DS Smith Plc

Thank you, Miles and good morning, everyone. I'll take you through the financial results for the half year.

Unless otherwise stated, I'm referring to the results on a constant currency basis; this period has been by any measure and exceptional one, given the global economic situation driven by the COVID-19 pandemic which has, of course, impacted our business, particularly in quarter one where most countries in Europe were in lockdown. Revenue is down 10% and operating profit is down 35%.

I'll take you through bridges [ph] for these key line items in a moment. Margin for the half is 8% but even within the half, it's been very much a game of two halves; with quarter one particularly impacted by the challenges during peak COVID where supply chains were heavily disruptive for our customers, which was reflected in the volume of boxes we sold to them.

We also had the spiking of OCC costs, weak paper prices, and the largest element of our COVID specific costs as we ensured all of our factories remained open, and our colleagues remain safe. And quarter two, where locked downs were lifted; supply chains refilled, OCC cost normalized, paper prices strengthened and our volumes more than recovered with margins returning to around 9.5% in the quarter.

Earnings per share shows the flow through of profit, return on capital performance at 8.7% which was around our cost of capital is clearly below our target range due to the substantial dent in profitability, which on a rolling 12 month basis will also have an impact on the full year ratio. We have a very clear plan based on the returns coming through from our investments made, particularly North America, and the economic environment progressively improving which will see us returning steadily back to our target range over the next 24 months.

I genuinely did not expect to see the combination of events which happened and impacted our first quarter, repeating again. Having now navigated through the extremely volatile and uncertain conditions we faced in May and June, we have confirmed again our dividend policy of 2x to 2.5x cover on an annual basis, and announced an interim dividend of fourpence, which should equate to around 1/3 of our total dividend for the year.

This will be paid on the usual payment date in May. Turning to revenue; this declined £21 million in relation to corrugated box volumes of minus 1% with a further negative balance and other volume, principally from increased integration in paper and recycling and lower sheet volumes.

This increased integration meant we can see more of our own paper internally and sold less than the open market, we likewise bought and sold less paper for recycling or OCC on the open market. The majority of the reduction from sales price and mix is from the fall in packaging prices, as the impact of lower paper prices from previous periods rose through into downward pressure on box pricing.

Overall, the decline in box prices is less than might have been expected given the scale of the paper reduction seen in the past two years. And we're satisfied with our ability to manage box prices and the added value which we've been able to deliver to our customers.

Over the remaining six months of the financial year they'll be the tail-end of these price reductions rolling through although the recent paper price rises seen in Europe and the U.S. will undoubtedly now stabilize box prices and provide an underpin against further price erosion and put inflationary pressure on box prices towards the end of this financial year and into next year.

Turning to EBITDA, we can see that Europac has continued to deliver against the acquisition case, with synergies coming through as we expected. The decline in volume seen in the revenue bridge comes through with the usual drop-through effect into profit.

As mentioned earlier, the volume decline is very much a quarter one event for us, with quarter two seeing us return to positive growth, and with October showing corrugated box volume growth of around 3%, and now nearly 6% in November. The sales price and mix effect drops through in full, principally relating to box pricing as I described a moment ago.

The partial counterbalance of that has been the cost of paper as an input cost which flows into the £55 million favorable variance in the cost bar along with some other smaller items. Also within this cost bar are the additional direct and indirect costs associated with keeping all of our factories open and our people safe during the COVID-19 pandemic, which we estimate to be around 2/3 of the £30 million guidance I gave at the year-end results presentation.

The greatest impact of this occurred in quarter one, and whilst that's still being impacting the second half of this year, it will be significantly less than the first half. As I noted earlier, whilst margin is lower than the comparable period and to the last full year, the two quarters have been materially different.

Quarter one took the full impact of lower volumes, higher COVID specific costs, higher OCC and lower paper prices, maintaining the deflationary pressure on box prices. Quarter two margins, however, are around 9.5% as volumes recovered, OCC pricing normalized, and rising paper prices started to reverse the deflationary pressure on box prices, and COVID specific costs were lower than the previous quarter.

There was also negative mix effect on margin as our customers largely suspended promotional activity in quarter one which impacted both, conventional box and point-of-sale and display businesses. We also had an impact from reduced volumes and higher margin industrial categories.

