- DS Smith have not seen any significant
disruptions to their operations from the Coronavirus: Some plants have not been running full shifts,
but sites have been pulling together to facilitate transfer of orders.
- Business has been busy, with ups and downs sector
specific: Industrial, automotive
and luxury has been the weakest. Food and drink have been strong and “e-commerce
has been unbelievable”.
- Designated as an essential manufacturer in
all jurisdictions: Additionally,
over 80% of their customers are also deemed essential.
- Levers to respond to COVID: 35-45% of FY 20e CapEx
(GBP 370m) is growth related, which could be easily turned off if required. Plant
network could be rationalised, but this would not be their first choice. “Need
a few months to see what the new norm is now”. - Structural
changes to purchasing habits and e-commerce due to lock down: With home delivery during this period a
first-time experience for many, people may continue to rely on the ease and
flexibility of having goods delivered directly to their homes even after the
lockdown has been lifted. “Anecdotally, some counties have seen Christmas peaks
recently”.
- DS Smith remains one of the largest
recyclers in Europe: They manage
over 5.5mt p.a. of PfR and are well-positioned to draw on their Europe-wide
infrastructure. They have been working closely with collectors of materials
from households and encouraging them to maintain collections during this
crisis.
- Recent exit from Plastics to help degear (GBP
400m) and to focus on fibre-based packaging: There is still room for consolidation in Europe,
however “very brave to throw around cash right now”. Their MT gearing target remains
2.0x
net debt/EBITDA (covenant: 3.25x and H1 20A: 2.3x). - Capacity
geared towards packaging (downstream): They prefer to be short testliner, with less capital tied
up and the testliner market has low barriers of entry, in their view.
- Kraftlliner
should see further support: Barriers
of entry are higher; however, kraftliner cannot be totally divorced from testliner
(normalised spread of EUR 120/t is reasonable).
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