Half Year Results 2009



DS SMITH PLC - 2009/10 HALF-YEAR RESULTS

DS Smith Plc, the international packaging and office products wholesaling company, announces its results for the six months to 31 October 2009.

Financial Summary

* beforeexceptional items

** beforeexceptional items,dividends, acquisitions and disposals

Operational Highlights

• Packaging:operating profit£44.1m (H1 2008/09: £48.9m);performancesupported bygood marketpositions inmore robust sectors.

• Office Products Wholesaling - Spicers:operating profit£4.4m (H1 2008/09: £5.5m). The effects ofthe economicdownturnweremitigated bygrowth in market share.

• Action programme to reduce costssubstantiallywill deliver the planned £26m of savings in the current financial year.

• Strong free cash flowgeneration.

Chairman,Peter Johnsonsaid:

"Theprompt action taken at the beginning of this calendar year and the continued implementation of the Group's strategy hasunderpinned our performancein a difficult trading environment.Our focus on maintainingthe Group'ssound financial position wasreflected incontinuedgood cashgeneration."

Group Chief Executive,Tony Thornesaid:

"Trading conditions remainuncertain. Building on a relatively good first half, wenowexpect to exceedtheexpectationswe hadfor the full-yearat the time we released our pre-close trading statement in October.However,second half performancewill bedependant on the level of demand in the new calendar year and the speed of our recovery of the significant cost increases within our supply chain."

Enquiries

DS Smith Plc 01628 583 400

Tony Thorne, Group Chief Executive

Steve Dryden, Group Finance Director

Liz Christie, GroupInvestor RelationsManager

Financial Dynamics020 7831 3113

Andrew Dowler

A briefing for analysts and investors will take place today at 9.30am GMT at Financial Dynamics, Holborn Gate, 28 Southampton Buildings, London WC2A 1PB. This briefing may be heard live by dialling in on:+44 (0)1452542303(call reference:DS Smith 44958811).

The presentation slides used at this briefing will be posted in the Investors/Presentations section of the Group's website (www.dssmith.uk.com) from 9.25am GMT.

A replay of the briefing will be available by telephone for fiveworkingdays, from 30 minutes after the meeting has ended, on:+44 (0)1452 550000(pin no.:44958811)and an audio recording of the briefing will be available on the website from approximately 2.00pm GMT today.

OVERVIEW

The prompt action taken at the beginning of this calendar year and the continued implementation of the Group's strategy hasunderpinned our performancein a difficult trading environment. Our focus on maintaining the Group's sound financial position was reflected in continued good cash generation.

Financial Results

Group revenue for the half-year to 31 October 2009decreased by 7.7% to £1,018.0millionwhile operating profit was 10.8% lower at £48.5million. Return on sales was 4.8% (H1 2008/09:4.9%) and return on average capital employed (ROACE) was 9.9% (H1 2008/09:10.8%).

Net interest expense decreasedto£8.2 million (H12008/09: £11.1million)as a result of lower levels of working capitaland reduced interest rates.The employment benefit netcharge, which is a non-cash item, was £5.6 million (H1 2008/09: income of £0.2million);thechargereflectedhigherinterest onthe Group pensionschemes'liabilitiesand the higher opening deficit of the Group's defined benefit pension schemes.

Profit before taxbefore exceptional itemswas £34.7 million (H1 2008/09: £44.1 million).

Pre-tax exceptional costs of £0.5million(H1 2008/09: £nil)were incurred in the period, being the final part of the Group'sactionprogrammeannounced last year.It is expected thatexceptionalrestructuringcosts of circa £4.0million will be incurred in the second half,reflectingfurther reduction inthe cost structure to meet challengingmarket conditions inboththe Packaging and Office Product Wholesaling businesses.

Tax on profits has been charged at an underlying rate, before exceptional items andtheshare of profits of associates, of 31.4% (H1 2008/09:31.0%;year to 30 April 2009:31.4%), being the expected full-year underlying rate.

Adjusted earnings per share, excludingexceptionalcosts, was6.1pence (H1 2008/09:7.7pence) and basic earnings per share was6.0pence(H1 2008/09: 4.4 pence).

