For the six month period, DS Smith revenue grew to £4,299 million, up 26 percent on a constant currency basis and 28 per cent on a reported basis with a small decline in box volumes (£64 million) more than offset by higher selling prices (£950 million) across the Group.
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£655 million of this increase was due to higher packaging prices with the remainder of £295 million due to increases in price of external sales of paper, recycling material and energy.
These increases reflect the lag in recovery of the significant increases in input costs during 2021 and 2022.
Overall pricing more than offset reduced external paper volumes sold as we utilised more of DS Smith own manufactured paper.
Input costs were significantly impacted by inflationary price rises, supply chain issues and general availability which led to an increase in costs of £779 million versus the comparable period with rises in raw materials costs of £370 million, energy costs of £158 million and other costs, including labour and distribution, of £251 million.
DS Smith excellent procurement and risk management function ensured that DS Smith production was unaffected, with the impact of rising energy costs being mitigated by DS Smith three-year rolling energy hedging programme and a price benefit on external electricity sales.
Group return on sales grew during the year to 9.7 per cent (2021/22: 8.2 per cent), reflecting the increase in profitability and despite the dilutive impact of the inflationary environment.
We expect to be within the target range of 10–12 per cent by the year end.
Basic earnings per share from continuing operations grew 71 per cent on a constant currency basis to 16.9 pence.
Adjusted basic earnings grew by 49 per cent on a constant currency basis to 20.9 pence per share, reflecting the growth in profitability.
Return on average capital employed significantly increased by 400 bps to 13.2 per cent, principally reflecting the growth in adjusted operating profit for the prior 12 months, and well within DS Smith medium-term target range of 12-15 per cent.
The Group’s strong performance supports DS Smith confidence in continuing to meet this medium-term target.
Cash generation remains strong, with £494 million of free cash flow8 compared to £188 million in the comparative period, principally driven by the enhanced profitability and a working capital inflow.
The working capital inflow of £138 million benefitted from £197 million in respect of margin calls made in both this year and last year to manage DS Smith energy hedging position.
These margin calls will reverse in part in the second half of the year.
The underlying working capital outflow was reflective of higher sales prices and inventory costs.
DS Smith net debt has reduced to £1,147 million at 31 October 2022 from £1,484 million at 30 April 2022 and the net debt/EBITDA ratio has significantly improved to 1.0 times from 1.6 times at 30 April 2022, within DS Smith medium-term target of at or below 2.0 times. ■