Analysis of DS Smith Plc

Part 1: Recent financial management developments in the company over the past three to five years

DS Smith Plc is an office products wholesaler and a supplier of recycled packaging materials for consumer goods has attained global presence. The company employs over 20,000 people in 18 countries where it operates and has revenue of £4 billion. However, the company is a group of companies whose operations are mostly in the paper and furniture products, and the Group’s strong market positions in combination with its focus on cash generation and cost competitiveness has provided a robust base which it uses in the confrontation of today’s business environment that has become very challenging with a goal of achieving tremendous benefits from future economic recovery (DS Smith Plc, 2012).

Investing

DS Smith Plc has made significant investments over the past five years in addition to some disinvestments as its strategy to achieve market competitiveness through improved efficiency and cost efficiency. Thus, as a result of these strategies DS Smith Plc has attained financial strength which has enabled it to make significant and continuous investments in all the areas of the Group’s operations. For instance, in 2009, the company’s paper segment invested over £100m towards purchasing and rebuilding of PM6 at Kemsley Mill aimed at making lightweight CCM papers, the only one based in UK (DS Smith Plc, 2012). Recently, DS Smith the company has invested in the same facility to develop a White Top Test Liner production to facilitate utilisation of white recycled pulp produced at this facility too. This has been done to produce this new product envisaged to be of the highest quality and provision of a whiter, cleaner and brighter liner paper. According to financial theory these investment have been made in order to achieve market efficiency and competitiveness as well as cost effectiveness (DS Smith Plc, 2012).

In September 2010, DS Smith Plc completed acquisition of Otor, a company based in France that deals with corrugated packaging materials in order to make DS Smith Packaging France a market leader in the provision of consumer goods’ corrugated packaging. Moreover, over the past five DS Smith Plc has only one major disinvestment where the company completed to disposal of Spicers which was one its facilities concerned with office products wholesaling for £200 million to Unipapel SA in December 2011. From the perspective of financial theory, this move was aimed at making the company more competitive in the market as a result of improved efficiency (DS Smith Plc, 2012). Furthermore, on 30^th June 2012, the company made another significant investment through acquisition of Svenska Cellulosa Aktiebolaget (SCA) Packaging for about €1.6 billion, and SCA Packaging. These investments have made the DS Smith Plc a key market player through extension of market presence and increased market competitiveness through improved efficiency and cost effectiveness.

Financing and Capital Structure

Financial and capital structure of the company involves obtaining of funds from various sources of cash such as operating cash flow, shareholders’ equity, borrowing as well as where appropriate disposals of non-core businesses. The Group’s financial and capital structure has over the past five years been undergoing adjustments to ensure it aligns with financial theory and it enables the achievement of its objective for desired results in capital structure through an appropriate capital costs while providing flexible funding both for immediate and medium-terms for the accommodation of material investments or acquisitions (DS Smith Plc, 2012). From the perspective of financial theory, the Group’s financial and capital structure has been aimed to achieve and maintain a balance sheet that is strong towards providing continuous sources of financing through availability of a variety of maturities as well as borrowing from diverse sources. Also this has been motivated by the Group’s strategy to achieve overall treasury objectives such as to ensure availability of sufficient funds to facilitate management of financial risks. The Group’s Treasury Committee is usually involved in controlling the treasury strategy. Moreover, the main borrowing facilities for the Group are varied, and as at 30 April 2012, total committed borrowing facilities were approximated at £1.5 billion. Furthermore, at the same time the company’s total gross borrowings (derivatives included) at were about £331.5 million, and the weighted-average maturity for its borrowing facilities was four years and eight months compared to the previous weighted-average maturity for its borrowing facilities of four years and two months on 30^th April 2011. No major changes in the Group’s financial and capital structure that have occurred in the recent past (DS Smith Plc, 2012).

Dividends

The Group’s dividend payments have been undergoing a positive trend that is noteworthy because it’s only some companies in the industry of Paper & Paper Products that over the past five have managed to pay any dividends. In addition, when the dividend payments over the past five years measured on annualized basis are considered, both earnings per share and dividend per share growth ranks relatively better among its peers in the industry (DS Smith Plc, 2012). However, when the total dividends declared to be paid to the Group shareholders in each of the financial year are considered a positive trend is observable from the year 2010. Thus, given as percentages total dividends per share from 2008 to 2012 are give as follows: 8.8, 4.5, 4.6, 6.5, and 6.3 respectively. A notable negative change can be observed between 2008 and 2009, and it is attributable to the global financial crisis that affected all the companies internationally. Apart this significant observable change, it can be noted that there no other considerable change that can be seen (DS Smith Plc, 2012).

Part 2: Calculations of the company’s total shareholder return (TSR) averages and standard deviations over the past five years

A company’s TSR over the long-term, it is the best indicator of investment success comparatively since it is a reflection of how well it has led to creation of value for shareholders in a labour, capital and product markets that are highly competitive (DS Smith Plc, 2012).

2008