Free cash flow before exceptional items, dividends and acquisitions increased to £33.7 million (H1 2008/09: £21.2 million); this was achieved through continued good control of working capital and lower capital expenditure.Cash capital expendituredecreasedby£17.6millionto £23.4million.Last year's figurewashigheras aresult oftheinvestment to producelightweight CCMat Kemsley Mill.In line with previous guidance, capital expenditure will be maintained atapproximately£50 million for this financial year and next.Net debt was £276.2million at the end of first-half 2009/10 (yearto 30 April 2009: £291.5million) resulting innet debt to EBITDA(based onthelast 12 months)of1.7timesbefore exceptional items(yearto 30 April 2009: 1.8times).

Financing Facilities

The Group has committed finance facilities of £525million in place through toNovember2012. Theheadroom on theinterestcover covenant (Adjusted Interest Cover, based on the last12 months), which is the most restrictive covenant was £37.1million(yearto 30 April 2009: £34.6 million).

Pensions

The gross pension deficitas at31 October 2009increased to£240.1million compared with£191.3million as at 30 April 2009 as a result of alowerdiscount rate applied to the pension scheme liabilities,partially offset by improved pension scheme asset values.As previously explained the schemeis under review.Thenexttriennial valuation of the Group's defined benefit pension schemeisdueon 30 April 2010whenthe Company will enter intodiscussionswith the scheme's Trustee.The currentcontributions to the schemeare£15.6million per annum.

Supply Chain Costs

Average waste paper prices were lower thaninthe same period last year. Due to an increase in demand for waste paper from the Far East, prices moved up towards the end of the half year.

Prices for this globally traded commodity areassumedto remain at current levels.

In the first half of 2009/10, the Group's total energy costs decreased to £50.0million (H1 2008/09: £59.0million). The decrease of £9.0millionwasassistedbythe Group's strategy ofhedging40% ofitsopen market purchases ofenergy.Approximately 40% of the Group's energy costs are incurred under supply contracts in which movements in our energy costs tend to lag the trends in market prices.

Energy costs for the second half of 2009/10are expected tobe around£57.5million.

INTERIM DIVIDEND

In June 2009 the Board announced areductionofthetotaldividendfor the yearto 4.4pence.In line with thischange, the Board announces an interim dividend of1.5pence per share(H1 2008/09: 2.6pence).The dividendwill be paid on2March 2010to ordinary shareholders on the register at the close of business on29January2010.

OUTLOOK

Trading conditions remain uncertain. Building on a relatively good first half, we now expect to exceed the expectations we had for the full-year at the time we released our pre-close trading statement in October. However, second half performance will be dependant on the level of demand in the new calendar year and the speed of our recovery of the significant cost increases within our supply chain.

OPERATING REVIEW

Paper and Corrugated Packaging OverviewIn the first nine months of calendar year 2009, the European market for corrugated packaging(boxes), measured in square metres*,was8.1%lower than in the same periodin2008, within which theUKmarketfell by6.6%.The rate of decline in the market slowed during the year, such that in the third quarter of calendaryear2009, Europe as a wholewas3.9%lower and the UKdeclinedby1.3%.Demand inthe fast-moving consumer goods (FMCG) sector of the market, which accounts for approximately two-thirds of theboxmarket,continues to be markedlybetterthan that for the industrialandconsumer durables sectors. Corrugated case material (CCM) demandfellin line with box demand. Despite this,European industry recycled CCM stocks havefallensignificantlyoverthe past nine months.This reflects the slowing of the decline in demandandcapacity closures.Demand for high-quality lightweight CCMhas remainedstrong.

As indicated in our pre-closetrading updateof14 October, input costs, particularly for waste paper, have risen substantially. CCM prices have been increased in order to recover these costs. Box prices are also starting to increase to reflect these higher costs within the supply chain.

The tradingenvironmenthasremained difficult.Operating profit of£35.6 milliondelivered by the Group'sUKand Continental European Paper and Corrugated Packaging segments,wasdown20.7% compared to last year. This result reflected extremely tough market conditions within paper; corrugated packaging was ahead.

UKPaper and Corrugated Packaging

Revenue in this segment wasdown £69.8million, due to lower prices and the ending of thetolling agreement with MReal at Kemsley.In corrugated, volumes weredown, but toa lesserextentthanthe market. This out-performance is due to ourhigher relativeparticipation in themore resilientmarket segmentsofFMCG,particularlyretail readypackaging.

