22 June 2023
DS SMITH PLC – 2022/23 FULL-YEAR RESULTS
EXCELLENT PERFORMANCE IN CHALLENGING MARKETS
| 12 months to 30 April 2023Continuing operations | Change(reported) | Change(constant currency) | |
| Revenue | £8,221m | +14% | +11% |
| Adjusted operating profit(1) | £861m | +40% | +35% |
| Profit before tax | £661m | +75% | +71% |
| Adjusted basic EPS(1) | 43.0p | +40% | +34% |
| Statutory basic EPS | 35.8p | +75% | +71% |
| Dividend per share | 18.0p | +20% | NA |
| Return on sales (RoS)(2) | 10.5% | +200bps | +190bps |
| ROACE(3) | 14.3% | +350bps | +350bps |
See notes to financial table below
· Excellent adjusted operating profit growth of 35% driven by improved product “added value” and effective cost mitigation more than offsetting volume declines and a more challenging inflationary environment
· Strengthening customer relationships driving record customer ratings and contract wins
· Good free cash flow of £354m(8) reducing leverage to 1.3x net debt/EBITDA (2021/22: 1.6x)
· Continued momentum in plastic replacement with 762 million units of plastic replaced since 2020 and 297 million in 2022/23
· Further improvements in sustainability metrics and ESG ratings
· Continued investment in innovation, capacity, efficiency and environmental projects
· Current trading in line with our expectations
Miles Roberts, Group Chief Executive, commented:
“The performance of the business during the year has been excellent, despite the challenging economic environment and I am extremely proud of all our colleagues for their dedication and support. We have had an unremitting focus on meeting our customers’ rapidly changing needs with new innovation. This, together with high levels of service and our sustainability performance, has been rewarded through market share gains during the period.
Our operational, environmental and financial performances have all been strong through the year. Our service levels have remained very high, supporting our customers through our robust and flexible supply chain. We have made excellent progress in reducing the environmental impact of our business, and also helped customers replace c.300 million pieces of plastic with fibre-based alternatives during the year. Our cost and risk management, together with price increases to reflect multi-year cost inflation, have more than offset reduced volumes during the year and delivered the excellent growth in profit and returns.
While economic conditions have continued to be volatile and box volumes have remained lower than normal, trading for the year to date is in line with our expectations. Our strong customer relationships in the resilient FMCG sector, together with the investments we are making to drive cost efficiencies and growth, give us confidence for the future.”
Enquiries
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Investors
Hugo Fisher, Group Investor Relations Director
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Media
Greg Dawson, Corporate Affairs Director
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Simon Sporborg
Dan Roberts
There will be a webcast audio presentation today at 9:00am BST with the slides of the full-year results, followed by a live Q&A, given by Miles Roberts, Group Chief Executive, Adrian Marsh, Group Finance Director and Richard Pike, Group Finance Director Designate.
To access the webcast, please register here. A copy of the slides presented will also be available on the Group’s website, https://www.dssmith.com/investors/results-and-presentations shortly before the start of the presentation.
If you would like to ask a question at the end of the webcast, then you will need to dial into the associated conference call using the following details. Please dial in 15 minutes before the start of the webcast to allow for registration.
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An audio file will also be available on https://www.dssmith.com/investors/results-and-presentations
Operating Review
Deep customer relationships and cost mitigation driving profit growth
The macro-economic 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(4). The medium-term target for box volume growth of GDP+1% was 3% 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 with the more resilient fast moving consumer goods (FMCG) and other consumer related sectors, now representing 84 per cent of our volumes.
For the twelve 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 materials 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 have been mitigated by our 3 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% – 12% 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 percent.
Cashflow and net debt
During the year, the Group generated free cash flow(8) of £354 million (2021/22: £519 million), reflecting strong profits partly offset by a working capital outflow and increased capital expenditure spend. Cash conversion(7,8), as defined in our financial KPIs (note 14), 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 our 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 £526 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. Our net debt/EBITDA(6) 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.
