved budgets and business plans. Additionally, we have also corroborated management’s price and volume assumptions to external market data. • We involved valuation specialists to assist us in challenging the reasonableness of management's valuation assumptions, such as discount rates and long-term growth rates (“LTGR”) as well as the discounted cash flows methodology used by management. • We performed sensitivity analysis to assess the potential impact of a range of reasonably possible outcomes, including looking for contraindicators. • We evaluated the adequacy of the financial statement disclosures. All of the work was performed by members of the group audit team. Key Based on our audit procedures, considering the LTGR and NAPP’s recent trading results, we consider that observations management’s assessment that no impairment is required against the goodwill is appropriate. However, we communicated concluded that there were reasonably possible changes in certain key assumptions which could result in to the Audit impairment in the NAPP CGU which required disclosure. Committee We are satisfied that the disclosures in the Annual Report and financial statements on the sensitivity of the forecasts, including NAPP, are appropriate and reflect the reasonably possible change in assumption. The classification and presentation of adjusting items was a Key Audit Matter in 2022 for the predecessor auditor due to it being a key determinant in assessing the quality of the group’s earnings and also presenting the opportunity for management bias in the presentation of results. Management judgement is required in determining the accounting policy for identifying if an item is adjusting based on the size, nature and incidence of the item. We do not consider this area a Key Audit Matter in our 2023 audit as the total adjusting items value for the year is £15 million (2022: £37 million) limiting the potential of error to below materiality levels. As part of the audit, we also address the following two risks: The risk of inappropriate revenue recognition and the risk of management override of internal controls, which are both presumed significant risks by ISAs (UK), including evaluating whether there is evidence of bias by the Directors that may represent a risk of material misstatement due to fraud. We determined that the risk of inappropriate revenue recognition and the risk of management override of controls do not represent separate key audit matters, on the basis that the auditing of revenue and management override of controls did not have the greatest effect on our overall audit strategy, the allocation of resources in the audit or in directing the efforts of the engagement team. Our application of materiality We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the audit and in forming our audit opinion. Materiality The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the economic decisions of the users of the financial statements. Materiality provides a basis for determining the nature and extent of our audit procedures. We determined materiality for the group to be £33.5 million, which is 5% of Profit Before Tax (2022 predecessor auditor materiality was £23 million, 6% of Profit Before Tax). Our preferred approach to setting materiality is to use Profit Before Tax as it is a key performance measure for the users of the financial statements. 128 128 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS We determined materiality for the Parent Company to be €35.2 million, which is 1% of equity which we consider to be an appropriate basis for materiality for a holding company, as the users of the financial statements focus on a capital-based measure. The materiality applied in our testing is capped at 75% of group performance materiality at €25 million (2022 predecessor auditor capped the materiality of the parent company at €11.5 million, 50% of group materiality). #### Performance materiality *The application of materiality at the individual account or balance level, it is set at an amount to reduce to an appropriately low-level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality.* On the basis of our risk assessments, this being an initial audit and together with our assessment of the group's overall control environment, our judgment was that performance materiality was 50% of our planning materiality, namely €16.7 million (2022 €16.1 million). Audit work at component locations for the purpose of obtaining audit coverage over significant financial statement accounts is undertaken based on a percentage of total performance materiality. The performance materiality set for each component is based on the relative scale and risk of the component to the group as a whole and our assessment of the risk of misstatement at that component. In the current year, the range of performance materiality allocated to components was €3.3m to €7.5m. #### Reporting threshold *An amount below which identified misstatements are considered as being clearly trivial.* We agreed with the Audit Committee that we would report to them all uncorrected audit differences in excess of €1.6m (2022 €1m), which is set at 5% of planning materiality, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of other relevant qualitative considerations in forming our opinion. #### Other information The other information comprises the information included in the Annual Report set out on pages 1 to 121, including the Strategic Report and Governance sections (including the Directors' Report, Chair's introduction to Governance, Division of Responsibilities, Board Leadership and Company Purpose, Nomination Committee Report, Audit, risk and internal control, Audit Committee Report, Remuneration Committee Report, and Additional information), other than the financial statements and our auditor's report thereon. The directors are responsible for the other information contained within the Annual Report. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in this report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of the other information, we are required to report that fact. We have nothing to report in this regard. #### Opinions on other matters prescribed by the Companies Act 2006 In our opinion, the part of the directors' remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006. In our opinion, based on the work undertaken in the course of the audit: - the information given in the Strategic report and the Directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and - the Strategic report and the Directors' report have been prepared in accordance with applicable legal requirements. Annual Report 2023 dssmith.com 129 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF DS SMITH PLC CONTINUED Matters on which we are required to report by exception In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course of the audit, we have not identified material misstatements in the Strategic report or the Directors’ report. We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion: • adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or • the parent company financial statements and the part of the directors’ remuneration report to be audited are not in agreement with the accounting records and returns; or • certain disclosures of directors’ remuneration specified by law are not made; or • we have not received all the information and explanations we require for our audit. Corporate Governance Statement We have reviewed the directors’ statement in relation to going concern, longer-term viability and that part of the Corporate Governance Statement relating to the group and Company’s compliance with the provisions of the UK Corporate Governance Code specified for our review by the Listing Rules. Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance Statement is materially consistent with the financial statements or our knowledge obtained during the audit: • Directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and any material uncertainties identified set out on page 51; • Directors’ explanation as to its assessment of the Company’s prospects, the period this assessment covers and why the period is appropriate set out on pages 50-51; • Director’s statement on whether it has a reasonable expectation that the group will be able to continue in operation and meets its liabilities set out on page 51; • Directors’ statement on fair, balanced and understandable set out on page 121; • Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on pages 42-49; • The section of the Annual Report that describes the review of effectiveness of risk management and internal control systems set out on pages 84-85; and • The section describing the work of the audit committee set out on pages 86-91. Responsibilities of directors As explained more fully in the directors’ responsibilities statement set out on page 121, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the group and parent company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined below, to detect irregularities, including fraud. The risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below. 130 130 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS However, the primary responsibility for the prevention and detection of fraud rests with both those charged with governance of the company and management. - We obtained an understanding of the legal and regulatory frameworks that are applicable to the group and determined that the most significant and directly relevant to specific assertions in the financial statements are those related to the reporting frameworks (UK adopted international accounting standards), the Companies Act 2006, the UK Corporate Governance Code, the Listing Rules of the UK Listing Authority and the relevant tax compliance regulations in the jurisdictions in which the group operates. In addition, we concluded that there are certain significant laws and regulations that may have an effect on the determination of the amounts and disclosures in the financial statements, mainly relating to health and safety, employee matters and environmental legislation. - We understood how US Smith plc is complying with those frameworks by making enquiries of management, internal Audit, those responsible for legal and compliance procedures and the Company Secretary. We corroborated our enquiries through our review of Board minutes and papers provided to the Audit Committee and attendance at meetings of the Audit Committee, as well as consideration of the results of our audit procedures across the group to either corroborate or provide contrary evidence which was then followed up. We tested management's entity level controls to understand the company culture of honest and ethical behaviour, including the emphasis on fraud prevention. - We assessed the susceptibility of the group's financial statements to material misstatement, including how fraud might occur, by meeting with management from various parts of the business to understand what areas were susceptible to fraud. We also considered performance targets and their propensity to influence management to manage earnings. - We considered the programmes and controls that the group has established to address risks identified, or that otherwise prevent, deter and detect fraud, and how senior management monitors those programmes and controls. Where risk was considered as higher, we performed audit procedures to address each identified fraud risk. - With the assistance of our forensic specialists and considering our understanding of the group, we designed our audit procedures to identify non-compliance with such laws and regulations that could have a material impact on the financial statements. Our procedures involved: enquiries of group management, those charged with governance, head of legal and external legal advisors, and internal audit; review of internal and external reports; challenging the assumptions and judgements made by management in respect of significant accounting estimates; incorporating data analytics across our audit approach, testing of manual journal entries recorded to revenue and group-level adjustments and any other large or unusual transactions to gain reasonable assurance that the financial statements were free from fraud and error. Where observations are raised about management's process or controls surrounding compliance with laws and regulations by us or others, we consider the potential effect of those observations. Furthermore, we performed procedures to conclude on the compliance of disclosures made in the annual report and accounts with all applicable requirements. A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council's website at https://www.frc.org.uk/auditors-responsibilities. This description forms part of our auditor's report. # Other matters we are required to address - Following the recommendation from the Audit Committee, we were appointed by the company on 26 September 2022 to audit the financial statements for the year ending 30 April 2023 and subsequent financial periods. The period of total uninterrupted engagement including previous renewals and reappointments is one year, commencing with the current year ending 30 April 2023. - The audit opinion is consistent with the additional report to the Audit Committee. # Use of our report This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed. Kevin Harkin (Senior statutory auditor) for and on behalf of Ernst & Young LLP, Statutory Auditor London 22 June 2023 Annual Report 2023 dssmith.com 131 FINANCIAL STATEMENTS ## CONSOLIDATED INCOME STATEMENT Year ended 30 April 2023 | | | Before | | Adjusting | | | After | Before | | Adjusting | | | After | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | adjusting | | | items | adjusting | | adjusting | | | items | adjusting | | | | | items | | | 2023 | | items | items | | | 2022 | | items | | | | 2023 | | (note 4) | | | 2023 | 2022 | | (note 4) | | | 2022 | | Continuing operations | Note | | £m | | £m | | £m | | £m | | £m | | £m | Revenue 2 8,221 – 8,221 7,241 – 7, 241 Operating costs 3,4 (7,360) – (7,36 0) (6,625) (37) (6,662) Operating profit before amortisation, acquisitions and divestments 2 861 – 861 616 (37) 579 Amortisation of intangible assets; acquisitions and divestments 10, 4 (113) (15) (128) (138) 2 (1 36) Operating profit 4 748 (15) 733 478 (35) 443 Finance income 5 2 –2 1 – 1 Finance costs 5, 4 (75) – (75) (68) (2) (70) Employment benefit net finance expense 25 (1) – (1) (3) – (3) Net financing costs (74) – (74) (70) (2) (72) Profit after financing costs 674 (15) 659 408 (37) 37 1 Share of profit of equity accounted investments, net of tax 13 2 –27 – 7 Profit before income tax 676 (15) 661 415 (37) 378 Income tax (expense)/credi 7, 4 (172) 3 (169) (100) 2 (98) Profit for the year from continuing operations 504 (12) 492 315 (35) 280 Discontinued operations Profit for the year from discontinued operations, net of tax 30(b) – 11 11 – – – Profit for the year 504 (1) 5 03 315 (35) 280 Profit for the year attributable to: Owners of the paren 503 (1) 502 315 (35) 280 Non-controlling interests 1 –1 – – – Earnings per share Earnings per share from continuing and discontinued operations Basic 8 36.6p 20.4p Diluted 8 36.3p 20.3p Earnings per share from continuing operations Basic 8 35.8p 20.4p Diluted 8 3 5.5p 20.3p Adjusted earnings per share from continuing operations Basic 8, 32 43.0p 30.7p Diluted 8 42.7p 30.5p 132 t t 132 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT FINANCIAL STATEMENTS ## CONSOLIDATED STATEMENT OF ## COMPREHENSIVE INCOME | CONSOLIDATED INCOME STATEMENT | Year ended 30 April 2023 | | | | | --- | --- | --- | --- | --- | | Year ended 30 April 2023 | | | 2023 | 2022 | | | | Note | £m | £m | Profit for the year 503 280 Items which will not be reclassified subsequently to profit or loss Actuarial gain on employee benefits 25 11 68 | | | Before | | Adjusting | | | After | Before | Adjusting | | | After | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | adjusting | | | items | adjusting | | adjusting | | items | adjusting | | Income tax on items which will not be reclassified subsequently to profit or loss 7 (2) (14) | | | | items | | | 2023 | | items | items | | 2022 | | items | | | | | 2023 | | (note 4) | | | 2023 | 2022 | (note 4) | | | 2022 | Items which may be reclassified subsequently to profit or loss | | Continuing operations | Note | | £m | | £m | | £m | £m | | £m | | £m | | Foreign currency translation differences 194 (40) Revenue 2 8,221 – 8,221 7,241 – 7,241 Reclassification to income statement on asset write-down (3) – Operating costs 3,4 (7,360) – (7,360) (6,625) (37) (6,662) Reclassification from translation reserve to income statement arising on divestment – (3) Operating profit before amortisation, Cash flow hedges fair value changes (72) 1,069 acquisitions and divestments 2 861 – 861 616 (37) 579 Reclassification from cash flow hedge reserve to income statemen 21(c) (573) (357) Amortisation of intangible assets; Movement in net investment hedge (74) 28 acquisitions anddivestments 10, 4 (113) (15) (128) (138) 2 (136) Income tax on items which may be reclassified subsequently to profit or loss 7 149 (162) Operating profit 4 748 (15) 733 478 (35) 443 Other comprehensive (expense)/income for the year, net of tax (370) 5 89 Finance income 5 2 –2 1 – 1 Finance costs 5, 4 (75) – (75) (68) (2) (70) Total comprehensive income for the year 133 869 Employment benefit net finance expense 25 (1) – (1) (3) – (3) Net financing costs (74) – (74) (70) (2) (72) Total comprehensive income attributable to: Profit after financing costs 674 (15) 659 408 (37) 371 Owners of the paren 132 869 Share ofprofit of equity accounted investments, Non-controlling interests 1 – net of tax 13 2 –27 – 7 Profit before income tax 676 (15) 661 415 (37) 378 Income tax (expense)/credi 7, 4 (172) 3 (169) (100) 2 (98) Profit for the year from continuing operations 504 (12) 492 315 (35) 280 Discontinued operations Profit for the year from discontinued operations, net of tax 30(b) – 11 11 – – – Profit for the year 504 (1) 503 315 (35) 280 Profit for the year attributable to: Owners of the paren 503 (1) 502 315 (35) 280 Non-controlling interests 1–1– – – Earnings per share Earnings per share from continuing and discontinued operations Basic 8 36.6p 20.4p Diluted 8 36.3p 20.3p Earnings per share from continuing operations Basic 8 35.8p 20.4p Diluted 8 35.5p 20.3p Adjusted earnings per share from continuing operations Basic 8, 32 43.0p 30.7p Diluted 8 42.7p 30.5p Annual Report 2023 dssmith.com 133 t t t t 132 Annual Report 2023 dssmith.com 133 FINANCIAL STATEMENTS CONTINUED ## CONSOLIDATED STATEMENT ## OF FINANCIAL POSITION At 30 April 2023 2023 2022 Note £m £m Assets Non-current assets | Intangible assets | 10 2,927 2,906 | | | | --- | --- | --- | --- | | Biological assets | | | 11 10 | | Property, plant and equipmen | 11 3,529 3,128 | | | | Right-of-use assets | 12 224 199 | | | | Equity accounted investments | 13 17 17 | | | | Other investments | 14 17 16 | | | | Employee benefits | 25 24 – | | | | Deferred tax assets | 22 11 7 | | | | Other receivables | 16 1 – | | | | Derivative financial instruments | 21 165 495 | | | | Total non-current assets | | 6,926 6,778 | | Current assets | Inventories | 15 619 7 03 | | | | --- | --- | --- | --- | | Biological assets | | | 6 7 | | Income tax receivable | | | 24 34 | | Trade and other receivables | 16 1,256 1,229 | | | | Cash and cash equivalents | 19 472 819 | | | | Derivative financial instruments | 21 154 316 | | | | Total current assets | | 2,531 3,108 | | | Total assets | | 9,457 9,886 | | Liabilities Non-current liabilities | Borrowings | 20 | 1,742 | | 1,391 | | | --- | --- | --- | --- | --- | --- | | Employee benefits | 25 | | 79 | | 86 | | Other payables | 17 | | 34 | | 37 | | Provisions | 23 | | 11 | | 7 | | Lease liabilities | 12 | | 154 | 140 | | | Deferred tax liabilities | 22 | | 262 | 396 | | | Derivative financial instruments | 21 | | 49 | | 28 | | Total non-current liabilities | | 2,331 | | 2,085 | | Current liabilities | Bank overdrafts | 19 | 104 | | 73 | | --- | --- | --- | --- | --- | | Borrowings | 20 | 74 | | 681 | | Trade and other payables | 17 | 2,253 | 2,503 | | | Income tax liabilities | | 165 | | 143 | | Provisions | 23 | 54 | | 48 | | Lease liabilities | 12 | 70 | | 63 | | Derivative financial instruments | 21 | 319 | | 56 | | Total current liabilities | | 3,039 | 3,567 | | | Total liabilities | | 5,370 | 5,652 | | | Net assets | | 4,087 4, 234 | | | | E uit | | | | | | Issued capital | 24 138 137 | | | | | Share premium | | 2,251 2,248 | | | | Reserves | 24 1,695 1,847 | | | | | Total equity attributable to owners of the paren | | 4,084 4,232 | | | | Non-controlling interests | | 3 2 | | | | Total equity | | 4,087 4, 234 | | | Approved by the Board of Directors of DS Smith Plc on 22 June 2023 and signed on its behalf by: M W Roberts A R T Marsh Director Director The accompanying notes are an integral part of these consolidated financial statements. 134 ( ) ( ( ( ( ( ( ) ( ( ) ( ( ) ( ( ( ( ( ( ) ( ( ( ( ( ( ( ( ( ( ) ( ( ) ( ( ) ( ( ) ( q ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) y ) ) ) ) ) ) ) t t 134 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT FINANCIAL STATEMENTS CONTINUED ## CONSOLIDATED STATEMENT ## OF CHANGES IN EQUITY ## CONSOLIDATED STATEMENT Year ended 30 April 2023 Total equity attributable Non- ## OF FINANCIAL POSITION | | | Share | | Share | Hedging | | Translation | | | Own | Retained | | to owners of | | controlling | | Total | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | capital | premium | | reserve | | | reserve | | shares | earnings | 1 | the parent | | interests | | equity | | At 30 April 2023 | Note | £m | | £m | | £m | | | £m | £m | | £m | | £m | | £m | £m | At 1 May 2021 137 2,241 53 (84) (3) 1,189 3,533 2 3,535 | | | 2023 | 2022 | | | | --- | --- | --- | --- | --- | --- | | | Note | £m | £m | Profit for the yea | – – – – – 280 280 – 280 | | Assets | | | | Actuarial gain on employee benefits 25 – – – – – 68 68 – 68 | | | N on-current assets | | | | Foreign currency translation | | | Intangible assets | 10 2,927 2,906 | | | differences – – – (40) – – (40) – (40) | | | Biological assets | | 11 10 | | | | Reclassification from translation Property, plant and equipmen 11 3,5 29 3,128 reserve to income statement arising Right-of-use assets 12 224 199 on divestment – – – (3) – – (3) – (3) Equity accounted investments 13 17 17 Cash flow hedges fair value changes – – 1,069 – – – 1,069 – 1,069 Otherinvestments 14 17 16 Reclassification from cash flow Employee benefits 25 24 – hedge reserve to income statement 21(c) – – (357) – – – (357) – (357) Deferredtax assets 22 11 7 Movement in net investment hedge – – – 28 – – 28 – 28 Other receivables 16 1 – Derivative financial instruments Income tax on other comprehensive 21 165 495 income – – (163) 1 – (14) (176) – (176) | Total non-current assets | | 6,926 6,778 | | | | | --- | --- | --- | --- | --- | --- | | Current assets | | | | Total comprehensive | | | Inventories | 15 619 703 | | | income/(expense) – – 549 (14) – 334 869 – 869 | | | Biological assets | | | 6 7 | Issue of share capital – 7 – – – – 7 – 7 | | | Income taxreceivable | | | 24 34 | | | | | | | | Employee share trus | – – – – (6) (15) (21) – (21) | | Trade and other receivables | 16 1,256 1,229 | | | | | Share-based payment expense | Cash and cash equivalents | 19 472 819 | | | | --- | --- | --- | --- | | | | (net of tax) | – – – – – 10 10 – 10 | | Derivative financial instruments | 21 154 316 | | | Dividends paid 9 – – – – – (166) (166) – (166) Total current assets 2,531 3,108 Reclassification – – 7 (7) – – – – – | Total assets | | 9,457 9,886 | | | | | | --- | --- | --- | --- | --- | --- | --- | | Liabilities | | | | | Other changes in equity in the | | | Non-current liabilities | | | | | year – 7 7 (7) (6) (171) (170) – (170) | | | Borrowings | 20 | 1,742 | | 1,391 | At 30 April 2022 137 2, 248 609 (105) (9) 1,35 2 4,232 2 4,234 | | | Employee benefits | 25 | | 79 | 86 | Profit for the yea | – – – – – 502 502 1 503 | | Other payables | 17 | | 34 | 37 | | | Actuarial gain on employee benefits 25 – – – – – 11 11 – 11 Provisions 23 11 7 Reclassification to income Lease liabilities 12 154 140 statement on asset write-down – – – – – (3) (3) – (3) Deferredtax liabilities 22 262 396 Foreign currency translation Derivative financial instruments 21 49 28 differences – – – 194 – – 194 – 194 Total non-current liabilities 2,331 2,085 Cash flow hedges fair value changes – – (72) – – – (72) – (72) Current liabilities | Bank overdrafts | 19 | 104 | | 73 | Reclassification from cash flow | | | --- | --- | --- | --- | --- | --- | --- | | Borrowings | 20 | 74 | | 681 | hedge reserve to income statement 21(c) – – (573) – – – (573) – (573) | | | Trade and other payables | 17 | 2,253 | 2,503 | | Movement in net investment hedge – – – (74) – – (74) – (74) | | | Income tax liabilities | | 165 | | 143 | Income tax on other comprehensive | | | Provisions | 23 | 54 | | 48 | income | – – 149 – – (2) 147 – 147 | | Lease liabilities | 12 | 70 | | 63 | | | Total comprehensive Derivative financial instruments 21 319 56 income/(expense) – – (4 96) 120 – 508 13 2 1 13 3 Total current liabilities 3,039 3,567 Issue of share capital 1 3 – – – – 4 – 4 | Total liabilities | 5,370 | 5,652 | | | | --- | --- | --- | --- | --- | | | | | Employee share trus | – – – – (5) (3) (8) – (8) | | Net assets | 4,087 4,234 | | | | Share-based payment expense E uit Iss ued capital (net of tax) – – – – – 13 13 – 13 24 138 137 | Share premium | | 2,251 2,248 | Dividends paid 9 – – – – – (289) (289) – (289) | | --- | --- | --- | --- | | Reserves | 24 1,695 1,847 | | Other changes in equity in the year 1 3 – – (5) (279) (28 0) – (2 80) | | Total equity attributable to owners of the paren | | 4, 084 4,232 | | At 30 April 2023 138 2,2 51 113 15 (14) 1,581 4,084 3 4,087 Non-controlling interests 3 2 1. Retained earnings include a reserve related to merger relief (note 24). Total equity 4,087 4,234 Approved by the Board of Directors of DS Smith Plc on 22 June 2023 and signed on its behalf by: M W Roberts A R T Marsh Director Director Annual Report 2023 dssmith.com 135 The accompanying notes are anintegral part of these consolidatedfinancial statements. q y t t ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ( ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) r r t t 134 Annual Report 2023 dssmith.com 135 FINANCIAL STATEMENTS CONTINUED # CONSOLIDATED STATEMENT OF CASH FLOWS Year ended 30 April 2023 | Continuing operations | Note | 2023 £m | 2022 £m | | --- | --- | --- | --- | | **Operating activities** | | | | | Cash generated from operations | 27 | 1,078 | 1,079 | | Interest received | | 2 | 1 | | Interest paid | | (78) | (63) | | Tax paid | | (136) | (96) | | **Cash flows from operating activities** | | **866** | **921** | | **Investing activities** | | | | | Acquisition of subsidiary businesses, net of cash and cash equivalents | 30 | - | (23) | | Divestment of subsidiary businesses, net of cash and cash equivalents | 30 | - | 35 | | Capital expenditure | | (545) | (431) | | Proceeds from sale of property, plant and equipment and intangible assets | | 19 | 16 | | Cash outflows from restricted cash and other deposits | | (2) | (2) | | Other investing activities | | 2 | 2 | | **Cash flows used in investing activities** | | **(526)** | **(403)** | | **Financing activities** | | | | | Proceeds from issue of share capital | | 4 | 7 | | Repayment of borrowings | | (679) | (529) | | Proceeds from borrowings | | 332 | 334 | | Proceeds from (payments) in respect of derivative financial instruments | | 14 | (35) | | Repayment of principal on lease liabilities | | (106) | (73) | | Dividends paid to Group shareholders | 9 | (289) | (166) | | Other financing activities | | (4) | (2) | | **Cash flows used in financing activities** | | **(728)** | **(483)** | | **(Decrease)/increase in cash and cash equivalents from continuing operations** | | **(388)** | **35** | | **Discontinued operation** | | | | | Cash flows used in discontinued operation | 30(b) | - | - | | **(Decrease)/increase in cash and cash equivalents** | | **(388)** | **35** | | Net cash and cash equivalents at beginning of the year | | 746 | 719 | | Exchange gain/ (losses) on cash and cash equivalents | | 10 | (8) | | **Net cash and cash equivalents at end of the year** | 19 | **368** | **746** | 136 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS # NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ## 1. Significant accounting policies ### (a) Basis of preparation #### (i) Consolidated financial statements These financial statements are the consolidated financial statements for the Group consisting of DS Smith Plc, a company registered in England and Wales, and all its subsidiaries. The consolidated financial statements have been prepared and approved by the Directors in accordance with the recognition, measurement and presentation requirements of UK- adopted International Accounting Standards, the requirements of the Companies Act 2006 and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). The consolidated financial statements are prepared on the historical cost basis with the exception of biological assets, other investments, assets and liabilities of certain financial instruments and employee benefit plans that are stated at their fair value and share-based payments that are stated at their grant date fair value. The consolidated financial statements have been prepared on a going concern basis as set out on within the going concern section on page 51 of the Directors' report. The Directors consider that adequate resources exist for the Company to continue in operational existence for the period to 31 October 2024. The preparation of consolidated financial statements requires management to make judgements, estimates and assumptions that affect whether and how policies are applied, and the reported amounts of assets and liabilities, income and expenses. Estimates with a significant risk of material adjustment and the critical accounting judgement are discussed in accounting policies 1(2) and 1(3a). #### (ii) Climate change The Group has considered the impact of climate change in preparing these consolidated financial statements, including the effect upon the application of its accounting policies, judgements, estimates and assumptions. In making its assessments of the impact the Group considered the risks identified through its Risk Management processes, the Task Force on Climate-related Financial Disclosures (TCFD) on page 52 to 63 and its defined sustainability targets, as outlined in the Strategic Report. These considerations, which are core to the Group's strategy, did not have a material impact on any accounting estimates and judgements including the following areas: - The estimates of future cash flows used in the impairment assessment of goodwill (refer to note 10) and going concern. - The assessment of residual values and estimated useful economic lives of property, plant and equipment (refer to note 11) and - The adequacy of provisions for liabilities (refer to note 23). The impact of climate change will evolve in future periods and the Group will continue to assess this. #### (iii) Discontinued operations The Group classifies non-current assets and disposal groups as held for sale if their carrying amounts will be recovered principally through a sale transaction rather than through continuing use. Non-current assets and disposal groups classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell. Costs to sell are the incremental costs directly attributable to the disposal of an asset or disposal group, excluding finance costs and income tax expense. The criteria for held for sale classification is regarded as met only when the sale is highly probable and the asset or disposal group is available for immediate sale in its present condition. Actions required to complete the sale should indicate that it is unlikely that significant changes to the sale will be made or that the decision to sell will be withdrawn. Management must be committed to the plan to sell the asset and the sale is expected to be completed within one year from the date of the classification. Assets and liabilities classified as held for sale are presented separately as current items in the statement of financial position. Discontinued operations are excluded from the results of continuing operations and are presented as a single amount as profit or loss after tax from discontinued operations in the income statement. Cash flows generated from discontinued operations are presented as a single item in the statement of cash flows. All other notes to the financial statements include amounts for continuing operations. #### (iv) New accounting standards adopted The following amended standards and interpretations were adopted by the Group during the year ending 30 April 2023. These amended standards and interpretations have not had a significant impact on the consolidated Financial Statements. - Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16); - Reference to the Conceptual Framework (Amendments to IFRS 3); - Overous Contracts – Cost of Fulfilling a Contract (Amendments to IAS 37); and - Annual Improvements to IFRS Standards 2018-2020. The accounting policies set out above have been applied consistently in all periods presented in these consolidated financial statements. The accounting policies have been applied consistently by all Group entities. #### (v) Changes to accounting standards not yet adopted The standards not yet adopted are currently not expected to have a material impact on the consolidated financial statements of the Group. Annual Report 2023 dssmith.com 137 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 1. Significant accounting policies continued 138 (b) Basis of consolidation (i) Subsidiaries The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Control is achieved when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Intra-group balances and any unrealised gains and losses or income and expenses arising from intra-group transactions are eliminated in preparing the consolidated financial statements. (ii) Interests in equity accounted investments The Group’s interests in equity accounted investments comprise interests in associates and joint ventures. An associate is an entity over which the Group has significant influence, but not control or joint control, over the financial and operating policy decisions of the investment. A joint venture is an entity in which the Group has joint control, whereby the Group has rights to the net assets of the entity, rather than rights to its assets and obligations for its liabilities. Interests in associates and joint ventures are accounted for using the equity method. They are recognised initially at cost, which includes transaction costs. Subsequent to initial recognition the consolidated financial statements include the Group’s share of the profit or loss and other comprehensive income of equity accounted investments, until the date on which significant influence or joint control ceases. (iii) Non-controlling interests Non-controlling interests are shown as a component of equity in the consolidated statement of financial position net of the value of options over interests held by non-controlling interests in the Group’s subsidiaries. (iv) Business combinations The acquisition method is used to account for the acquisition of subsidiaries. Identifiable net assets acquired (including intangibles) in a business combination are measured initially at their fair values at the acquisition date. Where the measurement of the fair value of identifiable net assets acquired is incomplete at the end of the reporting period in which the combination occurs, the Group will report provisional fair values. Final fair values are determined within a year of the acquisition date and applied retrospectively. The excess of the consideration transferred and the amount of any non-controlling interest over the fair value of the identifiable assets (including intangibles), liabilities and contingent liabilities acquired is recorded as goodwill. The consideration transferred is measured as the fair value of the assets given, equity instruments issued (if any), and liabilities assumed or incurred at the date of acquisition. Acquisition related costs are expensed as incurred. The results of the subsidiaries acquired are included in the consolidated financial statements from the acquisition date. (c) Revenue The Group is in the business of providing sustainable packaging solutions, sustainable paper products, recycling and waste management services. The Group has concluded that it is the principal in its revenue arrangements. Revenue comprises the fair value of the sale of goods and services, net of value added tax and other sales taxes, rebates and discounts and after eliminating sales within the Group. Revenue from contracts with customers is recognised when control of the goods or services is transferred to the customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those goods or services and the fulfilment of the related performance obligations. Generally this occurs when the goods are loaded into the collection vehicle if the buyer is collecting them, or when the goods are unloaded at the delivery address if the Group is responsible for delivery. The transaction price is the contractual price with the customer adjusted for rebates and discounts. Rebates and discounts are estimated using historical data and experiences with the customers. Revenue is recognised to the extent that it is highly probable that a significant reversal will not occur. Returns from customers are negligible. No element of financing is deemed present as typical sales contracts with customers are usually shorter than 12 months. A receivable is recognised when the goods are delivered or services provided at a point in time that consideration is unconditional because only the passage of time is required before the payment is due. Revenue by function is not provided in the Group’s disclosures as the year-on-year variability in the degree of integration would be misrepresentative of the level of activity. (d) Supplier rebates The Group receives income from its suppliers, mainly in the form of volume based rebates and early settlement discounts. These are recognised as a reduction in operating costs in the year to which they relate. At the period end, where appropriate, the Group estimates supplier income due from annual agreements for volume rebates. (e) Government grants Government grants are recognised in the statement of financial position initially as deferred income when there is reasonable assurance that they will be received and that the Group will comply with the conditions attached to them. Grants that compensate the Group for expenses incurred are offset against the expenses in the same periods in which the expenses are incurred. Grants relating to assets are released to the income statement over the expected useful life of the asset to which they relate on a basis consistent with the depreciation policy. Depreciation is provided on the full cost of the assets before deducting grants. 