- Limited
disruption to their supply chain so far: All of their assets are operating, and they expect
this to continue. Limited issues to date baring a short stop in Italy due to a
deep clean.
- Order books have been strong, but…. They have been seeing good demand from
consumer staples and pharma. March was full, but May/June could be different.
- Smurfit happy with liquidity in place (EUR
200m cash,
EUR 1bn RCF, with EUR 300m undrawn): Current CapEx guidance of EUR 650m and net
debt/EBITDA of 1.75-2.5x
(FY 19A: 2.1x). However, the reality is that people will not be available to
complete projects as planned. Working capital key. - Not the right time for M&A: Not the right time, but the independents are
likely to take strain. We highlight this in the context of their disciplined
capital allocation
(FY 19A: ROCE 17%). - This downturn could be handled better than in
2009: In 2009, there was
massive destocking taking place, whereas YTD, inventories have been better
managed.
- Cost levers focussed around containing labour
inflation: They have an annual
program to limit labour inflation. The extent of it, could similar to 2008/2009.
- They have not seen any panic buying on OCC
front yet: Smurfit consumes
c. 4.5mt of OCC in Europe and c. 1.2m in the Americas. They collect 25% of OCC input
required from their own box plants. They remain short kraftliner (200kt).
- China wastepaper ban supportive of European
containerboard: Europe containerboard
exports to China were c. 400-500ktpa in 2019 and European inventory continues
to trend downwards. China’s 2020 recovered paper licences issued YTD are down by
43% y/y to 4.39mt. This is supportive of China’s ban on recovered paper to be
completed by the end of this year. Permits are mainly held by: Nine Dragons
Paper (Holdings), Lee & Man Paper Manufacturing and Shanying International.
- Projects post 2020 are likely to be pushed
out if not cancelled: Key
projects from the likes of Burgo and Hamburger are likely to still be completed
in 2020.
- Shift from plastics will continue: Focus for now, remains on survival. No
major changes expected to the supply chain for now.
- Smurfit reports Q1 20A results on 30 April.
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