Investing for growth
Over the last decade the Group has grown strongly through organic and inorganic growth as we have built a comprehensive platform of geographic coverage and capability to support our customers in our chosen markets. The structural drivers for growth in corrugated packaging remain more relevant than ever and support our long-term strategy of fully fibre-based solutions for a predominantly FMCG customer base. The consistent progress with our customers, as evidenced by record customer rating metrics and continued market share gains, gives us the confidence to invest further to support customers, drive growth and deliver attractive returns.
Our capital expenditure for 2023/24 is expected to be around £500 million. In addition to maintenance and health and safety focussed expenditure, this will be allocated across three main areas: investing in new product and service innovation including helping our customers drive their sustainability agendas; investing in our capacity and capability in both our packaging operations and aligning our paper capability to our customer needs; and investing to drive environmental and operational efficiency. We continue to invest to achieve our Science Based Targets initiative approved CO2 reduction target of 46 per cent from 2019 to 2030 and our commitment to achieving net zero carbon emissions by 2050.
Leading the way in sustainability
Sustainability has been at the heart of our business for many years as we have developed and grown into a solely fibre-based corrugated packaging business. Our customers value the investment we make in sustainable solutions and our approach to design using our leading circular design metrics. We work diligently with them to address their sustainability challenges and have replaced 762 million of their units of plastic since 2020 and 297 million in 2022/23.
As well as supporting our customers’ sustainability challenges we also continue to make good progress in delivering against our own sustainability targets. We have reduced our CO2 emissions by 10 per cent in the year (15 per cent compared to 2019), achieved a 4 per cent reduction in water abstraction within paper mills in areas at risk of water stress, achieved our target of 100 per cent reusable or recyclable packaging and launched biodiversity programmes at each of our mills.
We are delighted our progress has been recognised with further improvements in our rating by a number of external indices including S&P Global and Sustainalytics and through our continuing high ratings at CDP, MSCI and EcoVadis.
Dividend
The Board considers the dividend to be an extremely important component of shareholder returns. Today, we are announcing a final dividend of 12.0p per share, taking the total dividend for this year to 18.0 pence per share, an increase of 20 per cent and consistent with our policy of 2.0-2.5 times dividend cover over the medium-term.
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.
Progress against medium-term targets
| Medium-term targetsContinuing operations | Delivery in 2022/23 |
| Organic volume growth(4) ≥GDP(5)+1%, being 3% | (5.8%) |
| Return on sales(2) 10% – 12% | 10.5% |
| ROACE(3) 12% – 15% | 14.3% |
| Net debt / EBITDA(6) ≤2.0x | 1.3x |
| Cash conversion(7,8) ≥100% | 101% |
See notes to the financial tables above
Our medium-term targets and key performance indicators
We measure our performance according to both our financial and non-financial medium-term targets and key performance indicators. Our financial key performance indicators and medium-term targets have been discussed above.
Non-financial key performance indicators
DS Smith is committed to providing all employees with a safe and productive working environment. We are pleased, once again, to report improvements in our safety record, with our accident frequency rate (defined as the number of lost time accidents per million hours worked) reducing by a further 6 per cent to 1.8, reflecting our ongoing commitment to best practice in health and safety. We are proud that 265 out of a total of 325 reporting sites achieved our target of zero accidents this year and we continue to strive for zero accidents for the Group as a whole.
In the year we achieved a good performance in our customer service measure of OTIF (on time, in full deliveries) at 96 per cent, a significant improvement on the prior year (94%). Management remains fully committed to our target of 97% on-time, in-full 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.
Outlook
While economic conditions have continued to be volatile and box volumes have remained lower than normal, trading for the year to date is in line with our expectations. Our strong customer relationships in the resilient FMCG sector, together with the investments we are making to drive cost efficiencies and growth, give us confidence for the future.
Operating Review
Northern Europe
| Year ended 30 April 2023 | Year ended 30 April 2022 | Change – reported | Change – constant currency | |
| Revenue | £3,132m | £2,790m | 12% | 11% |
| Adjusted operating profit* | £212m | £139m | 53% | 51% |
| Return on sales(2) | 6.8% | 5.0% | 180bps | 180bps |
*Operating profit before amortisation and adjusting items (refer to note 3 of the financial statements)
In Northern Europe, organic corrugated box volumes across the region declined more than the Group average due to weaker overall economic conditions and very strong growth in the comparative period. Germany experienced higher levels of decline due to a larger market exposure to the industrial sector with the UK market impacted by a decline in the e-commerce sector following particularly strong growth over a number of years. Revenues increased by 11 per cent in the region due to a combination of the increases in box prices in packaging and an increase in sales prices for externally sold paper and volumes of 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.