138 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 1. Significant accounting policies continued 1. Significant accounting policies continued Acquisition related costs are expensed as incurred. The results of the subsidiaries acquired are included in the (b) Basis of consolidation consolidated financial statements from the acquisition date. (i) Subsidiaries (c) Revenue The financial statements of subsidiaries are included in the The Group is in the business of providing sustainable packaging consolidated financial statements from the date that control solutions, sustainable paper products, recycling and waste commences until the date that control ceases. Control is achieved management services. The Group has concluded that it is when the Group is exposed to, or has rights to, variable returns from the principal in its revenue arrangements. its involvement with the entity and has the ability to affect those returns through its power over the entity. Intra-group balances and Revenue comprises the fair value of the sale of goods and services, any unrealised gains and losses or income and expenses arising from net of value added tax and other sales taxes, rebates and discounts intra-group transactions are eliminated in preparing the and after eliminating sales within the Group. Revenue from consolidated financial statements. contracts with customers is recognised when control of the goods or services is transferred to the customer at an amount that reflects (ii) Interests in equity accounted investments the consideration to which the Group expects to be entitled in The Group’s interests in equity accounted investments comprise exchange for those goods or services and the fulfilment of the interests in associates and joint ventures. An associate is an entity related performance obligations. Generally this occurs when the over which the Group has significant influence, but not control or goods are loaded into the collection vehicle if the buyer is collecting joint control, over the financial and operating policy decisions of the them, or when the goods are unloaded at the delivery address if the investment. A joint venture is an entity in which the Group has joint Group is responsible for delivery. control, whereby the Group has rights to the net assets of the entity, The transaction price is the contractual price with the customer rather than rights to its assets and obligations for its liabilities. adjusted for rebates and discounts. Rebates and discounts are Interests in associates and joint ventures are accounted for using the estimated using historical data and experiences with the customers. equity method. They are recognised initially at cost, which includes Revenue is recognised to the extent that it is highly probable that transaction costs. Subsequent to initial recognition the consolidated a significant reversal will not occur. Returns from customers are financial statements include the Group’s share of the profit or loss and negligible. No element of financing is deemed present as typical other comprehensive income of equity accounted investments, until sales contracts with customers are usually shorter than 12 months. the date on which significant influence or joint control ceases. A receivable is recognised when the goods are delivered or services (iii) Non-controlling interests provided at a point in time that consideration is unconditional Non-controlling interests are shown as a component of equity in the because only the passage of time is required before the payment consolidated statement of financial position net of the value of is due. options over interests held by non-controlling interests in the Revenue by function is not provided in the Group’s disclosures as Group’s subsidiaries. the year-on-year variability in the degree of integration would be misrepresentative of the level of activity. (iv) Business combinations The acquisition method is used to account for the acquisition of (d) Supplier rebates subsidiaries. Identifiable net assets acquired (including intangibles) The Group receives income from its suppliers, mainly in the form in a business combination are measured initially at their fair values of volume based rebates and early settlement discounts. These are at the acquisition date. recognised as a reduction in operating costs in the year to which Where the measurement of the fair value of identifiable net assets they relate. At the period end, where appropriate, the Group acquired is incomplete at the end of the reporting period in which estimates supplier income due from annual agreements for volume the combination occurs, the Group will report provisional fair values. rebates. Final fair values are determined within a year of the acquisition date (e) Government grants and applied retrospectively. Government grants are recognised in the statement of financial The excess of the consideration transferred and the amount of any position initially as deferred income when there is reasonable non-controlling interest over the fair value of the identifiable assets assurance that they will be received and that the Group will comply (including intangibles), liabilities and contingent liabilities acquired is with the conditions attached to them. Grants that compensate the recorded as goodwill. Group for expenses incurred are offset against the expenses in the The consideration transferred is measured as the fair value of same periods in which the expenses are incurred. Grants relating to the assets given, equity instruments issued (if any), and liabilities assets are released to the income statement over the expected assumed or incurred at the date of acquisition. useful life of the asset to which they relate on a basis consistent with the depreciation policy. Depreciation is provided on the full cost of the assets before deducting grants. Annual Report 2023 dssmith.com 139 r y t t (f) Dividends Dividends attributable to the equity holders of the Company paid during the year are recognised directly in equity. (g) Foreign currency translation The consolidated financial statements are presented in sterling, which is the Group’s presentational currency. Transactions in foreign currencies are translated into the respective functional currencies of Group companies at the foreign exchange rates ruling at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated into the functional currency at the foreign exchange rates ruling at that date. Foreign exchange differences arising on translation of monetary assets and liabilities are recognised in the consolidated income statement. Non-monetary assets and liabilities that are measured at historical cost in a foreign currency are translated using the exchange rates at the dates of the transactions. The assets and liabilities of all the Group entities that have a functional currency other than sterling are translated at the closing exchange rate at the reporting date. Income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the date of the transactions). On consolidation, exchange differences arising from the translation of the net investment in foreign entities, borrowings, and other financial instruments designated as hedges of such investments, are recognised in the translation reserve. On the disposal of foreign currency entities, the cumulative exchange difference recorded in the translation reserve is taken to the consolidated income statement as part of the gain or loss on disposal. (h) Intangible assets (i) Goodwill The recognition of business combinations requires the excess of the purchase price of acquisitions over the net book value of identifiable assets acquired to be allocated to the assets and liabilities of the acquired entity. The Group makes judgements and estimates in relation to the fair value allocation of the purchase price. Goodwill is stated at cost less accumulated impairment losses. The useful life of goodwill is considered to be indefinite. Goodwill is allocated to the cash generating units (CGUs), that are expected to benefit from the synergies of the combination and is tested annually for impairment, or more frequently if an impairment is indicated. On disposal of a subsidiary or a jointly controlled entity, the attributable amount of goodwill is included in the determination of the profit or loss recognised in the consolidated income statement. (ii) Intellectual property Intellectual property is stated at cost less accumulated amortisation and impairment. (iii) Computer software Computer software that is integral to a related item of hardware is included within property, plant and equipment. All other computer software is treated as an intangible asset. (iv) Customer related Customer relationships, acquired as part of a business combination, are capitalised separately from goodwill and are carried at cost less accumulated amortisation and impairment. (v) Other intangible assets Other intangible assets that are acquired by the Group are carried at cost less accumulated amortisation and impairment. (vi) Amortisation Amortisation of intangible assets (excluding goodwill) is charged to the income statement on a straight-line basis over the estimated useful lives of intangible assets, unless such lives are indefinite. Intangible assets (other than goodwill) are amortised from the date they are available for use. The estimated useful lives are as follows: Intellectual propert Up to 20 years Computer software 3–5 years Customer relationships 5–15 years (i) Property, plant and equipment Property, plant and equipment is stated at cost less accumulated depreciation and impairment. Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives of each item of property, plant and equipment, and major components that are accounted for separately (or in the case of leased assets, the lease period, if shorter). Land is not depreciated. The estimated useful lives are as follows: Freehold and long leasehold properties 10–50 years Plant and equipmen – motor vehicles 3–5 years Plant and equipmen – othe , fixtures and fittings (including IT hardware) 2–30 years The estimated residual lives are reviewed at each reporting date. The impact of climate factors on useful lives is considered on an asset by asset basis and takes into consideration the climate change targets made by the Group. Capital expenditure will be required for ongoing projects in order to meet our climate change targets and this has not resulted in any significant changes to the estimated useful life of assets in the current year. Gains or losses arising on the sale of surplus property assets are recorded through operating profit before adjusting items. 138 Annual Report 2023 dssmith.com 139 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 1. Significant accounting policies continued (iii) Reversals of impairment Impairment losses in respect of goodwill are not reversed. In respect (j) Other investments of other assets, an impairment loss is reversed if there has been a Other investments primarily consist of investments in unquoted change in the estimates used to determine the recoverable amount. equity securities and restricted cash. Equity securities are measured An impairment loss is reversed only to the extent that the asset’s at fair value. On initial recognition, the Group makes an irrevocable carrying amount does not exceed the carrying amount that would election (on an instrument-by-instrument basis) to designate have been determined, net of depreciation or amortisation, if no investments in equity instruments as at fair value through other impairment loss had been recognised. comprehensive income (FVTOCI). Designation at FVTOCI is not permitted if the equity investment is held for trading or if it is (l) Derivative financial instruments contingent consideration recognised by an acquirer in a business The Group uses derivative financial instruments, primarily currency combination. and commodity swaps, to manage currency and commodity risks Investment in equity instruments at FVTOCI are initially measured at associated with the Group’s underlying business activities and the fair value plus transaction costs. Subsequently, they are measured financing of these activities. The Group has a policy not to, and does at fair value with gains and losses arising from changes in fair value not, undertake any speculative activity in these instruments. recognised in other comprehensive income and accumulated in the Such derivative financial instruments are initially recognised at fair investment revaluation reserve. The cumulative gain or loss is not value on the date on which a derivative contract is entered into and reclassified to profit or loss on divestment of the equity are subsequently remeasured at fair value. Derivatives are carried as investments; instead, it is transferred to retained earnings. The assets when the fair value is positive and as liabilities when the fair Group has designated all investments in equity that are not held value is negative. for trading as at FVTOCI. The Group has elected to continue to apply the hedge accounting Restricted cash is carried at amortised cost. requirements of IAS 39, as allowed under IFRS 9. (k) Impairment Derivative financial instruments are accounted for as hedges when The carrying amounts of the Group’s assets, including tangible designated as hedges at the inception of the contract and when the and intangible non-current assets, are reviewed at each reporting financial instruments provide an effective hedge of the underlying risk. date to determine whether there are any indicators of impairment. For the purpose of hedge accounting, hedges are classified as: If any such indicators exist, the asset’s recoverable amount is • cash flow hedges when hedging exposure to variability in cash estimated. Goodwill is tested for impairment annually at the same flows that is attributable to a particular risk associated with either time, regardless of the presence of an impairment indicator. a statement of financial position item or a highly probable forecast An impairment loss is recognised whenever the carrying amount transaction; or of an asset, collection of assets or its CGU exceeds its recoverable amount. Impairment losses are recognised in the consolidated • hedges of the net investment in a foreign entity. income statement. The treatment of gains and losses arising from revaluing derivatives (i) Cash generating units designated as hedging instruments depends on the nature of the hedging relationship as follows: For the purposes of property, plant and equipment and other intangibles impairment testing, each operating segment, split by Cash flow hedges: the effective portion of the gain or loss on process (e.g. Packaging, Paper, Recycling), is a separate individual the hedging instrument is recognised directly in equity, while the CGU. Goodwill impairment testing is carried out based on regional ineffective portion is recognised in the income statement. Amounts groupings of CGUs as set out in note 10, as this is the lowest level at taken to equity are transferred to the income statement in the same which goodwill is monitored for internal management purposes. period during which the hedged transaction affects profit or loss, such as when a forecast sale or purchase occurs. Where the hedged (ii) Calculation of recoverable amount item is the cost of a non-financial asset or liability, the amounts The recoverable amount of the Group’s assets is calculated as the taken to equity are transferred to the initial carrying amount of the value-in-use of the CGU to which the assets are attributed or the non-financial asset or liability. net selling price, if greater. Value-in-use is calculated by discounting If the hedging instrument expires or is sold, terminated or exercised the cash flows expected to be generated by the CGUs being tested without replacement or roll-over, the hedged transaction ceases for evidence of impairment. This is done using a pre-tax discount to be highly probable, or if its designation as a hedge is revoked, rate that reflects the current assessment of the time value of amounts previously recognised in equity remain in equity until money, and the country-specific risks for which the cash flows have the forecast transaction occurs and are transferred to the income not been adjusted including our assessment of the impact of statement or to the initial carrying amount of a non-financial asset climate. For an asset that does not generate largely independent or liability as above. If a forecast transaction is no longer expected cash flows, the recoverable amount is determined for the CGU to to occur, amounts previously recognised in equity are transferred which the asset belongs. to the income statement. 140 140 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 1. Significant accounting policies continued (l) Derivative financial instruments continued 1. Significant accounting policies continued (iii) Reversals of impairment Impairment losses in respect of goodwill are not reversed. In respect (j) Other investments of other assets, an impairment loss is reversed if there has been a Other investments primarily consist of investments in unquoted change in the estimates used to determine the recoverable amount. equity securities and restricted cash. Equity securities are measured An impairment loss is reversed only to the extent that the asset’s at fair value. On initial recognition, the Group makes an irrevocable carrying amount does not exceed the carrying amount that would election (on an instrument-by-instrument basis) to designate have been determined, net of depreciation or amortisation, if no investments in equity instruments as at fair value through other impairment loss had been recognised. comprehensive income (FVTOCI). Designation at FVTOCI is not permitted if the equity investment is held for trading or if it is (l) Derivative financial instruments contingent consideration recognised by an acquirer in a business The Group uses derivative financial instruments, primarily currency combination. and commodity swaps, to manage currency and commodity risks Investment in equity instruments at FVTOCI are initially measured at associated with the Group’s underlying business activities and the fair value plus transaction costs. Subsequently, they are measured financing of these activities. The Group has a policy not to, and does at fair value with gains and losses arising from changes in fair value not, undertake any speculative activity in these instruments. recognised in other comprehensive income and accumulated in the Such derivative financial instruments are initially recognised at fair investment revaluation reserve. The cumulative gain or loss is not value on the date on which a derivative contract is entered into and reclassified to profit or loss on divestment of the equity are subsequently remeasured at fair value. Derivatives are carried as investments; instead, it is transferred to retained earnings. The assets when the fair value is positive and as liabilities when the fair Group has designated all investments in equity that are not held value is negative. for trading as at FVTOCI. The Group has elected to continue to apply the hedge accounting Restricted cash is carried at amortised cost. requirements of IAS 39, as allowed under IFRS 9. (k) Impairment Derivative financial instruments are accounted for as hedges when The carrying amounts of the Group’s assets, including tangible designated as hedges at the inception of the contract and when the and intangible non-current assets, are reviewed at each reporting financial instruments provide an effective hedge of the underlying risk. date to determine whether there are any indicators of impairment. For the purpose of hedge accounting, hedges are classified as: If any such indicators exist, the asset’s recoverable amount is • cash flow hedges when hedging exposure to variability in cash estimated. Goodwill is tested for impairment annually at the same flows that is attributable to a particular risk associated with either time, regardless of the presence of an impairment indicator. a statement of financial position item or a highly probable forecast An impairment loss is recognised whenever the carrying amount transaction; or of an asset, collection of assets or its CGU exceeds its recoverable amount. Impairment losses are recognised in the consolidated • hedges of the net investment in a foreign entity. income statement. The treatment of gains and losses arising from revaluing derivatives (i) Cash generating units designated as hedging instruments depends on the nature of the hedging relationship as follows: For the purposes of property, plant and equipment and other intangibles impairment testing, each operating segment, split by Cash flow hedges: the effective portion of the gain or loss on process (e.g. Packaging, Paper, Recycling), is a separate individual the hedging instrument is recognised directly in equity, while the CGU. Goodwill impairment testing is carried out based on regional ineffective portion is recognised in the income statement. Amounts groupings of CGUs as set out in note 10, as this is the lowest level at taken to equity are transferred to the income statement in the same which goodwill is monitored for internal management purposes. period during which the hedged transaction affects profit or loss, such as when a forecast sale or purchase occurs. Where the hedged (ii) Calculation of recoverable amount item is the cost of a non-financial asset or liability, the amounts The recoverable amount of the Group’s assets is calculated as the taken to equity are transferred to the initial carrying amount of the value-in-use of the CGU to which the assets are attributed or the non-financial asset or liability. net selling price, if greater. Value-in-use is calculated by discounting If the hedging instrument expires or is sold, terminated or exercised the cash flows expected to be generated by the CGUs being tested without replacement or roll-over, the hedged transaction ceases for evidence of impairment. This is done using a pre-tax discount to be highly probable, or if its designation as a hedge is revoked, rate that reflects the current assessment of the time value of amounts previously recognised in equity remain in equity until money, and the country-specific risks for which the cash flows have the forecast transaction occurs and are transferred to the income not been adjusted including our assessment of the impact of statement or to the initial carrying amount of a non-financial asset climate. For an asset that does not generate largely independent or liability as above. If a forecast transaction is no longer expected cash flows, the recoverable amount is determined for the CGU to to occur, amounts previously recognised in equity are transferred which the asset belongs. Annual Report 2023 dssmith.com 141 to the income statement. Hedges of net investment in a foreign entity: these represent the effective portion of the gain or loss on the hedging instrument that is recognised directly in equity, while the ineffective portion is recognised in the income statement. Amounts taken to equity are transferred to the income statement when the foreign entity is sold. Any gains or losses arising from changes in the fair value of all other derivatives are taken to the income statement. These may arise from derivatives for which hedge accounting is not applied because they are not effective as hedging instruments. The net present value of the expected future payments under options over interests held by non-controlling interests in the Group’s subsidiaries is shown as a financial liability. At the end of each period, the valuation of the liability is reassessed with any changes recognised in profit or loss for the period. (m) Treasury shares When share capital recognised as equity is repurchased, the amount of the consideration paid, including directly attributable costs, is recognised as a change in equity. Repurchased shares are classified as treasury shares and are presented as a deduction from total equity. (n) Trade and other receivables Trade and other receivables are recognised initially at fair value less expected credit loss allowance and subsequently held at amortised cost. The Group utilises the simplified approach to provide for losses on receivables under IFRS 9. (o) Inventories Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. The cost of inventories is based on a weighted average cost and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of overheads based on normal operating capacity. (p) Biological assets Biological assets consist of standing timber, measured at fair value less cost to sell. Any change in fair value resulting from both net growth and change in the market value of standing timber is presented in the income statement. The revenue from the sale of standing timber is presented within revenue. (q) Cash and cash equivalents and restricted cash Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows. Cash and cash equivalents are stated at amortised cost. Cash subject to contractual restrictions on use by the Group is excluded from cash and cash equivalents in the consolidated financial statements and is presented within other investments in the consolidated statement of financial position. Restricted cash is stated at amortised cost. (r) Borrowings Borrowings are recognised initially at fair value, less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost unless designated in a fair value hedge relationship, with borrowing costs being accounted for on an accruals basis in the income statement using the effective interest method. At the reporting date, interest payable is recorded separately from the associated borrowings, within trade and other payables. (s) Employee benefits (i) Defined contribution schemes Contributions to defined contribution pension schemes are recognised as an employee benefit expense within personnel expenses in the income statement, as incurred. (ii) Defined benefit schemes The Group’s net obligation in respect of defined benefit pension schemes is calculated separately for each scheme by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to its present value amount and recognised in the income statement within personnel expenses; a corresponding liability for all future benefits is established on the statement of financial position and the fair value of any scheme assets is deducted. The discount rate is the yield at the reporting date on AA credit rated bonds that have maturity dates approximating to the duration of the schemes’ obligations. The calculation is performed by a qualified actuary using the projected unit method. Actuarial gains and losses are recognised immediately in the statement of other comprehensive income. (iii) Share-based payment transactions The Group operates equity-settled share-based compensation plans. The fair value of the employee services received in exchange for the grant of the options is recognised within personnel expenses, with a corresponding increase in equity, over the period that the employees unconditionally become entitled to the awards. The fair value of the options granted is measured using a stochastic model, taking into account the terms and conditions upon which the options were granted. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted, excluding the impact of any non-market vesting conditions. At each reporting date, the entity revises its estimates of the number of options that are expected to become exercisable. It recognises the impact of the revision of original estimates, if any, in the income statement, and a corresponding adjustment to equity. 140 Annual Report 2023 dssmith.com 141 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 1. Significant accounting policies continued (t) Provisions A provision is recognised in the statement of financial position when the Group has a present legal or constructive obligation as a result of a past event, a reliable estimate can be made of the amount of the obligation and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are discounted to present value where the effect is material. (v) Leases The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, being the initial amount of the lease liability adjusted for any lease payments made at or before commencement date, plus any initial direct costs incurred and an estimate of end of lease dismantling or restoration costs, less any incentives received and related provisions. Lease liabilities are recorded at the present value of lease payments, which include: • Fixed lease payments; • Variable payments that depend on an index or rate, initially measured using the commencement date index or rate; • Any amounts expected to be payable under residual value guarantees; and • The exercise price of purchase options, if it is reasonably certain they will be exercised. The interest rate implicit in the lease is used to discount lease payments, or, if that rate cannot be determined, the Group’s incremental borrowing rate is used, being the rate that the Group would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions. Right-of-use assets are depreciated on a straight-line basis over the lease term, or the useful life if shorter. (x) Adjusting items Interest is recognised on the lease liability, resulting in a higher finance cost in the earlier years of the lease term. Items of income or expenditure that are significant by their nature, size or incidence, and for which separate presentation would assist Lease payments relating to low value assets or to short-term leases in the understanding of the trading and financial results of the are recognised as an expense on a straight-line basis over the lease Group, are classified and disclosed as adjusting items. term. Short-term leases are those with 12 or less months duration. Such items include business disposals, restructuring and acquisition related and integration costs, and impairments. 142 (u) Trade and other payables Trade and other payables are initially measured at fair value, net of directly attributable transaction costs and are subsequently measured at amortised cost using the effective interest method. (w) Taxation Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in profit or loss except to the extent that it relates to items recognised directly in equity or in other comprehensive income. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted in each jurisdiction at the reporting date, and any adjustment to tax payable in respect of previous years. The Group is subject to corporate taxes in a number of different jurisdictions and judgement is required in determining the appropriate provision for transactions where the ultimate tax determination is uncertain. In such circumstances, the Group recognises liabilities for anticipated taxes based on the best information available and where the anticipated liability is both probable and can be estimated. Any interest and penalties accrued are included in income taxes in both the consolidated income statement and the consolidated statement of financial position. Where the final outcome of such matters differs from the amount recorded, any differences may impact the income tax and deferred tax provisions in the period in which the final determination is made. Deferred tax is provided for using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The tax effect of certain temporary differences is not recognised, principally with respect to goodwill; temporary differences arising on the initial recognition of assets or liabilities (other than those arising in a business combination or in a manner that initially impacts accounting or taxable profit); and temporary differences relating to investment in subsidiaries and equity accounted investees to the extent that they will probably not reverse in the foreseeable future and the Group is able to control the reversal of such temporary differences. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the reporting date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. 142 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ## 1. Significant accounting policies continued ### (y) Non-GAAP performance measures In the reporting of financial information, the Group has adopted certain non-GAAP measures of historical or future financial performance, position or cash flows other than those defined or specified under International Financial Reporting Standards (IFRSs). Non-GAAP measures are either not defined by IFRS or are adjusted IFRS figures, and therefore may not be directly comparable with other companies' reported non-GAAP measures, including those in the Group's industry. Non-GAAP measures should be considered in addition to, and are not intended to be a substitute for, or superior to IFRS measures. Details of the Group's non-GAAP performance measures, including reasons for their use and reconciliations to IFRS figures are included as appropriate in note 32. ### (z) Key sources of estimation uncertainty The application of the Group's accounting policies requires management to make estimates and assumptions. These estimates and assumptions affect the reported assets and liabilities and financial results of the Group. Actual outcomes could differ from the estimates and assumptions used. The Group's key sources of estimation uncertainty are as detailed below. #### (i) Taxation The Group's tax payable on profits is determined based on tax laws and regulations that apply in each of the numerous jurisdictions in which the Group operates. The Group is required to exercise judgement in estimating income tax provisions, along with the recognition of deferred tax assets/liabilities. While the Group aims to ensure that estimates recorded are accurate, the actual amounts could be different from those expected. See note 7 for additional information. #### (ii) Goodwill impairment Goodwill is tested annually for impairment or more frequently if an impairment is indicated. Impairment tests are conducted by component by value in use of CGLs to their respective carrying amounts (including allocated goodwill). It is possible that if key assumptions were changed adversely, impairment would need to be recognized. See note 10 for additional information. #### (iii) Employee benefits IAS 19 Employee Benefits requires the Group to make assumptions including, but not limited to, rates of inflation, discount rates and life expectancies. The use of different assumptions, in any of the above calculations, could have a material effect on the accounting values of the relevant statement of financial position assets and liabilities which could also result in a change to the cost of such liabilities as recognised in profit or loss over time. These assumptions are subject to periodic review. See note 25 for additional information. ### (aa) Critical accounting judgement #### (i) Adjusting items The Group is required to exercise judgement in applying the adjusting items accounting policy to items of income and expenditure, taking account of their origination, as well as considering similar items in prior years to ensure consistency and appropriate presentation. See note 4 for additional information. #### (ab) IFRS standards and interpretations endorsed but not yet effective The International Accounting Standards Board (IASB) and International Financial Reporting Interpretations Committee (IFRIC) have issued new standards and interpretations with an effective date after the date of these financial statements. | International Financial Reporting Standards (IFRS 19) | Effective date - financial year ending | | --- | --- | | Amendments to IAS 1 and IFRS Practice Statement 2 (Disclosure of Accounting Policies) | 30 April 2024 | | Amendments to IAS 12 (Deferred tax related to Assets and Liabilities arising from a single transaction) | 30 April 2024 | | Amendments to IAS 8 (Definition of accounting estimates) | 30 April 2024 | | IFRS 17 Insurance Contracts | 30 April 2024 | | Amendment to IFRS 16 - Lease Liability in a Sale and Leaseback | 30 April 2024 | | Amendments to IAS 7 and IFRS 7 Supplier Finance Arrangements | 30 April 2025 | The Group does not anticipate that the adoption of the standards and interpretations that are effective for the year ending 30 April 2024 and beyond will have a material effect on its financial statements. #### (ac) IFRS standards that have been issued but are not yet endorsed are as follows: - Amendments to IAS 1 (Classification of liabilities as current or non-current); and - Amendments to IFRS 4 (Extension of the Temporary Exemption from applying IFRS 9). The Group does not anticipate that the adoption of these accounting standards will have a material effect on its financial statements. Annual Report 2023 dsSmith.com 143 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 2. Segment reporting Operating segments IFRS 8 Operating Segments requires operating segments to be identified on the same basis as is used internally for the review of performance and allocation of resources by the Group Chief Executive (who is the Chief Operating Decision Maker as defined by IFRS 8). The Group’s continuing operations are organised into segments which cover geographical regions with integrated packaging and paper businesses. These comprise the Group’s reportable segments and their results are regularly reviewed by the Group Chief Executive. The measure of profitability reported to the Group Chief Executive for the purposes of resource allocation and assessment of performance is adjusted operating profit, which is a non-GAAP performance measure, about which further information is provided in note 32. Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Central administration costs are allocated to the individual segments on a consistent basis year-on-year. All assets and liabilities have been analysed by segment, except for items of a financing nature, taxation balances, employee benefit liabilities and current and non-current asset investments. Debt and associated interest are managed at a Group level and therefore have not been allocated across the segments. Total | | | Northern | | Southern | | Eastern | | North | continuing | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | Europe | | Europe | | Europe | | America | operations | | | Year ended 30 April 2023 | Note | | £m | | £m | | £m | £m | | £m | External revenue 3,132 3,150 1,275 664 8,221 1 Adjusted EBITDA 324 621 125 103 1,173 Depreciation (112) (120) (49) (31) (312) 1 Adjusted operating profit 212 501 76 72 861 Unallocated items: Amortisation 10 (113) Adjusting items in operating profit 4 (15) Total operating profit (continuing operations) 733 Unallocated items: Net financing costs (74) Share of profit of equity accounted investments, net of ta Profit before income tax 661 Income tax expense (169) Profit for the year (continuing operations) 492 2 Analysis of total assets and total liabilities Segment assets 2,246 3,762 1,247 1,318 8,573 Unallocated items: Equity accounted investments and other investments 34 Derivative financial instruments 319 Cash and cash equivalents 472 Ta 35 Employee benefits 24 Total assets 9,457 Segment liabilities (1,249) (910) (282) (119) (2,560) Unallocated items: Borrowings, overdrafts and interest payable (1,936) Derivative financial instruments (368) Ta (427) Employee benefits (79) Total liabilities (5,370) Capital expenditure 134 266 109 36 545 1. Adjusted to exclude amortisation and adjusting items as presented in the income statement. 144 x x x 144 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 2. Segment reporting continued 2. Segment reporting Operating segments IFRS 8 Operating Segments requires operating segments to be identified on the same basis as is used internally for the review of performance and allocation of resources by the Group Chief Executive (who is the Chief Operating Decision Maker as defined by IFRS 8). The Group’s continuing operations are organised into segments which cover geographical regions with integrated packaging and paper businesses. These comprise the Group’s reportable segments and their results are regularly reviewed by the Group Chief Executive. The measure of profitability reported to the Group Chief Executive for the purposes of resource allocation and assessment of performance is adjusted operating profit, which is a non-GAAP performance measure, about which further information is provided in note 32. Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Central administration costs are allocated to the individual segments on a consistent basis year-on-year. All assets and liabilities have been analysed by segment, except for items of a financing nature, taxation balances, employee benefit liabilities and current and non-current asset investments. Debt and associated interest are managed at a Group level and therefore have not been allocated across the segments. Total | | | Northern | | Southern | | Eastern | | North | continuing | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | Europe | | Europe | | Europe | | America | operations | | | Year ended 30 April 2023 | Note | | £m | | £m | | £m | £m | | £m | External revenue 3,132 3,150 1,275 664 8,221 1 Adjusted EBITDA 324 621 125 103 1,173 Depreciation (112) (120) (49) (31) (312) 1 Adjusted operating profit 212 501 76 72 861 Unallocated items: Amortisation 10 (113) Adjusting items in operating profit 4 (15) Total operating profit (continuing operations) 733 Unallocated items: Net financing costs (74) Share of profit of equity accounted investments, net of ta 2 Profit before income tax 661 Income tax expense (169) Profit for the year (continuing operations) 492 Analysis of total assets and total liabilities Segment assets 2,246 3,762 1,247 1,318 8,573 Unallocated items: Equity accounted investments and other investments 34 Derivative financial instruments 319 Cash and cash equivalents 472 Ta 35 Employee benefits 24 Total assets 9,457 Segment liabilities (1,249) (910) (282) (119) (2,560) Unallocated items: Borrowings, overdrafts and interest payable (1,936) Derivative financial instruments (368) Ta (427) Employee benefits (79) Total liabilities (5,370) Capital expenditure 134 266 109 36 545 Annual Report 2023 dssmith.com 145 1. Adjusted to exclude amortisation and adjusting items as presented in the income statement. | | x x | x | x x | x | | | --- | --- | --- | --- | --- | --- | | | | | Year ended 30 April 2022 Note Northern Europe £m Southern Europe £m Eastern Europe £m North America £m Total continuing operations £m External revenue 2,790 2,736 1,118 597 7,241 Adjusted EBITDA 1 250 432 116 108 906 Depreciation (111) (108) (43) (28) (290) Adjusted operating profit 1 139 324 73 80 616 Unallocated items: Amortisation 10 (138) Adjusting items in operating profit 4 (35) Total operating profit (continuing operations) 443 Unallocated items: Net financing costs (72) Share of profit of equity accounted investments, net of ta 7 Profit before income tax 378 Income tax expense (98) Profit for the year (continuing operations) 280 Analysis of total assets and total liabilities Segment assets 2,127 3,597 1,128 1,330 8,182 Unallocated items: Equity accounted investments and other investments 33 Derivative financial instruments 811 Cash and cash equivalents 819 Ta 41 Total assets 9,886 Segment liabilities (1,330) (1,044) (272) (129) (2,775) Unallocated items: Borrowings, overdrafts and interest payable (2,168) Derivative financial instruments (84) Ta (539) Employee benefits (86) Total liabilities (5,652) Capital expenditure 102 200 101 28 431 1. Adjusted to exclude amortisation and adjusting items as presented in the income statement. | | | | 144 | | | | | Annual Report 2023 dssmith.com 145 | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED ## 2. Segment reporting continued ### Geographical areas In presenting information by geographical area, external revenue is based on the geographical location of customers. Non-current assets are based on the geographical location of assets and exclude investments, deferred tax assets, derivative financial instruments and intangible assets (which are monitored at the operating segment level, not at a country level). | Continuing operations | External revenue | | Non-current assets | | Capital expenditure | | | --- | --- | --- | --- | --- | --- | --- | | | 2023 £m | 2022 £m | 2023 £m | 2022 £m | 2023 £m | 2022 £m | | UK | 1,300 | 1,113 | 508 | 460 | 67 | 42 | | France | 1,203 | 1,067 | 491 | 430 | 79 | 52 | | Iberia | 970 | 841 | 673 | 613 | 81 | 73 | | Germany | 763 | 708 | 420 | 390 | 38 | 36 | | Italy | 972 | 822 | 426 | 333 | 106 | 75 | | USA | 671 | 606 | 390 | 379 | 36 | 28 | | Rest of the World | 2,342 | 2,084 | 857 | 782 | 138 | 125 | | | 8,221 | 7,241 | 3,765 | 3,337 | 545 | 431 | ### 3. Operating profit | Continuing operations | 2023 £m | 2022 £m | | --- | --- | --- | | Operating costs | | | | Cost of sales | 4,255 | 3,914 | | Other production costs | 1,328 | 1,211 | | Distribution | 561 | 530 | | Administrative expenses | 1,216 | 1,007 | | | 7,360 | 6,662 | Details of adjusting items included in operating profit are set out in note 4. Operating profit is stated after charging/(crediting) the following: | Continuing operations | 2023 £m | 2022 £m | | --- | --- | --- | | Depreciation of owned assets | 241 | 220 | | Depreciation of right-of-use assets | 71 | 70 | | Amortisation of intangible assets | 113 | 138 | | Loss/(profit) on sale of non-current assets | 7 | (1) | | Research and development | 8 | 8 | | Impairment of property, plant and equipment | 24 | - | 146 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 3. Operating profit continued 2. Segment reporting continued Geographical areas In presenting information by geographical area, external revenue is based on the geographical location of customers. Non-current assets are based on the geographical location of assets and exclude investments, deferred tax assets, derivative financial instruments and intangible assets (which are monitored at the operating segment level, not at a country level). External revenue Non-current assets Capital expenditure | | | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | | --- | --- | --- | --- | --- | --- | --- | --- | | Continuing operations | | £m | £m | £m | £m | £m | £m | | U | 1,300 1,113 508 460 67 42 | | | | | | | France 1,203 1,067 491 430 79 52 Iberia 970 841 673 613 81 73 German 763 708 420 390 38 36 Ital 972 822 426 333 106 75 USA 671 606 390 379 36 28 Rest of the World 2,342 2,084 857 732 138 125 8,221 7,241 3,765 3,337 545 431 4. Adjusting items 3. Operating profit Items are presented as adjusting in the financial statements where they are significant items of financial performance that the Directors | | 2023 | 2022 | | | | | --- | --- | --- | --- | --- | --- | | Continuing operations | £m | £m | consider should be separately disclosed to assist in the understanding of the trading and financial results of the Group. Such items include | | | | Operating costs | | | business disposals, restructuring and acquisition related and integration costs, and impairments. | | | | Cost of sales 4,255 3,914 | | | | 2023 | 2022 | | | | | Continuing operations | £m | £m | Other production costs 1,328 1,211 Acquisition related costs (15) (1) Distribution 561 530 Gain on acquisitions and divestments – 3 Administrative expenses 1,216 1,007 Net (loss)/gain on acquisitions and divestments (15) 2 7,360 6,662 Other restructuring costs – (8) Details of adjusting items included in operating profit are set out in note 4. Impairment of associate – (29) Operating profit is stated after charging/(crediting) the following: Total pre-tax adjusting items (recognised in operating profit) (15) (35) Finance costs adjusting items – (2) | | | 2023 | 2022 | | | --- | --- | --- | --- | --- | | Continuing operations | | £m | £m | Current tax credit on adjusting items 3 2 | | Depreciation of owned assets 241 220 | | | | Total post-tax adjusting items (12) (35) | | Depreciation of righ | -of-use assets 71 70 | | | | Amortisation of intangible assets 113 138 Loss/(profit) on sale of non-current assets 7 (1) Research and developmen 8 8 Impairment of property,plant and equipmen 24 – Annual Report 2023 dssmith.com 147 | K y | y | t | t | t | | | | --- | --- | --- | --- | --- | --- | --- | | | | | | | 2023 2022 Auditor’s remuneration UK £m Overseas £m Total £m UK £m Overseas £m Total £m Fees payable for audit of the Company’s annual financial statements 1.0 – 1.0 0.5 – 0.5 Fees payable for audit of the Company’s subsidiaries, pursuant to legislation 1.2 3.3 4.5 1.1 2.9 4.0 Total audit fees 2.2 3.3 5.5 1.6 2.9 4.5 Fees payable to the Company’s Auditor and their associates for other services: Corporate finance services – – – 0.1 – 0.1 Audit related assurance services 0.2 0.1 0.3 0.3 0.1 0.4 Total non-audit fees 0.2 0.1 0.3 0.4 0.1 0.5 Total Auditor’s remuneration 2.4 3.4 5.8 2.0 3.0 5.0 Non-audit fees in 2022/23 primarily related to audit-related fees for the review of the interim results and 2021/22 primarily include reporting and accounting services in respect of the Euro medium-term note (“EMTN”) issues in the year and audit-related fees for the review of the interim results. A description of the work of the Audit Committee is set out in the governance section and includes an explanation of how the external Auditor’s objectivity and independence are safeguarded when non-audit services are provided by the external Auditor. | | | 146 | | | | | | Annual Report 2023 dssmith.com 147 | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 4. Adjusting items continued 2022/23 On 01 September 2022 the put option for the final 10% stake in Interstate Resources crystallised. This has resulted in additional costs in relation to performance conditions which have been met by the business and the costs of hedging the pending payment of the US dollar liability. The current tax credit on adjusting items of £3m for the year ended 30 April 2023 is the tax effect at the local applicable tax rate of adjusting items that are subject to tax. This excludes non-tax–deductible deal related advisory fees in relation to acquisitions and divestments. Adjusting items from discontinued operations comprise the gain on the settlement of certain costs and obligations arising from the disposal of the Plastics division. 2021/22 On 12 October 2021 the Group sold the De Hoop paper mill in the Netherlands. Cash consideration, net of cash and cash equivalents and transaction costs, was £35m and the net assets divested were £28m, resulting in a net gain of £7m. In addition, there were £4m of other site disposal costs. Other restructuring costs of £8m primarily comprise a reorganisation and restructuring project across the Packaging business, focusing predominantly on reduction of indirect costs. Finance costs in adjusting items related to the unwind of the discount on the redemption liability related to the purchase of Interstate Resources. The impairment of associate of £29m relates to the Group’s investment in the associate RKTK in Ukraine. The invasion of Ukraine by Russia has resulted in significant damage to the assets of the Group’s associate and has fundamentally compromised the ability to realise the interest held. Accordingly, an impairment of the entire interest has been recognised, together with amounts in connection with the trading activities conducted with the associate. The current tax credit on adjusting items of £2m for the year ended 30 April 2022 is the tax effect at the local applicable tax rate of adjusting items that are subject to tax. This excludes non-tax–deductible deal related advisory fees in relation to acquisitions and divestments. It also excludes the non-tax–deductible impairment of associates and the non-taxable gain from the sale of the paper mill in the Netherlands. 148 148 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 4. Adjusting items continued 2022/23 On 01 September 2022 the put option for the final 10% stake in Interstate Resources crystallised. This has resulted in additional costs in relation to performance conditions which have been met by the business and the costs of hedging the pending payment of the US dollar liability. The current tax credit on adjusting items of £3m for the year ended 30 April 2023 is the tax effect at the local applicable tax rate of adjusting items that are subject to tax. This excludes non-tax–deductible deal related advisory fees in relation to acquisitions and divestments. Adjusting items from discontinued operations comprise the gain on the settlement of certain costs and obligations arising from the disposal of the Plastics division. 2021/22 On 12 October 2021 the Group sold the De Hoop paper mill in the Netherlands. Cash consideration, net of cash and cash equivalents and transaction costs, was £35m and the net assets divested were £28m, resulting in a net gain of £7m. In addition, there were £4m of other site disposal costs. Other restructuring costs of £8m primarily comprise a reorganisation and restructuring project across the Packaging business, focusing predominantly on reduction of indirect costs. Finance costs in adjusting items related to the unwind of the discount on the redemption liability related to the purchase of Interstate Resources. The impairment of associate of £29m relates to the Group’s investment in the associate RKTK in Ukraine. The invasion of Ukraine by Russia has resulted in significant damage to the assets of the Group’s associate and has fundamentally compromised the ability to realise the interest held. Accordingly, an impairment of the entire interest has been recognised, together with amounts in connection with the trading activities conducted with the associate. The current tax credit on adjusting items of £2m for the year ended 30 April 2022 is the tax effect at the local applicable tax rate of adjusting items that are subject to tax. This excludes non-tax–deductible deal related advisory fees in relation to acquisitions and divestments. It also excludes the non-tax–deductible impairment of associates and the non-taxable gain from the sale of the paper mill in the Netherlands. Annual Report 2023 dssmith.com 149 | | | r | r | | | --- | --- | --- | --- | --- | | | 5. Finance income and costs Continuing operations 2023 £m 2022 £m Interest income from financial assets (2) (1) Finance income (2) (1) Interest on borrowings and overdrafts 49 47 Interest on lease liabilities 11 11 Othe 15 10 Finance costs before adjusting items 75 68 Finance costs adjusting items (note 4) – 2 Finance costs 75 70 6. Staff costs Continuing operations 2023 £m 2022 £m Wages and salaries 1,194 1,101 Social security costs 233 214 Contributions to defined contribution pension plans 56 51 Service costs for defined benefit schemes (note 25) 6 5 Share-based payment expense (note 26) 15 10 Staff costs 1,504 1,381 Average number of employees 2023 Number 2022 Number Northern Europe 10,874 10,905 Southern Europe 9,010 8,889 Eastern Europe 7,922 7,677 North America 1,755 1,787 Rest of the World 607 598 Average number of employees 30,168 29,856 7. Income tax expense 2023 £m 2022 £m Current tax expense Current yea (206) (128) Adjustment in respect of prior years 32 4 (174) (124) Deferred tax credit/(charge) Origination and reversal of temporary differences 14 (2) Change in tax rates (4) 12 Recognition of previously unrecognised deferred tax assets 1 5 Adjustment in respect of prior years (9) 9 2 24 Total income tax expense before adjusting items (172) (100) Current tax credit on adjusting items (note 4) 3 2 Total income tax expense in the income statement from continuing operations (169) (98) Total income tax expense in the income statement from discontinued operations (note 30(b)) – – Total income tax expense in the income statement – total Group (169) (98) The tax credit on amortisation was £25m (2021/22: £31m). | | | | | 148 | | | | Annual Report 2023 dssmith.com 149 | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED ## 7. Income tax expense continued The reconciliation of the actual tax charge to the domestic corporation tax rate is as follows: | | 2023 £m | 2022 £m | | --- | --- | --- | | Profit before income tax on continuing operations | 661 | 379 | | Profit before income tax on discontinued operations (note 30(b)) | 11 | - | | Share of profit of equity accounted investments, net of tax | (2) | (7) | | Profit before tax and share of profit of equity accounted investments, net of tax | 670 | 371 | | Income tax at the UK corporation tax rate of 19.5% (2021/22:19%) | (131) | (71) | | Effect of additional taxes and tax rates in overseas jurisdictions | (47) | (40) | | Impact of tax credits | 23 | 5 | | Non-deductible expenses | (34) | (20) | | Non-taxable income | 2 | 2 | | Recognition of previously unrecognised deferred tax assets | 1 | 6 | | Deferred tax not recognised | (2) | (4) | | Adjustment in respect of prior years^{1} | 23 | 13 | | Effect of change in corporation tax rates | (4) | 12 | | **Income tax expense - total Group** | **(169)** | **(98)** | 1. Included within the adjustment in respect of prior years in 2021/22 is £5m which relates to adjusting items in the prior year. The Group's effective tax rate, excluding amortisation, adjusting items and share of result from equity accounted investments, was 25% (2021/22:24%). The Finance Act 2021 included a 6% increase in the main UK corporation tax rate to 25% from 1 April 2023, which was substantially enacted on 10 June 2023. ### Uncertain tax positions The Group operates in a complex multinational tax environment and is subject to uncertain tax positions and changes in legislation in the jurisdictions in which it operates. The Group's uncertain tax positions principally include pricing of cross-border transactions and allotted number of specific transaction-related tax risks. The assessment of uncertain tax positions is based on management's expectation of the likely outcome of settlements with tax authorities or litigation. The quantification of the risks at any one point in time, especially with respect to transfer pricing, requires a degree of judgement and estimation by management. Within the consolidated balance sheet at 30 April 2023 for continuing operations are current tax liabilities of £165m (30 April 2022: £143m) which include a provision of £104m (30 April 2022: £118m) relating to uncertain tax positions. There are also deferred tax liabilities of £262m (30 April 2022: £396m) which include a provision of £10m (30 April 2022: £n) relating to uncertain tax positions. It is possible that amounts paid will be different from the amounts provided and the Group estimates the range of reasonably possible outcomes relating to uncertain tax positions to be from £54m to £185m. The Group filed an application with the General Court of the European Court of Justice for the EU Commission's decision in respect of State Aid to be annulled. The application was stayed behind the lead cases HMRC and ITV. On 11th June 2022, the General Court released its judgement which dismissed the applications to annul the European Commission Decision concerning the Controlled Foreign Company Financing Exemption. This decision does not change the position recorded in these financial statements. We will continue to monitor any developments following the decision of both HMRC and ITV to appeal the decision. An appeal against the charging notice received from HMRC following detailed analysis conducted supporting the Group's position was also filed. The appeal is not expected to conclude in the next 12 months. There are tax audits being conducted by the tax authorities in a number of countries. Whilst there is inherent uncertainty regarding the timing of the resolution of these tax audits and the final tax liabilities to be assessed, the Group expects liabilities of approximately £12m to reverse in the next 12 months. Included within the current tax liabilities is an amount of £12m (30 April 2022: £15m) relating to interest and penalties on uncertain tax positions. 150 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 7. Income tax expense continued 7. Income tax expense continued The reconciliation of the actual tax charge to the domestic corporation tax rate is as follows: 2023 2022 £m £m Profit before income tax on continuing operations 661 378 Profit before income tax on discontinued operations (note 30(b)) 11 – Share of profit of equity accounted investments, net of ta (2) (7) Profit before tax and share of profit of equity accounted investments, net of ta 670 371 Income tax at the U corporation tax rate of 19.5% (2021/22: 19%) (131) (71) Effect of additional taxes and tax rates in overseas jurisdictions (47) (40) Impact of tax credits 23 5 Non-deductible expenses (34) (20) Non-taxable income 2 2 Recognition of previously unrecognised deferred ta assets 1 5 Deferred tax not recognised (2) (4) 1 Adjustment in respect of prior years 23 13 Effect of change in corporation tax rates (4) 12 Income tax expense – total Group (169) (98) 1. Included within the adjustment in respect of prior years in 2021/22 is £5m which relates to adjusting items in the prior year. The Group’s effective tax rate, excluding amortisation, adjusting items and share of result from equity accounted investments, was 25% (2021/22: 24%). The Finance Act 2021 included a 6% increase in the main UK corporation tax rate to 25% from 1 April 2023, which was substantially enacted on 10 June 2021. Uncertain tax positions The Group operates in a complex multinational tax environment and is subject to uncertain tax positions and changes in legislation in the jurisdictions in which it operates. The Group’s uncertain tax positions principally include pricing of cross-border transactions and a limited number of specific transaction related tax risks. The assessment of uncertain tax positions is based on management’s expectation of the likely outcome of settlements with tax authorities or litigation. The quantification of the risks at any one point in time, especially with respect to transfer pricing, requires a degree of judgement and estimation by management. Within the consolidated balance sheet at 30 April 2023 for continuing operations are current tax liabilities of £165m (30 April 2022: £143m) which include a provision of £104m (30 April 2022: £118m) relating to uncertain tax positions. There are also deferred tax liabilities of £262m (30 April 2022: £396m) which include a provision of £10m (30 April 2022: £nil) relating to uncertain tax positions. It is possible that amounts paid will be different from the amounts provided and the Group estimates the range of reasonably possible outcomes relating to uncertain tax positions to be from £54m to £185m. The Group filed an application with the General Court of the European Court of Justice for the EU Commission’s decision in respect of State Aid to be annulled. The application was stayed behind the lead cases HMRC and ITV. On 8th June 2022, the General Court released its judgement which dismissed the applications to annul the European Commission Decision concerning the Controlled Foreign Company Financing Exemption. This decision does not change the position recorded in these financial statements. We will continue to monitor any developments following the decision of both HMRC and ITV to appeal the decision. An appeal against the charging notice received from HMRC following detailed analysis conducted supporting the Group’s position was also filed. The appeal is not expected to conclude in the next 12 months. There are tax audits being conducted by the tax authorities in a number of countries. Whilst there is inherent uncertainty regarding the timing of the resolution of these tax audits and the final tax liabilities to be assessed, the Group expects liabilities of approximately £12m to reverse in the next 12 months. Included within the current tax liabilities is an amount of £12m (30 April 2022: £15m) relating to interest and penalties on uncertain tax positions. Annual Report 2023 dssmith.com 151 | | K | x | x | x | | t | / r | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | Tax on other comprehensive income and equity Gross 2023 £m Tax credit/ (charge) 2023 £m Net 2023 £m Gross 2022 £m Tax credit/ (charge) 2022 £m Net 2022 £m Actuarial gain on employee benefits 11 (2) 9 68 (14) 54 Foreign currency translation differences 194 – 194 (40) – (40) Reclassification to income statement on asset write down (3) – (3) – – – Reclassification from translation reserve to income statement arising on divestment – – – (3) – (3) Movements in cash flow hedges (645) 149 (496) 712 (163) 549 Movement in net investment hedge (74) – (74) 28 1 29 Other comprehensive (expense) income for the yea (517) 147 (370) 765 (176) 589 Issue of share capital 4 – 4 7 – 7 Employee share trus (8) – (8) (21) – (21) Share-based payment expense 15 (2) 13 10 – 10 Dividends paid to Group shareholders (289) – (289) (166) – (166) Other comprehensive (expense)/income and changes in equity (795) 145 (650) 595 (176) 419 The realisation of underlying reserves is conducted in such a way to ensure there is no material tax consequence. 8. Earnings per share Basic earnings per share from continuing operations 2023 2022 Profit from continuing operations attributable to ordinary shareholders £492m £280m Weighted average number of ordinary shares 1,376m 1,374m Basic earnings per share 35.8p 20.4p Diluted earnings per share from continuing operations 2023 2022 Profit from continuing operations attributable to ordinary shareholders £492m £280m Weighted average number of ordinary shares 1,376m 1,374m Potentially dilutive shares issuable under share-based payment arrangements 10m 8m Weighted average number of ordinary shares (diluted) 1,386m 1,382m Diluted earnings per share 35.5p 20.3p The number of shares excludes the weighted average number of the Company’s own shares held as treasury shares during the year of 2m (2021/22: 1m). 2023 2022 Basic pence per share Diluted pence per share Basic pence per share Diluted pence per share Earnings per share from continuing operations 35.8p 35.5p 20.4p 20.3p Earnings per share from discontinued operations (note 30(b)) 0.8p 0.8p – – Earnings per share from continuing and discontinued operations 36.6p 36.3p 20.4p 20.3p | | | | | 150 | | | | | | | | Annual Report 2023 dssmith.com 151 | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED ## 8. Earnings per share continued ### Adjusted earnings per share from continuing operations Adjusted earnings per share is a key performance measure for management long-term remuneration and is widely used by the Group's shareholders. Adjusted earnings is calculated by adding back the post-tax effects of both amortisation and adjusting items. Further detail about the use of non-GAAP performance measures, including details of why amortisation is excluded, is given in note 32. A reconciliation of basic to adjusted earnings per share is as follows: | | 2023 | | | 2022 | | | | --- | --- | --- | --- | --- | --- | --- | | | £m | Basic pence per share | Diluted pence per share | £m | Basic pence per share | Diluted pence per share | | Basic earnings | **492** | **35.8p** | **35.5p** | 280 | 20.4p | 20.3p | | Add basic: | | | | | | | | Amortisation of intangible assets | **113** | **8.1p** | **8.1p** | 138 | 10.0p | 9.9p | | Tax credit on amortisation | **(25)** | **(1.8p)** | **(1.8p)** | (33) | (2.3p) | (2.3p) | | Adjusting items, before tax | **15** | **1.1p** | **1.1p** | 37 | 2.7p | 2.7p | | Tax on adjusting items and adjusting tax items | **(3)** | **(0.2p)** | **(0.2p)** | (2) | (0.1p) | (0.1p) | | **Adjusted earnings** | **592** | **43.0p** | **42.7p** | 422 | 30.7p | 30.5p | ## 9. Dividends proposed and paid | | 2023 | | 2022 | | | --- | --- | --- | --- | --- | | | Pence per share | £m | Pence per share | £m | | 2021/22 interim dividend - paid | - | - | 4.0p | 66 | | 2021/22 final dividend - paid | - | - | 10.2p | 140 | | 2022/23 interim dividend - declared and paid | **6.0p** | **83** | - | - | | 2022/23 final dividend - proposed | **12.0p** | **165** | - | - | | | 2023 £m | 2022 £m | | --- | --- | --- | | Paid during the year | **289** | 166 | The 2021/22 interim dividend of 4.0p per share, the final 2021/22 dividend of 10.2p per share and the 2022/23 interim dividend of 6.0p were paid during the year. 152 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 8. Earnings per share continued Adjusted earnings per share from continuing operations Adjusted earnings per share is a key performance measure for management long-term remuneration and is widely used by the Group’s shareholders. Adjusted earnings is calculated by adding back the post-tax effects of both amortisation and adjusting items. Further detail about the use of non-GAAP performance measures, including details of why amortisation is excluded, is given in note 32. A reconciliation of basic to adjusted earnings per share is as follows: 2023 2022 Basic Diluted Basic Diluted pence pence pence pence £m per share per share £m per share per share Basic earnings 492 35.8p 35.5p 280 20.4p 20.3p Add back: Amortisation of intangible assets 113 8.1p 8.1p 138 10.0p 9.9p Tax credit on amortisation (25) (1.8p) (1.8p) (31) (2.3p) (2.3p) Adjusting items, before ta 15 1.1p 1.1p 37 2.7p 2.7p Tax on adjusting items and adjusting tax items (3) (0.2p) (0.2p) (2) (0.1p) (0.1p) Adjusted earnings 592 43.0p 42.7p 422 30.7p 30.5p 9. Dividends proposed and paid 2023 2022 Pence Pence per share £m per share £m 2021/22 interim dividend – paid – – 4.8p 66 2021/22 final dividend – paid – – 10.2p 140 2022/23 interim dividend – declared and paid 6.0p 83 –– 2022/23 final dividend – proposed 12.0p 165 –– | | | 2023 | 2022 | | --- | --- | --- | --- | | | | £m | £m | | Paid during the yea | 289 166 | | | The 2021/22 interim dividend of 4.8p per share, the final 2021/22 dividend of 10.2p per share and the 2022/23 interim dividend of 6.0p were paid during the year. Annual Report 2023 dssmith.com 153 | | r | x | | | | --- | --- | --- | --- | --- | | | | | 10. Intangible assets Goodwill £m Software £m Intellectual property £m Customer related £m Carbon credits £m Other £m Total £m Cost At 1 May 2022 2,210 182 21 1,301 14 41 3,769 Additions – 3 1 – 2 24 30 Disposals – (4) – – – (1) (5) Reclassification – 4 (1) – – (4) (1) Currency translation 75 4 2 53 1 – 135 At 30 April 2023 2,285 189 23 1,354 17 60 3,928 Amortisation and impairment At 1 May 2022 (17) (106) (12) (703) – (25) (863) Amortisation – (20) (3) (80) – (10) (113) Disposals – 4 – – – 1 5 Reclassification – – 1 – – 3 4 Currency translation – (4) (2) (15) – (13) (34) At 30 April 2023 (17) (126) (16) (798) – (44) (1,001) Carrying amount At 1 May 2022 2,193 76 9 598 14 16 2,906 At 30 April 2023 2,268 63 7 556 17 16 2,927 Goodwill £m Software £m Intellectual property £m Customer related £m Carbon credits £m Other £m Total £m Cost At 1 May 2021 2,199 180 19 1,310 – 31 3,739 Divestments – (5) – – – – (5) Additions – 3 2 – 14 13 32 Disposals – (4) – – – (10) (14) Reclassification – 1 1 – – 17 19 Transfers – 10 – – – (10) – Currency translation 11 (3) (1) (9) – – (2) At 30 April 2022 2,210 182 21 1,301 14 41 3,769 Amortisation and impairment At 1 May 2021 (17) (102) (12) (599) – (14) (744) Divestments – 5 – – – – 5 Amortisation – (16) (1) (110) – (11) (138) Disposals – 4 – – – – 4 Reclassification – 1 – – – – 1 Currency translation – 2 1 6 – – 9 At 30 April 2022 (17) (106) (12) (703) – (25) (863) Carrying amount At 1 May 2021 2,182 78 7 711 – 17 2,995 At 30 April 2022 2,193 76 9 598 14 16 2,906 Included within customer related intangibles at 30 April 2023 are amounts purchased as part of the acquisitions of Europac (carrying amount £347m, remaining amortisation period 11 years) and Interstate Resources (carrying amount £120m, remaining amortisation period four years). | | | 152 | | | | Annual Report 2023 dssmith.com 153 | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED ## 10. Intangible assets continued ### Goodwill The CGUs identified below represent the lowest level at which goodwill is monitored for impairment indicators and internal management purposes, and are not larger than the operating segments determined in accordance with IFRS 8 *Operating Segments*. The carrying values of goodwill are split between the CGU groups as follows: | | 2023 £m | 2022 £m | | --- | --- | --- | | Northern Europe | 405 | 394 | | Southern Europe | 1,068 | 1,017 | | Eastern Europe | 162 | 154 | | North America | 633 | 628 | | **Total goodwill** | **2,268** | **2,159** | ### Goodwill impairment tests - key assumptions and methodology The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill may be impaired. The recoverable amounts of the CGUs are determined from value-in-use calculations. Impairment tests were conducted over the segmental structures, with no indicators of impairment noted in the year ended 30 April 2023, as the recoverable amount of the groups of CGUs, based upon value-in-use calculations, exceeded the carrying amounts. The calculations of value-in-use are inherently judgemental and require management to make a series of estimates and assumptions. It is possible that if key assumptions were changed adversely, impairment would need to be recognised. The key assumptions in the value-in-use calculations are - • the cash flow forecasts have been derived from the most recent budget presented to the Board for the year ending 30 April 2024. The cash flows utilised are based upon forecast sales volumes and product mix, anticipated movements in paper prices and input costs and known changes and expectations of current market conditions, taking into account the cyclical nature of the business; - • the sales volume and price assumptions underlying the cash flow forecasts are the Directors' estimates of likely future changes based upon historic performance and the current economic outlooks for the economies in which the Group operates. These are viewed as the key operating assumptions as they determine the Directors' approach to margin and cost maintenance; - • the cash flow forecasts for capital expenditure are based upon past experience and include the replacement capital expenditure required to generate the terminal cash flows; - • cash flows beyond the year ended 30 April 2024 reflect the long-term growth rate specific to each of the CGUs. Where a CGU consists of multiple countries, country-specific rates are incorporated into a weighted average rate for that region. The rates applied are based upon external sources such as the International Monetary Fund's World Economic Outlook Database; - • the pre-tax adjusted discount rate is derived from the basis of the Group's weighted average cost of capital ('WACC') of 9.5% (2021/22: 9.5%), plus a blended country risk premium for each CGU. The discount rate is a function of the cost of debt and equity. The cost of equity is largely based upon the risk-free rate for 10-year Government Bond yields for the European countries in which the Group operates (70% weighting), 30-year UK gifts (17% weighting) and 30-year US treasury yields (13% weighting), adjusted for the relevant country market risk premium, ranging from 5.9% to 17.2%, which reflects the increased risk of investing in country specific equities and the relative volatilities of the equity of the Group compared to the market. This Group rate has been adjusted for the risks inherent in the countries in which the CGUs operate that are not reflected in the cash flow projections; and - • The Group assesses climate change impacts when preparing its summary of key risks as part of its risk management processes. These risks inform the Budget for the year ended 30 April 2024 which is the basis of the impairment modelling. The impact of climate change, both in terms of opportunities and risks is identified in the Group's TCFD disclosure within this Annual Report. 154 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ## 10. Intangible assets continued | Key assumptions by CGU | Northern Europe | Southern Europe | Eastern Europe | North America | | --- | --- | --- | --- | --- | | **Long-term growth rate at 30 April 2023** | **1.4%** | **1.3%** | **2.8%** | **1.8%** | | Long-term growth rate at 30 April 2022 | 1.5% | 1.5% | 3.7% | 2.3% | | **Discount rate at 30 April 2023** | **10.5%** | **12.4%** | **12.8%** | **10.1%** | | Discount rate at 30 April 2022 | 10.1% | 11.7% | 12.3% | 10.0% | ### Goodwill impairment tests - sensitivities The value-in-use is based upon anticipated discounted future cash flows. At 30 April 2023, the impairment tests concluded that there was headroom across all CGUs. Whilst the Directors believe the assumptions used are realistic, it is possible that a reduction in the headroom would occur if any of the above key assumptions were adversely changed. Factors which could cause an impairment are: - significant and prolonged underperformance relative to the forecast; and To support their assertions, the Directors have conducted sensitivity analyses to determine the impact that would result from the above situations. Key sensitivities tested included reduction or delays in future growth and increased discount rates. In these cases, if future estimates of economic improvements were delayed, or if the estimated discount rates applied to the cash flows were increased by 0.5%, there would still be adequate headroom to support the carrying value of the assets. Based on this analysis, with the exception of North America, the Directors believe that a reasonably possible change in any of the key assumptions detailed above would not cause the carrying value of CGUs to exceed their recoverable amounts, although the headroom would decrease. Sensitivities have also been conducted to determine the change required to the CGUs EBITDA and discount rates, to reduce the recoverable amounts down to the carrying value of the assets. EBITDA growth is based on a number of elements over the long term, including price and volume growth in the first year as well as assumptions regarding inflation. For Northern Europe, it would require a reduction in EBITDA of 17% or a discount rate of 15.1%; Southern Europe a reduction in EBITDA of 9% or a discount rate of 1.69% and Eastern Europe a reduction in EBITDA of 12% or a discount rate of 15.1%. For North America, where an increase in EBITDA is forecast, a reduction in EBITDA of 14% or a discount rate of 11.7% would be required. Therefore, at 30 April 2023, no impairment charge is required against the carrying value of goodwill. ## 11. Property, plant and equipment | | Land and buildings £m | Plant and equipment £m | Fixtures and fittings £m | Under construction £m | Total £m | | --- | --- | --- | --- | --- | --- | | **Cost** | | | | | | | At 1 May 2022 | 1,043 | 3,260 | 93 | 297 | 4,693 | | Additions | 31 | 103 | 3 | 400 | 537 | | Disposals | (16) | (119) | (4) | - | (139) | | Reclassification | 32 | 6 | 2 | (5) | 35 | | Transfers | 20 | 181 | 7 | (208) | - | | Currency translation | 63 | 203 | 9 | 14 | 289 | | **At 30 April 2023** | **1,173** | **3,634** | **110** | **498** | **5,415** | | **Depreciation and impairment** | | | | | | | At 1 May 2022 | (218) | (1,304) | (43) | - | (1,565) | | Depreciation charge | (30) | (201) | (10) | - | (241) | | Impairment | (4) | (20) | - | - | (24) | | Disposals | 11 | 89 | 4 | - | 104 | | Reclassification | - | 5 | - | - | 5 | | Currency translation | (30) | (129) | (6) | - | (165) | | **At 30 April 2023** | **(271)** | **(1,560)** | **(55)** | **-** | **(1,886)** | | **Carrying amount** | | | | | | | At 1 May 2022 | 825 | 1,956 | 50 | 297 | 3,120 | | **At 30 April 2023** | **902** | **2,074** | **55** | **498** | **3,529** | Annual Report 2023 dssmith.com 155 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED # 11. Property, plant and equipment continued | | Land and buildings £m | Plant and equipment £m | Fixtures and fittings £m | Under construction £m | Total £m | | --- | --- | --- | --- | --- | --- | | **Cost** | | | | | | | At 1 May 2021 | 1,066 | 3,337 | 95 | 201 | 4,699 | | Divestments | (19) | (138) | (3) | - | (160) | | Additions | 23 | 69 | 2 | 300 | 394 | | Disposals | (10) | (100) | (4) | - | (114) | | Reclassification | 1 | 12 | - | (9) | 4 | | Transfers | 19 | 163 | 9 | (190) | - | | Currency translation | (36) | (93) | (6) | (5) | (130) | | **At 30 April 2022** | **1,043** | **3,260** | **93** | **297** | **4,693** | | **Depreciation and impairment** | | | | | | | At 1 May 2021 | (222) | (1,383) | (44) | - | (1,649) | | Divestments | 16 | 105 | 2 | - | 123 | | Depreciation charge | (35) | (176) | (9) | - | (220) | | Disposals | 6 | 94 | 3 | - | 103 | | Currency translation | 17 | 56 | 5 | - | 78 | | **At 30 April 2022** | **(218)** | **(1,304)** | **(43)** | **-** | **(1,565)** | | **Carrying amount** | | | | | | | At 1 May 2021 | 844 | 1,954 | 51 | 201 | 3,050 | | **At 30 April 2022** | **825** | **1,956** | **50** | **297** | **3,128** | Assets under construction mainly relate to production machines in Italy and site improvements under construction. All items of property, plant and equipment have been tested for indicators of impairment in relation to climate change considerations and no indicators were identified. Impairment recognised during the year related to assets in the UK, Germany and Bulgaria. Reclassification in land and buildings amounting to £32m related to a lease in Germany which was terminated early (refer to note 12) and the related asset was purchased. 