Yahoo Finance DS Smith acquisitions boost goodwill and help send revenues surging
The boss of packaging company DS Smith got a bumper bonus after his recent acquisition spree boosted the annual incentive part of the payout.
Miles Roberts, chief executive of the FTSE 100 company, doubled the one-year bonus part of his remuneration package to £1.3m from £650,000 last time around, according to the annual report published alongside the results.
The annual bonus payment is weighted 50:50 between adjusted earnings before tax and amortisation (EBTA) and adjusted return on average capital employed (ROACE).
While EBTA is common performance measure, ROACE is less familiar and the company defines it as earnings before interest, tax, amortisation and adjusted items as a percentage of average capital employed, including goodwill.
DS Smith’s acquisition spree over the past year – which has included Romanian rivals Ecopack and Ecopaper, as well as US company Interstate Resources – has helped increase the amount of goodwill on the company’s books from £782m last year to £1.4bn this year.
Goodwill is defined as the amount above the value of the assets, less liabilities, a purchaser is willing to pay for a company assets.
In the months since the period covered by the annual results, DS Smith has announced two further acquisitions: a small US company and Spain’s Europack, a £1.45bn deal which it will fund with a £1bn rights issue – the details of which were expected to be revealed alongside the annual results, but failed to materialise.
The purchases could further lift the amount of goodwill on DS Smith’s books.
While the annual part of the chief executive’s bonus rose, the total payout payout fell from £4.86m last time around to £4m, as the long-term incentives – measured on total shareholder returns, ROACE, and earnings per share – declined.
The annual results, however, revealed a stellar year for DS Smith, including a 21pc jump in revenues to £5.8bn in the 12 months to the end of April, although this was lifted by currency movements. Stripping this out the rise was 17pc.
Pre-tax profit was 11pc better at £292m, although accounting for currency changes the figure was 8pc higher. Adjusting for one-offs and amortisation, profit was up 21pc.
The strong performance came despite the DS Smith facing higher paper costs and pulp prices and as China imposed an import ban on paper waste.
The growth in e-commerce has made packaging manufacturers hot property as goods bought online need to be parcelled up for delivery.
DS Smith, which makes corrugated cardboard, recycled paper and plastic packages, has landed Amazon as a customer and the online retailer’s growth has helped fuel the packaging business.
Mile Roberts, chief executive of DS Smith, said the company is being boosted by what he called “the explosion that we're seeing in e-commerce, which I firmly believe is still in its infancy of where it can develop to”.
He added that growth in Europe and the US markets the company serves is averaging at 2pc, and said there was a structural change as “households are becoming smaller, resulting in consumers shopping more frequently, higher discretionary spend and buying smaller quantities at each time… driving the use and quantities of packaging".
A spokesman for the company said: “The bonus structure is measured against strict targets and the company has performed strongly, with profits and the share price rising, and entry into the FTSE 100.”
He added the rights issue prospectus for the Europack acquisition was expected to be released “imminently”.