Southern Europe
| Year ended 30 April 2023 | Year ended 30 April 2022 | Change – reported | Change – constant currency | |
| Revenue | £3,150m | £2,736m | 15% | 12% |
| Adjusted operating profit* | £501m | £324m | 55% | 51% |
| Return on sales(2) | 15.9% | 11.8% | 410bps | 400bps |
* Operating profit before amortisation and adjusting items (refer to note 3 of the financial statements)
Southern Europe saw a lower decline in box volumes than the Group average, reflecting a positive market share performance partially mitigating the overall economic conditions, with France weaker than Iberia and Italy reflecting weakness in overall household consumption.
Revenues grew by 12 per cent, due to the impact of increases in both packaging and paper pricing. Adjusted operating profit grew by over 50 per cent compared to the prior period, due to a very positive performance from the former Europac business acquired in 2019 as well as the drop-through of price increases in packaging. Accordingly, return on sales for the region grew to the highest within the Group.
Eastern Europe
| Year ended 30 April 2023 | Year ended 30 April 2022 | Change – reported | Change – constant currency | |
| Revenue | £1,275m | £1,118m | 14% | 14% |
| Adjusted operating profit* | £76m | £73m | 4% | 4% |
| Return on sales(2) | 6.0% | 6.5% | (50bps) | (50bps) |
* Operating profit before amortisation and adjusting items (refer to note 3 of the financial statements)
Organic corrugated box volumes in Eastern Europe declined less than the Group average, reflecting the relatively consistent performance of the region over the last few years. Turkey saw the largest decline due to the impact of the recent earthquake.
Revenues grew 14 per cent, principally reflecting increases in packaging and paper pricing and adjusted operating profit grew 4 per cent, reflecting the recovery of higher paper prices offset by cost inflation and costs of £19 million related to the decision to close our Trakia paper mill in Bulgaria.
North America
Year ended 30 April 2023Year ended 30 April 2022Change – reportedChange -constant currencyRevenue£664m£597m11%(2%)Adjusted operating profit*£72m£80m(10%)(21%)Return on sales(2)10.8%13.4%(260bps)(270bps)*Operating profit before amortisation and adjusting items (refer to note 3 of the financial statements) |
Packaging volumes in the region declined more than the Group average, reflecting the overall economic environment and labour shortages particularly in the first half, which temporarily restricted our production capacity at certain sites.
Revenues decreased 2 per cent with increased packaging prices offset by the decline in volumes and reduced pricing from external paper volumes sold in the export market. Adjusted operating profit reduced due to export paper price declines in the second half and inflationary increases in costs.
Financial Review
Overview
2022/23 has seen the Group respond with strength to significant market and macro-economic 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.
Reporting of non-GAAP measures alongside statutory measures is considered useful by investors to understand how management evaluates performance and value creation, enabling them to track the Group’s performance and the key business drivers which underpin it and the basis on which to anticipate future prospects.
Note 14 explains further the use of non-GAAP performance measures and provides reconciliations as appropriate to information derived directly from the financial statements. Where a non-GAAP measure is referred to in the review, the equivalent measure stemming directly from the financial statements (if available and appropriate) is also referred to.
Trading results
Revenue increased by 14 per cent on a reported basis to £8,221 million (2021/22: £7,241 million). Packaging price rises across the year, reflecting cost inflation, coupled with higher selling prices of paper and recyclate in the first half of the year increased revenue by £1,196 million, offsetting volume reduction effects of £398 million.
Reported revenues are subject to foreign currency translation effects. In the year, the euro accounted for 60 per cent of Group revenue. As such, the movements of the euro against sterling during the year constituted the majority of the £182 million of positive foreign exchange translation impact. On a constant currency basis, revenues increased by 11 per cent.