156 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ## 12. Right-of-use assets and lease liabilities ### Right-of-use assets | | Land and buildings £m | Plant and equipment £m | Fixtures and fittings £m | Total £m | | --- | --- | --- | --- | --- | | **Cost** | | | | | | At 1 May 2022 | 105 | 105 | 1 | 376 | | Additions | 75 | 61 | - | 136 | | Disposals | (37) | (43) | (1) | (81) | | Reclassification | (32) | 1 | - | (31) | | Currency translation | 5 | 7 | - | 12 | | **At 30 April 2023** | **197** | **215** | **-** | **412** | | **Depreciation and impairment** | | | | | | At 1 May 2022 | (72) | (105) | - | (177) | | Depreciation charge | (32) | (39) | - | (71) | | Disposals | 24 | 42 | - | 66 | | Currency translation | (2) | (4) | - | (8) | | **At 30 April 2023** | **(82)** | **(106)** | **-** | **(188)** | | **Carrying amount** | | | | | | At 1 May 2022 | 114 | 84 | 1 | 199 | | **At 30 April 2023** | **115** | **109** | **-** | **224** | | | Land and buildings £m | Plant and equipment £m | Fixtures and fittings £m | Total £m | | --- | --- | --- | --- | --- | | **Cost** | | | | | | At 1 May 2021 | 177 | 187 | 1 | 365 | | Divestments | - | (1) | - | (1) | | Additions | 17 | 34 | - | 51 | | Disposals | (9) | (22) | - | (31) | | Reclassification | - | (4) | - | (4) | | Currency translation | 1 | (5) | - | (4) | | **At 30 April 2022** | **105** | **105** | **1** | **376** | | **Depreciation and impairment** | | | | | | At 1 May 2021 | (52) | (87) | - | (139) | | Depreciation charge | (30) | (40) | - | (70) | | Disposals | 9 | 19 | - | 28 | | Reclassification | - | 1 | - | 1 | | Currency translation | 1 | 2 | - | 3 | | **At 30 April 2022** | **(72)** | **(105)** | **-** | **(177)** | | **Carrying amount** | | | | | | At 1 May 2021 | 125 | 100 | 1 | 226 | | **At 30 April 2022** | **114** | **84** | **1** | **199** | During the year, a lease in Germany was terminated early and the asset purchased. This has been reclassified to land and buildings in property, plant and equipment (note 11). Annual Report 2023 dssmith.com 157 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 12. Right-of-use assets and lease liabilities continued Lease liabilities The carrying amounts of lease liabilities and the movements during the year are as follows: | | | | | | 2023 | 2022 | | --- | --- | --- | --- | --- | --- | --- | | | | | | | £m | £m | | At be | innin | of the | ea | 203 230 | | | Divestments – (1) Additions 136 51 | Accretion of interes | | | | 11 11 | | --- | --- | --- | --- | --- | | Pa | ments (117) (84) | | | | | Earl | termination (15) (3) | | | | | Currenc | | translation 6 (1) | | | | At end of the | | | ea | 224 203 | | Curren | | 70 63 | | | | Non-curren | | | 154 140 | | 224 203 The maturity analysis of lease liabilities is presented in note 20. 13. Equity accounted investments | | | 2023 | 2022 | | --- | --- | --- | --- | | | | £m | £m | | At beginning of the yea | 17 38 | | | Dividends (2) (1) Share of profit of equity accounted investments, net of ta 2 7 Currency translation – 2 Impairment of associate (note 4) – (29) At end of the year 17 17 Principal equity accounted investments | | | | Principal country | | Ownership interest | | --- | --- | --- | --- | --- | --- | | | Nature of business 2023 2022 | | | of operation | | | PrJSC ‘Rubezhnoye Cardboard and Package Mill’ | | Paper and packaging Ukraine 49.6% 49.6% | | | | Philcorr LLC Packaging USA 40.0% 40.0% Philcorr Vineland LLC Packaging USA 40.0% 40.0% Cartonajes Santander, S.L. Packaging Spain 39.6% 39.6% Cartonajes Cantabria S.L. Packaging Spain 39.6% 39.6% Euskocarton, S.L. Packaging Spain 39.6% 39.6% Industria Cartonera Asturiana S.L. Packaging Spain 39.6% 39.6% The Group’s investment in the associate RKTK in Ukraine was fully impaired in 2021/22. The invasion of Ukraine by Russia resulted in significant damage to the assets of the Group’s associate and fundamentally compromised the ability to realise the interest held. Accordingly, an impairment of the entire interest was recognised, together with amounts in connection with the trading activities conducted with the associate. All the above associates are accounted for using the equity method because the Group has the ability to exercise significant influence over the investments due to the Group’s equity holdings and board representation. 158 y g y t t y g y y r t r x r 158 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 13. Equity accounted investments continued 12. Right-of-use assets and lease liabilities continued Lease liabilities The carrying amounts of lease liabilities and the movements during the year are as follows: | | | | | | 2023 | 2022 | | --- | --- | --- | --- | --- | --- | --- | | | | | | | £m | £m | | At be | innin | of the | ea | 203 230 | | | Divestments – (1) Additions 136 51 | Accretion of interes | | | | | 11 11 | | --- | --- | --- | --- | --- | --- | | Pa | ments (117) (84) | | | | | | Earl | termination (15) (3) | | | | | | Currenc | | translation 6 (1) | | | | | At end of the | | | ea | 224 203 | | | Curren | | 70 63 | | | | | Non-curren | | | 154 140 | | | 224 203 The maturity analysis of lease liabilities is presented in note 20. 13. Equity accounted investments | | | 2023 | 2022 | | --- | --- | --- | --- | | | | £m | £m | | At beginning of the yea | 17 38 | | | Dividends (2) (1) Share of profit of equity accounted investments, net of ta 2 7 Currency translation – 2 Impairment of associate (note 4) – (29) At end of the year 17 17 Principal equity accounted investments | | | | Principal country | | Ownership interest | | --- | --- | --- | --- | --- | --- | | | Nature of business 2023 2022 | | | of operation | | | PrJSC ‘Rubezhnoye Cardboard and Package Mill’ | | Paper and packaging Ukraine 49.6% 49.6% | | | | Philcorr LLC Packaging USA 40.0% 40.0% Philcorr Vineland LLC Packaging USA 40.0% 40.0% Cartonajes Santander, S.L. Packaging Spain 39.6% 39.6% Cartonajes Cantabria S.L. Packaging Spain 39.6% 39.6% Euskocarton, S.L. Packaging Spain 39.6% 39.6% Industria Cartonera Asturiana S.L. Packaging Spain 39.6% 39.6% The Group’s investment in the associate RKTK in Ukraine was fully impaired in 2021/22. The invasion of Ukraine by Russia resulted in significant damage to the assets of the Group’s associate and fundamentally compromised the ability to realise the interest held. Accordingly, an impairment of the entire interest was recognised, together with amounts in connection with the trading activities conducted with the associate. All the above associates are accounted for using the equity method because the Group has the ability to exercise significant influence over the investments due to the Group’s equity holdings and board representation. Annual Report 2023 dssmith.com 159 | y y | g t | y | t g y | r | t y | r r | x | | x | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | | | | Summary of financial information of associates The financial information below is for the Group’s associates on a 100% basis for the year ended 30 April. 2023 £m 2022 £m Current assets 14 15 Non-current assets 13 13 Current liabilities (5) (10) Non-current liabilities (5) (6) Revenue 98 77 Profit after ta 4 12 Other comprehensive income 1 – Total comprehensive income 5 12 14. Other investments 2023 £m 2022 £m Other investments 10 13 Restricted cash 7 3 17 16 15. Inventories 2023 £m 2022 £m Raw materials and consumables 374 419 Work in progress 26 27 Finished goods 219 257 619 703 Inventory provisions at 30 April 2023 were £60m (30 April 2022: £51m). Inventories of £3,344m were recognised as an expense during the year ended 30 April 2023 (2021/ 22: £3,102m) and included within cost of sales. 16. Trade and other receivables 2023 2022 Non- current £m Current £m Non- current £m Current £m Trade receivables – 1,060 – 1,023 Loss allowance – (31) – (30) Prepayments and accrued income 1 77 – 82 Other deposits – 30 – 30 Other receivables – 120 – 124 1 1,256 – 1,229 Other receivables comprise various items including indirect tax receivable, employee advances and interest receivable. The Group has sold without recourse certain trade receivables and on realisation the receivable is de-recognised and proceeds are presented within operating cash flows. Other deposits relate to these arrangements. Sold trade receivables under these arrangements at 30 April 2023 amounted to £360m (30 April 2022: £381m). | | | | 158 | | | | | | | | | | Annual Report 2023 dssmith.com 159 | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 16. Trade and other receivables continued Of which past due | | | Current | | 1 month | | | 1–3 | | 3–6 | | 6–12 | More than | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Total | (not past due) | | | or less | | months | | months | | months | | 12 months | | | £m | | | £m | | £m | | £m | | £m | | £m | | £m | At 30 April 2023 Gross trade receivables 1,060 971 53 7 3 2 24 Weighted average loss rate 2.9% 0.4% 3.8% 28.6% 33% – 92% Loss allowance (31) (4) (2) (2) (1) – (22) At 30 April 2022 Gross trade receivables 1,023 967 16 11 3 3 23 Weighted average loss rate 2.9% 0.4% 6.3% 9.1% 33% 33% 96% Loss allowance (30) (4) (1) (1) (1) (1) (22) Movement in loss allowance | | | 2023 | 2022 | | --- | --- | --- | --- | | | | £m | £m | | At beginning of the yea | (30) (31) | | | Amounts written off 2 – Net remeasurement of loss allowance (2) – Currency translation (1) 1 At end of the year (31) (30) Concentrations of credit risk with respect to trade receivables are limited due to the Group’s customer base being large and diverse. The majority of customers are credit insured and the Group has a history of low levels of losses in respect of trade receivables. The loss allowance represents the Group’s expected credit losses on trade receivables as defined under IFRS 9 Financial Instruments . The expected credit losses are estimated using a provision matrix by grouping trade receivables based on shared credit risk characteristics and the days past due. Expected loss rates are calculated by reference to past default experience of the debtor and an analysis of the debtor’s current financial position, adjusted for factors that are specific to the debtors, general economic conditions and an assessment of both the current as well as the forecast direction of conditions at the reporting date. The accounting impact of credit insurance is not considered integral to the consideration of the carrying value of the trade receivables. 17. Trade and other payables 2023 2022 Non- Non- current Current current Current £m £m £m £m Trade payables – 1,572 – 1,922 Interest payable – 16 – 23 Other non-trade payables and accrued expenses 34 665 37 558 34 2,253 37 2,503 In accordance with government initiatives to allow suppliers to receive payments earlier than contractual payment terms, the Group has set up supply chain finance programmes through third parties, all of which are established and well capitalised financial institutions. The objectives for the scheme are to support smaller suppliers, if they choose, on an invoice by invoice basis, an earlier payment from the financial institution whilst the group continue to pay the financial institution to the suppliers contractual terms giving them earlier access to funding, and to manage the Group’s working capital. These schemes allow suppliers to receive, if they choose, on an invoice by invoice basis, an earlier payment whilst the Group continues to pay to the suppliers’ contractual terms. Suppliers are at liberty to use them or not and these arrangements have no cost to the Group and have no effect on trade payable balances or operating cash flows. The Group does not participate in any rebates, does not receive any fees from the providers nor does it provide any discounts or incentives for the suppliers to utilise these facilities. Additionally, they are not used to create payment terms which are abnormal, atypical or extend statutory payment terms in the countries the Group operates in and no adjustments are made by Standard & Poor’s in their assessment of Group adjusted net debt. 160 r 160 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 17. Trade and other payables continued The Group assesses the supply chain finance programmes to ascertain whether liabilities to suppliers who have chosen to access an earlier payment under the scheme continue to meet the definition of trade payables, or should be reclassified as borrowings. The Group has concluded that the Group’s liability to the supplier remains unchanged for all such programmes and, as such, these balances remain in trade 16. Trade and other receivables continued payables and the cash flows associated with these programmes remain within operating cash flows. Of which past due Within non-trade payables and accrued expenses is the redemption liability of £103m at 30 April 2023 (30 April 2022: £99m) arising on the Current 1 month 1–3 3–6 6–12 More than acquisition of Interstate Resources and relating to a put option held by the seller, as detailed further in note 30(a). Total (not past due) or less months months months 12 months £m £m £m £m £m £m £m The liability for the final stake at 30 April 2023 is recorded at the final put option value at crystallisation during the financial year in line with At 30 April 2023 the floor of the original purchase price. Gross trade receivables 1,060 971 53 7 3 2 24 18. Net debt Weighted average loss rate 2.9% 0.4% 3.8% 28.6% 33% – 92% Loss allowance (31) (4) (2) (2) (1) – (22) The components of net debt and movement during the year is as follows: Foreign exchange, | At 30 April 2022 | | | | Continuing | | fair value and | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | At 30 April | | operations | | | non-cash | | At 30 April | | | Gross trade receivables 1,023 967 16 11 3 3 23 | | | 2022 | cash flow | | movements | | | | 2023 | | | Note | | £m | | £m | | | £m | | £m | Weighted average loss rate 2.9% 0.4% 6.3% 9.1% 33% 33% 96% Cash and cash equivalents 819 (358) 11 472 Loss allowance (30) (4) (1) (1) (1) (1) (22) Overdrafts (73) (30) (1) (104) | Movement in loss allowance | | | Net cash and cash equivalents 19 746 (388) 10 368 | | --- | --- | --- | --- | | | 2023 | 2022 | Other investments – restricted cash 14 3 3 – 6 | | | £m | £m | | Other deposits 30 (1) 1 30 At beginning of the yea (30) (31) Borrowings – after one yea (1,391) (297) (54) (1,742) Amounts written off 2 – Borrowings – within one yea (681) 644 (37) (74) Net remeasurement of loss allowance (2) – Lease liabilities 12 (203) 106 (127) (224) Currency translation (1) 1 Derivative financial instruments At end of the year (31) (30) Assets 12 (14) 2 – Concentrations of credit risk with respect to trade receivables are limited due to the Group’s customer base being large and diverse. Liabilities – – – – The majority of customers are credit insured and the Group has a history of low levels of losses in respect of trade receivables. (2,230) 441 (215) (2,004) The loss allowance represents the Group’s expected credit losses on trade receivables as defined under IFRS 9 Financial Instruments . Net debt – reported basis (1,484) 53 (205) (1,636) The expected credit losses are estimated using a provision matrix by grouping trade receivables based on shared credit risk characteristics IFRS 16 lease liabilities 201 220 and the days past due. Expected loss rates are calculated by reference to past default experience of the debtor and an analysis of the Net debt excluding IFRS 16 liabilities (1,283) (1,416) debtor’s current financial position, adjusted for factors that are specific to the debtors, general economic conditions and an assessment of Net debt is a non-GAAP measure not defined by IFRS. While the Group has included lease liabilities after transition to IFRS 16 Leases within both the current as well as the forecast direction of conditions at the reporting date. The accounting impact of credit insurance is not total lease liabilities (in addition to arrangements previously classified as finance leases under IAS 17), IFRS 16 liabilities are currently considered integral to the consideration of the carrying value of the trade receivables. excluded from the definition of net debt as set out in the Group’s banking covenant requirements. 17. Trade and other payables Further detail on the use of non-GAAP measures and a reconciliation showing the calculation of adjusted net debt, as defined in the Group’s 2023 2022 banking covenants, is included in note 32. Non- Non- current Current current Current Derivative financial instruments above relate to forward foreign exchange contracts and cross-currency swaps used to hedge the Group’s £m £m £m £m borrowings and the net assets of foreign operations. The difference between the amounts shown above and the total derivative financial Trade payables – 1,572 – 1,922 instrument assets and liabilities in the consolidated statement of financial position relates to derivative financial instruments that hedge Interest payable – 16 – 23 forecast foreign currency transactions and the Group’s purchases of energy. Other non-trade payables and accrued expenses 34 665 37 558 Non-cash movements relate to amortisation of fees incurred on debt issuance and new leases. 34 2,253 37 2,503 Other deposits are included, as these short-term receivables have the characteristics of net debt. In accordance with government initiatives to allow suppliers to receive payments earlier than contractual payment terms, the Group has set up supply chain finance programmes through third parties, all of which are established and well capitalised financial institutions. The objectives for the scheme are to support smaller suppliers, if they choose, on an invoice by invoice basis, an earlier payment from the financial institution whilst the group continue to pay the financial institution to the suppliers contractual terms giving them earlier access to funding, and to manage the Group’s working capital. These schemes allow suppliers to receive, if they choose, on an invoice by invoice basis, an earlier payment whilst the Group continues to pay to the suppliers’ contractual terms. Suppliers are at liberty to use them or not and these arrangements have no cost to the Group and have no effect on trade payable balances or operating cash flows. The Group does not participate in any rebates, does not receive any fees from the providers nor does it provide any discounts or incentives for the suppliers to utilise these facilities. Additionally, they are not used to create payment terms which are abnormal, atypical or extend statutory payment terms in the countries the Group operates in and no adjustments are made by Standard & Poor’s in their assessment of Group adjusted net debt. Annual Report 2023 dssmith.com 161 | | r | | t | r r | | | --- | --- | --- | --- | --- | --- | | | | 19. Cash and cash equivalents 2023 £m 2022 £m Bank balances 466 469 Shor -term deposits 6 350 Cash and cash equivalents (consolidated statement of financial position) 472 819 Bank overdrafts (104) (73) Net cash and cash equivalents (consolidated statement of cash flows) 368 746 | | | | | 160 | | | | | Annual Report 2023 dssmith.com 161 | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 20. Borrowings 2023 2022 Non- Non- Current current Total Current current Total £m £m £m £m £m £m 1 Bank and other loans (42) (299) (341) (4) (2) (6) Commercial pape (24) – (24) (37) – (37) Medium-term notes and other fixed-term deb $268m USD private placement 4.65% weighted average coupon 2 August 2021-2022 – – –(213) – (213) €500m medium-term note 2.25% coupon September 2022 – – –(420) – (420) €750m medium-term note 1.38% coupon July 2024 – (660) (660) – (625) (625) €18.8m term loan 1.4% coupon September 2025 (8) (9) (17) (7) (16) (23) €600m medium-term note 0.85% coupon September 2026 – (525) (525) – (499) (499) £250m medium-term note 2.88% coupon July 2029 – (249) (249) – (249) (249) (74) (1,742) (1,816) (681) (1,391) (2,072) 1. Drawings under bank loans and revolving credit facility. 2. Swapped to fixed rate £103m and fixed rate €120m using cross-currency swaps. Borrowings are unsecured and measured at amortised cost. There have been no breaches of covenants during the year ended 30 April 2023 in relation to the above borrowings. Of the total borrowing facilities available to the Group, the undrawn committed facilities available at 30 April were as follows: 2023 2022 £m £m Expiring between one and two years 800 – Expiring between two and five years 855 1,450 1,655 1,450 The £1,655m of undrawn facilities consist of the revolving credit facilities and a £500m term loan facility. The repayment profile of the Group’s borrowings, after taking into account the effect of cross-currency swaps and forward foreign exchange contracts, is as follows: 2023 | 1 year | 1–2 | 2–5 | More than | | | | --- | --- | --- | --- | --- | --- | | or less | years | years | 5 years | | Total | | £m | £m | £m | | £m | £m | Borrowings Fixed rate (74) (672) (523) (249) (1,518) Floating rate – – (298) – (298) Total borrowings (74) (672) (821) (249) (1,816) 2022 | 1 year | 1–2 | 2–5 | More than | | | | --- | --- | --- | --- | --- | --- | | or less | years | years | 5 years | | Total | | £m | £m | £m | | £m | £m | Borrowings Fixed rate (680) (7) (1,136) (248) (2,071) Floating rate (1) – – – (1) Total borrowings (681) (7) (1,136) (248) (2,072) 162 t r 162 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 20. Borrowings continued The Group’s borrowings, after taking into account the effect of cross-currency swaps and forward foreign exchange contracts are denominated in the following currencies: 2023 20. Borrowings Sterling Euro US dollar Other Total £m £m £m £m £m 2023 2022 Non- Non- Borrowings Current current Total Current current Total Fixed rate (98) (1,187) (232) (1) (1,518) | | | £m | £m | £m | £m | £m | £m | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | 1 | | | | | | | Floating rate (210) (88) – – (298) | | Bank and other loans | (42) (299) (341) (4) (2) (6) | | | | | | | | (308) (1,275) (232) (1) (1,816) Commercial pape (24) – (24) (37) – (37) Net cash and cash equivalents (including bank overdrafts) Medium-term notes and other fixed-term deb Floating rate (23) 240 13 138 368 $268m USD private placement 4.65% weighted average coupon 2 Net borrowings at 30 April 2023 (331) (1,035) (219) 137 (1,448) August 2021-2022 –––(213) – (213) €500m medium-term note 2.25% coupon September 2022 –––(420) – (420) 2022 €750m medium-term note 1.38% coupon July 2024 – (660) (660) – (625) (625) Sterling Euro US dollar Other Total £m £m £m £m £m €18.8m term loan 1.4% coupon September 2025 (8) (9) (17) (7) (16) (23) Borrowings €600m medium-term note 0.85% coupon September 2026 – (525) (525) – (499) (499) Fixed rate (200) (1,643) (227) (1) (2,071) £250m medium-term note 2.88% coupon July 2029 – (249) (249) – (249) (249) Floating rate – (1) – – (1) (74) (1,742) (1,816) (681) (1,391) (2,072) (200) (1,644) (227) (1) (2,072) 1. Drawings under bank loans and revolving credit facility. Net cash and cash equivalents (including bank overdrafts) 2. Swapped to fixed rate £103m and fixed rate €120m using cross-currency swaps. Floating rate 90 474 56 126 746 Borrowings are unsecured and measured at amortised cost. There have been no breaches of covenants during the year ended 30 April 2023 Net borrowings at 30 April 2022 (110) (1,170) (171) 125 (1,326) in relation to the above borrowings. At 30 April 2023, 70% of the Group’s borrowings, after taking into account the effect of cross-currency swaps and forward foreign Of the total borrowing facilities available to the Group, the undrawn committed facilities available at 30 April were as follows: exchange contracts, were denominated in euros in order to hedge the underlying assets of the Group’s European operations (30 April 2022: 2023 2022 79%). Interest rates on floating rate borrowings are based on EURIBOR, or where applicable, local currency base rates. The Group’s sterling £m £m denominated floating rate borrowings are based on SONIA. Expiring between one and two years 800 – | Expiring between two and five years 855 1,450 | Maturity of lease liabilities | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | 1,655 1,450 | | 1 year | | 1–2 | 2–5 | More than | | | | | | | or less | | years | years | | 5 years | | Total | | | | | £m | £m | £m | | | £m | £m | The £1,655m of undrawn facilities consist of the revolving credit facilities and a £500m term loan facility. At 30 April 2022 (63) (46) (61) (33) (203) The repayment profile of the Group’s borrowings, after taking into account the effect of cross-currency swaps and forward foreign At 30 April 2023 (70) (51) (73) (30) (224) exchange contracts, is as follows: | | | 2023 | | | | | Denomination of lease liabilities | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | 1 year | 1–2 | | 2–5 | More than | | | | Sterling | | Euro | US dollar | | Other | Total | | or less | years | | years | 5 years | | Total | | | £m | £m | | £m | £m | £m | | £m | £m | | £m | | £m | £m | | | | | | | | | At 30 April 2022 (42) (101) (38) (22) (203) Borrowings At 30 April 2023 (55) (109) (34) (26) (224) Fixed rate (74) (672) (523) (249) (1,518) Floating rate – – (298) – (298) Total borrowings (74) (672) (821) (249) (1,816) 2022 | 1 year | 1–2 | 2–5 | More than | | | | --- | --- | --- | --- | --- | --- | | or less | years | years | 5 years | | Total | | £m | £m | £m | | £m | £m | Borrowings Fixed rate (680) (7) (1,136) (248) (2,071) Floating rate (1) – – – (1) Total borrowings (681) (7) (1,136) (248) (2,072) Annual Report 2023 dssmith.com 163 r t 162 Annual Report 2023 dssmith.com 163 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 20. Borrowings continued Changes in liabilities arising from financing activities | | | | | | | | Acquisitions | | New leases | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | At 1 May | | Financing | | | and | and early | | Movements | | | At 30 Apr | | | | | | | 2022 | cash flows | | divestments | | termination | | in fair value | | Other | | 2023 | | | | | | £m | | £m | | £m | | £m | | £m | £m | | £m | | Ban | and other loans, including commercial pape | (43) (316) – – – (6) (365) | | | | | | | | | | | | | | | Medium-term notes and other fixed-term deb | | (2,029) 663 – – – (85) (1,451) | | | | | | | | | | | | | | Lease liabilities (203) 106 – (121) – (6) (224) Derivative financial instruments related to hedging of financial liabilities (note 18) Assets 12 (14) – – 2 – – Liabilities – – – – – –– Total liabilities from financing activities (2,263) 439 – (121) 2 (97) (2,040) | | | | | | | | Acquisitions | | New leases | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | At 1 May | | Financing | | | and | and early | | Movements | | | At 30 Apr | | | | | | | 2021 | cash flows | | divestments | | termination | | in fair value | | Other | | 2022 | | | | | | £m | | £m | | £m | | £m | | £m | £m | | £m | | Ban | and other loans, including commercial pape | (75) 36 – – – (4) (43) | | | | | | | | | | | | | | | Medium-term notes and other fixed-term deb | | (2,226) 159 – – – 38 (2,029) | | | | | | | | | | | | | | Lease liabilities (230) 73 1 (51) – 4 (203) Derivative financial instruments related to hedging of financial liabilities (note 18) Assets – (4) – – 16 – 12 Liabilities (15) 39 – – (24) – – Total liabilities from financing activities (2,546) 303 1 (51) (8) 38 (2,263) Other changes include foreign exchange movements and amortisation of capitalised borrowing costs. Financing cash flows consist of the net amount of proceeds from borrowings, repayment of borrowings, repayment of lease obligations and proceeds from settlement of derivative financial instruments in the consolidated statement of cash flows. Payments in respect of, and proceeds from settlement of derivative financial instruments in the consolidated statement of cash flows relate solely to derivative financial instruments used to hedge the Group’s borrowings and net assets of foreign operations. Operating cash flows include settlement of commodity derivatives. 164 k k t t r r 164 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 21. Financial instruments The Group’s activities expose the Group to a number of key risks which have the potential to affect its ability to achieve its business objectives. A summary of the Group’s key financial risks and the policies and objectives in place to manage these risks is set out in the financial review and principal risk sections of the Strategic Report. 20. Borrowings continued The derivative financial instruments set out in this note have been entered into in line with the Group’s risk management objectives. | Changes in liabilities arising from financing activities | | | | | | | | | | | | | | The Group’s treasury policy prohibits entering into speculative transactions. | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | Acquisitions | | New leases | | | | | | | (a) Carrying amounts and fair values of financial assets and liabilities | | | At 1 May | | Financing | | | and | and early | | Movements | | | At 30 Apr | | | | | | 2022 | cash flows | | divestments | | termination | | in fair value | | Other | | 2023 | Set out below is the accounting classification of the carrying amounts and fair values of all of the Group’s financial assets and liabilities: | | | | £m | | £m | | £m | | £m | | £m | £m | | £m | | 2023 2022 | Ban | and other loans, including commercial pape | (43) (316) – – – (6) (365) | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | Carrying | | | | Carrying | | | | | Medium-term notes and other fixed-term deb | | (2,029) 663 – – – (85) (1,451) | | amount | | Fair value | | amount | | Fair value | | | | | | Category | | £m | | £m | | £m | | £m | Lease liabilities (203) 106 – (121) – (6) (224) Financial assets Derivative financial instruments related to hedging of | financial liabilities (note 18) | Cash and cash equivalents Amortised cos | | 472 472 819 819 | | | --- | --- | --- | --- | --- | | Assets 12 (14) – – 2 – – | Restricted cash Amortised cos | | | 7 7 3 3 | | Liabilities ––––– –– | | Fair value through other comprehensive | | | | | Other investments | income 10 10 13 13 | | | Total liabilities from financing activities (2,263) 439 – (121) 2 (97) (2,040) Trade and other receivables Amortised cos 1,257 1,257 1,229 1,229 Derivative financial instruments Fair value – hedging instruments 319 319 811 811 | | | | Acquisitions | | New leases | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | At 1 May | | Financing | | and | and early | Movements | | At 30 Apr | | Total financial assets 2,065 2,065 2,875 2,875 | | | 2021 | cash flows | divestments | | termination | in fair value | Other | | 2022 | | Financial liabilities | | | | £m | £m | £m | £m | £m | £m | £m | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | | | | | | Trade and other payables Amortised cost, excep | | as detailed below (2,287) (2,287) (2,540) (2,540) | | | Ban | and other loans, including commercial pape | (75) 36 – – – (4) (43) | | | | | | | | | | | | | | | | | | | | | | | Bank and other loans Amortised cos | | | (341) (341) (6) (6) | | Medium-term notes and other fixed-term deb | | (2,226) 159 – – – 38 (2,029) | | | | | | | | | | | | | | | | | | | | | | | Commercial pape | Amortised cos | | (24) (24) (37) (37) | Lease liabilities (230) 73 1 (51) – 4 (203) Medium-term notes and other Derivative financial instruments related to hedging of fixed-term debt Amortised cost (1,451) (1,384) (2,029) (2,015) financial liabilities (note 18) Lease liabilities Amortised cos (224) (224) (203) (203) Assets – (4) – – 16 – 12 Bank overdrafts Amortised cos (104) (104) (73) (73) Liabilities (15) 39 – – (24) – – Derivative financial instruments Fair value – hedging instruments (368) (368) (84) (84) Total liabilities from financing activities (2,546) 303 1 (51) (8) 38 (2,263) Total financial liabilities (4,799) (4,732) (4,972) (4,958) Other changes include foreign exchange movements and amortisation of capitalised borrowing costs. The fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market Financing cash flows consist of the net amount of proceeds from borrowings, repayment of borrowings, repayment of lease obligations and participants at the measurement date. For financial instruments carried at fair value, market prices or rates are used to determine fair value proceeds from settlement of derivative financial instruments in the consolidated statement of cash flows. Payments in respect of, and where an active market exists. The Group uses forward prices for valuing forward foreign exchange and commodity contracts and uses proceeds from settlement of derivative financial instruments in the consolidated statement of cash flows relate solely to derivative financial valuation models with present value calculations based on market yield curves to value fixed rate borrowings and cross-currency swaps. instruments used to hedge the Group’s borrowings and net assets of foreign operations. Operating cash flows include settlement of All derivative financial instruments are shown at fair value in the consolidated statement of financial position. commodity derivatives. The Group’s medium-term notes and other fixed-term debt are in effective cash flow and net investment hedges. The fair values of financial assets and liabilities which bear floating rates of interest or are short-term in nature are estimated to be equivalent to their carrying amounts. The Group’s financial assets and financial liabilities are categorised within the fair value hierarchy that reflects the significance of the inputs used in making the assessments. The majority of the Group’s financial instruments are Level 2 financial instruments in accordance with the fair value hierarchy, meaning although the instruments are not traded in an active market, inputs to fair value are observable for the asset and liability, either directly (i.e. quoted market prices) or indirectly (i.e. derived from prices). The Group’s medium-term notes are Level 1 financial instruments, as the notes are listed on the Luxembourg Stock Exchange. The redemption liability arising on the acquisition of Interstate Resources (within trade and other payables) has transferred from Level 3 to Level 2 due to the crystallisation of the put option and the final payment being agreed. Other investments are Level 3 financial instruments. The fair value of other investments is derived from fair value calculations based on their cash flows, and details of the valuation of the redemption liability are provided in note 17. Annual Report 2023 dssmith.com 165 k k t t r r t t t t t t t r t 164 Annual Report 2023 dssmith.com 165 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED ## 21. Financial instruments continued ### (b) Derivative financial instruments The Group enters into foreign exchange and commodity hedge derivative financial instruments to manage the risks associated with the Group's underlying business activities and the financing of these activities. Derivatives are carried at their fair value in the statement of financial position. The assets and liabilities of the Group at 30 April in respect of derivative financial instruments are as follows: | | Assets | | Liabilities | | Net | | | --- | --- | --- | --- | --- | --- | --- | | | 2023 £m | 2022 £m | 2023 £m | 2022 £m | 2023 £m | 2022 £m | | Derivatives held to: | | | | | | | | Manage the currency exposures on business activities, borrowings and net investments | - | 12 | - | - | - | 12 | | Derivative financial instruments included in net debt | - | 12 | - | - | - | 12 | | Derivatives held to hedge future transactions: | | | | | | | | Forward foreign exchange contracts | 1 | 1 | (2) | - | (1) | 1 | | Energy and carbon certificate costs | 318 | 798 | (366) | (84) | (48) | 714 | | **Total derivative financial instruments** | **319** | **811** | **(368)** | **(84)** | **(49)** | **727** | | Current | 154 | 316 | (319) | (96) | (165) | 260 | | Non-current | 165 | 495 | (49) | (28) | 116 | 467 | | | **319** | **811** | **(368)** | **(84)** | **(49)** | **727** | ### (c) Cash flow and net investment hedges #### (i) Hedge reserves Set out below is the reconciliation of each component in the hedging reserve: | | Commodity risk £m | Foreign exchange risk £m | Total £m | | --- | --- | --- | --- | | Balance at 1 May 2021 | 59 | (6) | 53 | | Gain (loss) endesignated cash flow hedges: | | | | | Cross-currency swaps | - | 20 | 20 | | Commodity contracts | 1,049 | - | 1,049 | | Loss/(gain) redissolved from equity to the income statement: | | | | | Cross-currency swaps | - | (20) | (20) | | Commodity contracts | (337) | - | (337) | | Reclassification between reserves | - | 7 | 7 | | Deferred tax | (152) | (1) | (163) | | **At 30 April 2022** | **609** | **-** | **609** | | Gain (loss) endesignated cash flow hedges: | | | | | Cross-currency swaps | - | 7 | 7 | | Commodity contracts | (78) | - | (78) | | Forward foreign exchange contracts | - | (1) | (1) | | Loss/(gain) redissolved from equity to the income statement: | | | | | Cross-currency swaps | - | (8) | (8) | | Commodity contracts | (565) | - | (565) | | Deferred tax | 149 | - | 149 | | **At 30 April 2023** | **115** | **(2)** | **113** | 166 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 21. Financial instruments continued (c) Cash flow and net investment hedges continued (i) Hedge reserves continued 21. Financial instruments continued The amounts reclassified to the income statement from the cash flow hedging reserve during the year are reflected in the following items in the income statement: (b) Derivative financial instruments 2023 2022 The Group enters into foreign exchange and commodity hedge derivative financial instruments to manage the risks associated with the £m £m Group’s underlying business activities and the financing of these activities. Derivatives are carried at their fair value in the statement of Operating costs (565) (337) financial position. Finance costs (8) (20) The assets and liabilities of the Group at 30 April in respect of derivative financial instruments are as follows: Total pre-tax loss/(gain) reclassified from equity to the income statement during the year (573) (357) Assets Liabilities Net There was £nil recognised ineffectiveness during the year ended 30 April 2023 (2021/22: £nil) in respect of cross-currency swaps, forward 2023 2022 2023 2022 2023 2022 £m £m £m £m £m £m foreign exchange contracts and commodity derivatives. Derivatives held to: (ii) Hedges of net investments in foreign operations Manage the currency exposures on business activities, The Group utilises foreign currency borrowings, cross-currency swaps and forward foreign exchange contracts as hedges of long-term borrowings and net investments – 12 – – – 12 investments in foreign subsidiaries. The pre-tax loss on the hedges recognised in equity during the year was £74m (2021/22: gain of £28m). Derivative financial instruments included in net debt – 12 – – – 12 This £74m is matched by a similar gain in equity on the retranslation of the hedged foreign subsidiary net assets resulting in a net gain of £nil Derivatives held to hedge future transactions: (2021/22: net gain of £nil) treated as hedge ineffectiveness in the income statement. Forward foreign exchange contracts 1 1 (2) – (1) 1 (d) Risk identification and risk management Energy and carbon certificate costs 318 798 (366) (84) (48) 714 Total derivative financial instruments 319 811 (368) (84) (49) 727 (i) Capital management The Group defines its managed capital as the sum of equity, as presented in the consolidated statement of financial position, and net debt | Curren | 154 316 (319) (56) (165) 260 | | (note 18). | | | | | --- | --- | --- | --- | --- | --- | --- | | Non-curren | | 165 495 (49) (28) 116 467 | | | | | | | | | | | 2023 | 2022 | | 319 811 (368) (84) (49) 727 | | | | | £m | £m | | | | | Net deb | 1,636 1,484 | | | (c) Cash flow and net investment hedges Total equit 4,087 4,234 (i) Hedge reserves Managed capital 5,723 5,718 Set out below is the reconciliation of each component in the hedging reserve: There were no significant events leading to the change in managed capital levels during the year. The changes in the Group’s funding were Foreign the repayment of the private placement borrowings of $268m in August 2022, the early repayment of a €500m medium-term note in July Commodity risk exchange risk Total 2022 and a €12m part-repayment of a term loan according to a quarterly payment schedule. £m £m £m Balance at 1 May 2021 59 (6) 53 Managed capital is different from capital employed (defined as property, plant and equipment, right-of-use assets, goodwill and intangible Gain/(loss) on designated cash flow hedges: assets, working capital, capital debtors/creditors, provisions, biological assets and assets/liabilities held for sale). Managed capital relates to our sources of funding, whereas adjusted return on average capital employed is our measure of the level of return being generated by