These trends are now reversing as industrial activity picks up and promotional activity and retailers return to more normal levels. Our North American business has coped very well with the significant disruptive effects of COVID in that region, and the businesses performed better than the second half of last year, and following the recent paper price rise will improve profitability further in the second half of this year, which will also continue to benefit from the ramp up of our Indiana Greenfield, which is still on course to be profitable in half two.

We have as you'd expect being laser focused on cash management in this financial period, with tight control of working capital and discretionary spend including CapEx. As a result, our free cash flow has increased despite the fall in EBITDA as set out earlier, which is a tribute to the efforts of everyone in the company.

At the same time, as I've previously described, our sales of receivables has remained broadly flat in constant currency terms from the balance of the year end. To confirm, again, this is set at the level we target to remain at with facilities under which we operate this factoring facility committed for three years.

So the target is between £400 million and £500 million. Overall, I'm pleased with our focus on cash and the improvements we've made over the last couple of years.

Whilst not at the end of the journey, I did not expect further material improvements other than those which will be a factor of our short paper position, which benefits working capital when paper prices rise, and as a headwind, when paper prices fall. Moving to cash flow; the main inflow was free cash flow, the £88 million in the acquisition line relates to the interstate resources put, i.e., the 20% stake that remained in the buyers hands back in 2017.

We've now bought back half of that with the bulk of the proceeds paid in quarter one, as set out from the chart. After other items, the majority of which is FX [ph], our net debt has again fallen.

Our gearing now sits at 2.37x calculated according to our banking covenants, which as a reminder exclude the effects of IFRS 16. This is substantially under our covenant of 3.75x, and with a strong balance sheet with substantial long-term liquidity, with no further meaningful redemptions until 2023 and £1.4 billion of our bank facilities are undrawn.

At the start of the pandemic, we arranged for CCF facility of £300 million which has remained undrawn throughout the crisis. We expect a similar leverage ratio at the full year with more material deleveraging going forward through ongoing cash flow and their cover of EBITDA.

I've often been asked by investors, how we would perform in a recession given the business is materially different now than in the global financial crisis of 2007? Feels to me that the last six months has given us tangible evidence, and whilst our leverage has increased slightly, I feel we've managed well and can look forward with confidence in the robustness of our business model.

As I described at the beginning, I welcome the resumption of dividends in line with our existing policy of dividends per share cover of 2x to 2.5x on an annual basis. These are the usual items that you've come to expect; of notes, you'll see that CapEx is now expected to be around £330 million, still a reduction on the prior year of £360 million behind than we initially indicated.

This is due to the confidence we have in the recovery of the business and the opportunity to invest behind growth areas, which Miles will talk more about later. I'd add that I expect the new investments to be paid for by recycling capital from non-core disposals and our deleveraging trajectory to continue.

The other line items are largely unchanged but reflect our best estimate on both, absolute amounts and currency impacts. I'd now like to hand back to Miles

Thank you, Adrian for taking us through the financial results. We're well positioned for future growth.

I'm going to take you through how the repositioning over many years has created such a strong platform. Our differentiated offer is a solely fiber based offer, we don't have plastics in our business; our agility, our responsiveness, and how we work responsibly as well, how all of this leads into future growth for the company.

The repositioning of our group over many years has created a strong platform, comprehensive coverage for our FMCG and our e-commerce customers, they're now representing about 84% of the group, the highest it's ever been, and it continues to grow as a portion of our business. And we're solely focused on fiber-based solutions, I'll talk more about that later.

How COVID has accelerated many of the trends that that we've been behind for many years. And again, I'll come back and elaborate on that further, along with our U.S.

business that's really attracting those large multinational customers, providing growth for our U.S. business.

But underpinning this, now the Europac acquisition we made nearly two years ago, that's given us great extensive capabilities into Iberia and France, and we're really starting to see the benefit of that. And of course, as always, you're seeing [indiscernible]; the platform we've created still has a lot of opportunity to improve operational and balance sheet efficiency.

But just turning to the first of those, our coverage and customer focus has allowed us to outperform the market in this six month period. We declined 1%, the market was down 3.3%.

During that period, our FMCG, e-commerce portfolio grew consistently. We saw market share gains with our big customers, our last customers grew at over 8%; and as I said, we had a number of significant new contract wins with those customers, as they move to us based on our sustainability agenda, our innovation agenda, but also that security of supply, that outstanding service that we've provided them was rewarded with increased volumes.

