Packaging group DS Smith reported a 20 per cent jump in pre-tax profits on Friday (June 26th).
The FTSE 250-listed company rewarded investors with an inflation-beating increase in the annual dividend and experts believe positive performances like this will only continue.
According to the Telegraph, DS Smith experienced a surge in cash generation recently. This funded two acquisitions and analysts believe that the expansion, as well as an upgrade to the firm's profit outlook, underpin the the long-term investment story.
In the year to the end of April, DS Smith's like-for-like sales increased by 3.1 per cent – and there was an acceleration in the second half of the period. In addition, pre-tax profits went up 20 per cent to £200 million. This was despite revenue falling five per cent on the back of a weak euro.
The company, which manufactures cardboard packaging from wood fibre and recycled materials, generates around two thirds (65 per cent) of its earnings in Europe and more than 70 per cent of its revenue comes from outside the UK.
Commenting on the company's outlook, chief executive Miles Roberts, said he was confident about the future. "In a fast-changing retail and consumer environment, packaging is more relevant than ever," he commented.
He believes that profitability will rise to ten per cent from 8.8 per cent at the end of April.
The company also announced the bolt-on acquisition – a €190 million (£136 million) deal – for Grupo Lantero. This will give the firm control of more than ten per cent of the Spanish packaging market. Last November, DS Smith purchased another Spanish company, Grupo Andopack for €35 million.
Free cash during the last year more than doubled to £307 million, compared to £140 million the year before. The money was used to pay off debts and net debt levels have fallen from £827 million last year to £651 million at the end of April.
At the close of the London Stock Exchange on Friday, DS Smith's shares were 390.5 – up from 386.2 at the opening.
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