the Cross-currency swaps – 20 20 asset base. Commodity contracts 1,049 – 1,049 Loss/(gain) reclassified from equity to the income statement: The Group funds its operations from the following sources of capital: operating cash flow, borrowings, shareholders’ equity and, where Cross-currency swaps – (20) (20) appropriate, divestments of non-core businesses. The Group’s objective is to achieve a capital structure that results in an appropriate cost of capital whilst providing flexibility in short and medium-term funding so as to accommodate significant investments or acquisitions. The Commodity contracts (337) – (337) Group also aims to maintain a strong balance sheet and to provide continuity of financing by having borrowings with a range of maturities Reclassification between reserves – 7 7 and from a variety of sources. Deferred ta (162) (1) (163) At 30 April 2022 609 – 609 The Group’s overall treasury objectives are to ensure sufficient funds are available for the Group to carry out its strategy and to manage certain financial risks to which the Group is exposed, as described elsewhere in this note. The Group’s treasury strategy is controlled through Gain/(loss) on designated cash flow hedges: the Balance Sheet Committee which meets every two months and includes the Group Finance Director, the Group General Counsel and Cross-currency swaps – 7 7 Company Secretary, the Group Financial Controller and the Corporate Finance Director. The Group Treasury function operates in accordance Commodity contracts (78) – (78) with policies and procedures approved by the Board and is controlled by the Corporate Finance Director. The function arranges funding Forward foreign exchange contracts – (1) (1) for the Group, provides a service to operations and implements strategies for financial risk management. Loss/(gain) reclassified from equity to the income statement: Cross-currency swaps – (8) (8) Commodity contracts (565) – (565) Deferred ta 149 – 149 At 30 April 2023 115 (2) 113 Annual Report 2023 dssmith.com 167 | | t | x x t | | t | y | | | --- | --- | --- | --- | --- | --- | --- | | | | | (ii) Market risk Market risk is the risk that the fair value or future cash flows of a financial instrument fluctuate because of a change in market prices. The Group is exposed to changes in interest rates, foreign currency exchange rates and commodity prices. | | | | | 166 | | | | | | Annual Report 2023 dssmith.com 167 | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED ## 21. Financial instruments continued ### (d) Risk identification and risk management continued #### Interest rate risk The Group is exposed to interest rate risk as borrowings are arranged at fixed interest rates, exposing it to fair value risk, and at floating interest rates, exposing it to future cash flow risk. The risk is managed by maintaining a mix of fixed and floating rate borrowings. The Group's exposure to interest rates on financial assets and financial liabilities is detailed in the liquidity risk management section of this note. #### Interest rate sensitivity At 30 April 2023, 84% of the Group's borrowings were at fixed rates of interest (30 April 2022: 100%). The sensitivity analysis below shows the impact on profit of a 100 basis points risk in market interest rates (representing management's assessment of the reasonably possible change in interest rates) in all currencies in which the Group had variable-rate borrowings at 30 April 2023. To calculate the impact on the income statement for the year, the interest rates on all variable-rate external borrowings and cash deposits have been increased by 100 basis points, and the resulting increase in the net interest charge has been adjusted for the effect of the Group's interest rate derivatives. The impact on equity is equal to the impact on profit. The results are presented before non-controlling interests and tax. | | 2023 £m | 2022 £m | | --- | --- | --- | | Impact on profit of increase in market interest rates of 100 basis points | 2 | - | #### Foreign exchange risk The Group's exposure to foreign currency risk at the end of the reporting period, expressed in sterling, was as follows: | | 2023 | | 2022 | | | --- | --- | --- | --- | --- | | | EUR £m | USD £m | EUR £m | USD £m | | Trade receivables | 769 | 65 | 782 | 71 | | Trade payables | (1,392) | (177) | (1,614) | (179) | | Net borrowings^{1} | (1,035) | (219) | (1,170) | (171) | 1. After taking into account the effect of cross-currency swaps and forward foreign exchange contracts. #### Foreign exchange risk on investments The Group is exposed to foreign exchange risk arising from net investments in Group entities, the functional currencies of which differ from the Group's presentational currency, sterling. The Group partly hedges this exposure through borrowings denominated in foreign currencies and through cross-currency swaps and forward foreign exchange contracts. Gains and losses arising from hedges of net investments are recognised in equity. #### Foreign exchange risk on borrowings The Group is exposed to foreign exchange risk on borrowings denominated in foreign currencies. The Group hedges some of this exposure through cross-currency swaps designated as cash flow hedges. #### Foreign exchange risk on transactions Foreign currency transaction risk arises where a business unit makes product sales or purchases in a currency other than its functional currency. Part of this risk is hedged using forward foreign exchange contracts which are designated as cash flow hedges. The Group only designates the forward rate of foreign currency forwards in hedge relationships. For the hedges of highly probable forecast sales and purchases, as the critical terms (i.e. the notional amount, life and underlying terms) of the foreign exchange forward contracts and their corresponding hedged items are the same, the Group performs a qualitative assessment of effectiveness and it is expected that the value of the forward contracts and the value of the corresponding hedged items will systematically change in opposite directions in response to movements in the underlying exchange rates. The Group's main currency exposures are to the euro and US dollar. The following significant exchange rates applied during the year: | | 2023 | | 2022 | | | --- | --- | --- | --- | --- | | | Average | Closing | Average | Closing | | Euro | 1.152 | 1.136 | 1.179 | 1.192 | | US dollar | 1.201 | 1.247 | 1.359 | 1.256 | 168 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 21. Financial instruments continued (d) Risk identification and risk management continued (ii) Market risk continued 21. Financial instruments continued Foreign exchange risk on transactions continued The following sensitivity analysis shows the impact on the Group’s results of a 10% strengthening and weakening in the sterling exchange (d) Risk identification and risk management continued rate against all other currencies representing management’s assessment of the reasonably possible change in foreign exchange rates. The Interest rate risk analysis is restricted to financial instruments denominated in a foreign currency and excludes the impact of financial instruments designated The Group is exposed to interest rate risk as borrowings are arranged at fixed interest rates, exposing it to fair value risk, and at floating as net investment hedges. interest rates, exposing it to future cash flow risk. The risk is managed by maintaining a mix of fixed and floating rate borrowings. The Group’s Net investment hedges are excluded as the impact of the foreign exchange movements on these are offset by equal and opposite exposure to interest rates on financial assets and financial liabilities is detailed in the liquidity risk management section of this note. movements in the hedged items. Interest rate sensitivity The results are presented before non-controlling interests and tax. At 30 April 2023, 84% of the Group’s borrowings were at fixed rates of interest (30 April 2022: 100%). The sensitivity analysis below shows the impact on profit of a 100 basis points rise in market interest rates (representing management’s assessment of the reasonably possible 2023 2022 Impact on Impact on Impact on Impact on change in interest rates) in all currencies in which the Group had variable-rate borrowings at 30 April 2023. profit total equity profit total equity £m £m £m £m To calculate the impact on the income statement for the year, the interest rates on all variable-rate external borrowings and cash deposits 10% strengthening of sterling – 30 – 62 have been increased by 100 basis points, and the resulting increase in the net interest charge has been adjusted for the effect of the Group’s interest rate derivatives. The impact on equity is equal to the impact on profit. 10% weakening of sterling – (37) – (76) The results are presented before non-controlling interests and tax. Commodity risk 2023 2022 The Group’s main commodity exposures are to changes in gas and electricity prices. The Group also hedges its exposure to fluctuations in the £m £m cost of carbon emission certificates. This commodity price risk is managed by a combination of physical supply agreements and derivative Impact on profit of increase in market interest rates of 100 basis points 2 – instruments. At 30 April 2023, gains of £115m net of tax (2021/22: gains of £609m) are deferred in equity in respect of cash flow hedges in accordance with IAS 39. Any gains or losses deferred in equity will be reclassified to the income statement in the period in which the hedged Foreign exchange risk item also affects the income statement, which will occur within three years. The Group’s exposure to foreign currency risk at the end of the reporting period, expressed in sterling, was as follows: The following table details the Group’s sensitivity to a 10% increase in these prices, which is management’s assessment of the reasonably 2023 2022 possible change, on average, over any given year. A decrease of 10% in these prices would produce an opposite effect on equity. As all of EUR USD EUR USD £m £m £m £m the Group’s commodity financial instruments achieve hedge accounting under IAS 39, there is no impact on profit for either year. Trade receivables 769 65 782 71 The results are presented before non-controlling interests and tax. Trade payables (1,392) (177) (1,614) (179) 2023 2022 1 | Net borrowings | (1,035) (219) (1,170) (171) | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | | Impact on | | Impact on | Impact on | | Impact on | | | | | profit | total equity | | profit | total equity | 1. After taking into account the effect of cross-currency swaps and forward foreign exchange contracts. | | | £m | £m | £m | £m | | --- | --- | --- | --- | --- | --- | | Foreign exchange risk on investments | 10% increase in electricity prices – 8 – 4 | | | | | | The Group is exposed to foreign exchange risk arising from net investments in Group entities, the functional currencies of which differ from | 10% increase in gas prices – 44 – 103 | | | | | | the Group’s presentational currency, sterling. The Group partly hedges this exposure through borrowings denominated in foreign currencies | 10% increase in carbon certificate prices – 7 – 8 | | | | | and through cross-currency swaps and forward foreign exchange contracts. (iii) Credit risk Gains and losses arising from hedges of net investments are recognised in equity. Credit risk is the risk that a customer or counterparty to a financial instrument will fail to perform or fail to pay amounts due, causing financial Foreign exchange risk on borrowings loss to the Group. In the current economic environment, the Group has placed increased emphasis on the management of credit risk. The carrying The Group is exposed to foreign exchange risk on borrowings denominated in foreign currencies. The Group hedges some of this exposure amount of financial assets at 30 April 2023 was £2,065m and is analysed in note 21(a). This represents the maximum credit risk exposure. through cross-currency swaps designated as cash flow hedges. Credit risk on financial instruments held with financial institutions is assessed and managed by reference to the long-term credit ratings Foreign exchange risk on transactions assigned to that counterparty by Standard & Poor’s and Moody’s credit rating agencies. Amounts deposited with counterparties are subject Foreign currency transaction risk arises where a business unit makes product sales or purchases in a currency other than its functional to limits based on their credit ratings. There are no significant concentrations of credit risk. currency. Part of this risk is hedged using forward foreign exchange contracts which are designated as cash flow hedges. See note 16 for information on credit risk with respect to trade receivables. The Group only designates the forward rate of foreign currency forwards in hedge relationships. For the hedges of highly probable forecast sales and purchases, as the critical terms (i.e. the notional amount, life and underlying terms) of the foreign exchange forward contracts and their corresponding hedged items are the same, the Group performs a qualitative assessment of effectiveness and it is expected that the value of the forward contracts and the value of the corresponding hedged items will systematically change in opposite directions in response to movements in the underlying exchange rates. The Group’s main currency exposures are to the euro and US dollar. The following significant exchange rates applied during the year: 2023 2022 Average Closing Average Closing Euro 1.152 1.136 1.179 1.192 US dolla 1.201 1.247 1.359 1.256 Annual Report 2023 dssmith.com 169 r 168 Annual Report 2023 dssmith.com 169 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 21. Financial instruments continued (d) Risk identification and risk management continued (iv) Liquidity risk Liquidity risk is the risk that the Group, although solvent, will have difficulty in meeting its obligations associated with its financial liabilities as they fall due. The Group manages its liquidity risk by maintaining a sufficient level of undrawn committed borrowing facilities. At 30 April 2023, the Group had £1,655m of undrawn committed borrowing facilities (30 April 2022: £1,450m), which comprises the revolving credit facilities and a £500m term loan facility. The Group mitigates its refinancing risk by raising its debt requirements from a number of different sources with a range of maturities. The following table is an analysis of the undiscounted contractual maturities of non-derivative financial liabilities. Contractual repayments | | | 1 year | | 1–5 | More than | | | --- | --- | --- | --- | --- | --- | --- | | | Total | or less | | years | 5 years | | | At 30 April 2023 | £m | | £m | £m | | £m | Non-derivative financial liabilities Trade and other payables 2,287 2,253 34 – Bank and other loans 343 42 301 – Commercial pape 24 24 – – Medium-term notes and other fixed-term deb 1,455 8 1,197 250 Lease liabilities 264 72 143 49 Bank overdrafts 104 104 – – Interest payments on borrowings 88 21 45 22 Total non-derivative financial liabilities 4,565 2,524 1,720 321 Contractual repayments | | | 1 year | | 1–5 | More than | | | --- | --- | --- | --- | --- | --- | --- | | | Total | or less | | years | 5 years | | | At 30 April 2022 | £m | | £m | £m | | £m | Non-derivative financial liabilities Trade and other payables 2,540 2,503 37 – Bank and other loans 6 4 2 – Commercial pape 37 37 – – Medium-term notes and other fixed-term deb 2,039 640 1,149 250 Lease liabilities 241 66 122 53 Bank overdrafts 73 73 – – Interest payments on borrowings 121 35 64 22 Total non-derivative financial liabilities 5,057 3,358 1,374 325 Refer to note 29 for a summary of the Group’s capital commitments. 170 t t r r 170 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 21. Financial instruments continued (d) Risk identification and risk management continued (iv) Liquidity risk continued 21. Financial instruments continued The following table is an analysis of the undiscounted contractual maturities of derivative financial liabilities. Where the payable and receivable legs of these derivatives are denominated in foreign currencies, the contractual payments or receipts have been calculated based (d) Risk identification and risk management continued on exchange rates prevailing at the respective year ends. The disclosure shows net cash flow amounts for derivatives that are net cash- (iv) Liquidity risk settled and gross cash inflow and outflow amounts for derivatives that have simultaneous gross cash settlement. Liquidity risk is the risk that the Group, although solvent, will have difficulty in meeting its obligations associated with its financial liabilities as Where applicable, interest and foreign exchange rates prevailing at the reporting date are assumed to remain constant over the future | they fall due. | contractual maturities. | | | | | | --- | --- | --- | --- | --- | --- | | The Group manages its liquidity risk by maintaining a sufficient level of undrawn committed borrowing facilities. At 30 April 2023, the Group | | Contractual payments/(receipts) | | | | | | | | 1 year | 1–5 | More than | had £1,655m of undrawn committed borrowing facilities (30 April 2022: £1,450m), which comprises the revolving credit facilities and a | | | Total | or less | | years | 5 years | | | --- | --- | --- | --- | --- | --- | --- | --- | | £500m term loan facility. The Group mitigates its refinancing risk by raising its debt requirements from a number of different sources with a | At 30 April 2023 | £m | | £m | £m | | £m | | range of maturities. | Derivative financial liabilities | | | | | | | | The following table is an analysis of the undiscounted contractual maturities of non-derivative financial liabilities. | Energy derivatives 374 322 52 – | | | | | | | Forward foreign exchange contracts: Contractual repayments 1 year 1–5 More than Payments 277 277 – – Total or less years 5 years Receipts (271) (271) – – At 30 April 2023 £m £m £m £m Total derivative financial liabilities 380 328 52 – Non-derivative financial liabilities Trade and other payables 2,287 2,253 34 – | Bank and other loans 343 42 301 – | | | | | | Contractual payments/(receipts) | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | | | 1 year | 1–5 | More than | | | | Commercial pape | 24 24 – – | | | | | | | | | | | | | | | | | Total | | or less | years | | 5 years | | | Medium-term notes and other fixed-term deb | | 1,455 8 1,197 250 | At 30 April 2022 | | | £m | £m | £m | | | £m | | Lease liabilities 264 72 143 49 | | | Derivative financial liabilities | | | | | | | | | | Bank overdrafts 104 104 – – | | | Energy derivatives 84 56 28 – | | | | | | | | | | Interest payments on borrowings 88 21 45 22 | | | Cross-currency swaps and forward foreign exchange contracts: | | | | | | | | | | Total non-derivative financial liabilities 4,565 2,524 1,720 321 | | | | Payments 22 22 – – | | | | | | | | Receipts (22) (22) – – Total derivative financial liabilities 84 56 28 – Contractual repayments | | | 1 year | 1–5 | More than | | | --- | --- | --- | --- | --- | --- | | | Total | or less | years | 5 years | | | At 30 April 2022 | £m | £m | £m | | £m | Non-derivative financial liabilities Trade and other payables 2,540 2,503 37 – Bank and other loans 6 4 2 – Commercial pape 37 37 – – Medium-term notes and other fixed-term deb 2,039 640 1,149 250 Lease liabilities 241 66 122 53 Bank overdrafts 73 73 – – Interest payments on borrowings 121 35 64 22 Total non-derivative financial liabilities 5,057 3,358 1,374 325 Refer to note 29 for a summary of the Group’s capital commitments. Annual Report 2023 dssmith.com 171 r r t t 170 Annual Report 2023 dssmith.com 171 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 22. Deferred tax assets and liabilities Analysis of movements in recognised deferred tax assets and liabilities during the year Property, plant and | | | equipment and | | | Employee benefits | | | | Tax | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | intangible assets | | | including pensions | | | | losses Other | | | 1 Total | | | | | | | | 2023 | 2022 | | 2023 | 2022 | 2023 | | 2022 | 2023 | | 2022 | 2023 | 2022 | | | | | £m | £m | | £m | £m | | £m | £m | £m | | £m | £m | £m | | At beginning of the yea | (302) (331) 27 45 58 62 (172) (10) (389) (234) | | | | | | | | | | | | | | | Credit/(charge) for the year: – continuing 12 30 (5) (3) (7) (4) 2 1 2 24 – discontinued – – – – – – – – – – Recognised directly in equit – – (4) (14) – – 149 (163) 145 (177) Currency translation (6) (1) 1 (1) (1) – (3) – (9) (2) At end of the year (296) (302) 19 27 50 58 (24) (172) (251) (389) 1. Includes deferred tax liabilities on derivative financial instruments of £24m (30 April 2022 £174m). At 30 April 2023, deferred tax assets and liabilities were recognised for all taxable temporary differences: • except where the deferred tax liability arises on goodwill; • except on initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor the taxable profit or loss; and at the time of the transaction, does not give rise to equal taxable and deductible temporary differences; and • in respect of taxable temporary differences associated with investments in subsidiaries and associates, except where the timing of the reversal of temporary differences can be controlled by the Group and it is probable that temporary differences will not reverse in the foreseeable future. At 30 April 2023, no deferred tax liability has been recognised in respect of temporary differences relating to unremitted earnings of subsidiaries because the Group is in a position to control the timing of the reversal of the temporary differences and it is probable that such differences will not reverse in the foreseeable future. The amount of the associated temporary differences at 30 April 2023 was £2,455m (30 April 2022: £2,031m). As commented in note 7, Finance Act 2021 included a 6% increase in the main UK corporation tax rate to 25% from 1 April 2023, which was substantially enacted on 10 June 2021. Accordingly, the rate applied to UK deferred tax assets and liabilities expected to reverse after 1 April 2023 is 25% (2022: 25%). Recognised deferred tax assets and liabilities Deferred tax assets and liabilities are offset where the Group has a legally enforceable right to do so. The following is the analysis of the deferred tax balances (after offset) for financial reporting purposes: 2023 2022 £m £m Deferred tax liabilities (262) (396) Deferred tax assets 11 7 Net deferred tax (251) (389) The deferred tax asset in respect of tax losses at 30 April 2023 includes an asset in the UK of £19m (30 April 2022: £24m). The asset has been recognised based on the Group’s forecast of net interest income that will arise in the UK from the financing of previous acquisitions. The asset is expected to be fully recovered over the foreseeable future. Included within deferred tax assets is an asset of £8m recognised in respect of tax losses in Belgium. The business has been making losses for the last 3 years, but an asset has been recognised as a result of the Group forecasting sufficient taxable profits over the foreseeable future against which this asset will be realised. In addition to the tax losses above, the Group has tax losses at 30 April 2023 of £114m (30 April 2022: £42m) for which no deferred tax assets have been recognised. These losses include £89m which do not expire, £19m which expire between 2027 and 2029 and £6m which expire between 2037 and 2040 under current tax legislation. Deferred tax assets have not been recognised in respect of these items because it is not probable that future taxable profit will be available against which the Group can utilise these benefits. The Group also has other temporary differences of £79m on which the Group has not recognised deferred tax assets and do not expire. 172 r y 172 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 23. Provisions Restructuring Other Total £m £m £m At 1 May 2022 7 48 55 Charged to income 22 16 38 22. Deferred tax assets and liabilities Credited to income (2) (13) (15) Analysis of movements in recognised deferred tax assets and liabilities during the year Utilised (3) (12) (15) Property, plant and Currency translation – 2 2 | | | equipment and | | | Employee benefits | | | | Tax | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | intangible assets | | | including pensions | | | | losses Other | | | 1 Total | | | | At 30 April 2023 24 41 65 | | | | | | 2023 | | 2022 | | 2023 | 2022 | 2023 | | 2022 | 2023 | | 2022 | 2023 | 2022 | | | | | | | | £m | £m | | £m | £m | | £m | £m | £m | | £m | £m | £m | | | | | | | | | | | | | | | | | | | | | Non-curren | | – 11 11 | | At beginning of the yea | (302) (331) 27 45 58 62 (172) (10) (389) (234) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Curren | 24 30 54 | | Credit/(charge) for the year: At 30 April 2023 24 41 65 – continuing 12 30 (5) (3) (7) (4) 2 1 2 24 – discontinued – – – – – – – – – – The restructuring provision includes amounts associated with the site closures and restructuring costs. Recognised directly in equit – – (4) (14) – – 149 (163) 145 (177) The Group was one of a number of companies operating in the paper packaging industry that was subject to a decision (currently the subject Currency translation (6) (1) 1 (1) (1) – (3) – (9) (2) of appeal) by the Italian Competition Authority concerning anti-competitive behaviour in Italy (the “Decision”). Given its position as leniency At end of the year (296) (302) 19 27 50 58 (24) (172) (251) (389) applicant, the Group was not fined. The Group is subject to a number of claims (both actual and threatened) for compensation in respect of 1. Includes deferred tax liabilities on derivative financial instruments of £24m (30 April 2022 £174m). the Decision, which the Group intends to defend robustly. Given the early stage of these claims, the ongoing appeal process, the Group’s intention to defend all claims robustly and having applied the tests in IAS37, no provision has been recognised and instead this item has been At 30 April 2023, deferred tax assets and liabilities were recognised for all taxable temporary differences: disclosed as a contingent liability. • except where the deferred tax liability arises on goodwill; Other provisions relate to environmental and restoration liabilities, carbon emission obligations, indemnities and estimated liabilities arising • except on initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, from actual and potential litigation and disputes. The Group has considered the impact of climate factors. Other than those relating to carbon affects neither the accounting profit nor the taxable profit or loss; and at the time of the transaction, does not give rise to equal taxable emissions (refer to note 10 for further details) on its operations, no other climate related provision has been recognised in the current and deductible temporary differences; and financial year. • in respect of taxable temporary differences associated with investments in subsidiaries and associates, except where the timing of the The timing of the utilisation of these provisions is uncertain, except where the associated costs are contractual, in which case the provision is reversal of temporary differences can be controlled by the Group and it is probable that temporary differences will not reverse in the utilised over the time period specified in the contract. foreseeable future. 24. Capital and reserves At 30 April 2023, no deferred tax liability has been recognised in respect of temporary differences relating to unremitted earnings of | subsidiaries because the Group is in a position to control the timing of the reversal of the temporary differences and it is probable that such | Share capital | | | | | | | --- | --- | --- | --- | --- | --- | --- | | differences will not reverse in the foreseeable future. The amount of the associated temporary differences at 30 April 2023 was £2,455m | | Number of shares | | | | | | (30 April 2022: £2,031m). | | | 2023 | 2022 | 2023 | 2022 | | | | millions | | millions | £m | £m | As commented in note 7, Finance Act 2021 included a 6% increase in the main UK corporation tax rate to 25% from 1 April 2023, which was Ordinary equity shares of 10 pence each: substantially enacted on 10 June 2021. Accordingly, the rate applied to UK deferred tax assets and liabilities expected to reverse after 1 April Issued, allotted, called up and fully paid 1,377 1,376 138 137 2023 is 25% (2022: 25%). During the year ended 30 April 2023, 1,527,919 of ordinary shares were issued as a result of exercises of employee share options. Recognised deferred tax assets and liabilities The net movements in share capital and share premium are disclosed in the consolidated statement of changes in equity. Deferred tax assets and liabilities are offset where the Group has a legally enforceable right to do so. The following is the analysis of the deferred tax balances (after offset) for financial reporting purposes: The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at 2023 2022 meetings of the Company. £m £m Translation reserve Deferred tax liabilities (262) (396) The translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign Deferred tax assets 11 7 operations and the translation of liabilities that hedge the Company’s net investment in a foreign subsidiary. Net deferred tax (251) (389) Hedging reserve The deferred tax asset in respect of tax losses at 30 April 2023 includes an asset in the UK of £19m (30 April 2022: £24m). The asset has been recognised based on the Group’s forecast of net interest income that will arise in the UK from the financing of previous acquisitions. The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related The asset is expected to be fully recovered over the foreseeable future. to hedged transactions that have not yet occurred. Included within deferred tax assets is an asset of £8m recognised in respect of tax losses in Belgium. The business has been making losses Share premium for the last 3 years, but an asset has been recognised as a result of the Group forecasting sufficient taxable profits over the foreseeable The share premium account represents the difference between the issue price and the nominal value of shares issued. future against which this asset will be realised. In addition to the tax losses above, the Group has tax losses at 30 April 2023 of £114m (30 April 2022: £42m) for which no deferred tax assets have been recognised. These losses include £89m which do not expire, £19m which expire between 2027 and 2029 and £6m which expire between 2037 and 2040 under current tax legislation. Deferred tax assets have not been recognised in respect of these items because it is not probable that future taxable profit will be available against which the Group can utilise these benefits. The Group also has other temporary differences of £79m on which the Group has not recognised deferred tax assets and do not expire. Annual Report 2023 dssmith.com 173 r y t t 172 Annual Report 2023 dssmith.com 173 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 24. Capital and reserves continued Own shares The reserve for the Company’s own shares comprises the cost of the Company’s shares held by the Group. The Group operates a General Employee Benefit Trust, which acquires shares in the Company that can be used to satisfy the requirements of the Performance Share Plans. At 30 April 2023, the Trust held 4.2m shares (30 April 2022: 2.4m shares). The market value of the shares at 30 April 2023 was £13.0m (30 April 2022: £7.8m). Dividends receivable on the shares owned by the Trust have been waived. Non-controlling interests The Group has a put option in relation to a subsidiary with a non-controlling interest. The Group records a liability at the net present value of the expected future payments, with a corresponding entry against non-controlling interests in respect of the non-controlling shareholders’ put option, measured at fair value. 25. Employee benefits Total UK Overseas 2023 2022 2023 2022 2023 2022 Balance sheet £m £m £m £m £m £m Present value of post-retirement obligations (893) (1,189) (772) (1,056) (121) (133) | Government issued nominal bonds 1 | | 2 0 | 42 120 42 – – | | --- | --- | --- | --- | | Government issued index-linked bonds 4 | | 0 3 | 628 403 628 – – | | Equities/multi-strateg | 65 100 52 85 13 15 | | | Debt instruments 230 292 205 267 25 25 Derivatives 233 315 233 315 – – 1 2 0 Real estate 1 1 – – 1 1 4 0 3 Cash and cash equivalents 9 17 9 17 – – Othe 72 68 54 53 18 15 Debt (repurchase agreements) used to fund liability driven investments (285) (350) (285) (350) – – 848 1,113 791 1,057 57 56 Net post-retirement plan (deficit)/surplus (45) (76) 19 1 (64) (77) Other employee benefit liabilities (10) (10) – – (10) (10) Total employee benefit (deficit)/surplus (55) (86) 19 1 (74) (87) Related deferred ta asse / (liability) 14 21 (5) – 19 21 Net employee benefit (deficit)/surplus (41) (65) 14 1 (55) (66) Employee benefit schemes At 30 April 2023, the Group operated a number of employee benefit arrangements for the benefit of its employees throughout the world. The plans are provided through both defined benefit and defined contribution arrangements and their legal status and control vary depending on the conditions and practices in the countries concerned. Pension scheme trustees and representatives of the Group work with those managing the employee benefit arrangements to monitor the effects on the arrangements of changes in financial markets and the impact of uncertainty in assumptions, and to develop strategies that could mitigate the risks to which these employee benefit schemes expose the Group. 174 t r y x Retained earnings Retained earnings includes a merger relief reserve related to the shares issued in consideration to the sellers of EcoPack/EcoPaper in 2017/18. The closing balance of this reserve is £32m. 174 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ## 25. Employee benefits continued ### UK schemes The DS Smith Group Pension Scheme (the 'Group Scheme') is a UK funded final salary defined benefit scheme providing pensions and lump sum benefits to members and dependants. The Group Scheme closed to future accrual from 30 April 2011 with pensions calculated based on pensionable salaries up to the point of closure (or the date of leaving the Group Scheme, if earlier). The Group Scheme has a normal retirement age of 65 although some members are able to take their benefits earlier than this. Increases to pensions are affected by changes in the rate of inflation for the majority of members. The Group Scheme is governed by a Trustee Company (DS Smith Pension Trustees Limited), which is comprised of a Board of Trustee Directors (the 'Trustee Board') represented by two independent members, two member appointees and two Group appointed members. The Trustee Board is responsible for managing the operation, funding and investment strategy of the Group Scheme. During the year in response to the market turmoil following the mini-budget, the Group made funding support of up to £100m available to the main UK defined benefit pension scheme. This took the form initially of a cash advance in anticipation of potential margin calls and latterly a liquidity facility. The cash advance was fully repaid within days of being made and as at 30 April 2023 a liquidity facility remained in place but was undrawn. UK legislation requires the Trustee Board to carry out actuarial funding valuations at least every three years and to target full funding over an appropriate period of time, taking into account the current circumstances of the Group Scheme and the Group on a basis that prudently reflects the risks to which the Group Scheme is exposed (the 'Technical Provisions' basis). The most recent funding valuation was carried out as at 30 April 2015, following which a deficit recovery plan was agreed with the Trustee Board on 14 April 2020. The Group has agreed to maintain the previous Schedule of Contributions. The contribution for the year ended 30 April 2023 under the plan was £20m. The recovery plan is expected to be completed on or around September 2025. The Trustee Board and the Group have in place a secondary Long-Term Funding Target (the 'LTFT'), in addition to the statutory funding requirement, the purpose of which is to achieve material additional security for the Group Scheme's members. The objective of the LTFT is for the Group Scheme to be funded by 30 April 2035 to a level that does not expect to rely on future contributions from the Group. The LTFT comprises actuarial assumptions to assess whether any additional contributions above the deficit recovery contributions are required, and an investment strategy approach to be followed for de-risking the scheme's assets. In recent valuations, the secondary funding assessment has concluded that the deficit recovery plan contributions are sufficient and no additional contributions from the Group under the LTFT are required. In order to manage risk, the Group Scheme's investment strategy is designed to closely align movements in the Group Scheme's assets to that of its liabilities, whilst maintaining an appropriate level of expected return. To help the Trustee Board to monitor, review and assess investment matters, the Investment and Funding Committee (the 'IFC'), which consists of representatives from the Trustee Board and the Group, meets on a quarterly basis throughout the year. The Group Scheme exposes the Group to risks, such as longevity risk, currency risk, inflation risk, interest rate risk and investment risk. As the Group Scheme's obligation is to provide lifetime pension benefits to members upon retirement, increases in life expectancy will result in an increase in the Group Scheme's liabilities. Other assumptions used to value the defined benefit obligation are also uncertain. The Group Scheme deficit recovery plan agreed with the Trustee Board is considered a minimum funding requirement as described in IFRE 14 IAS 19 - the Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction. The Group has an unconditional right to a return of any surplus in a run-off scenario scenario and has therefore recognised the IAS 19 accounting surplus on the Group's balance sheet at 30 April 2023. The assets in the Group Scheme (apart from the cash held) are nearly all Level 2 instruments under the fair value hierarchy. All Level 2 assets are held in daily traded pooled funds for which daily bid prices are available, and the valuation process for these assets involves minimal judgement and is agreed by reference to independent third parties. The Group Scheme does not hold any investment in DS Smith securities. The largest defined contribution arrangement operated by the Group is in the UK. The UK defined contribution scheme is a trust-based arrangement offering members a range of investments. All assets are held independently from the Group. The Group also operates a small unfunded arrangement in the UK. Annual Report 2023 dsSmith.com 175 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 25. Employee benefits continued Overseas schemes The countries where the Group operates the most significant defined benefit post-retirement arrangements are: • France – various mandatory retirement indemnities, post-retirement medical plans and jubilee arrangements (benefits paid to employees after completion of a certain number of years of service), the majority of which are determined by the applicable Collective Bargaining Agreement; • Belgium – liabilities with respect to non-contributory defined benefit and cash balance retirement plans, as well as unfunded jubilee arrangements. The defined benefit plan is closed to new employees, although active members continue to accrue benefits; • Switzerland – a contributory defined benefit pension scheme providing pensions and lump sum benefits to members and dependants; • Italy – mandatory end-of-service lump sum benefits in respect of pre-2007 service; • Portugal – defined benefit pensions plan with a fund that guarantees a payment of a pension supplement to all retired employees and pensioners who were receiving pension benefit from the fund on 13 July 2007; and • Germany – jubilee arrangements and non-contributory defined benefit pension schemes. In general, local trustees or similar bodies