But during this period, our industrial sector was down, it was in decline; but we've seen that coming back as well, and we expect that to be back in growth in 2021, giving us even more confidence for future growth from our extensive coverage that we have. And COVID has fast-tracked a number of the exciting trends that we've been behind for many years; not only about sustainability and security of supply, but into e-commerce as well, we can all see that ourselves.

Traditional stores are accelerating their online offering, as well as online-only has grown significantly, we've been a major part of that. And it is a structural change in the proportion of goods sold on the internet.

When the pandemic ends, we expect the proportion of goods sold on e-commerce to remain structurally ahead of where it was prior to the pandemic, and we have a lot of evidence for that. And we're pleased with the performance of our U.S.

business. There is still weakness in the export markets, the price of paper, but we've seen a strong recovery of our business in Q2 based on the performance of the Indiana plant.

With those strong customer wins we expect the plant to be 40% full by the end of this financial year, getting a positive profit contribution in H2, and of course, it progressively reduces our long paper position. But let's not also forget we've had some price rises in the U.S.

that will further boost the profitability of the U.S. business.

Turning to our differentiation; the two key parts I want to talk about here; first, on e-commerce, and second, on sustainability. While on e-commerce, as you know, we're the leading supplier in the e-commerce field, right across Europe, not only for the e-tailers but also for customers wishing to move from traditional bricks-and-mortar into an e-commerce supply.

We established e-packets, our online offering that anybody can access, you can buy one box, 10 box, 50 boxes, 10,000 boxes; we'll print, we'll customize it as you want. We've launched that in the UK in 2019, it's got off to a great start, it's growth this year has been phenomenal.

We expect to be nearly 700% growth this year, it's being so successful, many customers have asked us to put it on the continent as well; we're now rolling it out across the continent with real customer support, backed with the DS Smith levels of service and product quality. But our differentiation in sustainability; as I've said already, we're an entirely fiber-based business.

It's not just a question of how you make your product, it's the question of the product you make. And we believe in focusing on fiber with a closed loop, looking at the circular economy, designing and sustainability into the product in the first case, and then recycling it, is the strongest model for our customers, but also the communities in which we work.

We've set out a new sustainability strategy that builds on the success of our previous strategies; there's been a huge consultation process across many countries with NGOs, governments, customers, communities, heavily supported by the Ellen MacArthur Foundation. And this moves us from looking at sustainability as being sort of a risk management into a real opportunity.

In the highlighting our ability to work on this circular economy we've set out here, five key targets for us. By 2023 this is the industry-leading standard, 100% of our product will be the reuse or will be even recyclable packaging; we're just under 99% at the moment, so we're nearly there.

But our aim is to move ahead of that such that by 2030 all of our packaging will actually be recycled or reused. Our customers are really excited about this.

By 2025, how we can take a billion pieces of problem plastic off supermarket shelves, but of course, it's about education as well, it's not enough just for us to do this; we have to spread this message. So engage 100% of our people in understanding of the circular economy, then going out and educating over 5 million young people on the circular economy and circular lifestyles; how we have to live in the future.

And of course, it's about driving carbon reduction; by 2030, based on a 2015 baseline, we aim to reduce our carbon emissions by at least 30% per ton. We're actually trending quite a quite a good way ahead of that, we're actually training just under 3% per annum improvement; so that puts us really well on target to achieve that.

So it's not just about having a policy, it's about the actions; and in the first six months we've taken over 22 million pieces of problem plastic out of the community, whether it's replacing plastic punnets for grapes with corrugated punnets, or all those plastics display units that you see in supermarket refrigerators for yogurts and cheese, and processed meats, replacing all of those with corrugated. We're very pleased with that, but of course, we've got a target of taking a billion units off -- out of society and we will get there.

To meet our customers growing demands and accelerate innovation, we do partner and jointly develop new products with other companies, bringing in new ideas to our business, such as climasell [ph], a temperature-control packaging for things like meal kits that are used far more frequently now than in the past, or a virus-resistant coating for packaging delivered to people's houses, or a very exciting development -- joint development with Hydropol [ph] about those biodegradable windows, those replacing laminate film has been such a problem that's used in things like sandwich packs, which we used throughout Europe; really exciting developments accelerating that rate of change for our customers. We can all see this outstanding growth opportunity for DS Smith built on our outstanding coverage and relationships with our customers, combined with those structural growth drivers I've just described.