Corrugated box volumes reduced by 5.8 per cent (2021/22: 5.4 per cent growth) driven by a significant destocking in the supply chain reflecting the economic uncertainty and sentiment in the Group’s core markets and segments. The prior year volumes were particularly high (8.4 billion m2 of box sales) reflecting significant supply chain filling across all European markets as countries moved out of Covid restrictions. The average of the previous 2 years’ volumes of (8.2 billion m2 of box sales) represents a more normalised single year.
Adjusted operating profit of £861 million on a reported basis is an increase of 40 per cent (2021/22: £616 million). This is largely attributable to price rises (£1,196 million) exceeding the impact of volume reduction of £99 million and input cost increases of £872 million. Constant currency growth was 35 per cent as foreign exchange translation benefited adjusted operating profit by £20 million. The price rises in the year also reflect the full-year effect of price rises put into effect in 2021/22 to recover the significant cost increases experienced in the second half of that year.
Operating profit at £733 million, is an increase of 61 per cent on a constant currency basis and 65 per cent on a reported basis (2021/22: £443 million), as lower amortisation and adjusting items added to the adjusted operating profit improvement.
On a reported basis, depreciation increased to £312 million (2021/22: £290 million) reflective of investment in new packaging production capacity in Italy and Poland. Amortisation decreased to £113 million (2021/22: £138 million) as intangibles arising on earlier acquisitions completed their amortisation term.
The key measure of return on average capital employed improved by 350 basis points to 14.3 per cent (2021/22: 10.8 per cent). This performance is at the upper end of the Group’s medium-term target of 12 to 15 per cent and builds on the momentum seen in the second half of the prior year.
The Group has continued to focus on margin recovery through commercial excellence, ongoing cost management and efficiency programmes. Adjusted return on sales increased by 200 basis points to 10.5 per cent (2021/22: 8.5 per cent), within the medium-term target of 10 to 12 per cent.
| Income statement – from continuing operations (unless otherwise stated) | 2022/23£m | 2021/22 £m |
| Revenue | 8,221 | 7,241 |
| Adjusted operating profit1 | 861 | 616 |
| Operating profit | 733 | 443 |
| Adjusted return on sales1 | 10.5% | 8.5% |
| Adjusted net financing costs1 | (74) | (70) |
| Share of profit of equity-accounted investments, net of tax | 2 | 7 |
| Profit before income tax | 661 | 378 |
| Adjusted profit before income tax1 | 789 | 553 |
| Adjusted income tax expense1 | (197) | (131) |
| Adjusted earnings1 | 592 | 422 |
| Profit from discontinued operations, net of tax | 11 | – |
| Adjusted basic earnings per share1 | 43.0p | 30.7p |
| Profit for the year attributable to owners of the parent (including discontinued operations) | 502 | 280 |
| Basic earnings per share from continuing and discontinued operations | 36.6p | 20.4p |
| Basic earnings per share from continuing operations | 35.8p | 20.4p |
1. Adjusted to exclude amortisation and adjusting items (see note 7).
Adjusting items
Adjusting items before tax and financing costs were £15 million (2021/22: £35 million) which relates to the pending acquisition of the final 10 per cent of the shares in Interstate Resources LLC. This is due to the crystallisation of the put option for the final 10 per cent stake during the financial year. In relation to this, costs of hedging the dollar payment of the liability have been incurred which will continue until the payment is made.
There have been no new adjusting items from continuing operations in the financial year, in line with guidance.
Settlement of certain costs and obligations arising from the disposal of the Plastics division in 2021 resulted in a gain in adjusting items in profit from discontinued operations of £11 million.
Adjusting items in 2023/24 are expected to be £nil.
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.
Cash outflows associated with adjusting items increased by £1 million to £14 million as programmes which commenced in previous years concluded and minimal cash outflows are anticipated in 2023/24.
Prior year disposal proceeds of £35 million related to the sale of the de Hoop mill.