manage the post-retirement and medical plans in accordance with local regulations. Overseas schemes expose the Group to risks such as longevity risk, currency risk, inflation risk, interest rate risk, investment risk, life expectancy risk and healthcare cost risk. Actions taken by the local regulator, or changes to legislation, could result in stronger local funding requirements for pension schemes, which could affect the Group’s future cash flow. Movements in the liability for employee benefit plans’ obligations recognised in the consolidated statement of financial position | | | 2023 | 2022 | | --- | --- | --- | --- | | | | £m | £m | | Schemes’ liabilities at beginning of the yea | (1,199) (1,353) | | | Divestments – 1 Interest cos (34) (26) Service cost recognised in the consolidated income statemen (6) (5) Member contributions (1) (1) Pension payments 53 50 Unfunded benefits paid 8 6 Actuarial gains – financial assumptions 270 121 Actuarial (losses) gains – experience (17) 6 Actuarial gains/ (losses) – demographic 29 (2) Currency translation (6) 4 Schemes’ liabilities at end of the year (903) (1,199) 176 r / t t 176 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 25. Employee benefits continued Movements in the fair value of employee benefit plans’ assets recognised in the consolidated statement of financial position | | | | 2023 | 2022 | | --- | --- | --- | --- | --- | | 25. Employee benefits continued | | | £m | £m | | | Schemes’ assets at beginning of the yea | 1,113 1,178 | | | Overseas schemes Employer contributions 23 21 The countries where the Group operates the most significant defined benefit post-retirement arrangements are: Member contributions – 1 • France – various mandatory retirement indemnities, post-retirement medical plans and jubilee arrangements (benefits paid to Interest income 33 23 employees after completion of a certain number of years of service), the majority of which are determined by the applicable Collective Actuarial losses (271) (57) Bargaining Agreement; Pension payments (53) (51) • Belgium – liabilities with respect to non-contributory defined benefit and cash balance retirement plans, as well as unfunded jubilee Currency translation 3 (2) arrangements. The defined benefit plan is closed to new employees, although active members continue to accrue benefits; Schemes’ assets at end of the year 848 1,113 • Switzerland – a contributory defined benefit pension scheme providing pensions and lump sum benefits to members and dependants; Durations and expected payment profile • Italy – mandatory end-of-service lump sum benefits in respect of pre-2007 service; The following table provides information on the distribution of the timing of expected benefit payments for the Group Scheme: • Portugal – defined benefit pensions plan with a fund that guarantees a payment of a pension supplement to all retired employees and | pensioners who were receiving pension benefit from the fund on 13 July 2007; and | | Within 5 | | 6 to 10 | | 11 to 20 | | 21 to 30 | | 31 to 40 | | 41 to 50 | | Over 50 | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | years | years | | years | | | years | | years | years | | years | | | • Germany – jubilee arrangements and non-contributory defined benefit pension schemes. | At 30 April 2023 | | £m | | £m | | £m | | £m | | £m | | £m | | £m | Projected benefit payments 228 251 487 361 202 69 12 In general, local trustees or similar bodies manage the post-retirement and medical plans in accordance with local regulations. The weighted average duration for the Group Scheme is 12 years. Overseas schemes expose the Group to risks such as longevity risk, currency risk, inflation risk, interest rate risk, investment risk, life expectancy risk and healthcare cost risk. Actions taken by the local regulator, or changes to legislation, could result in stronger local funding The Group made agreed contributions of £20m to fund the UK Group Scheme in 2022/23 (2021/22: £20m). The Group’s current best requirements for pension schemes, which could affect the Group’s future cash flow. estimate of contributions expected to be made to the Group Scheme in the year ending 30 April 2024 will be approximately £21m. A charge over four UK Packaging properties has been made as security for the unfunded arrangement in the UK, the liability for which totals £5m. Movements in the liability for employee benefit plans’ obligations recognised in the consolidated statement of | financial position | | | Significant actuarial assumptions | | --- | --- | --- | --- | | | 2023 | 2022 | Principal actuarial assumptions for the Group Scheme are as follows: | | | £m | £m | | 2023 2022 Schemes’ liabilities at beginning of the yea (1,199) (1,353) Discount rate for scheme liabilities 5.0% 3.1% Divestments – 1 Inflation 3.2% 3.2% Interest cos (34) (26) Pre-retirement pension increases 2.8% 2.5% Service cost recognised in the consolidated income statemen (6) (5) Future pension increases for pre 30 April 2005 service 2.8% 3.1% Member contributions (1) (1) Future pension increases for post 30 April 2005 service 2.1% 2.2% Pension payments 53 50 Unfunded benefits paid 8 6 For overseas arrangements, the weighted average actuarial assumptions are at an average discount rate of 2.9% (30 April 2022: 2.0%) and Actuarial gains – financial assumptions 270 121 an inflation rate of 2.7% (30 April 2022: 2.9%). Actuarial (losses) gains – experience (17) 6 Actuarial gains/ (losses) – demographic 29 (2) Currency translation (6) 4 Schemes’ liabilities at end of the year (903) (1,199) Annual Report 2023 dssmith.com 177 t / r t r 176 Annual Report 2023 dssmith.com 177 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 25. Employee benefits continued During 2021, the UK Statistics Authority’s publication on the future of the RPI assumption base had the effect of lowering the RPI assumption by 1% per annum in the short term and the post-2030 assumption is that the RPI/CPI gap falls to zero. Assumptions regarding future mortality experience are set based on actuarial advice and in accordance with the relevant standard mortality tables in each country. For the Group Scheme at 30 April, the mortality base table used is SAPS 3 (year of birth), with CMI 2021 projections with a 1.25% per annum long-term rate of improvement used for future longevity improvement. As part of the UK Group Scheme actuarial valuation exercise the projected life expectancies were as follows: 2023 2022 Male Female Male Female Life expectancy at age 65 Member currently aged 65 20.9 23.3 21.3 23.5 Member currently aged 45 21.9 24.7 22.3 25.1 Sensitivity analysis The sensitivity of the liabilities in the Group Scheme to each significant actuarial assumption is summarised in the following table, showing the impact on the defined benefit obligation if each assumption is altered by the amount specified in isolation, whilst assuming that all other variables remain the same. In practice, this approach is not necessarily realistic since some assumptions are related. This sensitivity analysis applies to the defined benefit obligation only and not to the net defined benefit pension liability, the measurement of which depends on a number of factors including the fair value of plan assets. Increase in pension liability £m 0.5% decrease in discount rate (48) 0.5% increase in inflation (32) 0.5% pre-retirement pension increases (9) 0.5% CPI 5% on pre 30 April 2005 service (25) 0.5% CPI 2.5% on post 30 April 2005 service (3) 1 year increase in life expectanc (20) Expense recognised in the consolidated income statement Total | | | 2023 | 2022 | | --- | --- | --- | --- | | | | £m | £m | | Post-retirement benefits current service cos | (6) (5) | | | Total service cost (6) (5) Net interest cost on net pension liability (1) (2) Pension Protection Fund lev – (1) Employment benefit net finance expense (1) (3) Total expense recognised in the consolidated income statement (7) (8) Items recognised in other comprehensive income Remeasurement of defined benefit obligation 282 125 Return on plan assets excluding amounts included in employment benefit net finance expense (271) (57) Total gains recognised in other comprehensive income 11 68 178 y y t 178 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ## 26. Share-based payment expense The Group's share-based payment arrangements are as follows: (i) A Performance Share Plan (PSP). Awards under the PSP normally become exercisable after three years subject to remaining in service and the satisfaction of performance conditions measured over the three financial years commencing with the year of grant. Awards have been made under the PSP annually since 2008, originally based on the following performance measures, in the proportions shown below: - i. the Company's total shareholder return (TSR) compared to the constituents of the Industrial Goods and Services Supersector within the FTSE 250; - ii. average adjusted earnings per share (EPS); and - iii. average adjusted return on average capital employed (ROACE). Awards made in 2016 are subject to three performance measures: - i. 33.3% of each award based on a TSR component; - ii. 33.3% of each award based on average adjusted EPS; and - iii. 33.3% of each award based on average adjusted ROACE. Awards made from 2017 are subject to either two performance measures or to three performance measures: (a) Two performance measures: - i. 50% of each award based on average adjusted EPS; and - ii. 50% of each award based on average adjusted ROACE. (b) Three performance measures: - i. 33.3% of each award based on a TSR component; - ii. 33.3% of each award based on average adjusted EPS; and - iii. 33.3% of each award based on average adjusted ROACE. The awards granted in 2016, 2017, 2018 and 2019 have vested but have not yet been fully exercised. (ii) A Deferred Share Bonus Plan (DSBP) is operated for Executive Directors and, from 2012/13, for senior executives. Shares awarded under the Plan will vest automatically if the Director or senior executive is still employed by the Company three years after the grant of the award. (iii) An international Sharesave Plan was introduced in January 2014 with further invitations being made in subsequent years. All employees of the Company and participating subsidiaries were eligible to participate in this Plan or an HMRC approved UK Sharesave Plan. Options are granted to participants who have contracted to save up to a maximum of £250 (or local currency equivalent) across all open invitations per month over a period of three years, at a discount of up to 20% to the average closing mid-market price of a DS Smith Plc ordinary share on the three dealing days prior to invitation. Options cannot normally be exercised until a minimum of three years has elapsed. In common with most plans of this type there are no performance conditions applicable to options granted under this Plan. The provisions of this Plan are subject to minor country specific variances. In France, the option price is discounted by up to 20% of the 20-day average up to the day before grant date. A standard US Stock Purchase Plan, was introduced in January 2014 with further invitations in subsequent years. US employees of the Group are eligible to participate in this Plan. Options are granted to participants who have contracted to save up to the local currency equivalent of £250 per month over a period of two years at a discount of up to 15% to the higher of the mid-market average price on the day before invitation and the mid-market average on the day before grant of a DS Smith Plc ordinary share. Options cannot normally be exercised until a minimum of two years has elapsed. Annual Report 2023 dssmith.com 179 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 26. Share-based payment expense continued Further details of the awards described in (i), (ii), and (iii) are set out in the Remuneration Committee report. Options outstanding and exercisable under share arrangements at 30 April 2023 were: Options outstanding Options exercisable Weighted average Weighted Weighted remaining average average Number Option price contract life exercise Number exercise of shares range (p) (years) price (p) exercisable price (p) Performance Share Plan 10,154,122 Nil 1.3 Nil 73,319 Nil Deferred Share Bonus Plan 2,131,958 Nil 1.6 Nil 308,360 Nil Sharesave Plan 6,277,716 269.0– 412.0 1.4 321.6 1,487 266.0 The effect on earnings per share of potentially dilutive shares issuable under share-based payment arrangements is shown in note 8. Movements in the number of share options outstanding and their related weighted average exercise prices are as follows: | | | Performance | | Deferred Share | | | Sharesave | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | Share Plan | | Bonus Plan | | | | plan | | | | Weighted | | | Weighted | | Weighted | | | | | | average | | | average | | average | | | | | | exercise | | Options | exercise | Options | exercise | | | Options | | 2023 | price (p) | | (‘000s) | price (p) | (‘000s) | price (p) | | | (‘000s) | At 1 May 2022 Nil 8,965 Nil 1,346 308.8 12,965 Granted Nil 4,235 Nil 1,219 Nil Nil Exercised Nil (4) Nil (319) 285.0 (4,214) Lapsed Nil (3,042) Nil (114) 316.8 (2,473) At 30 April 2023 Nil 10,154 Nil 2,132 321.6 6,278 Exercisable at 30 April 2023 Nil 73 Nil 308 266.0 1 | | | Performance | | Deferred Share | | | Sharesave | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | Share Plan | | Bonus plan | | | plan | | | | Weighted | | | Weighted | | Weighted | | | | | average | | | average | | average | | | | | exercise | | Options | exercise | Options | exercise | | Options | | 2022 | price (p) | | (‘000s) | price (p) | (‘000s) | price (p) | | (‘000s) | At 1 May 2021 Nil 8,878 Nil 4,669 317.4 15,538 Granted Nil 2,849 Nil 645 316.0 2,756 Exercised Nil (537) Nil (3,641) 370.5 (808) Lapsed Nil (2,225) Nil (327) 331.7 (4,521) At 30 April 2022 Nil 8,965 Nil 1,346 308.8 12,965 Exercisable at 30 April 2022 Nil 79 Nil 86 290.0 5,321 The average share price of the Company during the financial year was 304.7 pence (2021/22: 390.9. pence). The fair value of awards granted in the period relates to the PSP and DSBP schemes. The fair value of the PSP award granted during the year, determined using the stochastic (Monte Carlo) valuation model, was £l2m. The significant inputs into the model were: a share price of 319.98p for the PSP at the grant date; the exercise prices shown above; an expected volatility of the share price of 34.6%; the scheme life disclosed above; a risk-free interest rate of 2.03% and an expected dividend yield of 3.62%. The volatility of share price returns is calculated over the period of time commensurate with the remainder of the performance period immediately prior to the date of grant The total charge for the year relating to share-based payments recognised as personnel expenses was £15m (2021/22: £10m). 180 180 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 26. Share-based payment expense continued Further details of the awards described in (i), (ii), and (iii) are set out in the Remuneration Committee report. Options outstanding and exercisable under share arrangements at 30 April 2023 were: Options outstanding Options exercisable Weighted average Weighted Weighted remaining average average Number Option price contract life exercise Number exercise of shares range (p) (years) price (p) exercisable price (p) Performance Share Plan 10,154,122 Nil 1.3 Nil 73,319 Nil Deferred Share Bonus Plan 2,131,958 Nil 1.6 Nil 308,360 Nil Sharesave Plan 6,277,716 269.0– 412.0 1.4 321.6 1,487 266.0 The effect on earnings per share of potentially dilutive shares issuable under share-based payment arrangements is shown in note 8. Movements in the number of share options outstanding and their related weighted average exercise prices are as follows: | | | Performance | | Deferred Share | | | Sharesave | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | Share Plan | | Bonus Plan | | | | plan | | | | Weighted | | | Weighted | | Weighted | | | | | | average | | | average | | average | | | | | | exercise | | Options | exercise | Options | exercise | | | Options | | 2023 | price (p) | | (‘000s) | price (p) | (‘000s) | price (p) | | | (‘000s) | At 1 May 2022 Nil 8,965 Nil 1,346 308.8 12,965 Granted Nil 4,235 Nil 1,219 Nil Nil Exercised Nil (4) Nil (319) 285.0 (4,214) Lapsed Nil (3,042) Nil (114) 316.8 (2,473) At 30 April 2023 Nil 10,154 Nil 2,132 321.6 6,278 Exercisable at 30 April 2023 Nil 73 Nil 308 266.0 1 | | | Performance | | Deferred Share | | | Sharesave | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | Share Plan | | Bonus plan | | | plan | | | | Weighted | | | Weighted | | Weighted | | | | | average | | | average | | average | | | | | exercise | | Options | exercise | Options | exercise | | Options | | 2022 | price (p) | | (‘000s) | price (p) | (‘000s) | price (p) | | (‘000s) | At 1 May 2021 Nil 8,878 Nil 4,669 317.4 15,538 Granted Nil 2,849 Nil 645 316.0 2,756 Exercised Nil (537) Nil (3,641) 370.5 (808) Lapsed Nil (2,225) Nil (327) 331.7 (4,521) At 30 April 2022 Nil 8,965 Nil 1,346 308.8 12,965 Exercisable at 30 April 2022 Nil 79 Nil 86 290.0 5,321 The average share price of the Company during the financial year was 304.7 pence (2021/22: 390.9. pence). The fair value of awards granted in the period relates to the PSP and DSBP schemes. The fair value of the PSP award granted during the year, determined using the stochastic (Monte Carlo) valuation model, was £l2m. The significant inputs into the model were: a share price of 319.98p for the PSP at the grant date; the exercise prices shown above; an expected volatility of the share price of 34.6%; the scheme life disclosed above; a risk-free interest rate of 2.03% and an expected dividend yield of 3.62%. The volatility of share price returns is calculated over the period of time commensurate with the remainder of the performance period immediately prior to the date of grant The total charge for the year relating to share-based payments recognised as personnel expenses was £15m (2021/22: £10m). Annual Report 2023 dssmith.com 181 | | / | t | x | | | --- | --- | --- | --- | --- | | | 27. Cash generated from operations Continuing operations 2023 £m 2022 £m Profit for the year 492 280 Adjustments for: Pre-tax integration costs and other adjusting items – 37 Amortisation of intangible assets; acquisitions and divestments 128 136 Cash outflow for adjusting items (14) (13) Depreciation 312 290 Loss (profi ) on sale of non-current assets 7 (1) Share of profit of equity accounted investments, net of ta (2) (7) Employment benefit net finance expense 1 3 Share-based payment expense 15 10 Finance income (2) (1) Finance costs 75 70 Other non-cash items 24 (17) Income tax expense 169 98 Change in provisions 19 – Change in employee benefits (25) (21) Cash generation before working capital movement 1,199 864 Changes in: Inventories 99 (200) Trade and other receivables 15 (449) Trade and other payables (235) 864 Working capital movement (121) 215 Cash generated from continuing operations 1,078 1,079 | | | | | 180 | | | | Annual Report 2023 dssmith.com 181 | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED ## 28. Reconciliation of net cash flow to movement in net debt | | 2023 £m | 2022 £m | | --- | --- | --- | | **Profit for the year** | **492** | **280** | | Income tax expense | 169 | 98 | | Share of profit of equity accounted investments, net of tax | (2) | (7) | | Net financing costs | 74 | 72 | | Amortisation of intangible assets, acquisitions and divestments | 128 | 136 | | Pre-tax integration costs and other adjusting items | - | 37 | | **Adjusted operating profit** | **861** | **616** | | Depreciation | 312 | 290 | | **Adjusted EBITDA** | **1,173** | **906** | | Working capital movement | (121) | 215 | | Change in provisions | 19 | - | | Change in employee benefits | (25) | (21) | | Other | 46 | (8) | | **Cash generated from operations before adjusting cash items** | **1,092** | **1,092** | | Capital expenditure | (545) | (431) | | Proceeds from sale of property, plant and equipment and other investments | 19 | 16 | | Tax paid | (136) | (96) | | Net interest paid | (76) | (62) | | **Free cash flow** | **354** | **519** | | Cash outflow for adjusting items | (14) | (13) | | Dividends paid | (209) | (166) | | Acquisition of subsidiary businesses, net of cash and cash equivalents | - | (23) | | Divestment of subsidiary businesses, net of cash and cash equivalents | - | 35 | | Other | (2) | (19) | | **Net cash flow** | **49** | **333** | | Proceeds from issue of share capital | 4 | 7 | | Borrowings and lease liabilities divested | - | 1 | | **Net movement on debt** | **53** | **341** | | Foreign exchange, fair value and other non-cash movements (note 18) | (205) | (30) | | **Net debt movement - continuing operations** | **(152)** | **311** | | Opening net debt | (1,484) | (1,795) | | **Closing net debt - reported basis** | **(1,636)** | **(1,484)** | Adjusted operating profit, adjusted EBITDA, free cash flow, and net debt are non-GAAP measures not defined by IFRS. Further detail on the use of non-GAAP measures is included in note 32. ## 29. Capital commitments and contingencies At 30 April 2023, the Group had committed to incur capital expenditure of £298m (30 April 2022: £105m) relating primarily to the new paper machine in Lucca and greenfield sites in Italy and Poland. Except in relation to the matter disclosed in note 23, the Group is not subject to material litigation, but has a number of contingent liabilities that arise in the ordinary course of business on behalf of trading subsidiaries including, inter alia, intellectual property disputes and regulatory enquiries in areas such as health and safety, environmental, and anti-trust. No losses are anticipated to arise on these contingent liabilities. 182 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 30. Acquisitions and divestments (a) 2022/23 The crystallisation of the put option for the final 10% stake in Interstate Resources occurred during the financial year. Additional costs as a result of the business meeting performance obligations were recognised together with the costs of hedging the dollar payment of the 28. Reconciliation of net cash flow to movement in net debt liability, the latter of which will continue until the payment is made. These costs of £15m have been taken to adjusting items, refer to note 4 2023 2022 for further details. Refer to note 17 for further details for the valuation of this final payment. £m £m Profit for the year 492 280 2021/22 Income tax expense 169 98 In total, during the year ended 30 April 2022, cash consideration for acquisition of subsidiary businesses, net of cash and cash equivalents, Share of profit of equity accounted investments, net of ta (2) (7) was £23m. This included £19m for the remainder of the consideration for the purchase of the first additional 10% stake in Interstate Net financing costs 74 72 Resources on 26 June 2020 after the exercise of a portion of the put option held by the sellers. Remaining acquisitions are not material to the Amortisation of intangible assets; acquisitions and divestments 128 136 Group individually or in aggregate. Pre-tax integration costs and other adjusting items – 37 On 12 October 2021 the Group sold the De Hoop paper mill in the Netherlands. Cash consideration, net of cash and cash equivalents and Adjusted operating profit 861 616 transaction costs, was £35m and net assets divested were £28m, resulting in a net gain of £7m. Depreciation 312 290 (b) Plastics division Adjusted EBITDA 1,173 906 Working capital movemen (121) 215 On 27 February 2020, the sale of the Group’s Plastics division to Olympus Partners and its affiliate Liqui-Box Holdings was completed. Change in provisions 19 – Plastics principally comprised flexible packaging and dispensing solutions, extruded and injection moulded products and foam products. Change in employee benefits (25) (21) The Plastics segment has been classified as a discontinued operation as disclosed in note 1(a)(ii). The consolidated income statement Othe 46 (8) presents the Plastics segment as a discontinued operation with a single line amount of profit from discontinued operation, net of tax. Cash generated from operations before adjusting cash items 1,092 1,092 The consolidated statement of cash flows presents a single amount of net cash flow from discontinued operations. Capital expenditure (545) (431) Consolidated income statement – discontinued operations Proceeds from sale of property, plant and equipment and other investments 19 16 | | Year ended | | Year ended | | | --- | --- | --- | --- | --- | | Tax paid (136) (96) | 30 April 2023 | | 30 April 2022 | | | Net interest paid (76) (62) | | £m | | £m | Revenue – – Free cash flow 354 519 Operating costs – – Cash outflow for adjusting items (14) (13) Operating profit before amortisation and adjusting items – – Dividends paid (289) (166) Amortisation of intangible assets – – Acquisition of subsidiary businesses, net of cash and cash equivalents – (23) Profit on disposal before ta – – Divestment of subsidiary businesses, net of cash and cash equivalents – 35 Other pre-tax adjusting items 11 – Othe (2) (19) Net finance cos – – Net cash flow 49 333 Profit before income tax 11 – Proceeds from issue of share capital 4 7 Income tax credit/(expense) – – Borrowings and lease liabilities divested – 1 Profit for the year from discontinued operations 11 – Net movement on debt 53 341 Foreign exchange, fair value and other non-cash movements (note 18) (205) (30) Settlement of certain costs and obligations arising from the disposal of the Plastics division resulted in a gain in adjusting items in profit from Net debt movement – continuing operations (152) 311 discontinued operations of £11 million. Opening net debt (1,484) (1,795) Closing net debt – reported basis (1,636) (1,484) Adjusted operating profit, adjusted EBITDA, free cash flow, and net debt are non-GAAP measures not defined by IFRS. Further detail on the use of non-GAAP measures is included in note 32. 29. Capital commitments and contingencies At 30 April 2023, the Group had committed to incur capital expenditure of £298m (30 April 2022: £186m) relating primarily to the new paper machine in Lucca and greenfield sites in Italy and Poland. Except in relation to the matter disclosed in note 23, the Group is not subject to material litigation, but has a number of contingent liabilities that arise in the ordinary course of business on behalf of trading subsidiaries including, inter alia, intellectual property disputes and regulatory enquiries in areas such as health and safety, environmental, and anti-trust. No losses are anticipated to arise on these contingent liabilities. Annual Report 2023 dssmith.com 183 r r t x t x 182 Annual Report 2023 dssmith.com 183 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED # **30. Acquisitions and divestments continued** # **Basic earnings per share from discontinued operations** | | 2023 | 2022 | | --- | --- | --- | | Profit from discontinued operations attributable to ordinary shareholders | £11m | - | | Weighted average number of ordinary shares | 1,376m | 1,374m | | Basic earnings per share | 0.8p | - | # **Diluted earnings per share from discontinued operations** | | 2023 | 2022 | | --- | --- | --- | | Profit from discontinued operations attributable to ordinary shareholders | £11m | - | | Weighted average number of ordinary shares | 1,376m | 1,374m | | Potentially dilutive shares (royable under share-based payment arrangement) | 10m | 8m | | Weighted average number of ordinary shares (diluted) | 1,386m | 1,382m | | Diluted earnings per share | 0.8p | - | The number of shares excludes the weighted average number of the Company's own shares held as treasury shares during the year of 2m (2021/22: 1m). # **Adjusted earnings per share from discontinued operations** Further detail about the use of non-GAAP performance measures is given in note 32. A reconciliation of basic to adjusted earnings per share from discontinued operations is as follows: | | 2023 | | | 2022 | | | | --- | --- | --- | --- | --- | --- | --- | | | £m | Basic - pence per share | Diluted - pence per share | £m | Basic - pence per share | Diluted - pence per share | | Basic earnings from discontinued operations | 11 | 0.8p | 0.8p | - | - | - | | Add back: | | | | | | | | Adjusting items, before tax | (11) | (0.8p) | (0.8p) | - | - | - | | **Adjusted earnings from discontinued operations** | - | - | - | - | - | - | # **Cash flows used in discontinued operations** | | Year ended 30 April 2023 £m | Year ended 30 April 2022 £m | | --- | --- | --- | | Net cash used in investing activities | - | - | | **Net cash flows for the year** | - | - | # **(c) Other 2022/23 acquisitions and divestments** The Group incurred other acquisition related costs of £nil (2021/22: £1m), primarily related to professional advisory, legal and consultancy fees and contractual deferred consideration payments on prior year acquisitions. 184 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 31. 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. 30. Acquisitions and divestments continued The key management personnel of the Company comprise the Chair, 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 Basic earnings per share from discontinued operations management personnel also participate in the Group’s share-based incentive programme (note 26). Included within the share-based payment 2023 2022 expense, and detailed in the Remuneration Committee report, is a charge of £3m (2021/22: £1m) relating to key management personnel. Profit from discontinued operations attributable to ordinary shareholders £11m – Transactions with pension trustees are disclosed in note 25. Weighted average number of ordinary shares 1,376m 1,374m | Basic earnings per share 0.8p – | | Other related party transactions | | | | --- | --- | --- | --- | --- | | | | | 2023 | 2022 | | Diluted earnings per share from discontinued operations | | | £m | £m | | | 2023 2022 | Sales to equity accounted investees 18 21 | | | | Profit from discontinued operations attributable to ordinary shareholders £11m – | | Purchases from equity accounted investees 24 25 | | | Weighted average number of ordinary shares 1,376m 1,374m 32. Non-GAAP performance measures Potentially dilutive shares issuable under share-based payment arrangemen 10m 8m The Group presents reported and adjusted financial information in order to provide shareholders with additional information to further Weighted average number of ordinary shares (diluted) 1,386m 1,382m understand the Group’s operational performance and financial position. Diluted earnings per share 0.8p – The principal adjustments to financial information are made to exclude the effects of adjusting items (refer to note 4) and amortisation. The number of shares excludes the weighted average number of the Company’s own shares held as treasury shares during the year of 2m (2021/22: 1m). Total reported financial information represents the Group’s overall performance and financial position, but can contain significant unusual or non-operational items that may obscure understanding of the key trends and position. These unusual or non-operational items include Adjusted earnings per share from discontinued operations business disposals, restructuring and project costs, acquisition-related and integration costs, and impairments. Restructuring items treated Further detail about the use of non-GAAP performance measures is given in note 32. as adjusting items are major programmes usually spanning more than one year, with uneven impact on the profit and loss for those years affected. Other adjusting items, such as business disposals, impairments, integration and acquisition costs, are by nature either highly A reconciliation of basic to adjusted earnings per share from discontinued operations is as follows: variable or can also have a similar distorting effect. Therefore, the Directors consider that presenting non-GAAP measures which exclude 2023 2022 adjusting items enables comparability of the recurring core business, complementing the IFRS measures presented. Basic – Diluted – Basic – Diluted – pence pence pence pence Amortisation relates primarily to customer contracts and relationships arising from or as a result of business combinations. Significant costs £m per share per share £m per share per share are incurred in maintaining, developing and increasing the value of such intangibles, costs which are charged in determining adjusted profit. Basic earnings from discontinued operations 11 0.8p 0.8p – – – Exclusion of amortisation remedies this double count as well as, in the case of customer contracts and relationships, providing comparability over Add back: the accounting treatment of customer contracts and relationships arising from the acquisition of businesses and those generated internally. Adjusting items, before ta (11) (0.8p) (0.8p) – – – The Group’s key non-GAAP measures are used both internally and externally to evaluate business performance against the Group’s KPIs Adjusted earnings from discontinued operations – – – – – – and banking and debt covenants, as a key constituent of the Group’s planning process, as well as comprising targets against which | Cash flows used in discontinued operations | | | | | compensation is determined. | | --- | --- | --- | --- | --- | --- | | | Year ended | | Year ended | | Certain non-GAAP performance measures can be, and are, reconciled to information presented in the financial statements. Other financial | | | 30 April 2023 | | 30 April 2022 | | | | | | £m | | £m | key performance measures are calculated using information which is not presented in the financial statements and is based on, for example, | average 12-month balances or average exchange rates. Net cash used in investing activities – – Net cash flows for the year – – Unlike other of the Group’s non-GAAP performance measures, net debt and net debt/EBITDA remain calculated under the previous standard, IAS 17 Leases , because they are calculated in accordance with the Group’s banking covenant requirements which remain on the previous (c) Other 2022/23 acquisitions and divestments GAAP basis. As such, for net debt and net debt/EBITDA, the reconciliation for the non-GAAP performance measure below has been The Group incurred other acquisition related costs of £nil (2021/22: £1m), primarily related to professional advisory, legal and consultancy expanded to show the calculation to return the non-GAAP performance measure to the IAS 17 basis. fees and contractual deferred consideration payments on prior year acquisitions. Annual Report 2023 dssmith.com 185 x t 184 Annual Report 2023 dssmith.com 185 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 32. Non-GAAP performance measures continued Key non-GAAP performance measures The key non-GAAP performance measures used by the Group and their calculation methods are as follows: Adjusted operating profit Adjusted operating profit is operating profit excluding the pre-tax effects of both amortisation and adjusting items. Adjusting items include business divestment gains and losses, restructuring and acquisition related and integration costs and impairments. A reconciliation between reported and adjusted operating profit is set out on the face of the consolidated income statement. Operating profit before adjusting items A reconciliation between operating profit and operating profit before adjusting items is set out on the face of the consolidated income statement. Other similar profit measures before adjusting items are quoted, such as profit before income tax and adjusting items, and are directly derived from the consolidated income statement, from which they can be directly reconciled. Adjusted EBITDA Earnings before interest, tax, depreciation and amortisation (Adjusted EBITDA) is adjusted operating profit excluding depreciation. A reconciliation from adjusted operating profit to adjusted EBITDA is provided in note 28. Adjusted earnings per share Adjusted earnings per share is basic earnings per share adjusted to exclude the post-tax effects of adjusting items and amortisation. Adjusted earnings per share is a key performance measure for management long-term remuneration and is widely used by the Group’s shareholders. A reconciliation between basic and adjusted earnings per share is provided in note 8. Return on sales Return on sales is adjusted operating profit measured as a percentage of revenue. Return on sales is used to measure the value we deliver to customers and the Group’s ability to charge for that value. | | | 2023 | 2022 | | --- | --- | --- | --- | | | | £m | £m | | Adjusted operating profi | 861 616 | | | Revenue 8,221 7,241 Return on sales 10.5% 8.5% Adjusted return on average capital employed (ROACE) ROACE is the last 12 months’ adjusted operating profit as a percentage of the average monthly capital employed over the previous 12 month period. Capital employed is the sum of property, plant and equipment, right-of-use assets, goodwill and intangible assets, working capital, capital debtors/creditors, provisions, biological assets and assets/liabilities held for sale. 2023 2022 £m £m Capital employed at 30 April 6,203 5,578 Currenc inte -month and acquisition/divestment movements (194) 113 Last 12 months’ average capital employed 6,009 5,691 Last 12 months’ adjusted operating profi 861 616 Adjusted return on average capital employed 14.3% 10.8% 186 r y t t 186 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ### 32. Non-GAAP performance measures continued #### Net debt and net debt/EBITDA Net debt is the measure by which the Group assesses its level of overall indebtedness within its financial position. The components of net debt as they reconcile to the primary financial statements and notes to the accounts are disclosed in note 10. Net debt/EBITDA is the ratio of net debt to adjusted EBITDA, calculated in accordance with the Group's banking covenant requirements. Net debt/EBITDA is considered a key measure of balance sheet strength and financial stability by which the Group assesses its financial position. The Group's banking covenant requirements currently exclude IFRS 16 liabilities from the definition of net debt, as well as requiring that EBITDA is calculated before the effects of IFRS 16, so an adjustment to the previous IAS 17 basis is made in the calculation. In calculating the ratio, net debt is stated at average rates as opposed to closing rates, and adjusted EBITDA is adjusted operating profit before depreciation from the previous 12 month period adjusted for the full year effect of acquisitions and divestments in the period, and to adjust to an IAS 17 basis. | | 2023 £m | 2022 £m | | --- | --- | --- | | Net debt – reported basis (see note 10) | **1,636** | 1,484 | | IFRS 16 lease liabilities (see note 10) | **(220)** | (201) | | Adjustment to average rate | **(17)** | 13 | | **Net debt – adjusted basis** | **1,399** | 1,296 | | Adjusted EBITDA – last 12 months' reported basis (continuing operations) | **1,173** | 806 | | Adjust to IAS 17 basis | **(85)** | (78) | | Acquisition and divestment effects | - | (7) | | **Adjusted EBITDA – banking covenant basis** | **1,088** | 021 | | **Net debt/EBITDA** | **1.3x** | 1.6x | #### Free cash flow Free cash flow is the net movement on debt before cash outflow for adjusting items, dividends paid, acquisition and divestment of subsidiary businesses (including borrowings acquired), and proceeds from issue of share capital. A reconciliation from Adjusted EBITDA to free cash flow is set out in note 28. #### Cash conversion Cash conversion is free cash flow, as defined above, adjusted to exclude tax, net interest, growth capital expenditure and pension payments as a percentage of adjusted operating profit and can be derived directly from note 20, other than growth capital expenditure, which is capital expenditure necessary for the development or expansion of the business as follows: | | 2023 £m | 2022 £m | | --- | --- | --- | | Growth capital expenditure | **275** | 176 | | Non-growth capital expenditure | **270** | 255 | | **Total capital expenditure (note 28)** | **545** | 431 | | Free cash flow (note 28) | **354** | 519 | | Tax paid (note 28) | **136** | 96 | | Net interest paid (note 28) | **76** | 62 | | Growth capital expenditure | **275** | 176 | | Change in employee benefits (note 20) | **25** | 21 | | **Adjusted free cash flow** | **866** | 874 | | **Adjusted operating profit** | **861** | 616 | | **Cash conversion** | **101%** | 142% | Annual Report 2023 dsSmith.com 187 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED ### 32. Non-GAAP performance measures continued #### Average working capital to sales Average working capital to sales measures the level of investment the Group makes in working capital to conduct its operations. It is measured by comparing the monthly working capital balances for the previous 12 months as a percentage of revenue over the same period. Working capital is the sum of inventories, trade and other receivables, and trade and other payables, excluding capital and acquisition and divestment related debtors and creditors. | | 2022 £m | 2022 £m | | --- | --- | --- | | Inventories (note 15) | 619 | 703 | | Trade and other receivables | 1,211 | 1,189 | | Trade and other payables | (2,105) | (2,372) | | Inter-month movements and exclusion of capital and acquisition and divestment related items | 36 | 241 | | **Last 12 months' average working capital** | **(239)** | **(239)** | | Last 12 months' revenue | 8,221 | 7,241 | | **Average working capital to sales** | **(2.9%)** | **(3.3%)** | #### Constant currency and organic growth The Group presents commentary on both reported and constant currency revenue and adjusted operating profit comparatives in order to explain the impact of exchange rates on the Group's key income statement items. Constant currency comparatives recalculate the prior year revenue and adjusted operating profit as if they had been generated using the current year exchange rates. In addition, the Group then separates the incremental effects of acquisitions and disposals made in the current year, and the incremental effects of acquisitions and disposals made in the previous year, to determine underlying organic growth. The table below shows the calculations: | | Revenue £m | Adjusted operating profit £m | | --- | --- | --- | | Reported basis – comparative year ended 30 April 2022 | 7,241 | 616 | | Currency effects | 182 | 20 | | Constant currency basis – comparative year ended 30 April 2022 | 7,423 | 636 | | Organic growth | 798 | 225 | | Reported basis – year ended 30 April 2023 | 8,221 | 861 | Return on sales – comparative year ended April 2022 constant currency basis 8.6% | | £m | | --- | --- | | Reported profit before tax comparative year ended 30 April 2022 | 378 | | Currency effects | 9 | | Constant currency profit before tax comparative year ended 30 April 2022 | 387 | Basic earnings per share from continuing operations for the comparative year ended 30 April 2022 – constant currency basis | | £m | | --- | --- | | Profit from continuing operations | 280 | | Currency effects | 7 | | | 287 | | Weighted average number of ordinary shares | 1,374m | | Basic earnings per share – constant currency basis | 20.9p | 188 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 32. Non-GAAP performance measures continued Constant currency and organic growth continued 32. Non-GAAP performance measures continued Average working capital to sales Average working capital to sales measures the level of investment the Group makes in working capital to conduct its operations. It is measured by comparing the monthly working capital balances for the previous 12 months as a percentage of revenue over the same period. Working capital is the sum of inventories, trade and other receivables, and trade and other payables, excluding capital and acquisition and divestment related debtors and creditors. 