And whilst we have good capacity in many parts of the company, we want to stay ahead of the momentum that's building behind us. So today we're very pleased to announce two really exciting new state-of-the-art facilities that will be constructed over the next few years; one in Italy, one in Poland, two fast growing markets for us, ensuring we stay right ahead of that momentum that's building into our business.

We're very pleased in how our group has responded over the last six months; we've seen a strong rebound in profitability in Q2, that's continued into the second half that's built on strong volumes, growing volumes, taking market share, not just in Europe, but also in the U.S. And whilst there is uncertainty over the macroeconomic environment, we have confidence in meeting our expectations for the full year but very excited about the outlook for our group going forward.

Myself and Adrian, are now very happy to take any questions you have. Thank you.

Thank you very much. And good morning, everyone.

I hope you're doing well. Two questions from my side; the first one on box prices.

From your initial comments, it seems we're talking more about the stability now. But if I may, just kind of think a bit for what -- what do you think we need to see to start thinking about books price increases?

We've had a recovering containerboard, there seems to be talks on risky [ph] about potentially another €30 per ton now in December on the cycle. Is that enough or do we wait to see further price increases on the paper side to really justify higher books prices?

I let you answer that question and then I'll follow-up with another one. Thank you.

Thank you, Alexander, for your question. You're absolutely right that we have seen box price -- paper prices increase in sort of September, October; they've gone up about 50 -- I think it's absolutely certain that we're looking at -- almost certain they've got another 30 in December.

And then we have to see -- I mean, it's always very, very difficult to forecast future movements in paper prices. What I would say is that our stocks are extremely tight, the demand for fiber-based packaging is very strong; so would I be surprised if there was another increase early in the New Year?

No, I wouldn't be at all, particularly looking at as I say about industry stocks. How much that is and whether let's not speculate but it's a very, very tight market.

We've looked back over many years, and we actually -- this is -- it's never been as quite as tight as it is a moment term. It's great to see the momentum that's built behind this fiber-based packaging.

And obviously, if you go up, say €90 a ton; on paper that is a significant cost increase for us. And as you know, we've got 40% of our customers are in index deals, and those index deals will start to change over the coming months to reflect -- to start to reflect those changes.

And then, of course, a lot of our customers are -- the majority of our customers are on what I'd call freely negotiated.

Thank you. Well, how can you price the fall?

We've been asking that's going the other direction, then we have to start to increase prices. Does take a little while for this to happen, it doesn't happen immediately; and I hope to be starting to recover in a sort of a three to four month period after a particular increase.

And that's what we'll -- that's what -- we'll also be working on with our customers in the -- over the coming months. And let's see where these prices -- let's see where the prices move.

We've been there before and as I've said, we -- given price reductions in the past, and now it's -- now it's going the other way. But you said, you had -- you said another question?

Yes. Well, thanks for that.

Well, my second question is a bit broader. On investments and capturing the growth there; so right now you haven't beyond and you announced your two new plants, now in Italy and Poland.

But with the acceleration that you're talking about them in e-commerce and increased focus on sustainability, I wonder if you think that you need to kind of further increase or accelerate your investments to really capture this opportunity and to maintain your strong position? And then, on that if you -- if you feel at any kind of constraint by the leverage position that constraints you can really kind of growing at the speed that you would like, given the kind of environment we're going into now?

Look, it's something we look at very, very closely. And over the last 10 years we've built what we think is a very strong asset base.

And indeed, if you just go back nearly two years, when we bought your Europac, we talked about the spare capacity they had in their box plants to really enable us to continue growing in that market, particularly when e-commerce and our innovation was being put into that market, we could see a very -- a really strong outlook of opportunity there. So, when I looked at our actual -- our asset plan, overall, we're very pleased with that.

We've continued to invest in it, some of the acquisitions have brought in more capacity, and we also have the opportunity to move some of our facilities onto three shifts, whether it's three shifts; five days, six days or indeed seven days, we have trialed that moving from almost like a batch process to a continuous process already. And a number of plants that's worked very well, so we think in parts of the group we can continue to leverage the asset base; that's sort of what I meant on the first slide when I talked about the -- that operational leverage we can get out of the group we've created.