Results at ourUKpaper business weresubstantiallyaffectedthrough the periodby weakerpricing and more latterly, by higher costsfor waste paper. Plasterboard liner demand continues to be weak, due to the lowactivitylevelsin the construction sector.During the first half, we have continued our policyof only running to actualcustomerorders.Given the previously announced closure ofthePM1 machine at Kemsley we were able to maintain inventories at the correct level without taking extended downtime.The newlightweight machine atKemsleyis performing well and the paper it produceshasbeen very favourablyreceivedby the market.Input costs for waste paperhave remained high and more recentlyenergycostshave begun to increase. CCM prices have beenraised to recover these costs.

Ourwaste business, Severnside Recycling,continues to increase tonnage collected throughitsfacilities management programme.In the first half we took on a number of important new accounts.

DS Smith Packaging, ourUKbox business,hada good first half. We are benefiting from the strategic positioning of this business into the bettermarketsegments,from the implementation of theactionprogrammeto reduce costs and from good operational performance.We have notified our customers ofbox prices rises to recover the extra costs in the supply chain.

In theperiod priorto Christmas,demand is seasonally stronger than earlier in the year, although still down on prior years. Results going forward will be dependant on the level of demand in the new calendar year and the speed of recovery of the significant cost increases within our supply chain.

Continental European Corrugated Packaging

* beforeexceptional items

Profits in theContinental European Corrugated Packaging segment, which is a net buyer of CCM,declined on the back of a fall in volumes reflecting the economic situation and lowerboxprices. Results benefited from the strong actiontakentoreducecosts. Relative to their market, our businessesperformedwell.

IntheFrench businesses, sales volumes forbothsolid board and boxes were significantly lower. Despite this,our French operationsgeneratedanacceptable return.TheItalian business performed well on the back of its strongmarketpositions in the FMCG sector.InPoland, where we are benefiting from the investments we have made over a number of years, weachievedvolume growthin boxes.Turkey, which has been difficult for us in recent years, is in profit.

Our Continental European Corrugated Packaging segment is expected to continue to perform satisfactorily. However, given it is a significant buyer of CCM, the costs of which have gone up, its results in the second half will be determined largely by the speed of recovery of these additional costs.

Our Ukrainian associate business, Rubezhanskistradingprofitablyat the operating levelandiscash generative; itcontinues to perform well in its market.As previously announced, we are working with our partner to address the issues with the banks relating to itsUS$ denominatednon-recourse (to DS Smith)loan caused by the devaluation of the Ukrainian Hryvnia.

Plastic Packaging

Revenue in Plastic Packagingwas downby3.1%,adversely affected by lower material costs,reducing selling prices and the exiting of a lower margin packaging management contract inEurope.The division showed a strong recovery in profits, up £4.5million to £8.5million,dueto restructuring,the implementation of theactionprogramme to cutcostslast yearand sales into new market segments. Profits were also helped by lower polymer costs.

Demand in returnable transit packaging (RTP)continued to beweak.Sales to the construction and automotive sectors,whichfell sharplylast year,have seen no real recovery. Ourbeverage cratebusiness,whichwas significantly affected bythe deferral ofcrate replacement programmes,hasseen a modest increase in demandas customers have made some replacements.

Results inliquid packaging and dispensing (LP&D)benefited fromhighersales particularlyinto new markets in theUSA. Results inEuropeimprovedsubstantially, reflecting the restructuring and cost cutting previously mentioned.Profitsat the smaller packaging management and modified atmosphere packagingbusinesseswerehigher, due tobetter sales and higher unit margins.

Ourobjectivefor the balance of the yearistomaintain the improved performance in LP&Dwhilemitigatingthe effects oftheweaker demand for RTP.

Office Products Wholesaling

The Office Products Wholesaling segment - Spicers -achieved a2.4%advance in revenuedespiteasubstantialslow-down in the major markets we serve.This reflects growthin electronic office supplies (EOS)andforeign exchange translation benefit,offset by lower sales in traditional office products.We have gained market share, particularlyin continental Europe.

Operating profit was£1.1millionlower, reflecting a further decline in theUKwhich was only partially offset by progressin continental Europe.Excluding the effects of foreign exchange translation, revenue was£12.2millionlower and operating profit was£1.7million lower than in the first half of 2008/09.

SpicersUKcontinued to grow its revenue.Theincrease was inthe lower marginEOSsegment,butsales in traditional products have held up better than the overall market.TheUKmarket remains difficult and thiscontinues to bereflected in our results.Nevertheless, we are making good progress in reducing costs and extending our product offering.