2023 2022 £m £m Inventories (note 15) 619 703 Trade and other receivables 1,211 1,189 Trade and other payables (2,105) (2,372) Inte -month movements and exclusion of capital and acquisition and divestment related items 36 241 Last 12 months’ average working capital (239) (239) Last 12 months’ revenue 8,221 7,241 Average working capital to sales (2.9%) (3.3%) Constant currency and organic growth The Group presents commentary on both reported and constant currency revenue and adjusted operating profit comparatives in order to explain the impact of exchange rates on the Group’s key income statement items. Constant currency comparatives recalculate the prior year revenue and adjusted operating profit as if they had been generated using the current year exchange rates. In addition, the Group then separates the incremental effects of acquisitions and disposals made in the current year, and the incremental effects of acquisitions and disposals made in the previous year, to determine underlying organic growth. The table below shows the calculations: Adjusted operating Revenue profit £m £m Reported basis – comparative year ended 30 April 2022 7,241 616 Currency effects 182 20 Constant currency basis – comparative year ended 30 April 2022 7,423 636 Organic growth 798 225 Reported basis – year ended 30 April 2023 8,221 861 Return on sales – comparative year ended April 2022 constant currency basis 8.6% £m RReeppoorrtteedd pprrooffiitt bbeeffoorree ttaaxx ccoommppaarraattiivvee yyeeaarr eennddeedd 3300 AApprriill 22002222 378 Currency effects 9 Constant currency profit before tax comparative year ended 30 April 2022 387 Basic earnings per share from continuing operations for the comparative year ended 30 April 2022 – constant currency basis £m Profit from continuing operations 280 Currency effects 7 287 Weighted average number of ordinary shares 1,374m Basic earnings per share – constant currency basis 20.9p Annual Report 2023 dssmith.com 189 | | r | | x | | | --- | --- | --- | --- | --- | | | | Adjusted earnings per share for the comparative year ended 30 April 2022- constant currency basis £m Adjusted earnings 422 Currency effects 18 440 Weighted average number of ordinary shares 1,374m Adjusted earnings per share – constant currency basis 32.0p Dividend cover Dividend cover is adjusted earnings per share divided by the total dividend for the year. 2023 2022 Adjusted earnings per share 43.0p 30.7p Total dividend 18.0p 15.0p Dividend cover 2.4x 2.0 | | | | 188 | | | | Annual Report 2023 dssmith.com 189 | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 33. DS Smith Group companies The Group’s ultimate parent Company is DS Smith Plc. Group companies are grouped by the countries in which they are incorporated or registered. Unless otherwise noted, the undertakings below are wholly-owned and consolidated by DS Smith and the share capital held comprises ordinary or common shares which are held by Group subsidiaries. | Fully owned subsidiaries Notes | | | | Notes | | Notes | | --- | --- | --- | --- | --- | --- | --- | | Argentina | | | Finland | | DS Smith Paper Deutschland GmbH DE7 | | | Total Marketing Support Argentina S | AR1 | | DS Smith Packaging Baltic Holding Oy FI1 | | DS Smith Recycling Deutschland GmbH DE4 | | | Australia | | | DS Smith Packaging Finland Oy FI1 | | DS Smith Stange B.V. & Co. KG DE8 | | | Total Marketing Support Pacific Pty Ltd AU1 | | | DS Smith Packaging Pakkausjaloste Oy FI2 | | DS Smith Transport Services GmbH DE7 | | | Austria | | | Eastpac Oy FI1 | | Greece | | | DS Smith Austria Holdings GmbH AT1 | | | France | | DS Smith Cretan Hellas S.A. GR1 | | | DS Smith Packaging Austria | | AT1 | DS Smith France FR1 | | DS Smith Hellas S.A. GR2 | | | Beteiligungsverwaltungs GmbH | | | DS Smith Hêtre Blanc FR2 | | Guatemala | | | DS Smith Packaging Austria GmbH | | AT2 | DS Smith Packaging Ales FR3 | | TMS Global Guatemala, Sociedad Anonima GT1 | | | DS Smith Packaging South East GmbH AT1 | | | DS Smith Packaging Anjou FR2 | | Honduras | | | Belgium | | | DS Smith Packaging Atlantique FR2 | | Total Marketing Support Honduras, S.A. HN1 | | | DS Smith Packaging Belgium N.V. BE1 | | | DS Smith Packaging Bretagne FR4 | | Hungar | | | DS Smith Packaging Marketing N.V. BE2 | | | DS Smith Packaging C.E.R.A. FR5 | | DS Smith Packaging Hungary Kft. HU2 | | | Bolivia | | | DS Smith Packaging Consumer FR2 | | Merpas Hungary Kft. i, HU1 | | | Total MarketingSupport Bolivia S.A. BO1 | | | DS Smith Packaging Contoire-Hamel FR6 | | India | | | Bosnia & Herzegovina | | | DS Smith Packaging Display and Services FR2 | | The Less Packaging Company India | IN1 | | DS Smith Packaging BH d.o.o. Sarajevo BA1 | | | DS Smith Packaging DPF FR7 | | Private Limited | | | DS Smith Recycling Bosnia d.o.o. BA2 | | | DS Smith Packaging Durtal FR8 | | Total Marketing Support India Private | IN2 | | Brazil | | | DS Smith Packaging Fegersheim FR9 | | Limited | | | Total Marketing Support Brazil Ltda BR1 | | | DS Smith Packaging France FR2 | | Indonesia | | | Bulgaria | | | DS Smith Packaging Kaypac FR10 | | PT Total Marketing Support Indonesia ID1 | | | DS Smith Bulgaria S.A. BG1 | | | DS Smith Packaging Larousse FR11 | | Ireland | | | Canada | | | DS Smith Packaging Mehun-CIM FR12 | | DS Smith Ireland Treasury Designated | IR1 | | TMS Canada 360 Inc. CA1 | | | | | Activity Company | | | | | | DS Smith Packaging Nord Es | FR1 | | | | Chile | | | | | DS Smith Recycling Ireland Limited IR2 | | DS Smith Packaging Premium FR13 Total Marketing Support Chile Sp CL1 Ital DS Smith Packaging Savoie FR14 China DS Smith Holding Italia Sp IT3 DS Smith Packaging Seine Normandie FR15 | DS Smith Shanghai Trading Ltd CN1 | | | DS Smith Packaging Italia Sp | IT3 | | --- | --- | --- | --- | --- | | | DS Smith Packaging Sud Es | FR16 | | | | TMS Shanghai Trading Ltd CN2 | | | DS Smith Paper Italia Srl IT3 | | | | DS Smith Packaging Sud Oues | FR13 | | | | Colombia | | | DS Smith Recycling Italia Srl IT2 | | DS Smith Packaging Systems FR17 Total Marketing Support Colombia S A S CO1 Toscana Ondulati SpA IT1 DS Smith Packaging Velin FR18 Croatia apan DS Smith Packaging Vervins FR2 Bilokalni -IPA d.d. e, HR1 Total Marketing Support Japan Ltd P1 DS Smith Paper Coullons FR19 DS Smith Belišće Croatia d.o.o. HR2 Kazakhstan DS Smith Paper Kaysersberg FR20 DS Smith Unijapapir Croatia d.o.o. HR3 Total Marketing Support KazakhstanL.L.P. KZ1 DS Smith Paper Rouen FR15 Czech Republic Latvia DS Smith Recycling France FR21 DS Smith Packaging Czech Republic s.r.o. CZ1 SIA DS Smith Packaging Latvia LV1 Rowlandson France FR1 | DS Smith Triss s.r.o. CZ2 | | | Lithuania | | --- | --- | --- | --- | | | Tecnicar | on France FR22 | | | Denmark | | | UAB DS Smith Packaging Lithuania LT1 | German DS Smith Packaging Denmark A/S DK1 Luxembourg Bretschneider Verpackungen GmbH h, DE2 Ecuador DS Smith (Luxembourg) S.à r.l. LU1 Delta Packaging Services GmbH DE6 | Total Marketing Support Ecuador TM-EC | | EC1 | | | DS Smith Perch Luxembourg S.à r.l. LU1 | | | --- | --- | --- | --- | --- | --- | --- | | | | | DS Smith Packaging Arenshausen | DE3 | | | | C.L. | | | Mivepa GmbH | | DS Smith Re S.A. LU1 | | | Egyp | | | DS Smith Packaging Arnstadt GmbH DE1 | | Malaysia | | | TMS Egypt LL | EG1 | | DS Smith Packaging Beteiligungen GmbH DE8 | | Total Marketing Support (360) Malaysia | MY1 | | Estonia | | | | | Sdn. Bhd. | | DS Smith Packaging Deutschland Stiftung DE5 DS Smith Packaging Estonia AS EE1 DS Smith Packaging Deutschland Stiftung DE8 & Co KG 190 J J y t k y t y C t A t t A A A 190 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 33. DS Smith Group companies continued 33. DS Smith Group companies The Group’s ultimate parent Company is DS Smith Plc. Group companies are grouped by the countries in which they are incorporated or registered. Unless otherwise noted, the undertakings below are wholly-owned and consolidated by DS Smith and the share capital held comprises ordinary or common shares which are held by Group subsidiaries. | Fully owned subsidiaries Notes | | | | Notes | | Notes | | --- | --- | --- | --- | --- | --- | --- | | Argentina | | | Finland | | DS Smith Paper Deutschland GmbH DE7 | | | Total Marketing Support Argentina S | AR1 | | DS Smith Packaging Baltic Holding Oy FI1 | | DS Smith Recycling Deutschland GmbH DE4 | | | Australia | | | DS Smith Packaging Finland Oy FI1 | | DS Smith Stange B.V. & Co. KG DE8 | | | Total Marketing Support Pacific Pty Ltd AU1 | | | DS Smith Packaging Pakkausjaloste Oy FI2 | | DS Smith Transport Services GmbH DE7 | | | Austria | | | Eastpac Oy FI1 | | Greece | | | DS Smith Austria Holdings GmbH AT1 | | | France | | DS Smith Cretan Hellas S.A. GR1 | | | DS Smith Packaging Austria | | AT1 | DS Smith France FR1 | | DS Smith Hellas S.A. GR2 | | | Beteiligungsverwaltungs GmbH | | | DS Smith Hêtre Blanc FR2 | | Guatemala | | | DS Smith Packaging Austria GmbH AT2 | | | DS Smith Packaging Ales FR3 | | TMS Global Guatemala, Sociedad Anonima GT1 | | | DS Smith Packaging South East GmbH AT1 | | | DS Smith Packaging Anjou FR2 | | Honduras | | | Belgium | | | DS Smith Packaging Atlantique FR2 | | Total Marketing Support Honduras, S.A. HN1 | | | DS Smith Packaging Belgium N.V. BE1 | | | DS Smith Packaging Bretagne FR4 | | Hungar | | | DS Smith Packaging Marketing N.V. BE2 | | | DS Smith Packaging C.E.R.A. FR5 | | DS Smith Packaging Hungary Kft. HU2 | | | Bolivia | | | DS Smith Packaging Consumer FR2 | | Merpas Hungary Kft. i, HU1 | | | Total MarketingSupport Bolivia S.A. BO1 | | | DS Smith Packaging Contoire-Hamel FR6 | | India | | | Bosnia & Herzegovina | | | DS Smith Packaging Display and Services FR2 | | The Less Packaging Company India | IN1 | | DS Smith Packaging BH d.o.o. Sarajevo BA1 | | | DS Smith Packaging DPF FR7 | | Private Limited | | | DS Smith Recycling Bosnia d.o.o. BA2 | | | DS Smith Packaging Durtal FR8 | | Total Marketing Support India Private | IN2 | | Brazil | | | DS Smith Packaging Fegersheim FR9 | | Limited | | | Total Marketing Support Brazil Ltda BR1 | | | DS Smith Packaging France FR2 | | Indonesia | | | Bulgaria | | | DS Smith Packaging Kaypac FR10 | | PT Total Marketing Support Indonesia ID1 | | | DS Smith Bulgaria S.A. BG1 | | | DS Smith Packaging Larousse FR11 | | Ireland | | | Canada | | | DS Smith Packaging Mehun-CIM FR12 | | DS Smith Ireland Treasury Designated | IR1 | | TMS Canada 360 Inc. CA1 | | | | | Activity Company | | | | | | DS Smith Packaging Nord Es | FR1 | | | | Chile | | | | | DS Smith Recycling Ireland Limited IR2 | | DS Smith Packaging Premium FR13 Total Marketing Support Chile Sp CL1 Ital DS Smith Packaging Savoie FR14 China DS Smith Holding Italia Sp IT3 DS Smith Packaging Seine Normandie FR15 | DS Smith Shanghai Trading Ltd CN1 | | | DS Smith Packaging Italia Sp | IT3 | | --- | --- | --- | --- | --- | | | DS Smith Packaging Sud Es | FR16 | | | | TMS Shanghai Trading Ltd CN2 | | | DS Smith Paper Italia Srl IT3 | | | | DS Smith Packaging Sud Oues | FR13 | | | | Colombia | | | DS Smith Recycling Italia Srl IT2 | | DS Smith Packaging Systems FR17 Total Marketing Support Colombia S A S CO1 Toscana Ondulati SpA IT1 DS Smith Packaging Velin FR18 Croatia apan DS Smith Packaging Vervins FR2 Bilokalni -IPA d.d. e, HR1 Total Marketing Support Japan Ltd P1 DS Smith Paper Coullons FR19 DS Smith Belišće Croatia d.o.o. HR2 Kazakhstan DS Smith Paper Kaysersberg FR20 DS Smith Unijapapir Croatia d.o.o. HR3 Total Marketing Support KazakhstanL.L.P. KZ1 DS Smith Paper Rouen FR15 Czech Republic Latvia DS Smith Recycling France FR21 DS Smith Packaging Czech Republic s.r.o. CZ1 SIA DS Smith Packaging Latvia LV1 Rowlandson France FR1 | DS Smith Triss s.r.o. CZ2 | | | Lithuania | | --- | --- | --- | --- | | | Tecnicar | on France FR22 | | | Denmark | | | UAB DS Smith Packaging Lithuania LT1 | German DS Smith Packaging Denmark A/S DK1 Luxembourg Bretschneider Verpackungen GmbH h, DE2 Ecuador DS Smith (Luxembourg) S.à r.l. LU1 Delta Packaging Services GmbH DE6 | Total Marketing Support Ecuador TM-EC | | EC1 | | | DS Smith Perch Luxembourg S.à r.l. LU1 | | | --- | --- | --- | --- | --- | --- | --- | | | | | DS Smith Packaging Arenshausen | DE3 | | | | C.L. | | | Mivepa GmbH | | DS Smith Re S.A. LU1 | | | Egyp | | | DS Smith Packaging Arnstadt GmbH DE1 | | Malaysia | | | TMS Egypt LL | EG1 | | DS Smith Packaging Beteiligungen GmbH DE8 | | Total Marketing Support (360) Malaysia | MY1 | | Estonia | | | | | Sdn. Bhd. | | DS Smith Packaging Deutschland Stiftung DE5 DS Smith Packaging Estonia AS EE1 DS Smith Packaging Deutschland Stiftung DE8 & Co KG Annual Report 2023 dssmith.com 191 t k C A A t y t t t J y y A A J J Fully owned subsidiaries continued Notes Mexico Total Marketing Support 360 Mexico S.A de C.V MX1 Morocco Tecnicartón Tánger S.a.r.l. AU MA1 Netherland David S. Smith (Netherlands) B.V. N 2 DS Smith (Holdings) B.V. PSQ DS Smith Baars B.V. DE8 DS Smith De Hoop Holding B.V. N 2 DS Smith Finance B.V. N 2 DS Smith Hellas Netherlands B.V. N 2 DS Smith Italy B.V. PSQ DS Smith Packaging Almelo B.V. NL1 DS Smith Packaging Barneveld B.V. N 3 DS Smith Packaging Belita B.V. N 2 DS Smith Packaging Holding B.V. N 2 DS Smith Packaging International B.V. N 2 DS Smith Packaging Netherlands B.V. NL2 DS Smith Packaging Tilburg B.V. N 5 DS Smith Recycling Benelux B.V. NL2 DS Smith Recycling Holding B.V. NL2 DS Smith Salm B.V. N 2 DS Smith Toppositie B.V. N 2 Nicaragua Total Marketing Support Nicaragua, Sociedad Anonima NI1 Nigeria Total Marketing Support 360 Nigeria Limited NG1 North Macedonia DS Smith AD Skopje f, MK1 Pakistan TMS Pakistan (Private) Limited PK1 Philippines Total Marketing Support Philippines, Inc PH1 Poland DS Smith Packaging sp. z o.o. PL1 DS Smith Polska sp. z o.o. PL1 Portugal DS Smith Displays P&I, S.A. PT3 DS Smith Energia Viana, S.A. PT8 DS Smith Packaging Portugal, S.A. PT4 DS Smith Paper Viana, S.A. PT8 DS Smith Portugal, SGPS, S.A. PT8 DS Smith Recycling Portugal, S.A. PT9 Lepe – Empresa Portuguesa de Embalagens, S.A. PT2 Nova DS Smith Embalagem, S.A. PT7 Tecnicartón Portugal Unipessoal Lda PT1 Iberian Forest Fund – Fundo Especial de Investimento Imobiliario Florestal Fechado PT11 Notes Romania DS Smith Packaging Ghimbav S.R.L. c, RO1 DS Smith Packaging Romania S.R.L. RO3 DS Smith Paper Zarnesti. S.R.L. b, RO2 Russia Total Marketing Support Mosco RU1 Serbia DS Smith Inos Papir Servis d.o.o. RS1 DS Smith Packaging d.o.o. Kruševac RS2 Papir Servis DP d.o.o. Kruševac RS2 Slovakia DS Smith Packaging Slovakia s.r.o. SK1 DS Smith Turpak Obaly a.s. d, SK2 Slovenia DS Smith Slovenija d.o.o. SI1 South Africa TMS 360 SA (PTY) Ltd ZA1 Spain Bertako S.L.U. ES1 DS Smith Andorra S.A. ES3 DS Smith Business Services S.L.U. ES3 DS Smith Packaging Cartogal S.A. ES10 DS Smith Packaging Dicesa S.A. g, ES5 DS Smith Packaging Galicia S.A. ES11 DS Smith Packaging Holding S.L.U. ES3 DS Smith Packaging Lucena, S.L. ES7 DS Smith Packaging Madrid S.L. ES3 DS Smith Packaging Penedes S.A.U. ES5 DS Smith Recycling Spain S.A. ES2 DS Smith Spain, S.A. ES4 Tecnicartón, S.L. ES8 Sweden DS Smith Packaging Sweden AB SE1 DS Smith Packaging Sweden Holding AB SE1 Switzerland DS Smith Packaging Switzerland AG CH1 Turke DS Smith Ambalaj A.Ş. TR1 Total Marketing Support Turkey Baskı Yönetimi Hizmetleri A.Ş. TR2 Ukraine Total Marketing Support Ukraine UA1 United Arab Emirates Total Marketing Support Middle East DMCC AE1 UK Abbey Corrugated Limited PSQ Ashton Corrugated PSQ Ashton Corrugated (Southern) Limited PSQ Avonbank Paper Disposal Limited PSQ Biber Paper Converting Limited PSQ Calara Holding Limited PSQ Conew Limited PSQ Notes Corrugated Products Limited PSQ David S. Smith Nominees Limited PSQ D.W. Plastics (UK) Limited PSQ DS Smith (UK) Limited PSQ DS Smith America (UK) LLP PSQ DS Smith Business Services Limited PSQ The DS Smith Charitable Foundation PSQ DS Smith Corrugated Packaging Limited PSQ DS Smith Display Holding Limited PSQ DS Smith Dormant Five Limited PSQ DS Smith Euro Finance Limited PSQ DS Smith Europe Limited PSQ DS Smith Finco Limited a, PSQ DS Smith Haddox Limited PSQ DS Smith Holdings Limited a, PSQ DS Smith International Limited PSQ DS Smith Italy Limited DS Smith Logistics Limited PSQ DS Smith Packaging Limited PSQ DS Smith Paper Limited PSQ DS Smith Pension Trustees Limited PSQ DS Smith Perch Limited PSQ DS Smith Recycling UK Limited PSQ DS Smith Roma Limited PSQ DS Smith Sudbrook Limited PSQ DS Smith Supplementary Life Cover Scheme Limited PSQ DS Smith Ukraine Limited PSQ DSS Eastern Europe Limited PSQ DSS Poznan Limited PSQ DSSH No. 1 Limited PSQ Grovehurs Energy Limited PSQ DS Holding PSQ Miljoint Limited PSQ Multigraphics Holdings Limited PSQ Multigraphics Limited PSQ Multigraphics Services Limited PSQ Priory Packaging Limited PSQ Reed & Smith Limited PSQ St. Regis International Limited PSQ St. Regis Kemsley Limited PSQ St. Regis Paper Company Limited PSQ The Brand Compliance Company Limited PSQ The Less Packaging Company Limited PSQ TheBannerPeople.Com Limited PSQ TMS Global UK Limited PSQ Total Marketing Support Global Limited PSQ Total Marketing Support Limited PSQ Treforest Mill plc PSQ United Shopper Marketing Limited PSQ W. Rowlandson & Company Limited PSQ Waddington & Duval Limited PSQ L L L L L L L L L L L y t s w 190 Annual Report 2023 dssmith.com 191 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 33. DS Smith Group companies continued 192 j k j k L L C k Fully owned subsidiaries continued Notes US Carolina Graphic Services, LL US1 Cedarpa , LL US3 CEMT Holdings Group, LL US4 Corrugated Container Corporation US13 Corrugated Container Corporation of Shenandoah Valley US14 Corrugated Container Corporation of Tennessee US15 Corrugated Supply, LL US4 Corrugated Supply, L.P. US4 DS Smith Creative Solutions Inc. US16 DS Smith Holdings, Inc. US3 DS Smith Management Resources, Inc. g,US3 DS Smith North America Recycling, LL US3 DS Smith North America Shared Services, LLC US3 DS Smith Packaging-Holly Springs, LL US18 DS Smith Packaging-Lebanon, LL US17 DS Smith Packaging-Stream, LL US3 Evergreen Community Power, LL US3 Interstate Container Columbia, LL US6 Interstate Container New Castle, LL US7 Interstate Container Reading, LL US8 Interstate Corrpac , LL US5 Interstate Holding, Inc. US3 Interstate Mechanical Packaging, LL US6 Interstate Paper, LL US9 Interstate Realty Hialeah, LL US3 Interstate Resources, Inc. US3 Interstate Southern Packaging, LL US10 Newport Timber, LLC US9 Phoenix Technology Holdings USA, Inc. US3 RB Lumber Company, LL US9 RFC Container, LL US4 SouthCorr, . . . US11 St. George Timberland Holdings, Inc. US3 TMS America, LL US19 United Corrstac , LLC US12 Urugua Kozery S.A. UY1 Associate entities Notes Netherland Stort Doonweg B.V. i, N 4 Portugal Companhia Termica Do Serrado A.c.e. m, PT5 Spain Cartonajes Cantabria, S.L. l, ES6 Cartonajes Santander, S.L. l, ES6 Euskocarton, S.L. l, ES6 Industria Cartonera Asturiana, S.A. I,ES12 Ukraine Private Joint Stock Company “Rubizhanskiy Kartonno-Tarniy Kombinat” , UA2 US Philcorr LL , US2 PhilCorr Vineland LLC , US2 Ownership interest at 30 April 2023 a Directly held by DS Smith Plc b 99.927% ownership interest c 99.285% ownership interes d 98.89% ownership interes e 97.39% ownership interest f 81.39% ownership interest g 80% ownership interest h 51% ownership interes i 50% ownership interes 49.597% ownership interes 40% ownership interes l 39.58% ownership interes m 30% ownership interest C C C C C C C C L C C C C C C C A A y k C C C s k C k t C t t t t t t C 192 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 33. DS Smith Group companies continued Registered offices | | | | | | | | | | PSQ Level 3, 1 Paddington Square, London, W2 1DL, United Kingdom | | FR21 2 Rue Paul Cezanne, 93360, Neuilly Plaisance, France | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | | | | | AR1 Avenida Eduardo Madero 1020, 5th floor, Office “B”, The City of Buenos Aires, | | FR22 27 Rue du Tennis, 25110, Baume les Dames, France | | 33. DS Smith Group companies continued | | | | | | | | | | Argentina | DE1 Bierweg 11, 99310 Arnstadt, Germany | | | | | | | | | | | AU1 Baker Mckenzie, Level 46, 100 Barangaroo Avenue, Sydney NSW 2000, Australia | | DE2 Bretschneiderstr. 5, D-08309 Eibenstock, Germany | | Fully owned subsidiaries continued Notes | | | | | | Associate entities Notes | | Ownership interest at 30 April 2023 | | | | | | | | | | | | | | AT1 Friedrichstraße 10, 1010, Wien, Austria | | DE3 Hauptstrasse 80, 37318 Arenshausen, Germany | | US | | | | | | Netherland | | a Directly held by DS Smith Plc | | | | | | | | | | | | | | AT2 Heidestrasse 15, 2433 Margarethen am Moos, Austria | | DE4 Kufsteiner Strasse 27, 83064 Raubling, Germany | | Carolina Graphic Services, LL | | | | US1 | | Stort Doonweg B.V. i, N | 4 | b 99.927% ownership interest | | | | | | | | | | | | | | BE1 New Orleansstraat 100, 9000 Gent, Belgium | | DE5 Rollnerstrasse 14, D-90408 Nürnberg, Germany | | Cedarpa | , LL | US3 | | | | Portugal | | c 99.285% ownership interes | | | | | | | | | | | | | | BE2 Leonardo da Vincilaan 2, Corporate Village – Gebouw Gent 1831 Machelen- | | DE6 Siemensstrasse 8, 50259 Pulheim, Germany | | CEMT Holdings Group, LL | | | US4 | | | Companhia Termica Do Serrado A.c.e. m, PT5 | | d 98.89% ownership interes | | | | | | | | | | | | | | | Diegem, Belgium | DE7 Weichertstrasse7, D-63741 Aschaffenburg, Germany | | Corrugated Container Corporation US13 | | | | | | Spain | | e 97.39% ownership interest | | | | | | | | | | | | | | BO1 Santa Cruz de la Sierra – Calle Dr. Mariano Zambrana No 700 UV: S/N MZNO: | | DE8 Zum Fliegerhorst 1312 – 1318, 63526 Erlensee, Germany | | Corrugated Container Corporation of | | | | | US14 | Cartonajes Cantabria, S.L. l, ES6 | | f 81.39% ownership interest | | | | | | | | | | | | | | | S/N Zona: Oeste, Bolivia | GR1 PO Box 90, GR-72200 Ierapetra, Kriti, Greece | | Shenandoah Valley | | | | | | Cartonajes Santander, S.L. l, ES6 | | g 80% ownership interest | | | | | | | | | | | | | | BA1 ul. Igmanska bb, Sarajevo, Vogošća, Bosnia and Herzegovina | | GR2 PO Box 1010, 57022 Sindos Industrial Area, Thessaloniki, Greece | | Corrugated Container Corporation of | | | | | US15 | Euskocarton, S.L. l, ES6 | | h 51% ownership interes | | | | | | | | | | | | | | BA2 | ovana Dučića br 25 A, Banja Luka, Bosnia and Herzegovina | GT1 15 Calle 1-04 Zona 10, Centrica Plaza, Torre I, Oficina 301, Guatemala, | Tennessee | | | Industria Cartonera Asturiana, S.A. I,ES12 | i 50% ownership interes | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | BR1 Avenida Paulista no. 807, conjunto 810, Bela Vista, Cidade de Sao Paulo, | | | 01010, Guatemala | | Corrugated Supply, LL | US4 | | | | | | | | | | | Ukraine | | 49.597% ownership interes | | | | | | | | | | | | Estado de Sao Paulo, CEP 01311-100, Brazil | HN1 Avenida La Paz, No. 2702, Tegucigalpa, M.D.C., PO Box 2735, Honduras | | Corrugated Supply, L.P. US4 | | Private Joint Stock Company “Rubizhanskiy | , UA2 | 40% ownership interes | | | | --- | --- | --- | --- | --- | --- | | | | | | BG1 Glavinitsa, 4400 Pazardzhik, Bulgaria | HU1 Váci út 1-3., “A” Tower, 6th floor, 1062 Budapest, Hungary | | DS Smith Creative Solutions Inc. US16 | Kartonno-Tarniy Kombinat” | | | | | l 39.58% ownership interes CA1 215-1673 Carling Avenue, Ottowa ON K2A 1C4, Canada HU2 Záhony u. 7, HU-1031 Budapest, Hungary DS Smith Holdings, Inc. US3 US m 30% ownership interest CL1 Santa Beatriz, 111. Of 1104. Providencia, Santiago de Chile, Chile IN1 -5/30, Basement, Behind Oriental Bank of Commerce, Paschim Vihar, New | DS Smith Management Resources, Inc. g,US3 | | | Philcorr LL | , US2 | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | CN1 Room 308, No. 1, Building , 1588, Shenchang Road, , Minhang District, | | | Delhi, 110063 , India | | DS Smith North America Recycling, LL | US3 | | PhilCorr Vineland LLC | , US2 | | | | | | | | | | | | Shanghai, China | IN2 G-56 Green Park (main), New Delhi – 110016, India | | | DS Smith North America Shared | | US3 | | | | | | | | | | | | | CN2 R919, 9/F, No. 1788 West Nan Jin Rd, Jing An District, Shanghai, | | ID1 Tempo Scan Tower Lantai 32, Jalan H.r. Rasuna Said Kav 3-4, Kel. Kuningan | | Services, LLC | | | | | | | 200040, China | | Timur, Kec.Setiabudi, Kota Adm. Jakarta Selatan, Prov. DKI Jakarta, Indonesia | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | DS Smith Packaging-Holly Springs, LL | | | | US18 | | | | | | | | | | | CO1 Carrera 12 89 33 Piso 6, Bogotá D.C., Colombia | | IR1 10 Ely Place, Dublin 2, D02 HR98, Ireland | | | DS Smith Packaging-Lebanon, LL | | | US17 | | | | | | | | | | | | HR1 Dravska ulica 19, Koprivnica (Grad Koprivnica), Croatia | | IR2 3 Dublin Landings, North Wall Quay, Dublin 1, DO1 C4E, Ireland | | | DS Smith Packaging-Stream, LL | | | US3 | | | | | | | | | | | | HR2 Vijenac Salamona Henricha Gutmanna 30, Belišće, Croatia | | IT1 Capannori (Lu) Via del Fanuccio, 126 Cap, 55014 Frazione Marlia, Italy | | | Evergreen Community Power, LL | | | US3 | | | | | | | | | | | | HR3 Lastovska ulica 5, Zagreb, Croatia | | IT2 Strada Lanzo 237, cap 10148, Torino (TO), Italy | | | Interstate Container Columbia, LL | | | US6 | | | | | | | | | | | | CZ1 Teplická 109, Martiněves, 405 02 Jílové , Czech Republic | | IT3 Via Torri Bianche, n. 24, 20871 Vimercate (MB), Italy | | | Interstate Container New Castle, LL | | | | US7 | | | | | | | | | | | CZ2 Zirovnicka 3124/1, Zabehlice, 106 00 Praha 10, Czech Republic | | P1 Nihonbashi 3 Chome Square 11F, 3-9-1 Nihonbashi, Chuo-ku, Tokyo, Japan | | | Interstate Container Reading, LL | | | US8 | | | | | | | | | | | | DK1 Åstrupvej 30, 8500 Grenaa, Denmar | | KZ1 Abay Ave. 52, 8 floor, 802-6 office “Innova Tower” BC, 050008, | | | Interstate Corrpac | , LL | US5 | | | | | | | | | | | | | EC1 Av. Republica de El Salvador N36-140, Edif. Mansion Blanca, Quito, | | | Almaty, Kazakhstan | Interstate Holding, Inc. US3 | | | | | | PBX:4007828, Ecuador | LV1 Hospitāļu iela 23-102, Rīga LV-1013, Latvia | | | --- | --- | --- | --- | --- | --- | --- | --- | | Interstate Mechanical Packaging, LL | | | US6 | | | | | | | | | | EG1 Nile City Towers, North Tower, 22nd Floor, Cornish EI Nil, Cairo, 11624, Egyp | | LT1 Savanoriu ave. 183, 02300 Vilnius, Lithuania | | | Interstate Paper, LL | US9 | | | | | | | | | | | | EE1 Pae 24, 11415 Tallinn, Estonia | | LU1 8-10 Avenue de la Gare, | -1610 Luxembourg | | Interstate Realty Hialeah, LL | | US3 | | | | | | | | | | | FI1 PL 426, 33101 Tampere, Finland | | MY1 Unit C-12-4, Level 12, Block C, Megan Avenue II, No. 12 Jalan Yap Kwan Seng, | | Interstate Resources, Inc. US3 FI2 Virranniementie 3, 70420 Kuopio, Finland 50450 Kuala Lumpur, Wilayah Persekutuan, Malaysia Interstate Southern Packaging, LL US10 FR1 11 route Industrielle, F-68320, Kunheim, France MX1 Avenida Prado Sur 140, Piso 01, Interior 1D Oficina 10, Colonia Lomas de Newport Timber, LLC US9 FR2 1 Terrasse Bellini, 92800, Puteaux, France Chapultepec IV Seccion, Alcaldia Miguel Hidalgo, Ciudad de Mexico, Codigo Phoenix Technology Holdings USA, Inc. US3 | | | | | FR3 345 Impasse de Saint-Alban Avenue de Croupillac, 30100 Ales, France | | Postal 11000, Mexico | | | --- | --- | --- | --- | --- | --- | --- | --- | | RB Lumber Company, LL | | | US9 | | | | | | | | | | FR4 ZAC de Kevoasdoue, 29270, Carhaix, France | MA1 Tanger, Zone Franche d’Exportation, ILot 11, Lot 5, Morocco | | | | RFC Container, LL | | US4 | | | | | | | | | | | FR5 6-8 Boulevard Monge, 69330, Meyzieu, Lyon, France | NL1 Bedrijvenpark Twente 90, N | | -7602 KD Almelo, Netherlands | | SouthCorr, | . . | . US11 | | | | | | | | | | | FR6 570 Rue Nationale Contoire Hamel, 80500 Trois- Rivieres, France | NL2 Coldenhovenseweg 130, 6961 EH, Eerbeek, Netherlands | | | St. George Timberland Holdings, Inc. US3 | | | FR7 350 Zone Artisanale des Trois Fontaines, 38140 Rives, France | N 3 Hermesweg 2, 3771 ND, Barneveld, Netherlands | | | --- | --- | --- | --- | --- | | TMS America, LL | US19 | | | | | | | FR8 550, Route de Bazouges, 49430 Durtal, France | N 4 Kanaalweg 8 A, 6961 LW, Eerbeek, Ne | herlands | | United Corrstac | , LLC US12 | | | | | | | FR9 146 Route de Lyon, 67640, Fegersheim, France | N 5 Wegastraat 2, 5015 BS, Tilburg, Netherlands | | Urugua FR10 Zone Industrielle, Voiveselles Croisette, 88800, B.P. 37, Vittel, France NI1 Car Building, 3rd Floor, Highway to Masaya, Managua, Nicaragua Kozery S.A. UY1 FR11 5 rue de la Deviniere, 45510 Tigy, France NG1 3, Ijora –Causeway, Ijora, Lagos, Nigeria FR12 Route de Marmagne, 18500, Mehun sur Yevre, France MK1 Str. 1632 no. 1, Skopje 1000, North Macedonia FR13 Zone Industrielle de Châteaubernard, 16100, Cognac, France PK1 668, Main Double Road, E-11/3, NPF Islamabad islamabad , Islamabad Capital FR14 Avenue Robert Franck, 73110, La Rochette, France Territory (I.C.T.), Pakistan FR15 Rue Desire Granet, 76800 St. Etienne du Rouvray, France PH1 24/F Philam Life Tower, 8767 Paseo de Roxas Avenue, Bel-Air, City of Makati, Fourth District, NCR, 1226, Philippines FR16 Zone Industrielle du Pré de la Barre, 38440, S - ean de Bournay, France PL1 Komitetu Obrony Robotników 45D, 02-146 Warsaw, Poland FR17 12 rue Gay Lussac ZI Dijon Chenove, 21300, Chenove, France FR18 Zone Industrielle de la Plaine, 88510 Eloyes, France FR19 la Fosse, 45720, Coullons, France FR20 77 Route de Lapoutroie, 68240, Kaysersberg, France Annual Report 2023 dssmith.com 193 A k y L C L C k C C k C C C C C C C C C C C C C C C C C A C s k k j L j k t t t t t t t J A J J L L L t L L k t t 192 Annual Report 2023 dssmith.com 193 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED 33. DS Smith Group companies continued 194 J Registered offices continued PT1 Águeda (Aveiro), Raso de Paredes 3754-209, Portugal PT2 Av. Jose Gregorio 114, 2430-275 Marinha Grande, Portugal PT3 Edificio Opcao Actual, Parque Industrial de Oliveirinha, 3430-414 Carregal do Sal, Portugal PT4 Rua Mestra Cecília do Simão, n.º 378 , 3885-593 Esmoriz, Ovar, Portugal PT5 Lugar do Espido, Via Norte, Distrito: Porto Concelho: Maia Freguesia: Cidade da Maia, 4470 177 MAIA, Portugal PT6 Alameda Fernão Lopes, nº 12, 6 B, Distrito: Lisboa Concelho: Oeiras Freguesia: Algés, Linda-a-Velha e Cruz Quebrada-Dafundo, 1495 – 190 Algés, Portug PT7 Rua do Monte Grande, n. o3,, 4485-255 Guilhabreu, Portugal PT8 Estrada 23 de Fevereiro, 372, 4905-261, Deocriste, Portugal PT9 Rua Pedro Jose Ferreira, 329/335, 4420-612, Gondomar, Portugal PT10 Lezirias, Sao Lourenco do Bairro, 3780 Anadia, Portugal PT11 Avenida da República, n.º 23, 1050-185 Lisboa, Portugal RO1 Oraş Ghimbav, Strada FĂGĂRAŞULUI, Nr. 6, Brasov County, Romania RO2 No. 18, 13 Decembrie Street, Zarnesti, Brasov County, Romania RO3 Calea Torontalului, DN6 kM. 7, Timisoara, Romania RU1 Building 2, Floor 7, Room 21 , Skakovaya st. 17, 125040, Moscow, Russian Federation RS1 Milorada ovanovića 14, Beograd, Serbia RS2 Kruševac, Balkanska 72, Serbia SK1 Námestie baníkov 8/31, 048 01 Roznava, Slovakia SK2 Robotnícka 1, Martin, 036 80, Slovakia SI1 Cesta prvih borcev 51, 8280 Brestanica, Slovenia ZA1 Central Office Park No 4, 257 Jean Avenue, Centurion, Gauteng, 0157, South Africa ES1 Polígono Industrial Areta nº 1, parcela 348, calle Altzutzate, nº 46, 31620 Huarte, Navarra, Spain ES2 Avenida el Norte de Castilla, 20, 47008 Valladolid (Valladolid), Spain ES3 Avd. Del Sol 13, Torrejón de Ardoz, 28850 – Madrid, Spain ES4 Carretera -62, Burgos a Portugal, 34210, Duenas (Palencia), Spain ES5 Carretera B.P. 2151 confluencia carretera C15, Sant Pere de Riudevitlles, 08776, Barcelona, Spain ES6 Poligono Industrial Heras, 239-242, 39792, Medio Cudeyo, Spain ES7 Carretera Nacional 331 (Carretera de Malaga), Km.66,28, 14900, Lucena (Cordoba), Spain ES8 Parque Industrial Juan Carlos I, C/ Canal Crespo, 13 Almussafes 46440 (Valencia), Spain ES9 Calle Pitagoras Numero 2., Polgono Industrial San Marcos, Getafe 28- Madrid, Spain ES10 Polígono Industrial A Tomada, parcela 28-33, A Pobra do Caramiñal , 15949 A Coruña, Spain ES11 Polígono Industrial O Pousadoiro 4, Parcela 1, 36617 Vilagarcía de Arousa, Pontevedra (Galicia), Spain ES12 Poligono Industrial San Claudio, 33191, Oviedo, Spain SE1 Box 504, 331 25 Varnamo, Sweden CH1 Industriestrasse 13, 4665 Oftringen, Switzerland TR1 Araptepe Selimpaşa Mah. 5007. Sk. No. 4 Silivri, Istanbul, Turkey TR2 Goztepe Merdivenkoy Mah. Bora Sk. No.1 Nida Kule Is Merkezi, Kat 7, Kadikoy, Istanbul, 34732, Turkey UA1 4-5 Floors, 25B,Sagaydachnogo str., Kiev, 04070, Ukraine UA2 145A, Borshchahivska Street, Kyiv, 03056, Ukraine AE1 Unit No: I5-PF-39, Detached Retail I5, Plot No: JLT-PH1-RET-I5, Jumeirah Lakes Towers, Dubai, United Arab Emirates US1 4328 Federal Drive, STE 105, Greensboro, NC 27410, United States US2 2317 Almond Road, Route 55 Industrial Park, Vineland, NJ 08360, United States US3 600 Peachtree Street , Suite 4200, Atlanta GA 30308, United States US4 2066 South East Avenue, Vineland, NJ 08360, United States US5 903 Woods Road, Cambridge, MD 21613, United States US6 128 Crews Drive, Columbia, SC 29210, United States US7 792 Commerce Avenue, New Castle, PA 16101, United States US8 100 Grace Street, Reading, PA 19611, United States US9 2366 Interstate Paper Road, Riceboro, GA 31323, United States US10 120 T Elmer ox Road Greeneville, TN 37743, United States US11 3021 Taylor Drive, Asheboro, NC 27203, United States US12 720 Laurel Street, Reading PA 19602, United States US13 6405 Commonwealth Drive SW, Roanoke, Virginia, 24018, United States US14 100 Development Ln., Winchester VA 22602, United States US15 128 Corrugated Ln, Piney Flats TN 37686, United States US16 70 Outwater Ln., Floor 4, Garfield, NJ 07026, United States US17 800 Edwards Drive, Lebanon IN 46052, United States US18 301 Thomas Mill Road, Holly Springs NC 27540, United States US19 2 Mid America Plaza, Suite 110, Oakbrook Terrace IL 60181, United States UY1 Plaza Independencia 811 PB, Montevideo, Uruguay 34. Subsequent events There are no other subsequent events after the reporting date which require disclosure. A C 194 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED ## PARENT COMPANY STATEMENT ## OF FINANCIAL POSITION At 30 April 2023 2023 2022 Note £m £m Assets Non-current assets Intangible assets 3 44 41 33. DS Smith Group companies continued Property, plant and equipmen and righ -of-use assets 4 27 7 Registered offices continued Investments in subsidiaries 5 4,645 4,625 PT1 Águeda (Aveiro), Raso de Paredes 3754-209, Portugal ES9 Calle Pitagoras Numero 2., Polgono Industrial San Marcos, Getafe 28- Deferred tax assets 10 9 – PT2 Av. Jose Gregorio 114, 2430-275 Marinha Grande, Portugal Madrid, Spain Other receivables 6 6,115 5,466 PT3 Edificio Opcao Actual, Parque Industrial de Oliveirinha, 3430-414 Carregal ES10 Polígono Industrial A Tomada, parcela 28-33, A Pobra do Caramiñal , Derivative financial instruments 12 154 483 do Sal, Portugal 15949 A Coruña, Spain Employee benefits 13 5 – PT4 Rua Mestra Cecília do Simão, n.º 378 , 3885-593 Esmoriz, Ovar, Portugal ES11 Polígono Industrial O Pousadoiro 4, Parcela 1, 36617 Vilagarcía de Arousa, PT5 Lugar do Espido, Via Norte, Distrito: Porto Concelho: Maia Freguesia: Pontevedra (Galicia), Spain Total non-current assets 10,999 10,622 Cidade da Maia, 4470 177 MAIA, Portugal ES12 Poligono Industrial San Claudio, 33191, Oviedo, Spain Current assets PT6 Alameda Fernão Lopes, nº 12, 6 B, Distrito: Lisboa Concelho: Oeiras SE1 Box 504, 331 25 Varnamo, Sweden Trade and other receivables 6 318 72 Freguesia: Algés, Linda-a-Velha e Cruz Quebrada-Dafundo, 1495 – 190 CH1 Industriestrasse 13, 4665 Oftringen, Switzerland Cash and cash equivalents 7 1 414 Algés, Portug TR1 Araptepe Selimpaşa Mah. 5007. Sk. No. 4 Silivri, Istanbul, Turkey Derivative financial instruments 12 156 316 PT7 Rua do Monte Grande, n. o3,, 4485-255 Guilhabreu, Portugal TR2 Goztepe Merdivenkoy Mah. Bora Sk. No.1 Nida Kule Is Merkezi, Kat 7, Total current assets 475 802 PT8 Estrada 23 de Fevereiro, 372, 4905-261, Deocriste, Portugal Kadikoy, Istanbul, 34732, Turkey PT9 Rua Pedro Jose Ferreira, 329/335, 4420-612, Gondomar, Portugal UA1 4-5 Floors, 25B,Sagaydachnogo str., Kiev, 04070, Ukraine Total assets 11,474 11,424 PT10 Lezirias, Sao Lourenco do Bairro, 3780 Anadia, Portugal UA2 145A, Borshchahivska Street, Kyiv, 03056, Ukraine Liabilities PT11 Avenida da República, n.