There are some areas where after years of growth we are running short of capacity. It is in Poland where we've got a fantastic business, it's just growing year-on-year-on-year-on-year, it's the same in Italy; very, very good returns there.

And so we're now at a position where we need to put down those investments. I think going forward, I think that there can be some others such as being the rate of growth that we've seen.

But I think we can manage those out of our cash flow; if you look at the cash flow in the half year, it's strong. If you start to look into next year and where people's expectations are, and they can see there is a prodigious cash flow coming out of the group, very clear on the leverage that we want to have as well; we do have some asset disposals coming through.

So we think a combination of our asset base about changing the way we're working, about these investments, about the cash flow and some of the disposals coming through; we think we can maintain our market leading positions over the coming years. Thank you.

Good morning, Miles. Good morning, Adrian.

A couple of questions from me. Just following on from your last point there, Miles, about asset disposals.

Are you referring to the sale that you've talked about before the containerboard capacity in Europe? And I suppose in the context of where the market is, and the growth dynamics that you've talked about it; is that still part of your strategic thinking that you want to sell some containable capacity, particularly as given the tightness in the market?

And the second question, I suppose is really around that sort of -- and you've talked a little bit in terms of the sustainability of the volumes; you might just give us a bit of color on that, if you don't mind, in terms of how sustainable you think the increase in volumes are, say post-pandemic, and in an environment where we have a vaccine? Do you think that this structural change can be sustained?

And maybe give us some color as to how confident are you -- your confidence around that statement? And then thirdly, on volumes; you've talked about sort of the switch from plastics into paper; can you maybe just give us a sense as to where you are -- if you're where you think we are in the market and that continuum?

And how much more potentially there is to go in terms of a structural improvement in volumes? I know it's a broad question, but any color you would have would be great.

Thank you.

No, thank you. Thank you, Barry.

On the asset disposals, you're absolutely right. We are looking at disposing some containable capacity, that is still our intention.

As we know, there is considerable capacity that has come online in around Germany, and is still coming online; and we feel we can -- we can get all the supplies that we need from those markets. And it's containerboard disposals; it's great that we don't think really match us going forward; so we do still expect to complete, that is not solely in that, there are also some other smaller non-core assets that we've also identified, and we're looking to dispose of those as well.

And hopefully, in this different environment, we can -- the buyers that -- we have those businesses will be in a much stronger position to complete them. And it's a very good question on the volumes.

The plus 5.7 for November, I'll be honest with you, that was more than we were expecting. E-commerce is very strong in there but also we've seen a lot of people switching there, obviously their income from spending on sort of entertainment and the on-trade restaurants, etcetera, because the lockdown more into goods, etcetera.

So, do I expect that rate of growth to continue at just under 6%? I don't know, I think that's no build-up to Christmas.

When we look post-Christmas, over the next six months though, we do see that structural change in e-commerce continuing all the work that we've done in looking at other markets, in places like China, and particularly in the Far East, where I think most people can see that -- the economies are sort of substantially recovered from COVID, and they are backing growth and freedom of travel within those countries, and the lockdowns are ending. We've seen that structural -- we've seen e-commerce remain structurally ahead, significantly ahead of where it was before; we do expect that to continue.

So, do I think it's 6%? No.

But it still looks pretty buoyant for the second half. But clearly, there is always uncertainty with those things but it does look quite strong.

And you've talked about plastics; this whole sustainability agenda, as you know, we've been working on this for many years. The whole circulatics [ph] and now circular economy.

Again, we -- we weren't sure how customers were going to respond during the COVID crisis, we've got different scenarios and do they back off it for a while because it's seen as expensive or did consumers really want that term. But actually, the experience today has been the other way; it's been actually a greater focus on the need to have a more sustainable solution to switch out of plastics.

We've seen a number of projects that have been there, for perhaps the last two to three years, actually really move forward over the last six months. I alluded some of the big contract wins we've had with some really, absolutely fantastic customers.

I mean really, really excellent customers, with some great forward agendas; and one of the reasons we've been so successful is because of our sustainability agenda. I think we will see more switch out of plastics, I think it has probably been little bit slow.