Incontinental Europe,despite the very competitive environment,results at our two well-established businesses inFranceand theBeneluxadvanced on the same period last year, reflecting good attention to costs and unit margins.InGermany,sales were marginally down and profits flat.The Spanish market is particularly difficult andprofits aredown on lastyear.The Italian business continued to growand is nowfirmlyin profit.

The second half ofthefinancialyear isusuallystrongerforSpicers.Results are expected to be lower than the same period last year, but thereduction is expected to be broadly in line with that seen in the first half.

CHAIRMAN'S STATEMENT ONBOARD SUCCESSION

As we announced in November, Tony Thorne will retire as Group Chief ExecutiveandMiles Robertswill behis successor.Miles is expected to join the Group during the first quarter of 2010.

Tony informed the Board some time ago that he wished to retire around the time of his 60thbirthday. As a result, the Board appointed external search consultants to assist with a thorough evaluation of both internal and external candidates. Miles Roberts was the Board's unanimous first choice from a final shortlist of strong internal and external candidates.

On behalf of the Board and his colleagues, I would like to thank Tony for his strong leadership of the Group over the last nine years.The Group thathewill leave behind is farbetter placedand better balanced than the one he joined. The acquisition and integration of Linpac packaging, the growth of the Severnside recycling business and the development of leading positions in retail-ready and high quality design packaging have created a formidable position inUKpackaging. The investments at Kemsley in plasterboard liner and lightweight paper and the closure of older, high cost mills have created a stronger paper business. Growth inPolandalong with the development of our other continentalEuropeanpackaging operations has created a strong platform for future growth. Spicers' development in continentalEuropehas built a balanced business with great potential. Most recently, through a comprehensive programme to reduce costs and strengthen cash flow, Tony has steered the Group through unprecedented market conditions.

We are delighted to have attracted such a high quality successor. Miles Roberts is currently Chief Executive of McBride plc where he has led a programme to deliver significant growth and improved profitability. Under his leadership McBride has achieved substantial and sustained growth in shareholder value. In addition to this record, he brings considerable international experience as well as a thorough understanding of manufacturing and DS Smith's packaging markets. We look forward to his joining us.

I am also pleased to confirm that Jonathan Nicholls joined our Board as a Non-Executive Director on 1 December 2009. Jonathan has considerableboard level experience in large international companies, including as Group Finance Director of Hanson Plc and, most recently, Group Finance Director of Old Mutual Plc. We look forward to his contribution to our affairs.

Richard Marton retired from the Board on 31 August 2009 having served DS Smith as a Non-Executive Director for just over nine years. He has our sincere gratitude for the great contribution he made throughout his time on the Board.

We continue to keep the structure, composition and effectiveness of our Board under thorough review and continue to seek opportunities to strengthen these further.

RISKS AND UNCERTAINTIES

The Board has considered the principal risks and uncertainties affecting the Group in the second half of the year.Theprincipalrisks and uncertainties discussed in theBusiness Review on pages1to 35of the2009Annual Report, whichis available on the Group's website atwww.dssmith.uk.com,remain relevant.

In summary, the Group's principal risks and uncertainties are:

• changes to the demand for, or pricing of, the Group's products and services as a result of general economic conditions or market-specific factors;

• volatility of pricing and availability of globally traded raw materials;

• volatile and increasing energy prices;

• movements in foreign exchange rates and interest rates;

• the funding position of the Group'sUKdefined benefit pension scheme;

• the continuing availability of borrowing facilities, including compliance with borrowing covenants;

• customer credit risk;

• the effectiveness of the Group's action programme focused on cost reduction and cash generation;

• serious breaches of the law or other regulations;

• increasing costs in the medium-term related to climate change and carbon dioxide emissions;

• product liability;and

• other social and environmental matters.

Management is currently of the opinion that the Group's forecasts and projections show that the Group should be able to operate within its banking facilities and comply with its banking covenants. The Group is,however,exposed to a number of risks and uncertainties which could affect the Group's ability to meet management's forecasts and projections, and hence its ability to meet its banking covenants. TheDirectors believe that the Group has the flexibility to react to changing market conditions and is adequately placed to manage its business risks successfully despite the uncertain economic outlook.

After making enquiries, theDirectors have formed a judgement that there is a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, the going concern basis has been adopted in preparing the interim financial information.