º 23, 1050-185 Lisboa, Portugal AE1 Unit No: I5-PF-39, Detached Retail I5, Plot No: JLT-PH1-RET-I5, Non-current liabilities RO1 Oraş Ghimbav, Strada FĂGĂRAŞULUI, Nr. 6, Brasov County, Romania Jumeirah Lakes Towers, Dubai, United Arab Emirates Borrowings 9 (1,739) (1,389) RO2 No. 18, 13 Decembrie Street, Zarnesti, Brasov County, Romania US1 4328 Federal Drive, STE 105, Greensboro, NC 27410, United States Employee benefits 13 – (3) RO3 Calea Torontalului, DN6 kM. 7, Timisoara, Romania US2 2317 Almond Road, Route 55 Industrial Park, Vineland, NJ 08360, Deferred tax liabilities 10 – (133) RU1 Building 2, Floor 7, Room 21 , Skakovaya st. 17, 125040, Moscow, United States Other payables 8 (21) (26) | | Russian Federation | | US3 600 Peachtree Street , Suite 4200, Atlanta GA 30308, United States | | | --- | --- | --- | --- | --- | | RS1 Milorada | | ovanovića 14, Beograd, Serbia | US4 2066 South East Avenue, Vineland, NJ 08360, United States | Lease liabilities 11 (12) (3) | | RS2 Kruševac, Balkanska 72, Serbia | | | US5 903 Woods Road, Cambridge, MD 21613, United States | Provisions (3) (1) | | SK1 Námestie baníkov 8/31, 048 01 Roznava, Slovakia | | | US6 128 Crews Drive, Columbia, SC 29210, United States | Derivative financial instruments 12 (49) (28) | | SK2 Robotnícka 1, Martin, 036 80, Slovakia | | | US7 792 Commerce Avenue, New Castle, PA 16101, United States | | Total non-current liabilities (1,824) (1,583) SI1 Cesta prvih borcev 51, 8280 Brestanica, Slovenia US8 100 Grace Street, Reading, PA 19611, United States Current liabilities ZA1 Central Office Park No 4, 257 Jean Avenue, Centurion, Gauteng, US9 2366 Interstate Paper Road, Riceboro, GA 31323, United States Borrowings 9 (80) (687) 0157, South Africa US10 120 T Elmer ox Road Greeneville, TN 37743, United States Trade and other payables 8 (5,499) (4,584) ES1 Polígono Industrial Areta nº 1, parcela 348, calle Altzutzate, nº 46, 31620 US11 3021 Taylor Drive, Asheboro, NC 27203, United States Huarte, Navarra, Spain Income tax liabilities (2) (1) US12 720 Laurel Street, Reading PA 19602, United States ES2 Avenida el Norte de Castilla, 20, 47008 Valladolid (Valladolid), Spain US13 6405 Commonwealth Drive SW, Roanoke, Virginia, 24018, United States Lease liabilities 11 (2) (1) ES3 Avd. Del Sol 13, Torrejón de Ardoz, 28850 – Madrid, Spain US14 100 Development Ln., Winchester VA 22602, United States Derivative financial instruments 12 (319) (57) ES4 Carretera -62, Burgos a Portugal, 34210, Duenas (Palencia), Spain US15 128 Corrugated Ln, Piney Flats TN 37686, United States Total current liabilities (5,902) (5,330) ES5 Carretera B.P. 2151 confluencia carretera C15, Sant Pere de Riudevitlles, US16 70 Outwater Ln., Floor 4, Garfield, NJ 07026, United States Total liabilities (7,726) (6,913) 08776, Barcelona, Spain US17 800 Edwards Drive, Lebanon IN 46052, United States Net assets 3,748 4,511 ES6 Poligono Industrial Heras, 239-242, 39792, Medio Cudeyo, Spain US18 301 Thomas Mill Road, Holly Springs NC 27540, United States ES7 Carretera Nacional 331 (Carretera de Malaga), Km.66,28, 14900, Lucena US19 2 Mid America Plaza, Suite 110, Oakbrook Terrace IL 60181, United States Equity (Cordoba), Spain UY1 Plaza Independencia 811 PB, Montevideo, Uruguay ES8 Parque Industrial Juan Carlos I, C/ Canal Crespo, 13 Almussafes 46440 Issued capital 14 138 137 (Valencia), Spain Share premium accoun 14 2,251 2,248 Reserves 14 1,359 2,126 34. Subsequent events Shareholders’ equity 3,748 4,511 There are no other subsequent events after the reporting date which require disclosure. The Company made a profit for the year of £17m (2021/22: profit of £16m including the recognition of intra-group dividends). Approved by the Board of Directors of DS Smith Plc (company registered number 1377658) on 22 June 2023 and signed on its behalf by: M W Roberts A R T Marsh Director Director The accompanying notes are an integral part of these financial statements. Annual Report 2023 dssmith.com 195 J A C t t t 194 Annual Report 2023 dssmith.com 195 # PARENT COMPANY STATEMENT OF CHANGES IN EQUITY At 30 April 2023 | | Share capital £m | Share premium £m | Hedging reserve £m | Own shares £m | Margin value/ reserve £m | Retained earnings £m | Total equity £m | | --- | --- | --- | --- | --- | --- | --- | --- | | At 1 May 2021 | 137 | 2,241 | 53 | (3) | 32 | 1,638 | 4,098 | | Profit for the year | - | - | - | - | - | - | 10 | | Actuarial gain on employee benefits | - | - | - | - | - | 20 | 20 | | Cash flow hedges fair value changes | - | - | 1,070 | - | - | - | 1,070 | | Reclassification from cash flow hedge reserve to income statement | - | - | (357) | - | - | - | (357) | | Income tax on other comprehensive income | - | - | (163) | - | - | (3) | (566) | | Total comprehensive income | - | - | 550 | - | - | 33 | 583 | | Issue of share capital | - | 7 | - | - | - | - | 7 | | Employee share trust | - | - | - | (6) | - | (15) | (21) | | Share-based payment expense (net of tax) | - | - | - | - | - | 10 | 10 | | Dividend paid | - | - | - | - | - | (166) | (166) | | Other changes in equity in the year | - | 7 | - | (6) | - | (171) | (170) | | At 30 April 2022 | 137 | 2,248 | 603 | (9) | 32 | 1,500 | 4,511 | | Profit for the year | - | - | - | - | - | - | 17 | | Actuarial loss on employee benefits | - | - | - | - | - | (1) | (1) | | Cash flow hedges fair value changes | - | - | (72) | - | - | - | (72) | | Reclassification from cash flow hedge reserve to income statement | - | - | (573) | - | - | - | (573) | | Income tax on other comprehensive income | - | - | 146 | - | - | - | 146 | | Total comprehensive (expense)/ income | - | - | (499) | - | - | 16 | (483) | | Issue of share capital | 1 | 3 | - | - | - | - | 4 | | Employee share trust | - | - | - | (5) | - | (3) | (8) | | Share-based payment expense (net of tax) | - | - | - | - | - | 13 | 13 | | Dividends paid | - | - | - | - | - | (289) | (289) | | Other changes in equity in the year | 1 | 3 | - | (5) | - | (279) | (280) | | At 30 April 2023 | 138 | 2,251 | 104 | (14) | 32 | 1,237 | 3,748 | 16 17 196 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT ## NOTES TO THE PARENT COMPANY ## FINANCIAL STATEMENTS ## PARENT COMPANY STATEMENT OF 1. Principal accounting policies (b) Foreign currencies ## CHANGES IN EQUITY The Company’s financial statements are presented in sterling, which (a) Basis of preparation At 30 April 2023 is the Company’s functional currency and presentation currency. These financial statements of DS Smith Plc (the ‘Company’) have Monetary assets and liabilities denominated in foreign currencies been prepared on the going concern basis and in accordance with | | | | | | Merger | | | | | are translated into sterling at the rates of exchange at the date of | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Share | | Share | Hedging | Own | relief | Retained | Total | Financial Reporting Standard 101 | Reduced Disclosure Framework | | | capital | premium | | reserve | shares | reserve | earnings | equity | | | the transaction, and retranslated at the rate of exchange ruling at | (FRS 101) and the UK Companies Act. £m £m £m £m £m £m £m the balance sheet date. Exchange differences arising on translation At 1 May 2021 137 2,241 53 (3) 32 1,638 4,098 The accounts are prepared under the historical cost convention with are taken to the income statement. Profit for the yea ––––– 1616 the exception of certain financial instruments and employee benefit (c) Intangible assets Actuarial gain on employee benefits – – – – – 20 20 plans that are stated at their fair value and share-based payments that are stated at their grant date fair value. Intangible assets are stated at cost less accumulated amortisation Cash flow hedges fair value changes – – 1,070 – – – 1,070 and impairment losses. Amortisation is charged to the income Reclassification from cash flow hedge Under section 408 of the Companies Act 2006 the Company is statement on a straight-line basis over the estimated useful lives reserve to income statement – – (357) – – – (357) exempt from the requirement to present its own income statement of each item, which range between three and five years. Income tax on other comprehensive income – – (163) – – (3) (166) or statement of comprehensive income. Total comprehensive income – – 550 – – 33 583 (d) Property, plant and equipment In these financial statements, the Company has applied the Issue of share capital – 7 – – – – 7 exemptions available under FRS 101 in respect of the Property, plant and equipment is stated at cost less accumulated Employee share trus – – – (6) – (15) (21) following disclosures: depreciation and impairment losses. Depreciation is charged to the Share-based payment expense (net of tax) – – – – – 10 10 income statement on a straight-line basis over the estimated useful • statement of cash flows and related notes; lives of each item of property, plant and equipment. Estimated Dividend paid – – – – – (166) (166) • a comparative period reconciliation for share capital; useful lives of plant and equipment are between two and 30 years, Other changes in equity in the year – 7 – (6) – (171) (170) • disclosures in respect of transactions with wholly-owned and for leasehold improvements are over the period of the lease. At 30 April 2022 137 2,248 603 (9) 32 1,500 4,511 subsidiaries; Profit for the yea ––––– 1717 (e) Leases • comparative period reconciliations for tangible fixed assets and Actuarial loss on employee benefits – – – – – (1) (1) The Company recognises a right-of-use asset and a lease liability at intangible assets; Cash flow hedges fair value changes – – (72) – – – (72) the lease commencement date. • disclosures in respect of capital management; Reclassification from cash flow hedge reserve to The right-of-use asset is initially measured at cost, being the initial income statement – – (573) – – – (573) • the effects of new but not yet effective IFRSs; and amount of the lease liability adjusted for any lease payments made Income tax on other comprehensive income – – 146 – – – 146 • disclosures in respect of Key Management Personnel. at or before commencement date, plus any initial direct costs Total comprehensive (expense)/ income – – (499) – – 16 (483) incurred and an estimate of end of lease dismantling or restoration As the Group financial statements include the equivalent Issue of share capital 1 3 – – – – 4 costs, less any incentives received and related provisions. disclosures, the Company has also taken advantage of the Employee share trus – – – (5) – (3) (8) exemptions under FRS 101 available in respect of the Lease liabilities are recorded at the present value of lease payments. Share-based payment expense (net of tax) – – – – – 13 13 following disclosures: The interest rate implicit in the lease is used to discount lease Dividends paid – – – – – (289) (289) • IAS 24 Related Party Disclosure in respect of transactions entered payments, or, if that rate cannot be determined, the Group’s Other changes in equity in the year 1 3 – (5) – (279) (280) with wholly-owned subsidiaries; incremental borrowing rate is used, being the rate that the Group At 30 April 2023 138 2,251 104 (14) 32 1,237 3,748 would have to pay to borrow the funds necessary to obtain an asset • IFRS 2 Share - based Payment in respect of Group settled of similar value in a similar economic environment with similar terms share-based payments; and and conditions. • IFRS 13 Fair Value Measurement and the disclosures required by Right-of-use assets are depreciated on a straight-line basis over the IFRS 7 Financial Instruments. lease term, or the useful life if shorter. The Company adopted the following new accounting standards, Interest is recognised on the lease liability, resulting in a higher amendments or interpretations as of 1 May 2022: finance cost in the earlier years of the lease term. • Property, Plant and Equipment: Proceeds before Intended Use Lease payments relating to low value assets or to short-term leases (Amendments to IAS 16); are recognised as an expense on a straight-line basis over the lease • Reference to the Conceptual Framework (Amendments to IFRS 3); term. Short-term leases are those with 12 months or less duration. • Onerous Contracts – Cost of Fulfilling a Contract (Amendments to When the Company enters into a back-to-back lease arrangement IAS 37); and on behalf of a subsidiary, corresponding lease receivables • Annual Improvements to IFRS Standards 2018-2020. are recognised. The adoption of the standards, interpretations and amendments has not had a material effect on the results for the year. The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these financial statements. Annual Report 2023 dssmith.com 197 r r t t 196 Annual Report 2023 dssmith.com 197 NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS CONTINUED 1. Principal accounting policies continued At each reporting date, the Company revises its estimate of the number of options that are expected to become exercisable. (f) Investments in subsidiaries It recognises the impact of the revision of original estimates, if any, Investments in subsidiaries are valued at cost less provisions in the income statement, and a corresponding adjustment to equity. for impairment. Where applicable, the fair value of employee services received by subsidiary undertakings within the DS Smith Plc Group in exchange Impairment testing is performed annually for investment in for options granted by the Company is recognised as an expense in subsidiaries by comparing the carrying amount of each investment the financial statements of the subsidiary by means of a recharge with the relevant subsidiary’s consolidated balance sheet. Where the from the Company. net assets are lower than the investment value, a discounted cash flow is utilised to calculate the present value of the investment to (i) Shares held by employee share trust confirm whether any impairment is required. The cost of shares held in the employee share trust is deducted (g) Deferred taxation from equity. All differences between the purchase price of the shares held to satisfy options granted and the proceeds received Deferred tax is provided for using the balance sheet liability method, for the shares, whether on exercise or lapse, are charged providing for temporary differences between the carrying amounts to retained earnings. of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred (j) Financial instruments tax provided is based on the expected manner of realisation or The Company uses derivative financial instruments, primarily settlement of the carrying amount of assets and liabilities, using currency and commodity swaps, to manage interest rate, currency tax rates enacted or substantively enacted at the reporting date. and commodity risks associated with the Group’s underlying A deferred tax asset is recognised only to the extent that it is business activities and the financing of these activities. The Group probable that future taxable profits will be available against which has a policy not to, and does not, undertake any speculative activity the asset can be utilised. Deferred tax assets are reduced to the in these instruments. Such derivative financial instruments are extent that it is no longer probable that the related tax benefit initially recognised at fair value on the date on which a derivative will be realised. contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as assets when the fair value is positive (h) Employee benefits and as liabilities when the fair value is negative. (i) Defined benefit schemes Derivative financial instruments are accounted for as hedges when The Company is the sponsoring employer for a UK funded, designated as hedges at the inception of the contract and when the defined benefit scheme, the DS Smith Group Pension scheme financial instruments provide an effective hedge of the underlying (the ‘Group Scheme’). risk. Any gains or losses arising from the hedging instruments are offset against the hedged items. The Group has in place a stated policy for allocating the net defined benefit cost relating to the Group Scheme to participating For the purpose of hedge accounting, hedges are classified as cash Group entities. flow hedges due to hedging exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised Accordingly, both the Company’s statement of financial position asset or liability or a highly probable forecast transaction. and income statement reflect the Company’s share of the net defined benefit liability and net defined benefit cost in respect of (k) Dividend income the Group scheme, allocated per the stated policy. Actuarial gains Dividend income from subsidiary undertakings is recognised in the and losses are recognised immediately in the statement of income statement when paid. comprehensive income. (l) Accounting judgements and key sources of (ii) Share-based payment transactions estimation uncertainty The Company operates an equity-settled, share-based compensation plan. The fair value of the employee services received Employee benefits in exchange for the grant of the options is recognised as an expense. IAS 19 Employee Benefits requires the Company to make The fair value of the options granted is measured using a stochastic assumptions including, but not limited to, rates of inflation, model, taking into account the terms and conditions upon which the discount rates and life expectancies. The use of different options were granted. The total amount to be expensed over the assumptions, in any of the above calculations, could have a material vesting period is determined by reference to the fair value of the effect on the accounting values of the relevant statement of options granted, excluding the impact of any non-market vesting financial position assets and liabilities which could also result in a conditions. Non-market vesting conditions are included in change to the cost of such liabilities as recognised in profit or loss assumptions about the number of options that are expected to over time. These assumptions are subject to periodic review. become exercisable. See note 25 of the Group’s accounts for additional information. 198 198 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS CONTINUED 2. Employee information The average number of employees employed by the Company during the year was 381 (2021/22: 344). | | | | 2023 | 2022 | | --- | --- | --- | --- | --- | | | | | £m | £m | | 1. Principal accounting policies continued | At each reporting date, the Company revises its estimate of | Wages and salaries 42 36 | | | | | the number of options that are expected to become exercisable. | Social security costs 5 4 | | | (f) Investments in subsidiaries It recognises the impact of the revision of original estimates, if any, Pension costs 2 2 Investments in subsidiaries are valued at cost less provisions in the income statement, and a corresponding adjustment to equity. Total 49 42 for impairment. Where applicable, the fair value of employee services received by subsidiary undertakings within the DS Smith Plc Group in exchange Note 26 to the consolidated financial statements sets out the disclosure information required for the Company’s share-based payments. Impairment testing is performed annually for investment in for options granted by the Company is recognised as an expense in subsidiaries by comparing the carrying amount of each investment 3. Intangible assets the financial statements of the subsidiary by means of a recharge with the relevant subsidiary’s consolidated balance sheet. Where the Under from the Company. net assets are lower than the investment value, a discounted cash Software Other Carbon credits construction Total £m £m £m £m £m flow is utilised to calculate the present value of the investment to (i) Shares held by employee share trust Cost confirm whether any impairment is required. The cost of shares held in the employee share trust is deducted At 1 May 2022 75 9 14 8 106 (g) Deferred taxation from equity. All differences between the purchase price of the Additions – 1 2 11 14 shares held to satisfy options granted and the proceeds received Deferred tax is provided for using the balance sheet liability method, Reclassifications 7 – – (7) – for the shares, whether on exercise or lapse, are charged providing for temporary differences between the carrying amounts Reclassification – – – (1) (1) to retained earnings. of assets and liabilities for financial reporting purposes and the Foreign exchange – – 1 – 1 amounts used for taxation purposes. The amount of deferred (j) Financial instruments At 30 April 2023 82 10 17 11 120 tax provided is based on the expected manner of realisation or The Company uses derivative financial instruments, primarily settlement of the carrying amount of assets and liabilities, using Amortisation currency and commodity swaps, to manage interest rate, currency tax rates enacted or substantively enacted at the reporting date. At 1 May 2022 (65) – – – (65) and commodity risks associated with the Group’s underlying A deferred tax asset is recognised only to the extent that it is business activities and the financing of these activities. The Group Amortisation charge (8) (3) – – (11) probable that future taxable profits will be available against which has a policy not to, and does not, undertake any speculative activity At 30 April 2023 (73) (3) – – (76) the asset can be utilised. Deferred tax assets are reduced to the in these instruments. Such derivative financial instruments are Carrying amount extent that it is no longer probable that the related tax benefit initially recognised at fair value on the date on which a derivative At 1 May 2022 10 9 14 8 41 will be realised. contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as assets when the fair value is positive At 30 April 2023 9 7 17 11 44 (h) Employee benefits and as liabilities when the fair value is negative. 4. Property, plant and equipment and right-of-use assets (i) Defined benefit schemes Derivative financial instruments are accounted for as hedges when Total The Company is the sponsoring employer for a UK funded, designated as hedges at the inception of the contract and when the Leasehold Property, Right-of-use improvement Plant and Under plant and defined benefit scheme, the DS Smith Group Pension scheme financial instruments provide an effective hedge of the underlying assets s equipment construction equipment (the ‘Group Scheme’). risk. Any gains or losses arising from the hedging instruments are £m £m £m £m £m offset against the hedged items. Cost The Group has in place a stated policy for allocating the net At 1 May 2022 6 3 3 1 13 defined benefit cost relating to the Group Scheme to participating For the purpose of hedge accounting, hedges are classified as cash Group entities. Additions 11 6 3 2 22 flow hedges due to hedging exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised Disposals (2) (3) (2) – (7) Accordingly, both the Company’s statement of financial position asset or liability or a highly probable forecast transaction. Reclassification – – – 1 1 and income statement reflect the Company’s share of the net At 30 April 2023 15 6 4 4 29 defined benefit liability and net defined benefit cost in respect of (k) Dividend income the Group scheme, allocated per the stated policy. Actuarial gains Dividend income from subsidiary undertakings is recognised in the and losses are recognised immediately in the statement of Depreciation income statement when paid. comprehensive income. At 1 May 2022 (2) (2) (2) – (6) (l) Accounting judgements and key sources of Disposals 2 2 1 – 5 (ii) Share-based payment transactions estimation uncertainty Depreciation charge (1) – – – (1) The Company operates an equity-settled, share-based At 30 April 2023 (1) – (1) – (2) compensation plan. The fair value of the employee services received Employee benefits in exchange for the grant of the options is recognised as an expense. IAS 19 Employee Benefits requires the Company to make The fair value of the options granted is measured using a stochastic Carrying amount assumptions including, but not limited to, rates of inflation, model, taking into account the terms and conditions upon which the At 1 May 2022 4 1 1 1 7 discount rates and life expectancies. The use of different options were granted. The total amount to be expensed over the assumptions, in any of the above calculations, could have a material At 30 April 2023 14 6 3 4 27 vesting period is determined by reference to the fair value of the effect on the accounting values of the relevant statement of Right-of-use assets relate to land and buildings. options granted, excluding the impact of any non-market vesting financial position assets and liabilities which could also result in a conditions. Non-market vesting conditions are included in change to the cost of such liabilities as recognised in profit or loss assumptions about the number of options that are expected to over time. These assumptions are subject to periodic review. become exercisable. See note 25 of the Group’s accounts for additional information. Annual Report 2023 dssmith.com 199 198 Annual Report 2023 dssmith.com 199 NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS CONTINUED 5. Investments in subsidiaries Shares in Group undertakings £m At 1 May 2022 4,625 Additions 20 At 30 April 2023 4,645 The Company’s principal trading subsidiary undertakings at 30 April 2023 are shown in note 33 to the consolidated financial statements. 6. Trade and other receivables 2023 2022 Non- Non- current Current current Current £m £m £m £m Amounts owed by subsidiary undertakings 6,115 300 5,466 44 Other receivables – 1 –9 Prepayments and accrued income – 17 – 19 6,115 318 5,466 72 When measuring the potential impairment of receivables from subsidiary undertakings, forward looking information based on assumptions for the future movement of different economic drivers are considered. 7. Cash and cash equivalents 2023 2022 £m £m Bank balances 1 67 Shor -term deposits – 347 1 414 8. Trade and other payables 2023 2022 Non- Non- current Current current Current £m £m £m £m Trade payables – 32 – 10 Amounts owed to subsidiary undertakings 21 5,411 26 4,490 Other tax and social security payables – 12 – 11 Non-trade payables, accruals and deferred income – 44 – 73 21 5,499 26 4,584 Non-current amounts owed to subsidiaries are subject to interest at rates based on EURIBOR or where applicable, forward looking base rates and are repayable between 2024 and 2026. 200 t 200 FINANCIAL STATEMENTSGOVERNANCESTRATEGIC REPORT NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS CONTINUED 9. Borrowings 2023 2022 | | | | | Non- | | | Non- | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | current | Current | | current | Current | | | | | | | £m | | £m | £m | | £m | | 5. Investments in subsidiaries | | Bank loans and overdrafts – 72 – 47 | | | | | | | | | | Shares in Group | Medium-term notes and other fixed-term deb | 1,739 8 1,389 640 | | | | | | | undertakings £m 1,739 80 1,389 687 At 1 May 2022 4,625 Disclosures in respect of the Group’s borrowings are provided in note 20 to the consolidated financial statements. Additions 20 10. Deferred tax assets and liabilities At 30 April 2023 4,645 Analysis of movements in recognised deferred tax assets and liabilities during the year The Company’s principal trading subsidiary undertakings at 30 April 2023 are shown in note 33 to the consolidated financial statements. Property, plant and 6. Trade and other receivables equipment and Employee benefits Tax Derivative financial intangible assets including pensions losses instruments Total 2023 2022 | | | | | | | | | | | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Non- | | | Non- | | | | | | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | | | current | Current | | current | Current | | | | | | | | | | | | | | | | | £m | | £m | £m | | £m | At beginning of the yea | 10 6 7 12 24 23 (174) (11) (133) 30 | | | | | | | | | | | | | Amounts owed by subsidiary undertakings 6,115 300 5,466 44 | | | | | | | Credit/(charge) for the yea | | 3 4 (1) (2) (5) 1 – – (3) 3 | | | | | | | | | | | | Other receivables – 1 –9 | | | | | | | Recognised directly in equit | | – – (1) (3) – – 146 (163) 145 (166) | | | | | | | | | | | | Prepayments and accrued income – 17 – 19 | | | | | | | At end of the year 13 10 5 7 19 24 (28) (174) 9 (133) | | | | | | | | | | | | | 6,115 318 5,466 72 11. Lease liabilities When measuring the potential impairment of receivables from subsidiary undertakings, forward looking information based on assumptions The carrying amounts of lease liabilities and the movements during the year are as follows: for the future movement of different economic drivers are considered. 2023 2022 £m £m 7. Cash and cash equivalents Cost | | | 2023 | 2022 | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | £m | £m | At be | | innin | of the | | ea | 4 5 | | Bank balances 1 67 | | | | Additions 11 – | | | | | | | | Shor | -term deposits – 347 | | | Accretion of interes | | | | | 1 – | | | 1 414 | | | | Pa | ments (2) (1) | | | | | | | | | | | At end of the | | | | ear 14 4 | | | 8. Trade and other payables 2023 2022 Current 2 1 Non- Non- Non-current 12 3 current Current current Current £m £m £m £m 14 4 Trade payables – 32 – 10 Maturity of lease liabilities Amounts owed to subsidiary undertakings 21 5,411 26 4,490 | | 1 year | | 1–2 | 2–5 | More than | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Other tax and social security payables – 12 – 11 | or less | | years | years | | 5 years | | Total | | | | £m | £m | £m | | | £m | £m | Non-trade payables, accruals and deferred income – 44 – 73 At 30 April 2022 (1) (1) (1) (1) (4) 21 5,499 26 4,584 At 30 April 2023 (2) (2) (5) (5) (14) Non-current amounts owed to subsidiaries are subject to interest at rates based on EURIBOR or where applicable, forward looking base rates and are repayable between 2024 and 2026. Annual Report 2023 dssmith.com 201 t g y g t y y t r r r y 200 Annual Report 2023 dssmith.com 201 NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS CONTINUED ## 12. Derivative financial instruments The assets and liabilities of the Company at 30 April in respect of derivative financial instruments are as follows: | | Assets | | Liabilities | | Net | | | --- | --- | --- | --- | --- | --- | --- | | | 2023 £m | 2022 £m | 2023 £m | 2022 £m | 2023 £m | 2022 £m | | Derivatives held to: | | | | | | | | Manage the currency exposures on business activities, borrowings and net investments | - | 12 | - | - | - | 12 | | Derivative financial instruments included in net debt | - | 12 | - | - | - | 12 | | Derivatives held to hedge future transactions: | | | | | | | | Forward foreign exchange contracts | - | 1 | - | - | - | 1 | | Energy and carbon certificate costs | 310 | 786 | (368) | (85) | (58) | 701 | | **Total derivative financial instruments** | **310** | **799** | **(368)** | **(85)** | **(58)** | **714** | | Current | 156 | 316 | (319) | (57) | (163) | 299 | | Non-current | 154 | 483 | (49) | (28) | 105 | 455 | | | **310** | **799** | **(368)** | **(85)** | **(58)** | **714** | Disclosures in respect of the Group's derivative financial instruments are provided in note 21 to the consolidated financial statements. ## 13. Employee benefits The Company participates in all of the Group's UK pension schemes. The accounting valuation is consistent with the Group valuation, as described in note 25 to the consolidated financial statements, where full disclosures relating to these schemes are given. | | 2023 £m | 2022 £m | | --- | --- | --- | | Present value of funded obligations | (767) | (1,050) | | Present value of unfunded obligations | (5) | (6) | | Fair value of scheme assets | 791 | 1,057 | | Total IAS 19 surplus, net | 19 | 1 | | Allocated to other participating employers | (14) | (4) | | **Company's share of IAS 19 surplus/(deficit), net** | **5** | **(3)** | ## 14. Share capital and reserves Details of the Company's share capital and merger relief reserve are provided in note 24 to the consolidated financial statements. Movements in shareholders' equity are shown in the parent Company statement of changes in equity. The closing merger relief reserve of £32m relates to the shares issued in consideration to the sellers of EcoPack/EcoPaper. The reserve for the Company's own shares comprises the cost of the Company's shares held by the Group. The Group operates a General Employee Benefit Trust, which acquires shares in the Company that can be used to satisfy the requirements of the Performance Share Plan. At 30 April 2023, the Trust held 4.2m shares (30 April 2022: 2.4m shares). The market value of the shares at 30 April 2023 was £130m (30 April 2022: £73m). Dividends receivable on the shares owned by the Trust have been waived. As at 30 April 2023, the Company had distributable reserves of £1,229m (30 April 2022: £1,491m). 202 STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS ### 15. Contingent liabilities Where the Company enters into financial guarantee contracts to guarantee the indebtedness of other companies within the Group, the Company considers these to be insurance arrangements and accounts for them as such. In this respect, the Company treats the guarantee contract as a contingent liability until such time as it becomes probable that the Company will be required to make a payment under the guarantee. At 30 April 2023, these guarantees amounted to £4.9m (30 April 2022: £5.5m). ### 16. Related party disclosure The Company has identified the Directors of the Company, its key management personnel and the UK pension scheme as related parties. Details of the relevant relationships with these related parties are disclosed in the Remuneration Committee report, and note 31 to the consolidated financial statements respectively. ### 17. Auditor's remuneration Auditor's remuneration in respect of the Company is detailed in note 3 to the consolidated financial statements. Annual Report 2023 dssmith.com 203 # FIVE-YEAR FINANCIAL SUMMARY Unaudited | Continuing operations | 2019 Q1 | 2020 Q1 | 2021 Q1 | 2022 Q1 | 2023 Est. | | --- | --- | --- | --- | --- | --- | | **Revenue** | 6,171 | 6,043 | 5,976 | 7,241 | **8,221** | | **Operating profit^{1}** | 631 | 660 | 502 | 616 | **861** | | Amortisation | (114) | (143) | (142) | (138) | **(113)** | | Share of profit of equity-accounted investments before adjusting items, net of tax | 9 | 7 | 5 | 7 | **2** | | Net financing costs before adjusting items | (71) | (87) | (78) | (70) | **(74)** | | **Profit before taxation and adjusting items** | 455 | 437 | 287 | 415 | **676** | | Acquisitions and divestments | (32) | (4) | (5) | 2 | **(15)** | | Other adjusting items | (73) | (65) | (51) | (39) | - | | **Profit before income tax** | 350 | 360 | 231 | 378 | **661** | | **Adjusted earnings per share^{2}** | 33.3p | 33.2p | 24.2p | 30.7p | **43.0p** | | **Dividends per share** | 16.2p | n/a | 12.1p | 15.0p | **18.0p** | | Return on sales^{3} | 10.2% | 10.9% | 8.4% | 8.5% | **10.5%** | | Adjusted return on average capital employed^{2,3} | 13.6% | 10.6% | 8.2% | 10.8% | **14.3%** | 1. Before amortisation and adjusting items 2. Adjusted return on average capital employed is defined as operating profit before amortisation and adjusting items divided by average capital employed. 3. Average capital employed is the average monthly capital employed for the last 12 months. Capital employed is made up of property, plant and equipment, right-of-use assets, goodwill and intangible assets, working capital, capital debtors/creditors, provisions, biological assets and assets liabilities held for sale. Assets and liabilities relating to discontinued operations are included. The definition of capital employed is different from the definition of managed capital as defined in note 21. In the consolidated financial statements, which consists of equity as presented in the consolidated statement of financial position, plus net debt. 204 ## SHAREHOLDER INFORMATION | Financial diary | Registered office and advisers | | | --- | --- | --- | | 5 September 2023 Annual General Meeting | Secretary and | Stockbroker | | | Registered Office | Citigroup | 7 December 2023* Announcement of half-year results for the six months ended 31 October 2023 Iain Simm Citigroup Centre DS Smith Plc | 20 June 2024* Announcement of full-year results for | | | 33 Canada Square | | --- | --- | --- | --- | | | the year ended 30 April 2024 | Level 3, 1 Paddington Square | Canary Wharf | | | | London W2 1DL | London E14 5LB | * Provisional date Registered in England J.P. Morgan Cazenove Company No: 01377658 Company website 25 Bank Street Auditor Canary Wharf The Company’s website at www.dssmith.com contains the latest information for shareholders, including press releases and an Ernst & Young London E14 5JP updated financial diary. Email alerts of the latest news, press 1 More London Place Registrar releases and financial reports about the Company may be London SE1 2AF Equiniti obtained by registering for the email news alert service on the website. Solicitor Aspect House Slaughter and May Spencer Road Share price information Lancing The latest price of the Company’s ordinary shares is available One Bunhill Row West Sussex BN99 6DA on www.londonstockexchange.com. DS Smith’s ticker symbol London EC1Y 8YY is SMDS. It is recommended that you consult your financial Other information adviser and verify information obtained before making any investment decision. Information on how to manage your shareholdings can be found at https://help.shareview.co.uk. The pages at this web address Registrar provide answers to commonly asked questions regarding Please contact the Registrar at the above right address to advise shareholder registration, links to downloadable forms and of a change of address or for any enquiries relating to dividend guidance notes. If your question is not answered by the payments, lost share certificates or other share registration information provided, you can send your enquiry via secure email matters. The Registrar provides online facilities at www. from these pages. You will be asked to complete a structured shareview.co.uk. Once you have registered you will be able to form and to provide your shareholder reference, name and access information on your DS Smith Plc shareholding, update address. You will also need to provide your email address if this is your personal details and amend your dividend payment how you would like to receive your response. instructions online without having to call or write to the Registrar. Alternatively, you can telephone +44 (0)371 384 2197. Lines are Dividends open between 8.30am and 5.30pm, UK time, Monday to Friday. Shareholders who wish to have their dividends paid directly into a For call charges, please check with your provider as costs bank or building society account should contact the Registrar. In may vary. addition, the Registrar is now able to pay dividends to over 90 This report contains certain forward-looking statements with different countries. This service enables the payment of your respect to the operations, performance and financial condition of dividends directly into your bank account in your home currency. the Group. By their nature, these statements involve uncertainty For international payments, a charge is deducted from each since future events and circumstances can cause results and dividend payment to cover the costs involved. Please contact the developments to differ materially from those anticipated. The Registrar to request further information. forward-looking statements reflect knowledge and information available at the date of preparation of this report and DS Smith Plc Share dealing services undertakes no obligation to update these forward-looking The Registrar offers a real-time telephone and internet dealing statements. Nothing contained in this report should be construed service for the UK. Further details including terms and rates can as a profit forecast. be obtained by logging on to the website at www.shareview.co. Pages 1 to 120 consist of a Strategic Report and Directors’ Report uk/dealing or by calling 0345 603 7037. Lines are open between (including the Directors’ Remuneration Report) that have been 8am and 4.30pm, UK time, Monday to Friday. drawn up and presented in accordance with and in reliance upon applicable English company law. The liability of the Directors in connection with such reports shall be subject to the limitation and restrictions provided by, and shall be no greater than is required by, applicable English company law. DS Smith Plc Level 3 1 Paddington Square London W2 1DL Telephone +44 (0) 20 7756 1800 Registered in England. Printed in the UK by Principal Colour Ltd Company number: 01377658 onRevive 100% recycled offset and Revive100% recycled silk. Keep in touch Both manufactured at a mill certified to bothISO 14001 and FSC® accredited. @dssmithgroup Principal Colour Ltd are certified to the @dssmith.group ISO14001 Environmental Management DS Smith Systemand FSC® accredited. DS Smith Consultancy and design by Black Sun Global www.blacksun-global.com @dssmithgroup +44 (0) 20 7736 0011