The new legislation is coming in EU on single-use plastics directive, that's good -- going to put taxation onto plastics, that's causing a switch, we're seeing it's not just in the secondary but it's also primary packaging into corrugated. We'll come back and talk more about that I think at our full year when we can actually talk about these products.

But I think all the indications are that that is going to pick up a bit of momentum. Now that we are [indiscernible], it's something we've been at 5% of growth, looks hardly per annum, it's going to be there, it's going to be noticeable.

And I think it's going to continue for the next few years but it's not going to be adding 2% or 3% to our growth but it would be a nice constant terms underpinned for the growth, particularly in the FMCG sector. Thank you.

Thank you. Firstly, a question on the market dynamics.

We've see that, I think about the containerboard markets in Europe, I guess, one thing contributed to the bit of a tightness are the increased exports going out to China. So just wondering, how do you see that part of the market evolving?

I guess, exports are up quite a lot this year; what do you expect for the next year? And how should we think about profitability on these exports?

I'll let you answer that one first, and I have one follow-up.

The -- as we know, the Chinese market has been restricting the import of OCC or paper for recycling; that's been running now for a few years. They've said that there'll be no imports of OCC mix papers, etcetera, in calendar year 2021; they seem to be absolutely following through on that.

And we felt some time that that will give them a structural shortage of paper in their market. Obviously, they're going to respond -- they used to import some years, for nearly 30 million tons; this year maybe it's going to be 6 million or 7 million tons but there is still quite a gap to close.

But they are increasing their domestic recycling rates, there has been quite a bit of use of virgin material, there has been more pulping of OCC outside of China, and then bringing the -- effectively the slurry into China. But there is still a gap, our own estimates, the figures are [indiscernible] difficult to get really accurate figures but we think there is about a shortage of a couple of million tons a year.

They are sourcing that back into Europe, and they are sourcing that, they are sourcing more raw material -- more finished products from Europe. Overall, we think it's about over a couple of million tons.

As the Chinese economy grows, and again, this is our view; we think coming back into growth, the end of COVID, demand for paper will increase. Whilst there is some -- inevitably there will be some other capacity coming on-stream in the Far East.

We think there will remain a more buoyant export market for Europe into China, over the coming few years now, and after that we'll have to see. But we struggle to see how China are going to close that gap, and we're not surprised they're in and they're buying more strongly, and we expect that to continue.

One of the reasons for the tightness though in the -- in Europe, is not that Chinese demand because we have expected that to come, it's actually the demand within Europe, that -- that's what's changed our expectations. It's that the customers demand for fiber-based packaging has been very strong, and that's what's tightened the market beyond our expectations.

You said you had another question?

Yes, yes. Just a small -- couple of small details.

Firstly, I just looked at your receivables, which are up a bit sequentially. So, I was wondering what was driving that?

And then secondly, looking at the one-off cost you had in the period [indiscernible], about half of that relates to some restructuring programs. So I'm wondering there if you could get some color on -- what's that about?

And if -- what kind of cost haircut [ph] we can expect from that?

I missed the second question. In terms of receivables, there is nothing at all unusual on that.

I mean, it's -- you know, on an averaging basis through the quarter, it's been a pretty good performance. I wouldn't take anything on that at all.

It's -- we've had our record-ever collections of overdues in the half as we've tightened focus, it's been a very good -- it's been a very, very good performance. And the second question is, was it structured on costs [ph]?

Was it restructuring cost you were saying, Mikael?

Yes. On the restructuring costs, I was just wondering, what the £11 million related to that in the period -- just wondering, what we can expect out of that?

I mean, what does it relate to? Are we going to see some costs coming up and so on.

If you can give some color on that?

Yes, no, absolutely. I mean, the costs will come out.

Anything to do with restructuring, had a very fast payback; as we know, we can look at it -- anything slightly above 12 months, under 24 months, payback on restructuring depends exactly when in the period it occurred. And what we're seeing now, coming through on exceptions, this is the last year of anything to do with the acquisition of Europac, the acquisition of Interstate, and a program we had which we just described previously; regarding -- particularly, the business in Germany.

As we look forward, as we've said before, next year there will be nothing more on any of the acquisitions because that's concluded. And anything on restructuring, it -- that will be -- that would come through, we're describing to give -- give you the advance notice of it, as we normally do.

