DS Smith has outlined plans to deliver approximately €480m in annualised cost savings as its management prepares for independence from International Paper, although the American packaging group is also considering approaches from potential buyers.
The proposed standalone company presented its financial outlook at a capital markets event in London, detailing the operating targets, manufacturing investment and shareholder returns it intends to pursue following separation.
International Paper’s existing plan is to establish DS Smith plc as an independently traded business, with a primary listing on the London Stock Exchange and a Level II American depositary receipt programme on the New York Stock Exchange.
However, International Paper confirmed on 15 October that it was also evaluating unsolicited approaches for its Europe, Middle East and Africa packaging operations and holding preliminary discussions with potential bidders. The company is continuing preparations for a stock-market separation while assessing those approaches.
No sale has been agreed, and International Paper has cautioned that the ultimate structure and timing of the separation remain uncertain. The financial targets presented at the capital markets event describe the intended standalone business rather than confirming which ownership route will be completed.
The proposed DS Smith plc would combine the former DS Smith operations with International Paper’s other regional packaging assets. The business would generate approximately €8bn in revenue across 29 countries, operating 14 paper mills and around 180 packaging plants.
Its management team, led by future chief executive Tim Nicholls and chief financial officer Vincent Bonnot, is pursuing a programme to simplify operations, improve manufacturing efficiency and reduce costs across the European network.
Approximately €480m in annualised savings are targeted, equivalent to around 14% of the operating cost base. Most of those reductions are expected to be achieved on a run-rate basis by the end of 2027, following changes to manufacturing operations and other parts of the business.
Production investment has already been substantial. The company reports approximately €1.1bn in capital expenditure over the preceding two years, including upgrades to paper mills and equipment intended to support lighter-weight packaging products.
Those investments form part of efforts to improve the cost position of the manufacturing network while increasing the efficiency with which facilities use materials and production capacity. Management expects the recently completed investment programme to provide greater flexibility over future capital expenditure.
For the financial year ending 31 December 2026, the business forecasts adjusted earnings before interest, taxation, depreciation and amortisation of between €730m and €780m. That would represent an adjusted EBITDA margin of approximately 9.0% to 9.7%.
The medium-term target is to increase the margin to the mid-teens, supported by the cost reduction programme and improvements to manufacturing and commercial performance. The company expects capital expenditure of €550m to €570m during 2026, alongside one-off cash costs of €120m to €130m associated with restructuring, transformation and separation activities.
At the point of the proposed separation, management expects net debt to be approximately 2.3 to 2.5 times forecast 2026 adjusted EBITDA. Its medium-term financial framework targets a ratio between 1.5 and 2.5 times while maintaining an investment-grade balance sheet.
The company’s shareholder distribution policy would seek progressively increasing dividends, with a payout ratio moving towards 30% to 50% of adjusted earnings. Management also intends to consider selective acquisitions where additional businesses complement its existing packaging operations.
International Paper acquired DS Smith in January 2025 and announced the proposed separation of its EMEA packaging operations in January 2026. The current flotation timetable remains within or ahead of the original 12-to-15-month period, subject to the necessary approvals and final decisions.
The possible sale introduces an alternative to that flotation. Any change in ownership structure could affect the route by which investors gain exposure to the business, although the operational targets presented by the prospective management team provide a financial framework for evaluating the assets under either outcome.
For now, International Paper is advancing the separation while assessing buyer interest. The proposed DS Smith leadership team has identified the cost reductions, margin improvements and capital allocation priorities it intends to pursue, but the final ownership structure has not been determined.
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