RESPONSIBILITY STATEMENT

We confirm that to the best of our knowledge:

• the condensed set of financial statements has been prepared in accordance with IAS 34 'Interim FinancialReporting'as adopted by the European Union;

• the interim management report includes a fair review of the information required by DTR 4.2.7R(indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

• theinterim managementreport also includes a fair review of the information required by DTR4.2.8R(disclosure of related party transactions and changes therein).

Tony Thorne Steve Dryden

Group Chief ExecutiveGroup Finance Director

9December 2009

INDEPENDENT REVIEW REPORT TO DSSMITH PLC

We have been engaged by theCompany to review the condensed set of financial statements in the half-yearly financial report for the six months ended 31 October 2009 which comprises the condensed consolidated income statement,the condensed consolidatedstatement of comprehensive income,the condensed consolidatedbalance sheet,the condensed consolidatedstatement of changes in equity,the condensed consolidatedcash flow statement and related notes 1 to 13. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to theCompany in accordance with International Standard on Review Engagements (UKand Ireland) 2410"Review of Interim Financial Information Performed by the Independent Auditor of the Entity"issued by the Auditing Practices Board. Our work has been undertaken so that we might state to theCompany those matters we are required to state to them in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than theCompany, for our review work, for this report, or for the conclusions we have formed.

Directors'Responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, theDirectors. TheDirectors are responsible for preparing the half-yearly financial report in accordance withthe Disclosure and Transparency Rules of theUnited Kingdom's Financial Services Authority.

As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting," as adopted by the European Union.

OurResponsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope ofReview

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UKandIreland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 31 October 2009 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of theUnited Kingdom's Financial Services Authority.

Deloitte LLP

Chartered Accountants andStatutoryAuditors

London,United Kingdom

9 December 2009

Condensed Consolidated Income Statement

CondensedConsolidated Statement of Comprehensive Income

CondensedConsolidated Balance Sheet

CondensedConsolidatedStatement ofChanges inEquity

CondensedConsolidated Cash Flow Statement

Notes to the Accounts

1. Basis of preparation

The half-year report has been prepared in accordance with IAS 34 'Interim Financial Reporting',as adopted by the European Union andthe Disclosure and Transparency rules of the Financial Services Authority. The interim financial information has been prepared using the same accounting policies as those adopted in the annual financial statementsfor the year ended 30 April 2009, which are prepared in accordance with IFRS as adopted by the European Union. Those accounts were reported on by the Company's auditors and delivered to the Registrar of Companies. The report of the auditors was unqualified,and did not contain an adverse statement under section 498 (2) or (3) of the Companies Act 2006.

No changes have been made to the Group's accounting policies in the period to 31 October 2009 other than the adoption of IAS 1 (revised)'Presentation of Financial Statements'and IFRS 8'Operating Segments'. IAS 1 (revised) Presentation of Financial Statements requires the presentation of a statement of changes in equity as a primary statement. As a result, a condensed consolidated statement of changes in equity has been included in the primary statements, showing changes in each component of equity for each period presented. In adopting IFRS 8 Operating Segments, theDirectors have reviewed the business segments identified under the previous standard (IAS 14 Segmental Reporting) and consider that these reported segments remain appropriate under IFRS 8.

Theinformation for the year ended 30 April 2009doesnot constitute statutory accounts as defined in section 435 of the Companies Act 2006. The financial information is unaudited but has been reviewed by Deloitte LLP, the Group's auditors, and a copy of their review report appears on page 9 of this half-year report.

2. Segmental reporting

2. Segmental reporting (continued)

¹ before exceptional items, as described in note 3

² capital employed is defined below

³ average capital employed is defined below

The Group's format forsegment reporting is business segments based on the Group's management and internal reporting structure. 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. Assets and liabilities have been analysed by segment at a capital employed level. Capital employed excludes items of a financing nature, taxation balances, net pension liabilities and fixed asset investments; segmental capital employed comprises identifiable segment assets less segmental liabilities. Average capital employed is the average monthly capital employed. The adjusted return on average capital employed is calculated as twice the operating profit before exceptional items divided by the average capital employed in the reporting period.

3. Pre-tax exceptional items

Items are presented as 'exceptional' in the financial statements where they are significant items of financial performance that the Directors consider should be separately disclosed, to assist in the understanding of the underlying trading and financial results achieved by the Group.