But yes, anything that you've got in there, you can expect the benefits to flow through.

Good morning, Miles. Good morning, Adrian.

Thanks for taking the question. The outlook for the North America division is encouraging to get back to that -- towards that £100 million profitability level.

Could you give me a little bit more color on that division, just with regards to how the underlying business is doing excluding the Indiana box plot from a volume perspective? I know you were impacted in the first quarter with customers.

And then secondly, on export prices; I mean they've been ticking up from the U.S.; have you also been able to optimize some of your production thereby selling more internally into the U.S. there?

And then, looking into -- kind of the second half and the following year, as you ramp up the Indiana plant; I think you've talked about 40% run rate at the end of this year. And then full -- I presume full run rate by the end of FY '22; could just give a little bit of color of that progression as you integrate volumes from that paper mill into the U.S.?

Thank you.

Thank you for the question. As you say the X [ph], we've looked over the six months; the export prices of paper there were some bit of weakness, there has been some recent strengthening, it hasn't particularly affected -- overall, it hasn't particularly affected the half year.

I think it will obviously improve the second half as the recently announced price increases start to come through. We'll wait see exactly what they are but the U.S.

-- there $50 a ton increase that's been announced seems very likely to go through, and also expect to go part of that to best start be reflected in the export prices. In our U.S.

business you can see the profits were down, not as much as the rest of the group although we were hit pretty hard in the first few months with COVID; some tremendous customers, very various secured business models were -- was forced to close because of the incident COVID, and their workforce is particularly affected; and some of our customers in the food processing industry which -- where their factories operate in a cold temperature environments, and the incidence of COVID spread rapidly through their -- all of their staff which is obviously, very regrettable, but -- and that caused them to close. But they came back, they started up again, and so we saw a very good rebound in the performance there.

We've also now in the first period, we still had some ramp up costs on Indiana but those new customer wins started to come in, bringing some of that paper back on board; we're very pleased. So despite in a very difficult COVID environment, you can see the profits have actually done remarkably well compared to the rest of the group, and there is still some Indiana ramp-up cost in there, and the COVID.

So you can see the underlying position is actually really quite positive, and that's what gives us the confidence about continuing into H2. As the Indiana plot wraps up towards that 40%, you're absolutely right, then we go on, and -- you know, if we get into next year, if we've -- in the first, basically the first year of operation upto 40%, then we should expect at least that in the following year.

And that does have quite -- as you know, a very significant effect on the profitability of that region. And all of that gives us the confidence about -- say H2, but also leading into next year; so I'm pleased to see that turn around.

Hi, good morning. I've got two questions, please.

The first one is on the impact of OCC prices. I know this is kind of flagged for the first quarter, I just want to give a bit of a sense of how that developed through the harp.

And in particular, was there much reversal of the impact in the second quarter or was OCC basically a neutral impact in the second quarter? And the second question I had was on the dividend, obviously it would be nice to see it being reintroduced.

I think one comment we've had maybe from some investors this morning is, was there a possibility of paying some kind of catch-up dividend? I don't know if that was something the board discussed but any views on that?

And basically why it was decided against, if so, would be helpful? Thank you.

Sam, thanks for that. In terms of OCC, we saw in Q1 the spike that we caught out, obviously, the year-end results because that was a live show at the time.

We said we expected it to be a spike, and to -- and OCC cost to more normalize, and which they have done in quarter two. Now, clearly as the second lockdown is bitten [ph], there has been pressure on the output side of OCC; so there is a slight headwind of OCC in the second half of the year, but nothing -- nothing of the level that we saw with the spike; and so I would say, not at all out of the ordinary.

In terms of dividend, we've taken the view -- we're looking forward now but we're very excited about the opportunities that we've got. There are a number of good organic growth stories, Miles has talked about two of those today; putting a greenfield in Poland, and a greenfield in Italy.

We're extremely excited about the opportunity we've got to grow the business; we're looking forward with a lot of optimism there.

Thank you, and good morning. I've just got a first question on container prices.

Clearly after the sort of 50 years or so that industry has achieved in terms of price increases in October, November. European [indiscernible] prices are basically flat year-to-date, depending slightly on which country you talk about.