Cash generated from operations before adjusting cash items was flat at £1,092 million. Net cash inflow was £49 million, a £284 million decrease on the prior year. This reflects the effect of working capital outflows in the current year, increased net capital expenditure and tax payments and includes the impact of bringing forward of the date of settlement of the interim dividend.
| Cash flow | 2022/23 £m | 2021/22 £m |
| Cash generated from operations before adjusting cash items | 1,092 | 1,092 |
| Capital expenditure (net of disposal of fixed assets) | (526) | (415) |
| Tax paid | (136) | (96) |
| Net interest paid | (76) | (62) |
| Free cash flow | 354 | 519 |
| Cash outflow for adjusting items | (14) | (13) |
| Dividends | (289) | (166) |
| Acquisitions and disposals of businesses, net of cash and cash equivalents | (-) | 12 |
| Other | (2) | (19) |
| Net cash flow | 49 | 333 |
| Issue of share capital | 4 | 7 |
| Loans, borrowings and finance leases divested | – | 1 |
| Foreign exchange, fair value and other movements | (205) | (30) |
| Net debt movement – continuing operations | (152) | 311 |
| Net debt movement – discontinued operations | – | – |
| Opening net debt | (1,484) | (1,795) |
| Closing net debt | (1,636) | (1,484) |
Statement of financial position
At 30 April 2023, shareholder funds decreased to £4,084 million, from £4,232 million in the prior year. Profit attributable to shareholders of £502 million (2021/22: £280 million), together with an actuarial gain on employee benefits of £11 million (2021/22: £68 million gain) and foreign currency translation gain of £194 million (2021/22: loss of £40 million), was offset by a net reduction in the cash flow hedge reserve of £645 million (2021/22: £712 million gain) driven by the significant reduction in the underlying value of our commodity hedge positions as energy prices fell. Dividends paid in the year were £289 million (2021/22: £166 million).
Equity attributable to non-controlling interests was £3 million (2021/22: £2 million).
The Group’s banking covenants stipulate the methodology upon which the net debt to adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) ratio is to be calculated. The effects of IFRS 16 Leases, adopted since 1 May 2019, are excluded by the banks from the ratio’s determination. The ratio has reduced to 1.3 times, with an increase in adjusted EBITDA and a reduction in adjusted net debt. This represents an improvement from the previous year-end position of 1.6 times. The ratio remains compliant with the covenant requirements, which across all banking debt is 3.75 times. As the payment associated with the exercise of the second tranche of the Interstate Resources put option is still outstanding at 30 April 2023, this has not been factored in to the calculated ratio. If the payment was included, the ratio would increase to circa 1.4 times. The Group’s publicly traded euro and sterling bonds are not subject to any financial covenants. The bonds are, however, subject to a coupon step up of 125 basis points for any period the Group falls below an investment grade credit rating.
The covenant calculations also exclude income statement items identified as adjusting by the Group and any interest arising from the defined benefit pension schemes. At 30 April 2023, the Group has substantial headroom under its covenants, with the future outlook assessed as part of the annual going concern review. The Group’s investment grade credit rating from Standard & Poor’s remains stable at investment grade, which takes into account all the items excluded from covenant calculations and working capital.
| Statement of financial position | 30 April 2023£m | 30 April 2022£m |
| Intangible assets | 2,927 | 2,906 |
| Property, plant and equipment | 3,529 | 3,128 |
| Right-of-use assets | 224 | 199 |
| Inventories | 619 | 703 |
| Trade and other receivables | 1,257 | 1,229 |
| Cash and cash equivalents | 472 | 819 |
| Derivative financial instruments | 319 | 811 |
| Employee benefits | 24 | – |
| Other | 86 | 91 |
| Total assets | 9,457 | 9,886 |
| Bank overdrafts | (104) | (73) |
| Borrowings | (1,816) | (2,072) |
| Trade and other payables | (2,287) | (2,540) |
| Provisions | (65) | (55) |
| Employee benefits | (79) | (86) |
| Lease liabilities | (224) | (203) |
| Derivative financial instruments | (368) | (84) |
| Other | (427) | (539) |
| Total liabilities | (5,370) | (5,652) |
| Net assets | 4,087 | 4,234 |
| Net debt | 1,636 | 1,484 |
| Net debt to EBITDA ratio | 1.3x | 1.6x |