• 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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