But specifically for DS Smith, are you actually, formally targeting a further test on our price increase with customers in December? Given the strong volume outlook you're talking about [indiscernible], have you actually announced a price increase with two customers?

We don't formally make announcements but we are -- our prices in DS Smith has -- have gone up for December, that's right. We don't say we don't -- it depends on the market, we don't know what's formally announced but our prices are going up in December by around 30 or so [ph].

Good morning, thanks for taking the follow-up. Just on CapEx and your plans for Poland and Italy.

I know e-commerce demand has been good, sustainability for the industry is going to be a continued tailwind. But we have seen a few CapEx programs from some of your competitors as well.

How should we think about CapEx? And I'm thinking more on the corrugated side of the industry; is this -- the bigger players like yourself and Smurfette Kappa [ph] that are just well positioned and wanting to grow, while the smaller players can't deploy that CapEx; so you are taking advantage of that growth?

Or how do you think about the market being able to absorb increased corrugated and box capacity going forward?

Yes, I think it's -- I'll take this, Cole. I think it's really difficult to think about competitors.

I think when we think about ourselves, and what we've got in terms of latent demand and built-up demand; we're very confident about where we'll put down new capacity. I think it's fairly obvious, you don't tend to see a lot of it in the converting switch because you need that -- the customer demand to justify; you have to have the orders, and you have to have the confidence of the order.

So I don't -- it's kind of difficult for me to answer that for someone else, but from our perspective, we're extremely confident about how we know we're going to fill the plants.

Quite a bit as a big pre-sold.

Yes, absolutely.

A lot of this is being pre-sold, big customers.

Thank you. I just wanted to briefly come back to e-commerce; I was wondering about if you could perhaps share some sort of number or indication of where you see -- sorry, e-commerce as a share of your sales right now or maybe perhaps for this year?

And where it was last year? And then, also in terms of e-commerce; how would you compare the paper volumes and maybe profitability as opposed to brick-and-mortar sales?

Thanks.

Thank you for the question. If we look at e-commerce, of our -- of our sort of non-industrial business, it's about 16% to 17% of our total business; it's just over 15%.

It's obviously grown very strongly, it's grown by 30% compared to this time last year; so you can see it's sort of grown from about 13%, upto about 17% of the non-industrial business. Now, when we look at different markets across the world, we can see that countries like China, their e-commerce sales -- goods sold on e-commerce; it's now up into the 40%.

So, we think we have some weight still to go because, of course, our 17% of non-industrial volume that's in e-commerce; you've got in place like the UK, where it's very strong, and we have some other countries in Europe where it's really still quite modest, like places in Eastern Europe, parts of Italy, even parts of France as well. It's still -- it's still -- it's still there to grow.

So we think that 17% over the coming years, we'll expect that to get up towards 30%, and that has been our view for many years; that's why we moved into this space there [Technical Difficulty] pretty early on. It's why because it's -- as people have commented on this before; I think it's a wonderful sector to be in because of the growth.

But the profitability in this sector, whilst for us is absolutely -- it's about the average for the group, I think that has opportunity to grow because there will be more customization, more specialization, more track and trace, more plastic replacement, more personalization, all of that is coming. And that is about more value add from us to our customers, and they pay for that because we're adding more value.

So it's less about how much paper it's using, it's that value add; a lot of our customers in e-commerce we are heavily rewarded for our level of service. And needless to say, if we don't deliver the boxes, they can't distribute products for Christmas.

So that service is beyond -- is of critical importance, and I think we have an outstanding position there based on a lot of the systems we use, how they integrate with their systems, and these things are only going to develop for us. I think it's a really, really exciting area, not just in the volume but the opportunity to add more value for our customers.

We've -- it's been almost over the 10 years we've been in this, and it's gone faster than we thought. But our own position still remains that we should -- there is a lot of growth yet to come.

But I just got some -- too conscious of the time. We've done our hour, and I'm sure if anybody has any other questions, we'll be happy to take them offline.

But I would just like to conclude there for this announcement, just by thanking everybody for your time today. We're pleased with the progress, we invested a lot in Q1, and we did have some small volumes.

But the way Q2 came back with the volumes and into the New Year, gives us some confidence in our expectations for the full year and excitement about what -- about the years ahead. Thank you very much for your time.

Thank you.